MEDIATION AND COMMERCIAL LAW: IMPACT OF INSERTION OF SECTION 12A OF THE COMMERCIAL COURTS ACT
Updated: Jan 30, 2022
Author: Nandini Tripathy, II year of LLM in IPR and Technology Law from Jindal Global Law School Sonipat
The pendency of cases across courts in India has increased in the last decade. There are several reasons; one such reason is the time-consuming procedural part & also the vacancy of judges in the Supreme Court, High Courts, and subordinate courts. As on April 2018, there are over three crore cases pending across the Supreme Court, the High Courts, and the subordinate courts (including district courts). The subordinate courts account for over 86% pendency of cases, followed by 13.8% pendency before the 24 High Courts. The remaining 0.2% of cases are pending with the Supreme Court. Between 2006 and 2018 (up to April), there has been an 8.6% rise in the pendency of cases across all courts. Pendency before Supreme Court increased by 36%, High Courts by 17%, and subordinate courts by 7% Disposal rate between 28% and 55%; increasing number of new cases/years add to pendency.
The pendency of cases across courts in India has increased in the last decade. There are several reasons; one such reason is the time-consuming procedural part & also the vacancy of judges in the Supreme Court, High Courts, and subordinate courts. As on April 2018, there are over three crore cases pending across the Supreme Court, the High Courts, and the subordinate courts (including district courts). The subordinate courts account for over 86% pendency of cases, followed by 13.8% pendency before the 24 High Courts. The remaining 0.2% of cases are pending with the Supreme Court. Between 2006 and 2018 (up to April), there has been an 8.6% rise in the pendency of cases across all courts. Pendency before Supreme Court increased by 36%, High Courts by 17%, and subordinate courts by 7% Disposal rate between 28% and 55%; increasing number of new cases/year add to pendency In 2016, compared to 2006, number of cases disposed of increased approximately from 57,000 to 76,000 in Supreme Court; from 14.4 lakh cases to 16 lakh cases in High Courts and from 1.6 crore cases to 1.9 crore cases in subordinate courts. Despite an increase in disposal of cases in most years, the pendency of cases has increased due to the number of new cases outpacing the number of cases disposed of. The disposal rate has stayed between 55% to 59% in the Supreme Court, at 28% in the High Courts, and at 40% in the subordinate courts. More criminal cases are filed in subordinate courts than in High Courts and Supreme Court. For example, 81% of all cases pending in subordinate courts (2016) were criminal cases, compared to 19% civil cases. On the other hand, in High Courts, a higher number of civil cases were filed (60%) compared to criminal cases (40%).
Problems encountered by Indian Government
The government encompass several problem in attracting foreign companies to India The global economic environment has become increasingly competitive and to attract business at international level, India needs to further improve its ranking in the World Bank 'Doing Business Report' which, inter alia, considers the dispute resolution environment in the country as one of the parameters for doing business. Further, the tremendous economic development has ushered in enormous commercial activities in the country including foreign direct investments, public private partnership, etc., which has prompted initiating legislative measures for speedy settlement of commercial disputes, widen the scope of the courts to deal with commercial disputes and facilitate ease of doing business. Needless to say, that early resolution of commercial disputes of even lesser value creates a positive image amongst the investors about the strong and responsive Indian legal system. The legislator aims that, To highlight potential problems with implementation of the Amendment 2018 in relation to preinstitution mediation of commercial disputes with objective of proactively supporting the government initiative and assisting in effective and long term sustainable implementation of the scheme which is mutually beneficial to disputants as well as mediation practitioners.
The Objectives to be achieved by the Act
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment), Act 2018 which inter alia, provides for; -
Reduce the specified value of commercial disputes from the existing one crore rupees to three lakh rupees, and to enable the parties to approach the lowest level of subordinate courts for speedy resolution of commercial disputes.
Enable the State Governments, with respect to the High Court’s having ordinary original civil jurisdiction, to constitute commercial courts at District Judge level and to specify such pecuniary value of commercial disputes which shall not be less than three lakh rupees and not more than the pecuniary jurisdiction of the district courts.
Enable the State Governments, except the territories over which the High Courts have ordinary original civil jurisdiction, to designate such number of Commercial Appellate Courts at district judge level to exercise the appellate jurisdiction over the commercial courts below the district judge level.
Enable the State Governments to specify such pecuniary value of a commercial dispute which shall not be less than three lakh rupees or such higher value, for the whole or part of the State.
Provide for compulsory mediation before institution of a suit, where no urgent interim relief is contemplated and for this purpose, to introduce the Pre-Institution Mediation and Settlement Mechanism and to enable the Central Government to authorise the authorities constituted under the Legal Services Authorities Act, 1987 for this purpose.
The Commercial Courts (Pre Institution Mediation and Settlement) Rules, 2018 (“the Rules”) have been made under Section 21A (2) read with Section 12A (1) of the Commercial Courts Act, 2015. The Commercial Courts have been set up for faster resolution of “commercial disputes”.
The rules prescribe the manner in which the Pre-institution mediation proceedings as envisaged under newly inserted Chapter III A have to take place.
Under Section 12A, no suit shall be instituted before the plaintiff exhausts the remedy of pre-institution mediation, unless it contemplates any urgent interim relief under the Act. The ‘Authorities’ to conduct the pre-institution mediation are to be constituted under the Legal Services Authorities Act,1987. The Authority under the Rules then has to appoint a ‘Mediator’ if both parties agree to undergo the mediation process. The Authorities are required to ensure the completion of the mediation process within a period of three months from the date of application made by the plaintiff. If the parties come to a settlement through the mediation process, then the settlement shall have the same status and effect as if it is an arbitral award on agreed terms under S.30(4) of the Arbitration and Conciliation Act, 1996.
A party to a commercial dispute can appear before the Authority/Mediator, either personally or through duly authorised representative/Counsel. The Rules ensure that utmost confidentiality regarding the mediation process is maintained by the Mediator, and no stenographic/audio/video recording of the mediation sittings are allowed. The Rules also prescribe that both the Authorities and the Mediator shall not retain any hard/soft copies of documents exchanged between parties or submitted to Mediator or any notes prepared by the Mediator beyond 6 months other than application for mediation, notice issued, settlement agreement and failure report.
Further under the Rules, the whole process of pre-institution mediation is made highly organized with the Authority and the Mediator being required to process several forms prescribed for institution of proceedings, issuance of notice to parties, settlement, and reporting of ‘non-starter’ process to parties, and failure report. The Rules also prescribes the timelines for fixing of dates for hearing. The mediation process, with the consent of both parties may be extended for further two months.
The Rules prescribe for one-time mediation fee shared equally by the parties, which is determined as per the quantum of the claim made by the plaintiff made in the suit.
It is a welcome push to enable and expedite alternate dispute resolution through mediation. This model of undergoing a session of mandatory mediation at an initial stage and having the right to opt-out and approach the court for further relief is called the “opt-out” model. Other countries which have introduced this model have experienced considerable success. For example, in Italy this model of mandatory mediation was introduced in 2010, and 50% of the mediations were reported to be successful. However, the success of this opt out model, most importantly depends on the quality of mediation services that are provided to the parties. The need for some sort of regulation was recognized by the Supreme Court in Salem Advocate Bar Association v. Union of India [(2003) 1 SCC 49] recognizing that mediation was majorly an informal proceeding, and that ‘modalities’ for the manner in which proceedings must take place needed to be formulated. Pursuant to this, the Mediation and Conciliation Project Committee was formed. This led to the formulation of the Civil Procedure Alternative Dispute Resolution and Mediation Rules, 2003 which are non-binding in nature. As a result, the success of mediation as an alternative form of dispute resolution has been different for different state’s Legal Service Authorities.
There might be considerable obstacles to remove in implementing the mandatory pre-institution mediation effectively in India. In fact, within a week of the Rules’ introduction the Delhi High Court has issued a notice in petition challenging to the constitutional validity of the introduction of Section 12A of the Commercial Courts Act, 2015. The grievance highlighted by the petitioner is that there is currently no effective mechanism in place for mandatory pre-institution mediation, which has left a large section of aggrieved parties remediless. Upon being directed to the Legal Service Authority (the Authorities under Section 12A), the petitioner was informed that no mechanism had been introduced till date despite the Rules having been notified on July 3rd, 2018. Thus, there is definitely a lot of ground to cover for an effective implementation of mandatory pre-institution mediation in India. This must come with the understanding that mediation, though being an informal proceeding, the successful conducting of the same requires a certain degree of speciality.
Highlights of the ordinance are
New name: The new name removed confusion about the courts and clarified that there are separate courts with different procedures established solely for commercial disputes.
Specified value: The “specified value” of commercial disputes to be adjudicated under the act, as defined in section 2(1)(i), was reduced from ₹10 million (US$147,000) and above to ₹300,000 and above. This is expected to reduce the time taken to resolve such disputes (now 1,445 days) and improve India’s ranking in the World Bank’s ease of doing business index.
Commercial courts hierarchy and appeal mechanism: The ordinance (i) amends section 3 of the act and introduces commercial courts at the district judge level where the high court has ordinary original civil jurisdiction; (ii) inserts section 3A, introducing commercial appellate courts; (iii) splits commercial courts where the high court does not have ordinary original civil jurisdiction into (a) courts at the level of a district judge and (b) commercial courts below the level of a district judge.
Appointment of judges: Earlier, the state government could appoint commercial court judges only with the concurrence of chief justice of the high court while it now has now the power to appoint such judges without concurrence of the chief justice.
Pre-institution mediation: The ordinance inserts section 12A in the act, which provides that where a suit does not contemplate urgent interim relief, the plaintiff has to attempt to reach a settlement through mediation prior to instituting a suit.
A government-authorized authority must complete the process of mediation within three months from the date of application by the plaintiff. The pre-institution mediate period will not be computed for the purpose of limitation under Limitation Act, 1963.
If a settlement is reached, it must be put into writing and signed by the parties to the dispute and the mediator. The settlement will have same status as an arbitral award under section 30(4) of the Arbitration and Conciliation Act, 1996.
Insertion of section 21A and omission of sections 9 and 12(1)(e): Section 21A enables the government to make rules and notifications regarding the procedure under section 12A (1). The ordinance omits sections 9 and 12(1)(e), on the transfer of a suit if a commercial dispute is of the specified value.
Section 13 amendment: The term “commercial division of a high court” has been replaced. Section 13 now states that any person aggrieved by the judgment of a commercial court below the level of a district judge may appeal to the commercial appellate court within 60 days.
Now that the ordinance is in force, some key factors must be considered: (1) the burden on the high courts will increase significantly as the reduction in specified value will have the unintended effect of leading to low-value claims being brought before high courts; (2) the separation of jurisdiction has been blurred as the reduction of specified value has led to overlapping of jurisdiction of commercial divisions and courts; (3) the procedure for appointing judges is a challenge to the independence of the judiciary, making this part of the ordinance particularly open to being challenged; and (4) pre-institution mediation will be effective only if efficient mediators devise a strategy to use the mechanism to its best advantage and its intention is met.
In order to save interest and litigation costs, companies will have to evolve a mature legal strategy of making and accepting reasonable claims at the pre-institution mediation stage. Courts may eventually saddle the losing party with heavy costs stating that despite the opportunity it failed to settle the case and prolonged it. The ordinance brings in changes to improve the commercial disputes resolution process and whether it serves this purpose will be seen over a period of time and will depend on how various stakeholders implement it.
The Main features of the Amendment Act
Reduction in Pecuniary Limits- It has been added in section 2 of the Principal Act Commercial Appellate Courts” means the Commercial Appellate Courts designed under Section 3A6 & further The commercial courts and commercial divisions in high courts can decide disputes, which shall not be less than three lakh rupees or a higher value to be notified by the Central Government. (Reduction in pecuniary limits from one Crore)
Designation of Commercial Appellate Courts- In areas where High Courts do not have ordinary original civil jurisdiction, the state governments, may notify commercial appellate courts at the district judge level. Appeals against the order of a commercial court (below the level of a district judge) will lie before the Appellate Court.
Mediation & Settlement- A New Chapter IIIA is inserted ” Pre-Institution Mediation & Settlement” In this chapter12A provision for mandatory mediation has been provided in those cases where no urgent relief is being sought by the parties to the dispute. The mediation may be conducted by authorities constituted under the Legal Services Authorities Act, 1987 (such as the National and District Legal Services Authority) The mediation process is required to be completed within a period of three months (may be extended by another two months). A signed settlement between the parties will have the same effect as an arbitral award under the Arbitration and Conciliation Act, 1996.
Section 13 substitute the principal Act- It is substituted that, Any person aggrieved by the judgment or order of a commercial court below the level of District Judge may appeal to the Commercial Appellate court within period of 60 days from the date of judgment or order & in case of judgment or order of a commercial court at the level of District Judge exercising the original Civil jurisdiction, to the Commercial Division of a High Court may appeal to the Commercial appellate Division of the High Court. It further specifies that, the appeal shall lie from such orders passed by a commercial court division or commercial court that provided under Order XLIII of the code of Civil Procedure 1908 & Section 37 of the Arbitration & conciliation Act.1996.
Counterclaims not to be transferred- Under the Act, if a counterclaim was filed in a commercial dispute of at least one crore rupees in a civil court, the civil court could transfer the suit to a commercial court. The Act removes this provision in relation to transfer of suit.
Impact of the Act on Mediation Movement
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment), Act 2018 Potentially significant development, Section 12A of the Amendment 2018 stipulates mandatory pre-institution mediation i.e. 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 ("Rules"). Unless the suit contemplates any urgent interim relief under the parent commercial Courts Act, 2015 ("Act"). In this regard, authorities constituted under Legal Services Authorities Act, 1987 i.e. National Legal Services Authority ("NALSA") has been notified to ensure that mediation is undertaken in such matters. It further entails that the settlement arrived at by such mediation shall have the status and effect of an arbitral award under section 30(4) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") are of the view that the mode of implementation of Section 12A of the Act would not adequately fulfil the objectives of the Amendment 2018 and would in fact, be detrimental to the growth and use of mediation for commercial disputes in India if not rectified.
The definition of Commercial disputes under Section 2(e) of Act & As per the Section 12A. If there is a dispute, parties are required to approach only commercial courts for remedy. Parties cannot approach commercial courts in cases where there is no requirement for urgent interim relief unless they opt for mediation. The wording of the provision is such that private mediation attempt does not have any validity. Only mediation conducted by Authority has validity although the Act does not expressly bar private mediation practice, the impact of the provisions is that mediation services for commercial disputes shall be only provided by government backed authority. There will be no motivation/incentive for private players to operate in the market owing to government monopoly. This is against the government policy to increase ease of doing business and promoting India as an international ADR service providing jurisdiction.
As per Section 12A (1) of Commercial Courts Act, 2015, only those cases where there is no requirement of urgent interim relief shall be required to exhaust the remedy of pre-institution mediation before approaching the commercial courts. The legislation does not prescribe a definition or process for determination of what constitutes urgent interim relief. Under Section 12A (2) of the Act, the exception carved for matters requiring urgent interim relief has scope for misuse by parties who do not wish to attempt to resolve disputes through mediation. In almost all matters there is possibility that applications requesting urgent interim relief shall be filed to avoid the requirement of pre-institution mediation. This will make the provision of nullity about enforcement which is not the intention of the legislation. The mechanism of pre-institution mediation shall become redundant as the disputant persons would resort to court.
Under Section 9 of Arbitration and Conciliation Act 1996, the parties at any time before, during or after the arbitration can obtain injunctive relief such as securing the amount in dispute. Detention or preservation of any property of thing which is a subject matter of the dispute in arbitration. Similarly, there is no provision for parties to claim interim relief (urgent or otherwise) parallely and undertake mediation before the final hearing of the matter commences.
The Authority has been authorized for the purposes of pre-institution mediation. The primary principle of mediation (just like arbitration) is the party's autonomy to choose their mediator. Parties should have freedom to choose their mediator without any limitations or encumbrances. This internationally accepted best practice is breached if only one service provider is allowed as per the Act.
Rule 7 of Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (Rules) prescribed a detailed procedure where a party will be repeatedly sent notice to mediate without obligation to attend or consequences of non-attendance. Clear timelines for the commencement and conclusion of mediation sessions to ensure speedy resolutions are required.
A 2018 amendment to the Indian Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (“Commercial Courts Act”) makes it mandatory for a party to exhaust the remedy of mediation before initiating court proceedings under the Commercial Courts Act, with the limited exception of cases where urgent relief is being sought. Patent infringement disputes, being disputes of a commercial nature, are governed by the Commercial Courts Act and, therefore, the mandatory pre-institution mediation provision applies to such disputes. The time bound mediation procedure envisaged in this provision allows a patentee to not only bring a possible infringer to the
The Commercial Courts Act: Scope and Objectives
The Commercial Courts Act was introduced in 2015 to establish commercial courts in India for adjudication of “Commercial Disputes”. The statute lays down a streamlined procedure for quick resolution of high-stake disputes of a commercial nature with strict timelines for filing of pleadings, discovery and procedure for grant of summary judgments. The definition of “Commercial Disputes” under the Act is broad and generally covers commercial transactions and includes disputes arising out of intellectual property rights. In 2018, the Act was amended to bring in some clarity of procedure and also to introduce the mandatory pre-institution mediation provision. Aer the amendments in 2018, any Commercial Dispute valued at more than INR 3,00,000 (about USD 4,338) is governed by the provisions of the Act.
Pre-Institution Mediation Defined
Section 12A of the Commercial Courts Act provides parties with an alternative means to resolve disputes through discussions and negotiations with the help of a mediator. The provision states that a plainti must initiate mediation before filing a suit, with a limited carve out for suits filed with applications for urgent interim relief.
Courts in India frequently refer ongoing patent infringement suits to mediation when there exists a possibility for the parties to arrive at a settlement. However, in the absence of a law imposing a time limit for completion of such court-referred mediations, in many cases, mediations of patent infringement suits go on for months with no resolution. Mediation under the Commercial Courts Act bridges this gap by making mediation a time-bound process. In India, most IP infringement suits are filed with an application seeking a preliminary injunction. This would qualify as “urgent interim relief” under Section 12A and initiation of mediation prior to filing of the suit would not be mandatory. However, in disputes where a patentee is not seeking a preliminary injunction and wants to use litigation as a tool to negotiate terms for granting limited rights to their IP, pre-initiation mediation is a viable option.
Procedure for Initiating Pre-Institution Mediation
The procedure to be followed in such mediation proceedings is set out in the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (“Rules”). As per the Rules, the plainti must file an application with the State Legal Services Authority or the District Legal Services Authority constituted under the Legal Services Authorities Act, 1987 (“Authority”) to initiate mediation. Once an application is received, the Authority will issue notice to the opposing party to appear within 10 days of receipt of notice and give consent to participate in the mediation proceedings. The Rules provide for issuance of a final notice if the Authority does not receive a response within 10 days of the initial notice. If the opposing party fails to appear following the final notice or refuses to participate in the mediation proceedings, the Authority will treat the mediation process as a non-starter and prepare a report. If the opposing party agrees to participate, then the mediation process begins. Following negotiations and meetings with the mediator, if the parties arrive at a settlement, it will be recorded in a settlement agreement.
Instituting pre-initiation mediation holds many advantages over out-of-court interparty negotiations:
1.Time and cost-eective. Pre-institution mediation initiated under the Commercial Courts Act must be completed within a period of three months from the date of application made by the plainti, with a possible extension of two months with the consent of the parties. The time bound process saves time and costs incurred by the parties involved. A recent example of eective use of this mechanism is the mediation instituted by Nokia to negotiate licenses for its standard-essential patents relating to technology used in handsets. The mediation procedure was reportedly completed within a time span of 8 months and Nokia was able to resolve the dispute without filing a suit.
2.Patent litigations in India are known to be lengthy. According to one report from 2017, a total of 143 patent infringement suits were filed between 2005 and 2015 in the Delhi High Court, Bombay High Court, Madras High Court and Calcutta High Court out of which judgments were delivered in only five cases aer completion of trial proceedings. Exploring the possibility of a settlement before filing a suit could avoid such lengthy litigation.
3.Confidentiality. Confidentiality of negotiations with a potential licensee is key to prevent disclosure of important business strategies to competitors. The Rules ensure confidentiality by providing that the mediator, the parties, and their counsels must maintain confidentiality about the mediation. Stenographic or audio or video recording of the mediation proceedings is prohibited under the Rules.
4.No threat of a validity challenge. A patentee must always assess the strength of their patent before filing a suit since a defendant can challenge the validity of a patent. Even at the interim stage, a defendant can avoid an injunction being granted against them by raising a credible challenge to the validity of a patent. When the patent is susceptible to a challenge, pre-initiation mediation can be a good choice to negotiate a license without the threat of a validity challenge. 5.Assessing the strength of the opponent’s case. Through negotiations in a mediation proceeding, a patentee can get a sense of the opponent’s strengths and weaknesses and prepare for the possibility of contesting a suit. The opponent might reveal that their product is covered by another patent or is based on technology available in the public domain. The patentee then has time to assess the likelihood of its success in a suit. There is no bar on seeking interim relief if a suit is filed in the event of a failure of mediation proceedings. Depending on the patentee’s assessment of its case, a patentee may still seek an interim injunction even are trying mediation.
6.Negotiating in good faith. Licensee negotiations between parties can go on for months. During this time, a potential licensee may at time engage in infringing acts. The threat of possible litigation that could result due to an unsuccessful mediation under the Commercial Courts Act would possibly motivate a potential infringer/ licensee to negotiate license terms in good faith. The Rules also provide that parties shall participate in the mediation process in good faith with an intention to settle the dispute.
Section 12A imposes a mandatory obligation upon the plainti to initiate mediation. However, the Rules give the opposing party the right to refuse to participate in the mediation proceedings. If the opposing party does not appear, it will also result in the mediation proceedings being deemed a non-starter. This optional approach arguably results in the provision lacking teeth.
The Way Forward With the option of time-bound pre-institution mediation, it is now possible for patentees to target infringers in India and prevent infringement without spending years in litigation. Weighing the pros and cons of the situation, patent holders can decide to press for immediate relief in a suit or settle the matter using pre-institution mediation.
REASONS FOR BUSINESSES EMBRACING COMPLIANCE WITH SECTION 12A OF THE ACT
Mediation is a Confidential Process:
The process of mediation as a whole assures confidentiality. Therefore, any information shared between them as a way of documents, discussions, and proposals will not be public, unlike it would have been in a court procedure which is bound to be made public as a part of discovery and summons. In litigation, parties tend to indulge in ways and strategies which could spoil the company’s business image and goodwill. Therefore, information being made public during litigation serves as a threat to the company’s image in contrast to mediation.
Mediation is a Speedier Process than Litigation:
Section 12A also puts forth a limitation period of the mediation process to be completed within three months and which can further be extended by two months. This time frame is far quicker than the time taken for matters to be heard and resolved in Courts, and hence mediation would be much more preferred in this fast-paced corporate world.
Enforceability of the Award
According to Section 12A of the Act, the settlement arrived at as a result of mediation will have the same status and effect like that of an arbitral award given under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996, on the basis of agreed terms. This provision makes the parties take the mediation process seriously by reassuring the parties that the settlement they arrive at would be a final verdict.
The Vision Behind Making Mediation Mandatory
Mediation has also gained popularity in the UK and USA when it comes to commercial matters since a long time. Italy rolled out a scheme making mediation mandatory for some number of commercial and civil matters through the mandatory opt-out mediation model termed as “Required Initial Mediation Session’ in September 2013. Ever since its inception, Italy has seen a huge increase in people opting for mediation as opposed to court-based litigation, thus decreasing the burden off of the court. This well thought out step-by-step procedure resulted in the successful reformation of the Italian legal system. Italy has jumped 49 places in the Ease of Doing Business Index in recent years and the credit can be given to the effective use of ADR in Italy. India also would have been motivated to improve its rank in ease of doing business and also improve access to justice for commercial/business houses which can reap the most benefits out of a dispute resolution process such as mediation.
Limitations Of Section 12a
Addressing the Limitations of the Legal Services Authorities Act, 1987
To ensure the success of such an initiative, an effective mediation policy should be administered to ensure that parties are not burdened and unnecessarily delayed from accessing the courts. An enabling environment for mediation must be created to ensure a good percentage of mediations will result in an amicable settlement.
It is still unsure whether the Act will create a suitable environment for carrying out pre-litigation institution successfully, through the modes it has contemplated to be used in the Act. The law contemplates authorizing the authorities constituted under the Legal Services Authorities Act of 1987 (hereinafter the LSA) for the purposes of pre-institution mediation under section 12A (2). The LSA has been constituted to provide ‘free and competent legal services to weaker sections of society’. The authorities under the LSA such as National Legal Services Authority, State Legal Services Authority and District Legal Services Authority are heavily burdened with implementing the ambitious objectives of providing free legal aid to those who need it. Extending their reach to commercial mediations is hardly appropriate and suitable. Commercial disputes contemplated under the Commercial Courts Act will require a focus and skill set that is very different from that envisioned under the LSA.
Additionally, under chapter VIA section 22A, the LSA contemplates pre-litigation conciliation and settlement through Permanent Lok Adalat. The said provision is mainly meant for public utility services. Members of the permanent Adalat are one judge and 2 members with minimal commercial experience. The process of dispute resolution followed by the permanent Lok Adalats under the LSA is vastly different from the mediation process. Permanent Lok Adalats formulate terms of the settlement, after hearing the Parties, which is then given to the parties concerned for observation. If the parties do not arrive at a settlement, the Permanent Lok Adalat proceeds to decide the dispute by the majority. The process of ‘mediation’ followed by the Lok Adalats under the LSA compromises the self-determination and voluntary elements of mediation.
The authorities under the LSA are not the appropriate forum to implement pre-mediation services envisioned by this Commercial Court Act ordinance. Ensuring experienced and trained mediation professionals who can effectively manage commercial disputes is a critical element to ensure the success of this Ordinance.
Expand the scope of mediation service providers under the Ordinance
The Ministry of Law and Justice must recognise outside institutions such as mediation centers run by Bar Associations, Professional Associations, Chambers of Commerce and other recognised bodies to be able to effectively sustain such an initiative. In fact, the Ministry of Law & Justice has recognised certain private institutions for conducting mediations. For starters, this list must be included under Section 12 A (2) to expand the scope of mediation service providers under this Ordinance.
It must be noted that the Italian Law that successfully executed the mandatory “opt-out” model for a certain category of commercial cases authorised the majority of service providers including Chambers of Commerce as institutions where parties can access mediation services. The Italian Model has proven to be highly effective with 50% of the mediations that were mandated under the Law resulting in a settlement. 1800,000 cases were referred to mediation in 2017 under the Opt-out Category.
There might be considerable obstacles to remove in implementing the mandatory pre-institution mediation effectively in India. In fact, within a week of the Rules’ introduction, the Delhi High Court has issued a notice in a petition challenging to the constitutional validity of the introduction of Section 12A of the Commercial Courts Act, 2015. The grievance highlighted by the petitioner is that there is currently no effective mechanism in place for mandatory pre-institution mediation, which has left a large section of aggrieved parties remediless. Upon being directed to the Legal Service Authority (the Authorities under Section 12A), the petitioner was informed that no mechanism had been introduced till date despite the Rules having been notified on July 3rd, 2018. Thus, there is, a lot of ground to cover for an effective implementation of mandatory pre-institution mediation in India. This must come with the understanding that mediation, though being an informal proceeding, the successful conducting of the same requires a certain degree of specialty.