Effective Participation in Pre-Litigation Mediation Crucial for Organizations With Public Character, Non-Participation Should Have Consequences: Delhi HC

The Court was hearing a recovery suit against National Insurance Limited which failed to appear for the pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015.

The bench of Justice Prathiba M. Singh observed, “In essence, the obligation to attend mediation is of paramount importance as the entire purpose of the enactment of the provision, as a mandatory step to be taken before commencing litigation, would otherwise be defeated. Especially in the case of organisations which have a public character, effective participation in pre-litigation mediation is essential. If mediation has to be taken seriously and with a result-oriented approach, institutions with a public character including government departments etc., ought to participate through the proper appearance of officials or duly authorised persons. Any non-participation ought to invite consequences in law.”

Brief Facts-

A fire broke out in a truck loaded with synthetic rubber, causing substantial damage to the Plaintiff Maxwell Partnership Firm Registered’s stock of rubber products. The Defendants' surveyor assessed the damage, but the report was not provided to the Plaintiff until obtained through RTI. It is the case of the Plaintiff that despite timely notification, the insurance company delayed processing the claim and ultimately denied liability alleging policy breaches. The Plaintiff claimed that they were not provided with policy terms and that the denial was unjustified. The Plaintiff contended that the denial of the claim was arbitrary and without legal basis, highlighting the insurance company's unreasonable conduct throughout the claim settlement process.

After perusing the reports by the Delhi High Court Legal Services Committee the Court stated that the insurance company failed to appear in the pre-litigation mediation and such conduct is contrary to the spirit of Section 12A of the Commercial Courts Act.

The Court stated that the non-appearance of parties in mediation proceedings carries significant legal ramifications, as provided by various legal provisions.

The Court mentioned the decision in Smt Amalapooh Mary & Ors. v. Sri V Ravindra & Ors. (WP51491/2016) and quoted, “In terms of Rule 13 of Mediation Rules, 2005, the Court has the power to direct a party to appear before the mediator, in the event of a Court finding that a party is absenting himself before the mediator without sufficient reason, costs could be imposed on such a party. The quantum of costs that could be imposed by the Court is at the discretion of the Court, which the Court could decide upon and impose depending on the nature of the matter.”

The Court also noted the decision of Courts in United Kingdom and mentioned the cases of Dunnett v Railtrack plc [2002] EWCA Civ 303 and P4 Ltd v Unite Integrated Solutions Pic [2006] EWHC 2924 (TCC) that underscore the judiciary’s insistence on seriously considering Alternative Dispute Resolution (ADR), like mediation. According to the Court in the said decisions it was held that refusal to engage in ADR without reasonable cause can lead to adverse cost consequences for the non-attending party, emphasizing the importance of actively participating in mediation.

The Court observed that in the United Kingdom, failure to adequately consider ADR, including mediation, can lead to severe repercussions and the Courts are known to possess the authority to impose cost sanctions on parties unreasonably refusing mediation attempts.

“The same mechanism can be followed in the Indians Courts such that effective mediations can result in improved resolution.”, the Court added

Finally, the Court directed the Defendants to deposit costs of Rs. 5L with the Registrar General, as a pre-condition to file the written statement.

The Court listed the matter for further hearing.

Cause Title: Maxwell Partnership Firm Regd v. National Insurance Co Ltd. (Neutral Citation: 2024:DHC: 3614)