Mandatory Pre-Institution Mediation in Commercial Matters: Is India Ready?

[Vishal Hablani is a 3rd Year B.A.L.L.B. (Hons.) Student and Pankaj Agarwal a 4th Year B.A.L.L.B (Hons.) Student at WBNUJS, Kolkata]

In order to address the pendency of cases in the commercial courts, the Government of India on May 3, 2018, introduced the Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Ordinance of 2018 (the “Ordinance”), with the purpose of making pre-institution mediation mandatory before filing a commercial dispute under the Commercial Courts Act, 2015 (the “Act”). The step has also been taken with the motive to enhance India’s performance in the World Bank’s Ease of Doing Business Index. The change is sought to be introduced by inserting section 12A to the Act.

Section 12A(1) of the Act states:

a suit which does not contemplate any urgent relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation and settlement in accordance with such manner and procedure as may be prescribed by rules made by the central government.

Another relevant change, sought to be introduced by the Ordinance and which must be given due consideration is that the minimum value of dispute for filing a commercial dispute has been brought down to INR 3,00,000/- from INR 1,00,00,000/-. The obvious implication of such a sharp decrease is the expansion in number of disputes that would be filed before the commercial courts, which would inevitably add to the woes. To deal with the situation, India needs a robust mediation infrastructure, with pre-institutional mediation being made mandatory before filing the dispute.

However, the Ordinance, according to section 12A(2), only identifies the authorities which are constituted under the Legal Services Authorities Act, 1987 (the “LSA, 1987”) to administer pre-institution mediation services. It must be noted here that the LSA, 1987 was introduced to provide ‘free and competent legal services to weaker sections of society’. The authorities established under the LSA, 1987 are already overburdened with the task of achieving the objectives of providing free legal aid to the needy. In addition to this, an entire different skill set is required for the administration of these authorities in order to provide the mediation services in commercial matters. The need is to expand the scope by giving recognition to external mediation centres for carrying out the pre-institution mediation process. If the required steps are not taken, the burden of pending cases will shift from commercial courts to the authorities established under the LSA, 1987 which would defeat the purpose of introducing the Ordinance.

Key Takeaways from Comparative Models

The model adopted in India is similar to the “opt-out” model, which is currently being followed in countries like Italy and Turkey. Under this model, after going through the session of mandatory mediation at an initial stage, parties have the right to opt out and approach the court in case they are not satisfied and do not wish to continue with the mediation process.

In Italy, in the year 2017, about 1,80,000 mediations were initiated under the opt-out model, of which about 50% were successful. The number is even more than the 1,40,000 civil and commercial matters that were filed before the court. Inspired by the success of Italy’s model, Turkey on January 1, 2018 implemented “TheDevelopment of Mediation Practices in Civil Disputes in Turkey” project, which introduced mediation as a precondition to file a case before the Labour Courts. Within a period of just one month 30,828 mediation requests were received. The number is greater than total number of mediations that have been conducted in several EU countries over the period of ten years since the year 2018.              

Need to Introduce Quality Control Mechanisms: The credit for exemplary success of these models can be attributed to a robust mediation infrastructure that was developed by both the countries before bringing the law into practice. For instance, the law in Turkey imposes quality control mechanisms over the process of mediation, and also lays down standards of training for mediators. However, in India there exists no such regulation that governs the qualification of mediators. Guidelines for mediator qualification were issued by the Mediation and Conciliation Project Committee that suggest a minimum forty-hour course to be completed by mediators. The course is also in line with many of the internationally recognised mediation training programs; however, the problem lies with the non-binding nature of the guidelines. This is in consonance with the decision in Salem Advocate Bar Association, T.N. v. Union of India, wherein it was observed that it is not mandatory for lawyers and judges to undergo a mediation course.  

Duration for the Completion of Mediation: In Italy, the initial mediation session has to be conducted within a period of 30 days of filing of application. In case the parties do not opt out and wish to continue with the process, the maximum duration within which mediation has to be completed is just 90 days. The duration is even lesser in Turkey, where the mediator has to complete the process within a period of 3 weeks, subject to 1 week extension in exceptional circumstances. In contrast to this, section 12A(3), sought be introduced by the Ordinance, suggests the completion of mediation within a period of 3 months, subject to an extension of 2 months. The duration for completion of the process in India is much longer as compared to other jurisdictions. This could be termed as a reflection of poor mediation infrastructure in the country.   

Sanction in case of non-attendance: In Turkey if the party fails to attend initial mediation meeting, it is then made liable to pay the litigation cost even if it succeeds later on. Similarly, in Italy if the party does not attend the mediation initially, the judge can sanction the party later during the proceeding. In India, there is no such provision in the Ordinance to sanction the party in case of non-appearance.


The initiative taken by the Government to reduce the burden of pending cases on commercial courts is laudatory. However, efforts must be made at the right time to remove prevailing obstacles. Recognition must be given to external mediation centres for carrying out the process of mediation at the initial stage, failing which the identified authorities would suffer the same fate as is being faced by the courts. Quality control mechanisms for governing the conduct of mediators must also be introduced; else the parties would otherwise lose confidence on the credibility of mediators. This would also pave way for the attempt by the parties to evade from the initial mediation stage, since no sanction has been suggested in the Ordinance for non-attendance. Improving the mediation infrastructure would also help in reducing the time limit for the completion of mediation process. In addition to this, there is a pressing need to spread the awareness about mediation amongst commercial actors in the market to meet the desired goal.

Vishal Hablani & Pankaj Agarwal

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