SETTLEMENT OF DISPUTES THROUGH MEDIATION AND WHEN PARTIES CAN TURN TO THIS OPTION
As courts get more and more burdened with
litigation, the process of obtaining justice becomes more and more time
consuming. With over-burdened court systems across the world, there has been a
uniform approach adopted by most countries to encourage parties to explore
means of alternative dispute resolution to save time, money and resources,
while still getting the services of an expert. Mediation has been a popular
form of dispute resolution since the beginning of civilised society, and it has
not lost its value in modern times either. More and more people, especially
those not wanting to simply be bound by a court or arbitral award, but explore
other solutions, are turning to seasoned mediators who can help them and the
other parties in the dispute find the best possible terms of settlement. This
article aims to highlight what mediation is, in which disputes it is ideal, and
when a party can opt for it.
What is mediation?
Mediation is an alternative dispute resolution
process in which parties, with their consent, approach a neutral mediator (a
facilitator of dialogue) who helps them explore possible solutions and reach a
consensus. The aim of mediation is to facilitate dialogue between the parties
in dispute and give them a chance to resolve their issues and reach a
compromise that they can work with in the long run.
The Supreme Court has described mediation as a
method of non-binding dispute resolution with the assistance of a neutral third
party who tries to help the disputing parties to arrive at a negotiated
settlement. It is also synonym of the term ‘conciliation’. [See Afcons Infrastructure Limited v. Cherian Varkey Construction
Company Private Limited, 2010 (8) SCC 24].
It is thus a voluntary process
in which parties agree to decide a dispute with the help of a mediator.
What are the ways in which parties can go to mediation?
Under the Indian legal system, parties can go
to mediation in two possible ways:
Court-referred Mediation: Under
Section 89 of the Code of Civil Procedure 1908, the court may refer a case
pending before it for mediation if it believes a settlement is possible through
those means, and the parties involved agree to going for mediation.
Voluntary/Private Mediation: Any
parties in a dispute, whether government, corporates, businesses, or private
individuals, can voluntarily decide to resolve disputed matters between them by
engaging the facilities of private mediators.
Pre-Institution Mediation in
Commercial Matters: Any dispute which falls within the definition of
“Commercial Dispute” under Section 2(1)(c) of the Commercial Courts Act, which
are valued Rupees 3 Lakhs or more, shall not be instituted unless the plaintiff
mandatorily first exhausts the remedy of Pre-Institution Mediation.
What are the different types of disputes suitable for mediation?
• Matrimonial disputes
• Employer-employee disputes
• Business disputes, particularly those related to contracts
• Consumer disputes
• Property disputes
• Child-custody issues
These are only some of the most commonly
addressed types of disputes in mediation. In fact, in most disputes where
parties are very well known or close to each other, mediation is a good option.
It is also an excellent option where both parties are willing to make small
compromises to achieve a settlement that is beneficial for all involved.
At what stage of a dispute can parties go to mediation?
In a voluntary/private mediation, parties
themselves resolute to approach a trained mediator who will address their
issues with one another and help them reach a compromise. Thus, parties can
directly approach a mediation facility rather than approaching a court for
litigation. It is however clarified that not all matters are appropriate to be
directly be taken to mediation. Cases involving bad faith, dealing with a
burning question of law that requires a precedent or public vindication are not
best suited to mediation, so parties should be clear about the outcome they
want before participating in a mediation.
In a court-referred mediation, the stage at
which the mediation is supposed to start has been deliberated upon by the
Courts. The Supreme Court of India, in Afcons Infrastructure Limited v. Cherian
Varkey Construction Company Private Limited [2010 (8) SCC 24],examined
Section 89 of the Code of Civil Procedure and observed as under:
“9. If section 89 is to be read
and required to be implemented in its literal sense, it will be a Trial Judge's
nightmare. It puts the cart before the horse and lays down an impractical, if
not impossible, procedure in sub-section (1). It has mixed up the definitions
in sub-section (2). In spite of these defects, the object behind section 89 is
laudable and sound... ...15. If sub-section (1) of Section 89 is to be
literally followed, every Trial Judge before framing issues, is required to
ascertain whether there exists any elements of settlement which may be
acceptable to the parties, formulate the terms of settlement, give them to parties
for observations and then reformulate the terms of a possible settlement before
referring it to arbitration, conciliation, judicial settlement, Lok Adalat or
mediation. There is nothing that is left to be done by the alternative dispute
resolution forum. If all these have to be done by the trial court
before referring the parties to alternative dispute resolution processes, the
court itself may as well proceed to record the settlement as nothing more is
required to be done, as a Judge cannot do these unless he acts as a conciliator
or mediator and holds detailed discussions and negotiations running into
Thus, it is evident from the above judgment
that Courts cannot exactly follow the procedure laid down in Section 89 due to
its impractical aspects. A better guide to the process, which have been adopted
by a few High Courts with small modifications eventually too, are the
Alternative Dispute Resolution and Mediation Rules, 2003. These Rules specify
the following process for courts to refer the dispute to mediaton:
“Rule 2: Procedure for
directing parties to opt for alternative modes of settlement:
(a) The Court shall, after
recording admissions and denials at the first hearing of the suit under Rule 1
of Order X, and where it appears to the Court that there exist elements
of a settlement which may be acceptable to the parties, formulate the terms and
settlement and give them to the parties for their observations under
sub-section (1) of Section 89, to be furnished to the Court within fifteen days
of the first hearing.
(b) At the next hearing, which
shall be not later than fifteen days of the first hearing, the Court
shall reformulate the terms of a possible settlement and direct the parties to
opt for one of the modes of settlement of disputes outside the Court as
specified in clauses (a) to (d) of sub-section (1) of Section 89 read with Rule
1A of Order X, in the manner stated hereunder, Provided that the Court, in the
exercise of such power, shall not refer any dispute to arbitration or to
settlement through Lok Adalat or judicial settlement, under the Legal Services
Authority Act, 1987, as envisaged under clauses (a) and (c) of sub-section (1)
of sec. 89, without the written consent of all the parties to the suit.”
Rule 2 therefore states that the Court may,
with the consent of parties, where it sees possibility of a settlement while
hearing a dispute, draw up the settlement and send the dispute for alternative
Further, under Rule 5(e)(ii), where all the parties
opt and agree for mediation, they shall apply to the Court, within fifteen days
of the direction under Rule 2 and the Court shall, within fifteen days of the
application, refer the matter to mediation.
Therefore, while in a private
dispute, parties may turn to mediation at any stage as they please, a court may
refer a matter for mediation if it feels a possible settlement is possible, and
all the parties to the dispute agree to the mediation.
PRE-INSTITUTION MEDIATION IN
Under the Commercial Courts, Commercial
Division, Commercial Appellate Division of High Courts Act, 2015, Commercial
Courts (Pre Institution Mediation and Settlement) Rules, 2018 were framed, and
require that parties of commercial disputes valued over Rs. 3 lakhs must first
go to mediation before they approach Courts. The settlement arrived at under
this method shall have the same status and effect as if it is an arbitral
By Shiv Mangal Sharma
Advocate Supreme Court