Mediation Act 2023 – Two Steps Forward, One Step Back – Arbitration & Dispute Resolution

This article analyses and critiques the mechanism for mediation
introduced by the Mediation Act, 2023 in the context of global
standards.

Historically, the Indian judicial system has been plagued with
delays. As of 13 February 2024,¹ over 44 million civil
and criminal case were pending.² Over time, the law has
developed to enable courts to permit, or direct, parties to resolve
their disputes through alternative dispute resolution.³
The Legislature also enacted the Legal Services Authorities Act,
1987 and the Arbitration and Conciliation Act, 1996
(A&C Act) to promote alternative dispute
resolution, and various statutes now enable mediation, or prescribe
mandatory pre-institution mediation.⁴ However private
mediation remained unpopular on account of the lack of statutory
recognition.⁵

On the recommendations of the High Level Committee to Review the
Institutionalisation of Arbitration Mechanism in India,⁶
the 117th report of the Parliamentary Standing Committee on the
Mediation Bill, 2021 (Standing Committee
Report),⁷ and the Supreme Court,⁸
the Government has now institutionalised mediation by enacting the
Mediation Act, 2023 (Act).

Key Features of the Act

The Act defines ‘mediation’ as the process through which
parties attempt to amicably settle their disputes with the
assistance of a 3rd party mediator,9 and includes pre-litigation
mediation,¹⁰online mediation,¹¹ community
mediation,¹² and conciliation.¹³ While
conciliation was previously provisioned for, and governed by, the
A&C Act, it is now considered a form of mediation and is
governed by the Act.¹⁴

Parties must reach a settlement and execute a mediated
settlement agreement (MSA) within 120 days of
appointing a mediator.¹⁵ The MSA will be final and
binding in the same manner as a court’s decree or judgment, and
can be challenged on limited grounds – fraud, corruption,
impersonation and, or, the matter not being capable of being
resolved through mediation – within 90 days of receiving a
copy of the MSA.¹⁶

The Act applies to mediations conducted in India:

1. Where all parties are habitually resident, or incorporated in,
   India;




2. Which involve at least 1 foreign party and relate to a
   commercial dispute ;¹⁷




3. Where the mediation agreement states that any dispute will be
   resolved as per the Act;




4. Where the Central or State Government is a party to a
   commercial dispute;




5. Which pertain to other disputes as notified by the Central or
   State Government.

The Act does not extend to mediations conducted outside India or
provide for the enforcement of MSAs arising from such
proceedings.

The Act proscribes mediation of certain disputes,¹⁸
including disputes involving minors and persons of unsound mind,
criminal prosecutions, taxation disputes, proceedings before any
statutory authority in relation to misconduct by a practitioner,
and disputes involving rights of 3rd parties except where the
interest of a child in matrimonial matters is concerned. While the
mediation of compoundable offences¹⁹ is not proscribed,
such matters may only be referred to mediation by the courts, and
any MSAs resulting from such mediations are not deemed to be
enforceable as a decree of the court.²⁰

The Act also enables parties to apply for interim relief while a
dispute is under mediation although it does not prescribe the
parameters for such relief.²¹

Shortcomings of the Act

International Standards and Enforcement of International
MSAs

Broadly, there are 2 international instruments which set out
frameworks for legislation pertaining to mediation: (i) the United
Nations Convention on International Settlement Agreements resulting
from Mediation, 2019 (Singapore
Convention)²² which aims to facilitate the
enforcement of international MSAs; and (ii) the United Nations
Commission on International Trade Law Model Law on International
Commercial Mediation and International Settlement Agreements
Resulting from Mediation, 2018 (Model
Law)²³. Although India is a signatory to the
Singapore Convention, the Act does not provide for the recognition
and enforcement of international MSAs.²⁴

There are 2 issues here. First, MSAs executed pursuant to
mediation proceedings outside India are not enforceable under the
Act. Second, while the Act permits the mediation of non-commercial
disputes in India, Indian mediation proceedings involving foreign
parties are only governed by the Act if they pertain to commercial
disputes.

Ideally, international MSAs pertaining to disputes which are
capable of being resolved by mediation in India should be
enforceable in India. As the Act does not recognise international
MSAs, parties seeking to enforce their rights under such agreements
may only do so by approaching Indian courts for civil contractual
remedies. Failure to extend such recognition will necessarily
create difficulties for parties who have executed international
MSAs and reduces the flexibility of parties to conduct mediation
proceedings outside India. This could stymy the resolution of
disputes through mediation, particularly by foreign parties, as
statistics show that enforceability of relief is 71% of the
criteria in the selection of a dispute resolution
mechanism.²⁵

Third-Party Funding

The Act does not deal with third party funding. In India,
third-party funding – whether for litigation, arbitration or
any other form of dispute resolution – is not expressly
prohibited, except in the case of lawyers funding litigation on
behalf of their clients.²⁶ In fact, in the past,
third-party funding has been permitted in the interest of promoting
access to justice.²⁷ Given that the aim of the
Legislature appears to be to increase access to, and reliance on,
alternative modes of dispute resolution, the Act should, ideally,
have created a framework for third-party funding of mediation.
There is international precedent for this – Singapore’s
Civil Law Act, 1909 has, since 2017, permitted third-party funding
of mediation.

Compoundable Offences

The Act empowers courts to direct parties to undertake mediation
to resolve disputes pertaining to compoundable offences. However,
the Act does not prescribe guidelines to determine when such an
offence may be referred to mediation. This will likely lead to
inconsistencies across courts in various states, and the Government
should introduce guidelines to streamline the reference of
compoundable offences to mediation at the earliest.

Difficulty Enforcing MSAs from Certain Domestic
Mediations

While, in general, the Act provides that MSAs arising from
mediations conducted in India are enforceable as decrees or
judgments of courts, there are some exceptions to this rule –
viz. mediation involving compoundable offences and community
mediation. These MSAs are, therefore, of limited value as each MSA
will need to be adjudicated by the court in order to be
enforced.

Interim Reliefs

Although the Act empowers the courts to grant interim reliefs to
parties undergoing mediation, it does not specify the nature of the
relief available or the parameters for granting the same. This may
leave room for misinterpretation and variance in practice. The
parameters of, and limitations on, interim relief should be clearly
set out to ensure that mediation remains time-bound.

Grounds for Challenge

The Act prescribes an exhaustive list of grounds on which an MSA
may be challenged. The list does not include coercion and duress as
grounds for challenge. This is concerning since parties may appoint
unregistered mediators and, in our view, there may be a greater
likelihood of coercion and duress from unregistered and
unaccredited mediators. While it is necessary to limit the grounds
for challenging an MSA to make the process effective, the permitted
grounds should be broad enough so as to not be prejudicial to the
parties in the event of an unlawful settlement.²⁸

The Bottom Line

It is possible that the Legislature elected not to incorporate
the provisions of the Singapore Convention at this stage as there
is inadequate data regarding the implementation of the Singapore
Convention in other major economies, and such provisions may be
incorporated at a later stage. However, given that India intends to
become an international hub for alternative dispute resolution, the
Act may have been drafted with the specific intent of discouraging
the conduct of mediation proceedings outside India which deal with
businesses, assets, or contracts with an Indian nexus.

Given the rise of complex cross-border transactions and the
growing popularity of mediation, it is imperative that India
formulate a framework for the enforcement of international MSAs.
The Legislature could adopt the same approach as that taken for
foreign arbitral awards to which the New York Convention applies
– i.e. there is a presumption that the award can be enforced
unless the party seeking to challenge enforcement can prove certain
limited grounds.

In addition to a framework for the enforcement of international
MSAs, the Act must prescribe guidelines for the enforcement of MSAs
arising from the mediation of compoundable offences and community
mediation. Failure to do so may lead to protracted litigation when
such MSAs are sought to be enforced, thus defeating the intent
behind the Act.

India may also consider expanding the scope of disputes capable
of being resolved through mediation to include disputes relating to
tortious liabilities, matrimonial and custody disputes, etc., and
prescribing more detailed provisions for the grant of interim
relief. Lastly, the Singapore Convention and the Act limit
international mediation to commercial disputes. By broadening the
range of disputes, India can widen the subject matter for
mediation, resulting in the resolution of more disputes outside
courtrooms.