Should India Have An Iron Hand Approach In Making Pre-Institution Mediation A Mandatory Requirement In Law?
The Supreme Court in its latest judgment of M/s Patil Automation Private Limited and Ors. vs. Rakheja Engineers Private Limited ("Judgment") has held that it is mandatory for any suit instituted (which does not contemplate urgent interim reliefs) under the Commercial Courts Act, 2015 ("Act") to follow the mandate of Section 12A of the Act. A suit which does not comply with Section 12A of the Act is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908 ("CPC") as being 'barred by law'. Should Supreme Court have iron hand approach in making pre-institution mediation mandatory, is the question I propose to discuss in this article.
Alternate Dispute Resolution
We all know that Mediation is one the most effective modes of Alternate Dispute Resolution (ADR) that is available to parties who wish to avoid courts and settle disputes amicably. It is a process wherein a neutral third party facilitates negotiation to reach a definitive settlement. Mediation differs from arbitration in a manner wherein, unlike arbitration, it does not involve the mediator making the decision. Mediation can be initiated by the parties or may be mandated by legislation, the courts, or via contractual terms. In their celebrated book 'ADR Principles and Practice' by Henry J. Brown and Arthur L. Mariot (1997, 2nd Ed. Sweet & Maxwell, Lord on Chapter 7, p 127), the authors say that 'mediation' is a facilitative process in which "disputing parties engage the assistance of an impartial third party, the mediator, who helps them to try to arrive at an agreed resolution of their dispute. The mediator has no authority to make any decisions that are binding on them, but uses certain procedures, techniques and skills to help them to negotiate an agreed resolution of their dispute without adjudication."
Mediation in India
In light of the history of Mediation in India, methods that were congruent to the modern Alternative Dispute Resolution (ADR) mechanism can be traced back centuries prior to the advent of British in India. That era constituted informal panchayats that were used as an institution to resolve disputes between the parties. In this form of mediation, the revered elderlies of the villages or the Mahajans assumed the role of mediators and resolved disputes. This was an effective mechanism because the elder lies held massive social capital. Their decisions were respected and abided by, as a matter of cultural obligation which gave their decisions binding value. Modern Indian ADR is a balance between international and national principles that govern the settlement of disputes. Pursuant to section 89 of the Civil Procedure Code, 1908 which was incorporated through the CPC (Amendment) Act, 1999 with prospective effect from 1/7/2002, parties have the agency to facilitate amicable, peaceful and mutual settlement between them without the intervention of the court.
Supreme Court mandates Pre-institution Mediation
The two judge's bench of the Supreme Court (KM Joseph and Hrishikesh Roy JJ) in the above mentioned Judgment considered the question (para 2) -"whether the statutory pre-litigation mediation contemplated under Section 12A of the Commercial Courts Act, 2015 (hereinafter referred to as 'Act') as amended by the Amendment Act of 2018 is mandatory and whether the Courts below have erred in not allowing the applications filed under Order VII Rule 11 of the Code of Civil Procedure, 1908 (hereinafter referred to as 'CPC'), to reject the plaints filed by the respondents in these appeals without complying with the procedure under Section 12A of the Act."
The bench concluded holding that:
"84. Having regard to all these circumstances, we would dispose of the matters in the following manner. We declare that Section 12A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11. This power can be exercised even suo moto by the court as explained earlier in the judgment. We, however, make this declaration effective from 20.08.2022 so that concerned stakeholders become sufficiently informed. Still further, we however direct that in case plaints have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration. Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff. Finally, if the plaint is filed violating Section 12A after the jurisdictional High Court has declared Section 12A mandatory also, the plaintiff will not be entitled to the relief".
The main arguments made in support of the contention that Section 12A of the Act is not mandatory was that there are no penal provisions for non-compliance and hence it should be construed as directory and not mandatory. The Court rejected this argument by inter alia analysing analogous provisions of Section 69 of the Indian Partnership Act and Section 80 of the CPC. Neither of the Sections provide for any penalty for Suit bought in contravention of them. The Supreme Court further observed that even though no legal right of the defendant is affected due to non-compliance of pre institution mediation, the real object of the law should be viewed in the broadest sense. The object is not to be viewed narrowly with reference to the impact on the parties alone. The chief advantage and highlight of mediation are that it is a win-win for all sides, if the mediation is successful.
Pre- Institution Mediation in the United Kingdom
The Indian legal system is the part of common law legal system and common law continues to be existing law by virtue of Art 272 of the Constitution of India. It is therefore profitable to refer to the development trajectory in United Kingdom. In the case of Halsey v Milton Keynes General NHS Trust, the question before the court was whether it should use its discretion under The Civil procedure Rules, 1998 to impose costs as sanction against the winning party on the grounds that it had refused to mediate. It was held that the court has the power to deprive a winning party of some or all of their costs on this basis, but the burden is on the losing party to demonstrate that the normal rule should be departed from. To justify such a departure, it must be shown that the winning party acted unreasonably in refusing mediation (or ADR generally), by reference to considerations set out in that case. The judgement in this case categorically opposed the imposition of any obligation on the parties to refer their matter to an ADR mechanism.
Is compulsion of Mediation an unacceptable constraint on the Right of Access to Justice?
A constitutional point arises whether the Parliament has the power to mandate parties to submit their disputes to mediation against their will since the right of access to justice is a fundamental right under the Constitution of India. However, the Supreme Court did not consider this issue in M/s Patil Automation Private Limited in the context of the right to access of justice, which is a fundamental right as held in many cases [PLR Projects vs Mahanadi Coalfields (2019) 10 SCC 306]. The Bench (para 55) merely observed that "The jurisdiction of a civil court can be ousted. In other words, there is no Fundamental Right with anyone to contend that he has a right to file a civil suit, which cannot be taken away". It is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest terms. It is another to order them to do so. It seems to us that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court. The European Court in Strasbourg has said in relation to article 6 of the European Convention on Human Rights that the right of access to a court may be waived, for example by means of an arbitration agreement, but such waiver should be subjected to "particularly careful review" to ensure that the claimant is not subject to "constraint": see Deweer v Belgium. If that is the approach of the ECtHR to an agreement to arbitrate, it should follow that compulsion of ADR would be regarded as an unacceptable constraint on the right of access to justice. On this, the editors of Volume 1 of the White Book (2003) rightly say at para 1.4.11:
"The hallmark of ADR procedures, and perhaps the key to their effectiveness in individual cases, is that they are processes voluntarily entered into by the parties in dispute with outcomes, if the parties so wish, which are non-binding. Consequently, the court cannot direct that such methods be used but may merely encourage and facilitate." [Paras 9 & 10]
Furthermore, in the case of Thakkar v Patel, as decided by the European Court, is an example of a party frustrating the mediation process. The claimant attempted to arrange a mediation, but the defendants procrastinated and delayed for so long that the claimant lost faith in the process. This was found to be unacceptable behaviour on the part of the defendant, and a substantial costs order was made against them. It is reasonable to conclude that even frustration of the mediation process invites cost sanctions as against any barrier to approach the court of law.
Overflow of References
Though the Court has highlighted the benefits of mediation and the object to be achieved behind making pre-institution mediation mandatory, the impression is that it has overlooked the issue of its implementation at the ground level. There is no doubt that there is a dearth of experienced mediators and notified mediation centres in the Country. Moreso, by reducing the amount of 'Specified Value' from Rs. 1 crore to Rs. 3 lakhs vide amendment in 2018, the flood gates are opened. The timeline for pre-institution mediation prescribed in the Act is said to be 3 months (extendable by 2 months upon mutual consent). With the overflow of references to mediation towards these meditation centres, it seems impractical to expect them to comply with the strict timelines mentioned in the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018. While acknowledging the context, it is quintessential to shed light on the following conclusions:
1.It is axiomatic that by making pre-institution mediation mandatory, that too which shall be in accordance with the Rules and when the necessary infrastructure is not in place, would lead to nothing but, delayed justice.
2. Though the intention of the legislature is to de-clog the courts and reinforce the principle that litigation should always be the last resort, the prescription as mandatory seems to be harsher than required.
While the Supreme Court, in making pre-institution mediation mandatory in Patil Automation case, has undoubtedly acted with intention of de-clogging the courts and also affording the parties an opportunity to amicably settle the dispute at the earliest, the consequences of non-compliance seem too harsh. The Judgment seems to be per incuriam since it doesn't consider the impact of mandatory pre-institution mediation upon the right of access to justice, which is enshrined under Article 21 of the Constitution of India. Compulsory mediation is the contrary policy of mediation itself. Moreover, the mediation centres will be clogged with references affecting genuine mediation cases. The Indian Parliament should, therefore, intervene and clarify by passing the validating Act that pre-institution mediation it is not a mandatory requirement. We hope before the Parliament intervenes, a larger bench of the Supreme Court will have an occasion to reconsider the Judgment and hold that pre-institution mediation is not mandatory.
Anurag M. Katarki, is a Barrister, called to the Bar by the Hon'ble Society of Gray's Inn. Currently, he is practicing at the Bombay High Court and Supreme Court of India. The author acknowledges the inputs of Mr. Adamya Ojha (Research Assistant, Institute of Law, Nirma University)
[The opinions expressed in this article are those of the author. Verdictum does not assume any responsibility or liability for the contents of the article.]