Open Access Research Article
EXPLORING THE EFFICACY OF MEDIATION IN THE INSOLVENCY PROCESS: INDIAN SCENARIO
Published Paper
Article Details
EXPLORING
THE EFFICACY OF MEDIATION IN THE INSOLVENCY PROCESS: INDIAN SCENARIO
AUTHORED BY - ISHITA YADAV
Introduction:
India is infamous for being
over-litigious, having a backlog of pending cases, and inability to provide
timely justice. This is due to over-reliance on litigation as a dispute
resolution method even though it is an expensive and tedious mechanism in terms
of time and cost-effectiveness. “Approximately
2.3 million cases have been pending in Indian subordinate courts for ten years
and in some states, one in every four cases is pending for five years.”[1]
The pandemic outbreak has also seen a surge in the number of disputes all over
the world which the jurists have interpreted as “the
interpretation of force majeure clauses, material adverse effect clauses, and
termination clauses.”[2]
This pendency is negating the many successes of the Indian judicial
system. In this regard, Alternative Dispute Resolution (‘ADR’) is gaining
prominence in the Indian context due to its opposite nature of rendering “a satisfactory method of dispute settlement
by being an economic, expeditious and informal remedy.”[3] One such ADR method is mediation “wherein a third person facilitates
communication between two or more parties in dispute, by promoting voluntary
decision-making and assisting them to come to mutually acceptable solutions.”[4] Even though empirical data has proven
mediation to be “cheaper, faster and more
satisfactory”[5]
as compared to traditionally dominant litigation or ‘adjudicative arbitration’,
it is still seen as an ‘alternative’ despite its growing prominence and wide
acceptance.
Mediation has been gaining prominence
in India; be it the “successful application of mediation in the Amarchand Mangaldas split, “touted
as the largest law firm split in India”[6] or the court-monitored mediation by the
constitutional bench of the Supreme Court of India in the recent Ayodhya dispute[7].
Locating
Mediation in Indian Statutes:
In
India, explicit reference to mediation is found in numerous statutory
enactments. It first received legal recognition in the Industrial Disputes Act,
1947[8]
(‘ID Act’). This statutory recognition also led to the advent of mediation’s
identity crisis as the ID Act provides
for the appointment of ‘conciliators’
for mediating industrial disputes to provide cost-effective and quick
settlement of industrial disputes. It will be profitable to differentiate between
the much-synonymous Conciliators and Mediators for further clarity on the
legislative intent between the two under S.89 CPC[9]
which includes conciliation and mediation as different redressal mechanisms. A
conciliator has broader ‘evaluative powers’ of intervention and can draft the
settlement terms while a mediator is a ‘facilitator who can give suggestions to
parties to resolve the dispute on their terms.
In
matrimonial disputes under the Hindu Marriage Act, 1955 [10]and
Special Marriages Act, 1954[11]
court initially mandate mediation to the parties. Even the Companies Act, 2013[12]
provides for mediation
of disputes by the National Company Law Tribunal. Apart from these, the
Consumer Protection Act, 2019[13] also has
introduced provisions of mediation of consumer disputes at the initial stage
itself.
The major development of mediation in
the Indian regime is accredited to the 129th Law Commission Report
which first recommended usage of ADR mechanisms in India.[14]
This recommendation led to the insertion of Section 89 Civil Procedure Code in
1999. As per S. 89, the court, as it deems fit, can refer any case(s) to
arbitration, conciliation, Lok adalats,
or mediation. This provision for mediation of civil cases in India is known as
‘court-referred mediation.’[15] Court-referred mediation is more recognizable
and opted-for over private mediation due to different sets of rules by
different courts.
Additionally, the Indian Government
recently amended Commercial Courts Act, 2015 (‘CCA’) to provide speedy
settlement through mediation in commercial disputes. The insertion of section
12A mandatorily requires parties to go
through pre-institution mediation given that the matter does not require urgent
relief. With the amended statute, the
settlement arrived through mediation shall have the “same status as that of an
arbitral award as provided under section 30(4) of the Arbitration and
Conciliation Act, 1996.”[16]
In January 2020, firstly, the Supreme Court in MR Krishna Murthi v New India Assurance Co. Ltd.[17]
stated the need for uniform legislation on mediation in India and secondly set
up a panel under the aegis of Mr. Niranjan Bhat, to “draft legislation and
recommend, codifying mediation practice in India.”[18] “The key elements emphasized upon by
the mediators included confidentiality, the enforceability of settlements
arrived through mediation and voluntary nature of the process, among others.”[19] The nod from the Apex Court for a
codified mediation practice is a positive sign for boosting mediation practice
in India, which was further affirmed by the Supreme Court inquiring about the
progress from the Centre on a plea hearing dated 19th March 2021.[20]
Implementation of mediation in
India:
Despite the above-mentioned
legislative attempts of giving statutory recognition, mediation has failed to
achieve the status of the mainstream ADR process. Despite the noteworthy
attempts of rendering mediation as an effective dispute resolution mechanism,
the main reason that can be attributed to its slow progression is the absence
of a uniform mediation process in India. Along with a lack of mediation
legislation, Vidhi Centre for Legal Policy in association with the Department
of Justice, Ministry of Law & Justice, India has revealed other reasons to
be, “lack of quality mediators, exclusive infrastructure to cater to complex
cases for party dissatisfaction with the court programs.”[21] It can thus be contended that mediation
cannot reach its true potential with the loosely inserted and scattered
mediation provisions. There is an absence of a uniform definition of mediation
in the above-stated legislative enactments which further are also unclear on
the process, qualification, and role of mediators.
However, some attempts at
streamlining the mediation process have been undertaken by the enactment of the
Civil Procedure Alternative Dispute Resolution and Mediation Rules, 2003 (‘2003
Rules’) and Commercial Courts (Pre-Institution Mediation and Settlement) Rules,
2018. These rules codify some of the basic core principles in terms of the
process of how mediation shall be conducted, the confidential nature of the
proceedings, specifying the qualification of mediators and their roles. Nevertheless, the rules have proved to be
inadequate for mediation as a process as they are not uniformly applied and are
tailored to cover specific cases under the same subject-matter jurisdiction. A
closer reading of S. 12A of the CCA shows that authorities under Legal Services Authorities Act, 1987 (‘LS
Act’) are empowered to conduct pre-institution mediation which essentially
entails that mediation can be accessed only from government authorized institutions.
However, the LS Act was formed to provide competent and free services for
weaker sections of society.[22] It,
therefore, cannot be competent to deal with commercial disputes through
mediation which would require learning a different skill-set. Furthermore, the
2003 rules were formulated under the constituted committee by the then
Honorable Chief Justice Lahoti to “uniformize
mediation throughout the country and prepare training manuals and a uniform
training curriculum for standardizing mediation training.”[23]
These rules though non-binding were aimed at boosting the court-annexed
mediation.
Though attempts of various Indian
statutes have iterated the need for mediation to settle disputes, it will be
profitable to have a uniform and centralized legislative framework on the
mediation process for its effective implementation. This legitimacy will help
strengthen the faith of the parties in the mediation process and its efficacy.
Learning from Ireland: From
Directive Principles to Mediation:
The codification of the mediation
process has become all the more pertinent in light of India signing the ‘United
Nations Convention on International Settlement Agreements Resulting from
Mediation’ (‘Singapore Convention’). The Convention makes international or
cross-border mediation settlements enforceable in India. India, if ratifies, may have to enact a
legislation due to its constitutional obligations under Article 253[24] which
requires legislation to enact laws for the enforcement of conventions. The
uncertainties regarding enforcement of mediation agreements will cease to exist
only through the enactment of an Indian mediation law. This shall also help
streamline and restructure the process which will only ensure its regular use
in settling disputes.
Reliance for mediation legislation
has been placed on Ireland who plays a regulatory role because even though
Ireland and India, polar opposite at the culture and economy spectrum, have a
similar legal system. Their similarity is visible in terms of “both countries
following the common law system and have similar hierarchized court
structures.”[25] With a similar legal system, both the
countries’ judiciary suffers from inordinate delays and overburden of cases.
Mediation is a dispute redressal mechanism that has been used by “18 other
jurisdictions including Malaysia, Singapore
as an ‘effective dispute resolution system’ due to its efficient,
cost-effective and confidential nature.”[26]
According to a comparative study
between Ireland and India’s legal system, one of the striking similarities
deduced is that in both countries the legislature and the judiciary have made
equal attempts to embolden mediation through various enactments. Neither
Ireland nor India had a specific law on mediation. However, this was changed
with the recent codification of the Mediation Act, 2017 by Ireland. As per the
study, the enactment has led to a “tangible positive impact of using mediation
in Ireland”[27] which was
a work in progress before the codification, with the combined efforts of the
judiciary and the legislature.
Drawbacks and Recommendations
vis-à-vis Indian
mediation regime:
India currently lacking a mediation
statutory framework has not experienced a similar boost of the mediation regime
despite the combined efforts of the judiciary and legislature. Mediation be it court-annexed or
private requires practical recognition by the legislature and the judiciary.
With no legislative backing, mediation is at the risk of having the status of
an ‘alternative’ and not the go-to mechanism for the parties. The author
contends that a statutory framework will essentially entail a list of rules to
follow, which in turn would be an advent to regulate the mediation practice in
India. Parties would have a credible source laying down a transparent process
thereby increasing their confidence in the mediation regime. However, the main
contention that drafters ought to keep in mind is the essential underlying
principles of mediation namely its flexibility and its voluntary nature. The
legislative framework should aim to streamline what is provided in various
statutes into a uniform framework governing mediation. To start with, it can
outline the role of the mediators and their qualifications, the process in
general; situations in which the mediator shall declare his/her conflict of
interests and recusal.
Furthermore, the new enactment can
also make pre-litigation mediation mandatory by also following the Ireland
regime. In India, with the number of administrative barriers, lack of qualified
practitioners, low literacy rate, and time-consuming, expensive litigation
parties are the risk of disadvantage and harassment. Thus, they are unlikely to
opt for ‘non-adjudicatory’ mediation towards the end of the process. With the new legislation, mandatory mediation
shall be included wherein it should be upon the lawyer to make their parties
aware of the process. Mediation is often perceived as a threat to their
profession as well as a learning experience by Indian lawyers. For this, the
new legislation can maybe cater to incentives such as mediation training at
subsidized rates to lawyers. The above-stated enactments which aimed at
streamlining the mediation process have an inherently conflicted stance. For
instance, S. 12A of the Commercial Courts Act provides a wide exemption of
‘urgent relief sought’ which is prone to misuse by the lawyers to negate
mediation. Uniform legislation will be helpful to tend to such inconsistencies
as well.
Another impediment in Indian
mediation is the quality and qualification of mediators. Even with Amarchand split and the Ayodhya mediation, the drawbacks that
have come forth are the qualifications of the mediators. India in its
‘Mediation and Conciliation Project Committee’ guidelines provide for training
for 40-hours which includes refresher courses, training sessions, and
assessments to be accredited as a mediator.
However, these guidelines are non-binding and not mandatory which in
turn impede mediation progress. For instance, while the three mediators in the Amarchand firm split were luminaries in
their field, they were not known for their mediation skills[28].
Similarly, the mediator in the Ayodhya
judgment was known to have a biased position even before his appointment and
held a compromised position towards the Hindus.[29]
Thus, mandatory training and accreditation of mediators will help ensure the
sanctity and boosting credibility in the mediation process.
Another drawback in the Indian
mediation regime is the unenforceability of the mediation agreements. Unlike
other dispute resolution mechanisms such as arbitration or litigation, the
parties perceive mediation as a pro-bono service rather than a ‘compromise’ or
a ‘non-binding contract’ by the court to settle disputes with trivial issues. A
mediator is perceived as a ‘guidance counselor’ making “an illegal, under-the-table,
deal-making process”[30] due to
its unenforceability in a court of law as compared to a judgment or an arbitral
award. For its execution, the mediated agreement has to be written as a court
order or consent award meaning the court still retains its jurisdiction and
control over the matter. This goes contrary to mediation’s underlying
principles as this not only increases the financial burden on the parties by
moving to the court but also encroaches on the confidentiality of the
settlements. Thus, treating mediation settlements as a final decree will only
result in enhancing its value as a trusted dispute resolution mechanism in
India.
Conclusion:
In India, mediation’s prominence is
increasing, however, is stagnant at the same time. While there was a plethora
of cases pre-Covid, the pandemic has re-initiated a discussion for a swift
redressal mechanism to which mediation is a viable solution. The hindrance is
mainly attributed to the lack of a mediation statutory framework amongst the
various challenges. The existing scattered mention of mediation in various
statutes and multiple rules by different High Courts is only furthering the
uncertainty surrounding mediation. Thus, a concrete step towards making
mediation an effective dispute resolution mechanism can be initiated only
through a separate statute. Empirical reliance can be placed on the growth of
arbitration as a process since its statutory enactment. Thus in India, boosting
of mediation regime requires an efficient regulation mechanism streamlining the
process, enhancing its credibility to build the party’s faith to entrust it as
an efficient dispute settlement mechanism.
However, the underlying principles of
mediation should be kept in mind while enacting the new separate statute. It
shall attempt to address the uncertainty of enforcement as well as quality
control of mediation. The framework should engage in utmost precaution to
preserve the sanctity, flexible, confidential nature of the mediation process.
Voluntariness and party autonomy of the parties shall also not be compromised.
Additionally, the legislature should also attempt to make mediation mandatory
before litigation as seen in Ireland to enhance the mediation regime which
would initiate a change in heavy dependency on the litigation regime in India.
The need for legislation seems rather immediate with mediation’s recognizable
underlying benefits of settling the disputes expeditiously and amiably along
with cost-effectiveness.
[1]Daksh, “Access to Justice Survey 2015-16:
Key Findings” https://dakshindia.org/wp-content/uploads/2016/05/Daksh-access-to-justice-survey.pdf. Last Accessed 29 March, 2021
[2] Ankoosh Mehta, Durga Agarwal and Maitrayi Jain, “Mediation:
The Future of Dispute Resolution”,
Covid-19 CAM SCC Expert Corner ( 25 June 2020)
https://www.scconline.com/blog/post/2020/06/25/mediation-the-future-of-dispute-resolution/
[3] Silpi Jain, Aryan Mohindroo and Harshil Manchanda, “Mediating
the Irish Way: Taking an Alternative Approach to Alternative Dispute Resolution
in India” Arbitration: The International
Journal of Arbitration, Mediation and Dispute Management Volume 87 Issue 1, pp
68 ( 18 February 2021)
[4] Black's
Law Dictionary, Eighth Edition, South Asian Edition (First), 2015. Also see, James
A. Wall, Jr., John B. Stark & Rhetta L. Standifer, “Mediation: A Current
Review and Theory Development”, 45(3) J. Conflict Resol .pp. 370–391 (2001).
[5] Mary Radford,
“Advantages and Disadvantages of Mediation in Probate,Trust and Guardianship
Matters”, 1 Pepp. Dispute Resolution
L. J. 241, 249 (2000) . Also see supra
note 2 at pp. 68
[6] Rohan Dhariwal and Shrey Pattnaik “Shifts or
Illusions? The Reality of India’s Growing Mediation Scenario” Kluwer Mediation
Blog ( 28 May 2015)
http://mediationblog.kluwerarbitration.com/2015/05/28/shifts-or-illusions-the-reality-of-indias-growing-mediation-scenario
[7] Mridul Godha, “A Renewed Interest in Mediation in
India”, Kluwer Arbitration Blog Post (
31 March 2019)
http://mediationblog.kluwerarbitration.com/2019/03/30/a-renewed-interest-in-mediation-in-india/
[8] Section
4 of the Industrial Disputes Act, 1947
[9] Order
X Rule 1A of the CPC.
[10] S. 23(2), Hindu Marriage Act, 1955.
[11] S. 34 (2), Special Marriages Act, 1954.
[12] S.
442 of the Companies Act, 2013 read with the Companies (Mediation and
Conciliation) Rules, 2016
[13]S. 37, Consumer Protection Act, 2019.
[14] 129th Law Commission of India, “Urban
Litigation: Mediation as Alternative to Adjudication”, (1988),
http://lawcommissionofindia.nic.in/101-169/Report129.pdf
[15] Supra Note 3, Ireland Alternative at pp.
5
[16] Section 12A(5), Commercial Courts Act,
2015.
[17] M.R. Krishna Murthi v. The New India
Assurance Co. Ltd., AIR 2019 SC 5625.
[18] Supra note 15, Ireland Alterative at pp.
81
[19] Manisha T. Karia, “The Effective
Implementation of Mediation in India: The Way Forward”, Bar and Bench Column (
29 December 2019) https://www.barandbench.com/columns/effective-implementation-of-mediation-in-india-the-way-forward.
[20] Srishti Ojha, “Supreme Court Asks Centre To Respond If A Law Is Being
Made For Mediation”
https://www.livelaw.in/top-stories/supreme-court-legislation-is-being-made-for-mediation-youth-bar-association-of-india-ybai-171442?infinitescroll=1 ( 19 March 2021).
https://www.livelaw.in/top-stories/supreme-court-legislation-is-being-made-for-mediation-youth-bar-association-of-india-ybai-171442?infinitescroll=1 ( 19 March 2021).
[21] Vidhi Centre for Legal Policy, “Strengthening
Mediation in India: A Report on Court
Connected
Mediations” (2016), at pp. 25 https://vidhilegalpolicy.in/wpcontent/uploads/2019/05/26122016_StrengtheningMediationinIndia_FinalReport.pdf.
[22] Supra Note 18 , Ireland Alternative at
pp.6.
[23] Rashika Narain and
Abhinav Sankaranarayanan, “Formulating a Legislative Framework for
Mediation in India”, 11(1) NUJS L. Rev. 75, 77 (2018) at pp. 75-84, http://nujslawreview.org/wpcontent/uploads/2018/04/11-%E2%80%93-1-%E2%80%93-Rashika-and-Abhinav.pdf
[24] Article 253, Constitution of India, 1950.
[25]Supra note Ireland at pp. 80. Also see, “The Courts
System” (The Bar of Ireland),
https://www.lawlibrary.ie/Legal-Services/The-Courts-System.aspx.
[27] Supra Note 18, Ireland Alternative at pp. 80.
[28] See supra Note 6
[29]Jonathan Rodrigues, “Reintroducing Mediation to
Millennial India Part- II”, International
Mediation Institute August 2019
https://imimediation.org/2019/09/10/reintroducing-mediation-to-millennial-india-part-ii/
[30]Jonathan Rodrigues, “Reintroducing Mediation to
Millennial India Part- I”, International
Mediation Institute August 2019,
https://www.imimediation.org/2019/08/22/reintroducingmediation-to-millennial-india/
Article Information
EXPLORING THE EFFICACY OF MEDIATION IN THE INSOLVENCY PROCESS: INDIAN SCENARIO
Authors: ISHITA YADAV
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/06
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.