Commercial Mediation in India

This article was authored by Radhika Misra and Adheesh Agarwal.

Commercial Mediation gained its importance in recent times after the enactment of the Bill which amended the Commercial Courts Act, 2015 by inclusion of Section 12A. The essay delves into the various pros and cons of the recent inclusion and tries to analyse it in light of various other laws and provisions related to Alternate Dispute Resolution. In search of India’s acceptance of mediation with respect to commercial disputes, the various other factors which affect the role of a mediator are also dealt with. Special emphasis has been laid on the factors of neutrality and impartiality. The authors therefore conclude the article with an overview of whether this inclusion of the Section in the Act will actually be beneficial in the near future with regard to increasing the importance/significance of commercial mediation.

KEYWORDS: Commercial Mediation, Commercial Courts Act, 2015, Section 12A, Neutrality, Impartiality

INTRODUCTION:

Mediation is an have ______________ In fact, it is embedded in the consciousness of humanity as the most equitable dispute resolution mechanism. However, the India has been going through a deep ethos of mediation which can be felt intensely by the words of Mahatma Gandhi:

I realised that the true function of a lawyer was to unite parties. The lesson was so indelibly burnt into me that a large part of my time during the twenty years of my practice as a lawyer was occupied in bringing about private compromise of hundreds of cases. I lost nothing thereby not even money; certainly not my soul.^[1]

Mediation has been defined as ‘a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator. This process may be initiated by the parties or suggested or ordered by a court or prescribed by the law of a Member State.’^[2]

Guidelines for Alternative Dispute Resolution under Section 89 of the Code of Civil Procedure

In Afcons Infrastructure vs. Cherian Varkey Construction Co. (P) Ltd, the Hon’ble Supreme Court discussed in detail, the provisions of Section 89 and the Court. Justice Raveendran said:

“refer the matter to any one of the three ADR processes:

1. Lok Adalat;
2. Mediation by a neutral third party facilitator or mediator; and
3. A judicial settlement, where a judge assists the parties to arrive at a settlement.”^[3]

The new law was adopted in 2002, and it received a mix response from the people of the legal fraternity across the Indian subcontinent.^[4]

Although the new Law was adopted, it was given less importance as compared to litigation and arbitration and that too commercial mediation for settlement of commercial disputes formed only a fraction of the mediations conducted by the institutions. Considering that commercial disputes form a significant part of disputes involving Indian parties, a sense of need for promoting commercial mediation is experienced by the legislators. Given such a situation, the Indian Parliament introduced the Commercial Courts, Commercial Division and Commercial Appellate Divisions of High Courts (Amendment) Bill, 2018 on 10^th August, 2018. Section 12A of the Bill includes a condition which would potentially increase the acceptance of commercial mediation as a suitable option for resolution of disputes. Section 12A of the Bill states that the ‘plaintiff is mandatorily required to exhaust the remedy of mediation prior to filing a suit in accordance with the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, unless the suit contemplates any urgent interim relief, under the Commercial Courts Act, 2015’.

The key contents of the Bill initially require the parties to attend an information session with the mediator. The session provides the parties to make an informed decision as whether to go about with the mediation process or to opt for litigation. However, voluntariness of the process as well as confidentiality of the mediation is firmly protected. It requires the mediation to be completed within three months from the date of the plaintiff’s application to initiate the mediation process. However, there is an option for an extension by two months only at the consent of both the parties. It further assumes any mediated settlement to be a deemed arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996 and consequently can be enforced as an arbitral award.

Apart from these positive aspects, there could be one obstruction to its adoption as a dispute settlement mechanism as it requires authorisation of the State Authorities and District Authorities to conduct the pre-institution mechanism.

It is true that this is indeed a step being taken in the right direction, however the implementation and success of the same still remains very questionable. The biggest issue with the same is the authorisation of the State and District authorities (constituted under the Legal Services Authorities Act, 1987) to be the relevant authorities to conduct the pre-institution mediation.

The aim and object of the Legal Services Authorities Act is to “provide free and competent legal services to the weaker sections of the society to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities”. To this end, State Authorities and District Authorities provide legal services to eligible persons and periodically conduct LokAdalats (“people’s courts”), among other functions and services. On analysis of the Legal Services Authorities Act, it wouldn’t be incorrect to observe that the Legal Services Authorities are thoroughly overworked and overburdened.

It is pertinent to point out that the problem with the Legal Services Authorities shall only amplify when one considers that the required pecuniary threshold is reduced from one crore to three lakh Indian rupees and secondly, the problem of the broad definition of “commercial dispute” under Section 2(1)(c) of the Act wherein “commercial dispute” merged witha lesser pecuniary threshold is more feasible than not to result in more suits filed as per the Act, which consecutively means more pre-institution mediations which the Legal Services Authorities are commonly not equipped with, especially without settling on the justice administered to the powerless and weaker section of the society, which is an unsatisfactory result.

Moreover, it would not be incorrect to state that the Legal Services Authoritieslack the competence and experience to mediate commercial disputes as the disputes that they actually address is in the nature of labour, family and insurance matters. The mediators in commercial mediations must be preferably equipped to handle commercial disputes with extensive experience in basic civil laws of India. Useful and effective mediation is only possible if basic minimum training programme is introduced in the Judicial Institutions. It is pertinent to mention that in a country like India, the mere perception is that anyone can mediate and that mediation is not a distinct discipline which needs its own skill set.

It is can be ascertained that the successful implementation of any new bill or Act can only be done with a strong infrastructure and resources in place, prior to its introduction. Turkey, Singapore and Italy can be excellent examples wherein the countries invested in building resource prior to their respective pre-institution mediation reforms. India currently, has a minimalistic mediation machinery in place, as there are no qualified or certified accredited mediators, no central statute which governs the mediation and opportunities to train the mediators. The Indian Legislature should have considered these constraints and allocated external institutions and centres dedicated to Alternative Dispute Resolution and mediation and mediation centres attached to courts to be the responsible authorities. These institutions and centres in India have empanelled mediators who have the requisite qualifications and have more experience and skill in commercial mediation than the Legal Services Authorities.

Section 12A creates a dilemma with regard to urgent interim relief as neither the Act nor the Bill clarifies as to what urgent interim relief means. This provision could potentially be abused as either the parties or the counsels can extricate themselves from participating in mediation or delaying the same which would do nothing but defy the very objective of the statute. Moreover, the application of the urgent interim relief is a little dicey in terms of its understanding as it means to either delay the mediation or eliminates the mandatory requirement to mediate altogether.

Two issues are still kept untouched pertaining to mediation-

1. Should there be any penal provisions if either party does not appear for mediation and even if appears but does not take part seriously in the mediation process?
2. Is the 3 months time period (to be extendable by 2 years) is long for the completion of a mediation process?

No doubt, these two issues are relevant but at the same time they are also very complicated in the sense that who would determine the basis for seriousness of either of the counsel or of the parties and what if even after penal provisions are implemented the seriousness in participating in such mediation processes does not arise.

It is true that immediate reforms are required to promote mediation in India and more specifically commercial mediation for which a suitable environment is required which at present India lacks. Hopefully, this Act in future will give way to awareness and deliberations on commercial mediation.

ROLE OF CULTURE IN INDIAN COMMERCIAL MEDIATION

Indian History and Literature both reflect the cultural co-existence of people for many centuries. Culture with its diversity and fluency is observed to be an important factor in Commercial Mediation in India. It brings to a conflict, a set of values which can be either conscious or sub conscious, which reflects the mediator’s cultural origins.Cross-cultural mediation encompasses mediation between parties of different cultures, or by mediators whose culture is different to one or both of the parties. The difficulties of communication, and thus mediation, across cultures are significant and have been well documented.^[5]

Whether the ‘culture’ is one that is identified with corporate goals, religious or ethnic communities or otherwise, the fact that parties to a dispute may be culturally different may have a significant bearing on the outcome of any mediation. In some cultures there is a clear sense that conflicts, when identified, should be tackled quickly and directly, whereas in other cultures the process of dispute resolution is one that allows parties to save face by slowly developing relationship and trust, and using non-confrontational methods to resolve the dispute.^[6]

Therefore, the most important factor that needs to be considered is the role of culture in Commercial Mediation in India.

NEUTRALITY AND IMPARTIALITY

Neutrality and Impartiality are such traits which any person related to judicial or administrative institution must possess. Many a times, both the terms are used interchangeably. However, in mediation, both the terms have different significance at different levels. Impartiality occupies a central position in mediation. To imagine a fair mediation process without being impartial is absurd. Neutrality, as compared to impartiality is of less significance and depending upon the situation it can be waived off without actually losing the integrity of the mediation process. Impartiality is a constant attribute whereas the existence of neutrality is a question of degree^[7].

The less relevance of neutrality in mediation process can never be considered to be its abandonment and in order to uphold its presence, NADRAC (National Advisory Dispute Resolution Advisory Committee) has decided to withhold the term but also to describe more specifically the obligations that neutrality encompasses^[8]. The obligations specified in the report are to identify or disclose any existing or prior relationship between the ADR practitioner and the parties, any present or future conflict of interests or of values, any experience or knowledge that may prevent the practitioner from acting impartially. Practitioners are then required to conduct the affairs of the mediation process accordingly keeping in view of the parties’ views and the practitioner’s capacity to continue with the mediation process in a fair and impartial manner.

According to RD Benjamin^[9], the risks of the word ‘neutral’ surpass the importance of it. His belief regarding the description of the mediator’s role is that of ‘balance’. It is way better to be a balanced mediator than to be a static neutral mediator who has no responsibility to protect either of the parties. Similar terms as to neutrality such as consensuality^[10], objectivity, equi-distant or even simply un-biased could be a better alternative to neutrality as it creates a more positive picture of the mediator in the minds of the general public.

MERITS OF COMMERCIAL MEDIATION IN INDIA:

Commercial Mediation is indeed a new development in India, however the same must be adopted as there is: Non-publication of request for mediation: India is in the process of infrastructure, technological and economic development. Therefore, the State needs to showcase to the world that it is an investment friendly nation. If India were to resort to conciliation, then the registration of the request for conciliation will be de facto published by ICSID (in case of investor state disputes) or other commercial authorities.^[11] This might result in the creation of fear in the minds of investors that India is an anti-investor State. The opting of mediation does not de facto make it public if parties consent to.^[12]

1. Mediation- interest based approach

Commercial disputes are better governed by the mediation as mediation provides for an interest-based approach while other ADR mechanisms envisions a rights based procedure.^[13]

1. Time saving mechanism and absence of preliminary objection

The choice of commercial mediation shall save time as the mediation rules of any mediation center in India does not contemplate provision for preliminary objections on jurisdiction. As ICSID conciliation and other conciliation bodies permit jurisdictional objection,^[14] there is always a probability that the parties might raise the same by virtue of the voidness of the dispute resolution clause in the contract between the parties in the event of an enactment of the new legislation.

1. Chance of favourable outcome

The chance of a detrimental outcome is not possible in mediation as the mediator is a mere facilitator who assists the parties to reach an agreement to settle their dispute on a voluntary basis in which the parties make free, informed and self-determined choices as to the process and the outcome.^[15] Moreover, the mediator shall be guided by principles of fairness, objectivity, independence and impartiality.^[16]

1. Flexibility

Mediation provides greater flexibility to the parties but at the same time predictability in the process and its outcome.^[17] The parties have the liberty to design the mediation procedure that best suits their needs. On the other hand, conciliation is more rigid and does not allow any derogation. Therefore, in case of India, commercial mediation is a better approach.

1. Non-interruption by multiple recommendations

Mediation will be smoother as the mediator will make recommendations only if requested by the parties.^[18]This can avoid making of multiple suo motu recommendations during the proceedings as in conciliation.^[19] Therefore, in India, the parties shall have the liberty to run the proceedings mutually without repeated interruptions and at the same time enjoy the benefit of a neutral third party assisted voluntary consensual procedure.

Commercial Mediation in India provides for greater flexibility, non-severance of investor-host State relationship, resolution of dispute through an interest-based approach over rights based approach, prevention of wastage of time over jurisdictional objection, facilitation of a favourable outcome by a facilitator who does not hinder the process by multiple suo motu recommendations, ability of the parties to alter the Rules in accordance with their wishes etc. Thus, commercial mediation is a more effective and useful tool than conciliation and therefore, mediation is the best means of dispute resolution between parties with Commercial disputes in the Republic of India.

CONCLUSION:

The enforcement of the requirement for pre-suit mediation of all commercial disputes in India, as provided under the Commercial Courts, Commercial Division and Commercial Appellate Divisions of High Courts (Amendment) Bill, 2018, is set to face several teething problems. Infrastructure and training at mediation centres in India at this point do not meet the requirements which are required to make mediation as an attractive alternative to suit proceedings. Unless India is in a position to present large commercial institutions with highly specialised mediators capable of addressing the core issues involved in the commercial dispute, mediations will not result in the successful resolution of disputes. Most corporations would consider the cost benefit analysis of engaging resources and money in a mediation proceeding against the probability of successful resolution. Therefore, India should focus on increasing the probability of successful resolution in India. A qualitative evolution of mediation is required to make the commercial institutions of the world confident that the mediation is the most effective manner to resolve disputes in India. Unfortunately, the legislature has chosen to mandate mediation at a pre-suit requirement, and therefore, has increased the quantity of mediation without increasing the quality. As Stephen Covey has stated “A cardinal principle of Total Quality escapes too many managers: you cannot continuously improve interdependent systems and processes until you progressively perfect interdependent, interpersonal relationships.” While urgent reforms are required to promote mediation in India, and in particular commercial mediation, any such reform requires an enabling environment to succeed, which India currently lacks. Allocation of the responsibility to the LSA Authorities reflects short-sightedness and lack of careful thought on the part of the legislature. Now that only the President’s assent is required to make the Bill into law (which will almost certainly be given), it remains to be seen how this reform will work in practice. A silver lining, perhaps, is that this Bill may hopefully generate discussion and awareness about commercial mediation, which could lead to more sensible initiatives and reforms in the future.

1. Mahatma Gandhi, An Autobiography 97 (1959) ↑
2. Defined as per Article 3 (a) by the European Union Directive 2008/52 of 21 May 2008 ↑
3. R.V. Raveendran, Alternate Dispute Resolution under Section 89 of the Code of Civil Procedure: Guidelines, L.BLOG (Sep 3, 2011), http://www.legalblog.in/2011/09/alternate-dispute-resolution-under.html//sthash.gxNmX50o.dpuf. ↑
4. Prathamesh D Popat, ADR in India, Mediation (Oct, 2010), http://www.mediate.com/mobile/article.cfm?id=6662 ↑
5. See Gudykunst& Kim 1995; Fisher, Kopelman& Schneider 1994; Rendon n.d. ↑
6. Yuan 1996, pp 197–8; Boulle 2005, pp 79–80; Zhongmin 2000, p 163 ↑
7.  Online Mediator. (2018). BoulleAndNesic Mediation. [online] Available at: http://onlinemediator.org/boulle-and-nesic-mediation/ [Accessed 28 Dec. 2018]. ↑
8. NADRAC, op cit, fn 6 ↑
9. Benjamin, RD, op cit, fn 13 ↑
10. Astor, H, Address to the National Mediation Conference, Brisbane, Australia, May 2000 ↑
11. Regulation 22, ICSID Administrative and Financial Regulations. ↑
12. Article 10(3)(a), IBA Rules for Investor-State Mediation. ↑
13. Nassib G Ziade´, ‘ICSID Conciliation’ (1996) 13(2) News from ICSID, 3, 6. ↑
14. Rule 29, ICSID Rules of Procedure for Conciliation Proceedings. ↑
15. Art.8(2), (fn 5). ↑
16. Art.7(1), (fn 5). ↑
17. Anna Joubin-Bret and Barton Legum, A set of Rules dedicated to Investor-State Mediation: the IBA Investor- State Mediation Rules , p.21; Roberto Echandi and Pierre Sauve´, Prospects in International Investment Law and Policy (World Trade Institute, CUP 2013) , p.265. ↑
18. Art. 8(7), (fn 5). ↑
19. Rule 22, (fn 7). ↑