Pre-Institution Mediation in Commercial Matters: A Gateway to Speedy and Efficacious Dispute Resolution

The Commercial Courts, Commercial Division, and Commercial Appellate Division of High Courts Act, 2015, was enacted in 2015 to speed up the adjudication of Commercial Disputes. Moreover, the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, were also framed in accordance with the act described above to resolve commercial disputes efficiently and expeditiously.

As per the said enactments, all disputes falling within the definition of “Commercial Dispute” under Section 2(1)(c) of the Commercial Courts Act, which are valued at Rupees 3 Lakhs or more, shall not be instituted unless the plaintiff mandatorily exhausts the remedy of Pre-Institution Mediation, to be conducted by the Legal Services Institutions. Accordingly, the Legal Services Institutions are conducting Pre Institution Mediation in respect of Commercial Disputes across the country.

The enactment of the Commercial Courts, Commercial Division, and Commercial Appellate Division of High Courts Act, 2015 (hereinafter referred to as the “Commercial Courts Act”) has been a significant step towards expediting the adjudication of commercial disputes in India.

In alignment with this Act, the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 were framed to ensure that commercial disputes are resolved efficiently and swiftly, reducing the burden on the judicial system.

Overview of the Commercial Courts Act

The primary objective of the Commercial Courts Act is to provide a framework for quickly resolving commercial disputes, which encompass a wide range of transactions and business-related disagreements. A key feature of this Act is the introduction of mandatory Pre-Institution Mediation (PIM) for disputes valued at ₹3 lakhs or more, as stipulated under Section 12A of the Act.

Pre-Institution Mediation: A Legal Mandate

According to Section 12A of the Commercial Courts Act, any commercial dispute that does not require urgent interim relief must undergo Pre-Institution Mediation before the filing of a suit. This mediation process is to be conducted by Legal Services Institutions, which have been authorized by the Central Government.

Salient Features of Section 12A

1. Mandatory Mediation:
   • Pre-institution mediation is a compulsory step for disputes classified as “Commercial Disputes” under Section 2(1)(c) of the Act.
2. Execution and Timeline:
   • The mediation process must be completed within three months from the date the plaintiff applies for mediation, with an extension of up to two months allowed with the consent of both parties.
3. Impact on Limitation Period:
   • The duration occupied by the mediation process is excluded from the limitation period as per the Limitation Act, 1963, ensuring that parties do not lose their right to litigate due to the time spent in mediation.
4. Settlement Agreement:
   • If the mediation process results in a settlement, it is documented and signed by the parties and the mediator. This settlement is treated as an arbitral award on agreed terms under the Arbitration and Conciliation Act, 1996, thus giving it a binding effect.

The Role of Legal Services Institutions

The Legal Services Authorities Act, of 1987, empowers various Legal Services Institutions to conduct Pre-Institution Mediation. These institutions play a crucial role in facilitating the mediation process by providing an impartial and efficient platform for the disputing parties to negotiate and resolve their issues.

Benefits of Pre-Institution Mediation

1. Cost-Effective:
   • Mediation is generally less expensive than litigation, reducing the financial burden on the parties involved.
2. Time-Saving:
   • The process is designed to be completed within a stipulated timeframe, ensuring faster resolution compared to traditional court proceedings.
3. Confidentiality:
   • Mediation sessions are confidential, which helps in maintaining the privacy of the disputing parties and the details of the dispute.
4. Preservation of Business Relationships:
   • The collaborative nature of mediation helps in preserving and possibly even strengthening business relationships that might otherwise be damaged by adversarial litigation.

Conclusion

Pre-institution mediation under the Commercial Courts Act is a landmark provision aimed at transforming the landscape of commercial dispute resolution in India. By mandating mediation before litigation, the Act promotes a culture of amicable settlement, ensuring that disputes are resolved in a manner that is both time-efficient and cost-effective.

Legal Services Institutions are pivotal to this process, providing a structured and supportive environment for mediation, ultimately contributing to the broader goal of judicial efficiency and access to justice.