Pre-institution mediation

What is Pre-institution mediation?

Pre institution mediation, refers to the statutory requirement of parties to undergo the process of mediation prior to the institution of a suit to resolve the dispute. In other words Pre institution mediation mandates that parties first attempt to resolve a dispute amicably through mediation, prior to instituting a suit.

Definition

Pre-institution mediation has been provided for under section 12 A, under Chapter IIIA of the Commercial Courts Act, 2015["The Act"] Section 12A (1) reads” A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government”.

Legal provisions relating to the term:

Responsible authorities

The Act grants central government the power to authorize the Authorities constituted under the Legal Services Authority Act, 1987 for the purpose of carrying out Pre-instituted mediation.

Time period of mediation

The Act directs authorities responsible for carrying out the mediation, to complete the process of mediation within three months from the date of application for pre-institution mediation unless the period is extended for further two months with the consent of the applicant and the opposite party.

Limitation

The Act provides that the duration for which the parties remain occupied with pre-institution mediation will be excluded for the purpose of computing the limitation period.

Settlement

If parties arrive at a settlement through mediation, the same shall be reduced in writing and signed by the parties. Further, the settlement herein enjoys the same status and effect as an arbitral award on agreed terms under section 30(4) of the Arbitration and Conciliation Act.

Applicable rules:

The detailed rules and procedure applicable to pre-institution mediation under Section 12 A of the Act is contained in the Commercial Courts (Pre-institution mediation and Settlement) Rules, 2018[“PIMS 2018 Rules”].

Pre- Institution Mediation in case law

• Pre-institution is mandatory

In Patil Automation Private Ltd. v. Rakheja Engineers Private Ltd. [“Patil Automation”] the Supreme Court held that section 12 A of the Commercial Courts Act, that provides for Pre-instituted mediation, is a mandatory provision. Thus Pre- institution mediation for cases covered under section 12 A is mandatory unless the suit contemplates urgent interim relief. This ruling has clarified the position of law with respect to the mandatory/ compulsory nature of section 12 A, which was previously unclear due to conflicting stances taken by various High Courts. For instance, while the Bombay and Calcutta High Courts held that section 12 A was mandatory in nature, the Madras High Court took a conflicting stance.

In Patil Automation the Supreme Court held that non-compliance with section 12 A of the Commercial Courts Act shall result in the rejection of plaint under Order VII, Rule 11 of the Code of Civil Procedure, 1908.

• Courts must ensure that the prayer for urgent interim relief is not used as a means to escape pre-instituted mediation

In Yamini Manohar v TKD Keerthi, the Delhi High Court held that the use of the term “contemplate” in section 12 A of the Act indicates that the legislature intended the Courts to deliberate and consider whether the case at hand merited urgent interim relief. There is a need for application of mind vis-à-vis the prayer for interim relief, so as to ensure that the prayer is not a tactic or strategy employed to escape mandatory pre-instituted mediation under section 12. In conclusion, it was held that a prayer for urgent interim relief does not ipso facto give the parties an ‘absolute and unfettered’ right to not be subjected to pre-instituted mediation.

• Effect of Defendant’s refusal to participate in pre-instituted mediation

In Kapil Goel v Ram Dulare Yadav it was held that section 12 A is satisfied even if the mediation is a non-starter due to the defendant’s refusal to participate in mediation. In this case though the plaintiff filed an application for the institution of pre-institution mediation, the mediation was a non-starter as both parties refused to participate in the mediation. The Delhi High Court thus distinguished this case from Patil Automation on the ground that in instant case both the parties, and not the plaintiff alone, had refused to mediate the issue. Consequently the Delhi High Court held “the Defendant having refused to participate in the Pre-Institution Mediation would suffice for the Suit of the Plaintiff to be allowed to proceed without any encumbrance”.

Regional Variations:

As previously mentioned, the Act grants central government the power to authorize the Authorities constituted under the Legal Services Authority Act, 1987 for the purpose of carrying out pre-instituted mediation. In addition to PIMS Rules, Specific Rules, Guidelines, and Standard Operating Procedures (SOPs) etc., for the purpose of carrying out pre-instituted mediations are framed by the State Legal Services Authorities of various states such as Karnataka, Delhi, Maharashtra, Kerala, Gujarat, etc.

Appearance of 'pre-instituted mediation' in official database

Rule 10 (1) of the Commercial Courts (Pre- Institution Mediation and Settlement) Rules, 2018 mandates the District Legal Services Authorities to forward Data pertaining to pre- instituted mediations dealt by it to the State Legal Services Authorities. Sub rule 2 requires the State Legal Services Authorities to maintain the data of all mediations undertaken under its jurisdiction and publish data on quarterly basis on its website. Form 6(i), specified under schedule 1 of the Act specified the format in which this quarterly data should be presented. However, Commercial Courts (Pre-Institution Mediation and Settlement) Amendment Rules, 2020 [“PIMS 2020 Rules”] has now amended the 2018 Rules to mandate State Legal Services Authorities to publish data both on quarterly basis as per the format prescribed in Form 6(ii), and on monthly basis as per the format provided in Form 6(i).

Form 6(i)-Presentation of mediation data on monthly basis

Form 6(ii)- Presentation of Pre-institution mediation data on quarterly basis

While a set format is provided for recording data pertaining to Pre-institution Mediation, not all State Legal services Authorities adhere to this format. However, the data recorded by them can be found on the websites of the respective State Legal Services Authority. Rajasthan, Karnataka, Delhi, Punjab, Maharashtra, Madhya Pradesh, Jharkhand, and Chhattisgarh are among states that publish this data, though not necessarily in the prescribed format.

Pavithra Manivannan, Why Mandating Mediation Will Not Be Effective For Litigants In Commercial Disputes, NDTV Profit.

This particular news report by Pavithra Manivannan captures the effectiveness of mandatory mediation in commercial disputes, based on the data in this regard.

Status of Mediation Applications

The above-mentioned graph detailly illustrates the total workload of commercial courts with a breakdown of

• cases pending for more than 3 months, (light blue)
• disposed cases, (red) and
• other pending cases (blue).

The graph indicates that there has been an increase in the total workload, that is increase in the number of applications with each year from 2020 to 2022, at the same time the cases disposed through mediation have also significantly increased. “But the disposal rate does not certainly represent the success rate of commercial disputes resolving through mediation”.

The most concerning part of the graph is the pending cases that remain significant which implies a delay in the resolution of disputes. So while there are increased applications there also is pending cases for a long period of time.

Categorization of disposed cases

The above table illustrates the number of disposed cases in mediation of commercial disputes, which are categorized into,

• Settled - There has been a slow and significant improvement in those three years of cases getting resolved and settled, but that increase in itself is just a very small fraction of the number of applications the cases settled is just so scarce.
• Failed - These are disputes that failed to be resolved and for some reason in the year 2022 both settled and failed are of the same numbers.
• Non-starter cases - These cases show the highest numbers, where the opposite party has refused to participate in the process and, therefore, has not yet been attempted or started.

Therein, the success rate of mediation is extremely low when compared to the disposed cases, therein, parties not engaging in mediation are also eventually disposed.

Economic Advisory Council, Why Commercial Mediation Should be Voluntary, EAC-PM Working paper series:

Status of Mediation Applications in District Level Commercial Courts of Mumbai

The above graphs illustrate the applications made for mediation in the Commercial Courts of Mumbai.

The orange line in the graph represents the slow and steady increase in the total number of applications made for resolution disputes through mediation, with fluctuations over the years between August 2022 to 2023, with the highest registered in March of 2023.

The grey line represents the failed and not started cases which certainly appear to be dominant, which shows the lack of participation of parties in the process of mediation.

In the end, the blue line represents the settled cases, where it is consistently low for every other month, and rarely seems to exceed 20 settled cases, which in turn the success rate of commercial disputes resolving through mediation is minimal or extremely low.

Research that Engages with Pre-Instituted Mediation

1. “Pre-institution mediation settlement: Roadblock or resolution?”, Bar and Bench.

The above-mentioned research looks into the mandatory nature of pre-institution mediation under Section 12A of the Commercial Courts Act through the interpretation of relevant case laws and the challenges that come along the way. Some of the cases the research details are, firstly, the Patil Automation case where the mandatory nature was upheld, and if in case PIMS is not exhausted before the filing of the suit then the plaint is to be rejected. Also, the mandatory nature of PIMS is exempted in situations where there is no consideration of urgent interim relief, which remains a gray area, eventually addressed in the Yamini Manohar case that to assess it, a holistic consideration of fact is requisite and that mere contemplation is not sufficient.

Following this, the research provides a well-rounded idea of PIMS, by addressing the challenges owing to the mandatory nature. On the one hand, parties may consider the statutory requirement to be “forced”, when they don’t intend to, which in turn might lead to inefficiency and frustration of its purpose. The research also addresses the fact that commercial disputes have their contracts with jurisdictional clauses, which may be contrary to the statutory requirement of PIMS.

Further, it provides measures to overcome the persisting challenges, wherein courts are in a position to adopt a comprehensive interpretation of the intent in commercial disputes as to the willingness of parties to mediate. Overall the research addresses a complete picture of PIMS and has highlighted every necessary detail to it.

2. “Pre-Institution Mediation Under the Indian Commercial Courts Act: A Strategic Advantage”, Nishith Desai Associates.

The above-mentioned research studies the PIM which has been made mandatory following the 2018 amendment to the Commercial Courts Act, with special reference made to patent infringement suits. While explaining the procedural framework around PIMS, also emphasizes the advantages that come along with PIMS, which allows patentees to analyze the strengths of their opponent before the litigation, which could be avoided through the mediation.

Further, the research addresses the limitations or challenges that come in hand with PIMS that the process might be ineffective if a party refuses to be part of it. Despite the challenges, the research suggests that parties/patentees could settle disputes via PIMS by mediating in good faith and avoiding the lengthy litigation process.

3. “India’s Tryst With Pre-Litigation Mediation: Global Insights And Domestic Perspectives”, NUJS Journal of Regulatory Studies.

This particular research deals with PIM in a very detailed way, where it gives a bird’s eye view of the challenges that come in hand concerning the effective implementation of PIM in India. While addressing the challenges, when parties approach the mediation in bad faith it will lead to undermining the process and opting out of mandatory requirements. In the same way for all other challenges/issues, the research gives solutions where India could adopt mechanisms followed in foreign countries, with certain modifications as required for in Indian scenario.

4. “Why Commercial Mediation Should be Voluntary”, EAC-PM Working paper series.

This research again addresses the issue of mandatory PIMS, with the interpretation of judicial verdicts, which were initially differing, but the SC in 2022 gave a landmark ruling in Patil Automation upholding it as a mandatory requirement. The paper additionally, provides views of of research scholars and experts who have expressed their concerns about PIM being mandatory with relevant reasons.

It goes a further step by, basing its claims on empirical data, particularly from the DAKSH India and Vidhi Centre for Legal Policy and Commercial Courts of Mumbai. Wherein, all such data provided in the research indicate that mandating certain commercial disputes adds further backlog by delaying the process. In the end, the paper highlights the fact that mediation is a process that requires voluntary participation by parties and cooperation between them.

Challenges

Pre-Institution Mediation being a mandatory requirement for commercial disputes, comes with a lot of challenges for the parties and for the dispute in itself.

Mediation in general is a process that functions majorly on the voluntary participation of parties but, upon making it mandatory, concerned parties are forced to resolve their disputes through mediation. The moment they are forced it could also be expected that they might act in bad faith and may even refuse to participate in the process, which ultimately sidelines the purpose of mediation in the first place . This refusal to participate could be due to the jurisdictional clauses provided in the contracts between the parties, which put them in a position to resist mediation.

Also, most importantly, the lack of infrastructure for PIMS, including the absence of sufficiently trained mediators and centers, and the lack of penalty for non-participation by parties, which in turn will affect the enforcement process at large.

Legislative and Judiciary on the one hand have introduced and upheld the validity of PIMS as a mandatory requirement so that parties could avoid the delay in the litigation process and reduce backlogs. But parties, on the other hand, may see this as a mere additional procedural layer, rather than a process to resolve, where in the end they just want to take the dispute through litigation. Which in reality will delay the entire process of resolving the dispute, rather than expediting to solution.

Questions also, arise as to whether commercial disputes have been resolved through mediation, but the data from Mumbai’s Commercial Courts show that success rates are very minimal and parties try to evade or refuse to participate. Upon, not resolving, the dispute proceeds to litigation, all this together brings in additional costs to be spent, where parties are subject to financial burdens.

Way Ahead

The major issue or challenge raised with the lack of implementation and effective enforcement of PIMS in India. Therefore, to ensure mediation's effectiveness, its adoption should be based on its merits rather than statutory compulsion. Hence, Section 12A of the Commercial Courts Act must be amended to reflect this reality, making pre-litigation mediation voluntary in commercial disputes. Wherein, if parties indicate their intention as to not mediate, then provision can be made where they are statutorily allowed to litigate.  In that line, if the parties have exclusively provided in their contract to resolve disputes through litigation, then they are allowed to mitigate and not be part of the mediation. These will reduce the unnecessary delays and the expenses involved.

It also becomes vital for the judiciary and the legislative to set out criteria for matters that constitute urgent or interim relief, so that parties are clear as to whether the dispute is exempted from the mediation process or not.

Currently, PIMS is a statutory requirement, to enhance it minimal steps could be taken, by developing the infrastructure around it by appointing expert mediators and making it accessible and efficient. Following, non-compliance by parties for not making efforts to participate without a legitimate purpose can result in an imposed penalty, this could bring in good faith and effective participation.