Mediation in Commercial Disputes in India

Abstract

This article looks at how mediation is becoming more and more popular in India as a way to settle commercial disputes. It gives a general review of the legal system, examines the benefits of mediation, and emphasises important factors for productive commercial mediation. This article emphasises the necessity for businesses to embrace mediation as a tool to reach affordable and advantageous outcomes, drawing on relevant legal and academic sources.

Keywords: Alternative Dispute Resolution, India, Commercial Disputes, Mediation

Introduction

Mediation in commercial disputes is an alternative method of resolving conflicts that has gained significant traction in recent years. It offers businesses a flexible and collaborative approach to dispute resolution, allowing parties to actively participate in finding mutually agreeable solutions. Mediation provides an opportunity to preserve valuable business relationships, save costs, and expedite the resolution process. This article explores the application and benefits of mediation in the context of commercial disputes, highlighting its potential to transform the way businesses address conflicts and foster positive outcomes.

At the very outset is pertinent to understand what covers ‘commercial disputes.’ According to Section 2(c)(i) of the Commercial Courts Act, 2015, a commercial dispute means

“a dispute arising out of-

(i) ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents; (ii) export or import of merchandise or services;

(iii) issues relating to admiralty and maritime law;

(iv) transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing of the same;

(v) carriage of goods;

(vi) construction and infrastructure contracts, including tenders;

(vii) agreements relating to immovable property used exclusively in trade or commerce;

(viii) franchising agreements;

(ix) distribution and licensing agreements;

(x) management and consultancy agreements;

(xi) joint venture agreements;

(xii) shareholders agreements;

(xiii) subscription and investment agreements pertaining to the services industry including outsourcing services and financial services;

(xiv) mercantile agency and mercantile usage;

(xv) partnership agreements;

(xvi) technology development agreements;

(xvii) intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits;

(xviii) agreements for sale of goods or provision of services;

(xix) exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;

(xx) insurance and re-insurance;

(xxi) contracts of agency relating to any of the above; and

(xxii) such other commercial disputes as may be notified by the Central Government.

Explanation.-- A commercial dispute shall not cease to be a commercial dispute merely because--

(a) it also involves action for recovery of immovable property or for realisation of monies out of immovable property given as security or involves any other relief pertaining to immovable property;

(b) one of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;

(d) "Commercial Division" means the Commercial Division in a High Court constituted under sub-section (1) of section 4;

(e) "District Judge" shall have the same meaning as assigned to it in clause (a) of article 236 of the Constitution of India;

(f) "document" means any matter expressed or described upon any substance by means of letters, figures or marks, or electronic means, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter;

(g) "notification" means a notification published in the Official Gazette and the expression "notify" with its cognate meanings and grammatical variations shall be construed accordingly;

(h) "Schedule" means the Schedule appended to the Act; and

(i)    Specified Value, in relation to a commercial dispute, shall mean the value of the subject-matter in respect of a suit as determined in accordance with section 12 3[which shall not be less than three lakh rupees] or such higher value, as may be notified by the Central Government.”

The definition is so expansive that it covers under it almost the entire gamut of commercial activities.

While mediation may not be the best option for all types of commercial cases, such as disputes in the petroleum industry, it may be appropriate for resolving most commercial disputes because mediators are skilled at bringing parties together by fostering an environment that encourages communication, trust-building, and cooperation.

Mediation has become an extremely popular alternative dispute-resolution method because of its many benefits. Mediation fosters and retains relationships. Parties remain in full control of the process and the outcomes. They actively participate in the resolution process, allowing for customised and creative solutions that meet their demands and interests.

Mediation allows parties to discuss their issues in confidence. This secrecy facilitates information sharing and meaningful debates. Mediation is faster and cheaper than litigation. It decreases court delays, legal fees, and time for parties. This article will implore upon the relevance of mediation in commercial disputes in India by dealing with the legal framework of mediation in India, the process of mediation in commercial disputes in India, and also the benefits and challenges of the same. The article will conclude with an appraisal of the topic at hand.

Mediation of Commercial Disputes- Process

There are often numerous steps in the commercial mediation process that lead the parties to a conclusion. Since mediation is a flexible dispute resolution procedure the parties to the dispute are at a full liberty to determine the exact process to be followed. However, a mediation process would generally include the following procedure-

1. Initiation and Introduction

The parties agree to use mediation to try to settle their business conflict. This could take place voluntarily, as a result of a contract, or as a result of a court order. The procedure will be facilitated by a mediator or mediation organisation chosen by the parties.

2. Preliminary Consultations and Planning

To better understand the viewpoints, interests, and concerns of each side, the mediator holds preliminary meetings with them separately. The mediator clarifies the mediation procedure, sets ground rules, and responds to any queries or worries raised by the parties. To better grasp the nature of the conflict, the mediator may ask the parties for relevant documents, papers or information.

3. Joint Meeting Sessions

Both parties are given the chance to directly speak and convey their perspectives, interests, and intended outcomes at a joint session that the mediator arranges. The joint session fosters open communication, identifies areas of agreement, and enables the parties to better comprehend one another's viewpoints.

4. Individual Sessions

Caucuses, or private meetings with each party separately, are conducted by the mediator. In a private environment during the caucuses, the mediator discusses the parties' underlying interests, issues, and potential resolution possibilities. During these private meetings, the mediator may assist with brainstorming, reality checks, and the exploration of viable solutions.

5. Negotiation and the Creation of Options

The mediator encourages the parties to create ideas and consider mutually agreeable alternatives while facilitating their negotiation. The mediator supports in bridging any differences between the parties' perspectives, stimulates innovative problem-solving, and facilitates the parties in assessing the advantages and disadvantages of their respective positions.

6. Making a Decision

The mediator helps to formalise the agreement if the parties are able to come to a compromise. A written settlement agreement or contract stating the terms and circumstances agreed upon by the parties may be used to formalise the agreement. Before putting the agreement into effect, the parties may decide to consult with an attorney.

7. Closure

The resolution of the lawsuit brings the mediation procedure to an end. The mediator makes sure that the required paperwork is finished and that both parties are aware of their responsibilities under the settlement agreement. If necessary, the mediator may offer advice on how to carry out and enforce the agreement.

The mediator's key role throughout is to oversee the process, encourage discussion, and help the parties come to an amicable agreement.

III. Legal Framework for Mediation of Commercial Disputes in India

The mediation framework in India, specifically in the context of commercial disputes, encompasses various elements that promote and facilitate the use of mediation as an effective method of resolving commercial conflicts.

1. The Arbitration and Conciliation Act, 1996: This act provides the legal framework for mediation in India. Section 89 of the Act encourages parties to attempt to resolve their disputes through the alternative modes of dispute resolution. Section 89(1)(d) prescribes mediation as a mode of dispute resolution. It is also pertinent to mention Section 30 of the Act which encourages the settlement of disputes through mediation. Further, Section 30(2) of the act states that “if, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms”, this provision too acknowledges and somewhat encourages mediation as a dispute settlement mechanism by giving parties the option to make the mediated settlement recorded by the arbitral tribunal.

2. Commercial Courts Act, 2015: This act emphasizes the use of alternative dispute resolution methods, including mediation, in commercial disputes to expedite their resolution. While the Act primarily focuses on the establishment of commercial courts and the procedure for commercial litigation for the settlement of commercial disputes, it also recognizes the importance of alternative dispute resolution methods, including mediation. Section 12A of the Act talks about Mandatory Pre-Institution Mediation. According to this clause, parties must first attempt to resolve a commercial disagreement through mediation before bringing a case before a commercial court. To aid in a settlement, the court may order the parties to participate in mediation for a predetermined amount of time.

3. Mediation Centres, Institutions and Accredited Mediators: The Supreme Court of India formed the MCPC (Mediation and Conciliation Project Committee) in order to promote mediation in all types of disputes including business disputes. To ensure the procedure is professional and of the highest calibre, it establishes guidelines, offers training, and keeps track of it. Most of these institutions have formulated their own rules and guidelines for the settlement of disputes.

Additionally, there are a number of private institutions and organisations have established mediation centres with a focus on resolving business disputes. To especially address commercial issues, these centres provide facilities and expert mediators.

Similarly, there are accredited mediators who have attained accreditation and training for mediation with a focus on business disputes to manage complicated business conflicts and enable conversations between the parties. These mediators also aid in the mediation of commercial disputes if the parties so require.

4. Court Annexed Mediation: In many commercial courts in India, court-annexed mediation programmes have been implemented, where parties are urged or compelled to take part in mediation before filing a lawsuit. Early commercial dispute resolution is possible through court-annexed mediation, which relieves the court system's workload and promotes cost and time effectiveness.

5. Online Mediation: In India, the use of online mediation platforms and virtual dispute resolution procedures has grown in popularity, providing parties to commercial conflicts with ease and accessibility. Online mediation eliminates geographical restrictions and enables the quick and effective resolution of business disputes by allowing parties to participate in mediation remotely.

6. Relevant Judgement(s): In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010), the Supreme Court of India examined the relevant analysis for the mediation of commercial disputes and reaffirmed the legal recognition and enforceability of settlement agreements resulting from mediation in commercial disputes. The court's emphasis on the consent of parties, compliance with public policy, and the conversion of the settlement agreement into a consent decree highlights the significance of mediation as a legitimate and effective means of resolving commercial disputes.

While the case specifically focused on the legal aspects of mediated settlements, the judgment also recognized the broader advantages of mediation in terms of time efficiency, cost-effectiveness, and promoting amicable resolutions in commercial disputes.

IV. Challenges and Considerations

India's unique issues and considerations apply to the mediation of commercial disputes. It is essential for parties involved in commercial mediation to comprehend these aspects. Here are some major obstacles and things to keep in mind when mediating business conflicts in India:-

1. Language and Cultural Disparities: India is a multicultural nation with many different languages, cultures, and business customs. These disparities may make it difficult for the parties involved in a commercial mediation to communicate and comprehend one another. When mediating, it is important for them to be aware of these linguistic and cultural barriers and use the right strategies to close communication gaps.

2. Power Disproportion: There may be a severe power imbalance between the parties in certain commercial conflicts. This could affect the mediation's dynamics and make it more difficult to reach a fair and reasonable solution. Mediators must be adept at handling power dynamics and fostering an atmosphere that encourages full and fair participation from all sides.

3. Compliance with Settlement Agreements: Although the parties reach a settlement agreement through mediation, it can be difficult to ensure that the agreement is upheld. To make settlement agreements more enforceable, parties should carefully consider inserting provisions for enforcement procedures, such as consent decrees or arbitration clauses.

4. Complexity of Business Conflicts: It can be difficult to reach mutually acceptable resolutions in commercial disputes since they frequently entail complex legal and technological issues. To encourage a fruitful discussion and help parties arrive at a knowledgeable and practical settlement, mediators with expertise in commercial concerns are crucial.

5. The nature of mediation is voluntary: In India, mediation is typically a voluntary process. It might be difficult to persuade parties to take part in good faith talks and mediation.

To entice them to consider mediation as a dispute resolution option, parties and their legal counsel should be informed about its advantages and the possibility of time and money savings.

6. Choosing Mediators: The success of commercial mediation depends on choosing a qualified and objective mediator. However, there might only be a small number of skilled arbitrators with business knowledge in particular areas or industries. To guarantee a fair and successful mediation process, parties should carefully assess the credentials, expertise, and reputation of possible mediators.

7. Concerns about confidentiality: An essential component of mediation is confidentiality. However, parties may not participate completely in the mediation process if they have reservations about the confidentiality of the proceedings and the possibility of information leakage. The mediators should uphold absolute confidentiality during the mediation process, and the parties should make sure that the necessary confidentiality agreements are in place.

V. Future Prospects

In India, there are bright potential for mediation in commercial disputes. The following elements point to a promising future for the development and acceptance of mediation in the nation:

1. Legislative Support

The Indian government has taken action to encourage the use of mediation because it recognises the value of mediation as an alternative dispute resolution technique. Pre-institution mediation is now required under Section 12A of the Commercial Courts Act, 2015, signalling a significant shift in the law's encouragement of parties to consider mediation before filing suit. The legal basis for mediation in business conflicts is still being improved, which bodes well for the future of the practise.

2. Raising Awareness

Businesses and legal professionals in India are becoming more aware of and accepting of mediation. The advantages of mediation, including as secrecy, cost effectiveness, and the maintenance of commercial relationships, are becoming more and more apparent to parties. This greater understanding and acceptance help mediation become a more popular option for resolving business issues.

3. Encouraging and Increasing the Culture and Education in Mediation

By establishing mediation centres and training programmes, efforts are being undertaken to foster a robust mediation culture in India. A pool of trained mediators is being developed by organisations like the Indian Institute of Arbitration and Mediation (IIAM) and numerous mediation organisations. With the help of these activities, mediation in business arbitration is becoming more prevalent and competent.

4. Encouragement from the Court and Emphasis on Mediation

Indian courts have taken a pro-mediation stance, actively pushing parties to choose mediation as a conflict resolution option. A supportive atmosphere is created for the future of mediation in business arbitration by the judiciary's support for it and the business Courts Act's required mediation provisions.

5. Influence on other Countries

Due to India's involvement in cross-border trade and legal conflicts, businesses have learned about the benefits of mediation as a widely used form of dispute resolution. The introduction and acceptability of mediation in India is influenced by international practises and the expanding significance of international business arbitration. Collectively, these elements indicate that business arbitration mediation in India has bright future possibilities. Mediation is projected to become a more popular option for settling business disputes in the nation with continuing legislative backing, greater awareness, a growing mediation culture, and court encouragement.

VI. Conclusion

In conclusion, mediation in commercial disputes in India holds significant promise and potential. The legal framework, legislative support, and increasing awareness of mediation have contributed to its growing acceptance as an effective alternative dispute resolution method. The future prospects for mediation in commercial arbitration in India are encouraging. Moreover, the increasing awareness and acceptance of mediation among businesses and legal professionals are significant factors driving its growth. Parties involved in commercial disputes are recognizing the benefits of mediation, such as confidentiality, cost-effectiveness, and the preservation of business relationships. This evolving mindset and understanding contribute to the increasing preference for mediation as a primary choice for dispute resolution.

 

Written By

Akshita Narula