Commercial Mediation: A Panacea for Commercial Disputes in India

Co-authored by Adv. Abhas Mishra, Advocate & a Mediator, practicing in the High Court of Delhi, and Syed Suhaib a Final Year law student at U.I.L.S, Chandigarh University & an Editor at All India Commercial Law Review.

"A Good Settlement is always better than a Good Lawsuit – Abraham Lincoln"

Introduction

The commerce sector of the economy is an imperative moiety which has been bourgeoned by dint of interactions with commercial law ascending to a conducive environment of settling commercial disputes through amicable means rather than resorting to the traditional format of court litigation insinuating prevalence which correlates to the aforementioned quote from Abraham Lincoln. Even influential Economists like Adam Smith & Carl Meger have argued that customs & practices followed by the merchant community have aided in the development & prevalence of commercial law because the merchant community has always preferred an institutional enforcement mechanism to be inclusive within the laws governing commerce.[3] Hence, the inclusion of commercial mediation has been interposed as a preferential mechanism for the resolution of mercantile disputes which in India is concurrently backed by an enforcement mechanism.[4] In common parlance, the inclusivity of commercial mediation is considered a new prospectus however, this panacea can be silhouetted throughout history in settling disputes, on the premises of amicability, confidentiality, time bound & facilitative criterion. The empirical evidence silhouettes the history of mediation to the Mesopotamian Era.[5] However, as the nature of disputes alchemised, the world shifted from amicable settlements i.e. mediation & arbitration practices to the court litigation system.

However, in the contemporary era, the winds of change favoured an alternative & amalgamated form of dispute resolution practices which is coalesced as Alternative Dispute Resolution (A.D.R.) & is inclusive of commercial mediation as well, which can be reasonably avouched to be a panacea for commercial dispute resolution instead of resorting to commercial litigation. India is on the corollary of emerging as a hub for International Dispute Resolution & such metamorphosis will necessitate domestic application of A.D.R. mechanisms. Within the Indian Dispute Resolution statutes, these mechanisms can be traced throughout various statutes, predominantly within the Arbitration & Conciliation Act of 1966 and the Mediation Act of 2023.  However, the genesis of commercial mediation in India itself showcases the pragmatic approach that India has adopted for the resolution of commercial disputes more effectively and for the notion of resorting to alternative mechanisms rather than the traditional court system.

Evolution of Commercial Mediation in India

To comprehend the modern commercial mediation system of India, it becomes incumbent to conceive the genesis of commercial mediation in India which can be traced back to the Vedic Era around 4000 B.C (approx.) wherein tribunals were established by Yagnavalkya which included KULA, SHRENI, and PUGA. [6]The bourne was to resolve disputes in a non-adversarial manner. This can even be attributed to the pragmatic application of Alternative Dispute Resolution. However, during that period, a non-adversarial form of dispute resolution was the standard and as a result was not viewed as an ‘Alternative’ in contrast to the present notion. In the pre-British era in India, the practices of commercial mediation were utilised by businessmen called Mahajans in resolving commercial disputes.[7] After the Independence in 1947, the enactment of the Industrial Disputes Act of 1947 facilitated out-of-court settlement thereby, propelling the way for commercial mediation. In 2018, the amendment to the Commercial Courts Act, of 2015 added Section 12 A which obligated ‘Pre-Mediation & Settlement’. This amendment mandated ‘pre-mediation before litigation’ for commercial disputes within a time frame of three months, which can be extended to 2 months with the parties’ consent and this period is exempted from the limitation for filing a suit under the Limitation Act.

However, even this amendment observed a drawback in the case of M/s Sabsons Agencies Private Limited Vs M/s Harihar Polymers & Anr[8] wherein the Plaintiff had applied for an exemption from pre-litigation mediation as mandated under Section 12-A of the Commercial Courts Act, of 2015, in a suit to recover Rs. 6,13,07,075/-. The contention of the Plaintiff was that mediation had already been attempted in proceedings under Section 138 of the Negotiable Instruments Act, of 1881, although not strictly in compliance with Section 12-A, and thus further mediation should not be required. Based on the aforementioned facts, the Court reasoned that the mandatory nature of pre-litigation mediation under Section 12-A, noting the statutory language, procedural rules, and potential benefits of mediation.

It stressed that while the process is compulsory for the Plaintiff, it remains voluntary for the Defendant. The Court highlighted that settlements arising from mediation are enforceable as awards, akin to Section 30(4) of the Arbitration & Conciliation Act, of 1996 and that the period spent in mediation is excluded for limitation purposes thereby necessitating pre-litigation mediation to be mandatory and imperative before initiating a suit even though an earlier attempt was made in accordance with another statue (in this case, the limitation act) and hence dismissed the Plaintiff’s application, rejecting the plaint and dismissing the suit.[9] It can be reasonably argued that this cannot necessarily be interpreted as a drawback but rather legislators’ intent to make the process of commercial mediation & settlements/awards arising out of that process enforceable, to facilitate a sense of trust in the process of mediation & thereby making it a preferable option for commercial dispute resolution. This evolution was followed by the enactment of the Legal Service Authorities Act, 1987 which introduced the system of Lok Adalats followed by by the amendment of 1999 to the Code of Civil Procedure 1908 which introduced Section 89[10] as a result of Justice Malimath Committee Report which was recommended during the 129th Law Commission in 1988.

The Contemporary Practice of Commercial Mediation in India.

The contemporary notion of mediation in India is being aggrandized to be an inclusive mechanism for dispute resolution for insolvency & bankruptcy cases alongside the concurrent mechanism of CIRP under Section 9 of the IBC, 2016. This harbinger suggestion is being introduced by IBBI through their proposal on the Framework for Use of Mediation under the Insolvency and Bankruptcy Code, 2016.[11] Another notable development has been the Singapore Convention on mediation which is based on the UNICITRAL model[12] and governs the framework for settlement of international commercial disputes through mediation which is inclusive of cross-border insolvency. The Singapore Convention is a notable development in the contemporary realm of mediation because this convention provided a legally binding force for mediation by which the traction of commercial mediation was heeded alongside arbitration and consequently it gained a significant place within the jurisprudence of ‘Alternative Dispute Resolution’ which also pertains to the inclusiveness of amicable dispute resolution within the prudence of International Free Trade which lumps the principles delineated by World Trade Organisation & International Trade Organisation. The enactment of the Mediation Act, of 2023 has further fortified the focus of commercial mediation as Section 2 (iv) extended the applicability of this Act to commercial disputes & articulates the same definition for ‘commercial disputes’ as elucidated under Section 2 (1)(c) of the Commercial Courts Act 2015.

However, the definition provided under the Commercial Courts Act has been kept intact predominantly because of the judicial scrutiny of the definition elucidated in various cases including one by the Calcutta High Court, in the case of Ladymoon Towers Private Limited v. Mahendra Investment Advisors Private Limited[13] wherein the issue relating to ‘hand loans’ was deliberated. In scrutiny, the question of law to adjudicate before the Court was to ascertain the ‘commercial flavour’ of ‘hand loans’ & subsequently Justice Moushumi Bhattacharya undertook opining the jurisprudential reasoning of the constitution of commercial disputes. The Petitioner had filed a suit to recover Rs.64,50,000 + interest from the Defendant which, as per the facts, was given in the nature of a hand loan as both parties had a familiarity with each other and hence was not considered as a loan given in the due course of commercial transaction. It is also pertinent to note that this transaction was done via oral understanding and was not formalised by a written agreement. Justice Moushumi Bhattacharya also reasoned that “Only a dispute arising out of a transaction between the named classes of persons which has been formalised by way of a mercantile document will be a ‘commercial dispute’ under Section 2(1)(c)(i) of the 2015 Act”. The Judgment is also inclusive of the terms Merchants, Traders, Financers, Mercantile Documents & Commercial Actions[14] as categorised under the definition of ‘commercial disputes’ stipulated under the Commercial Courts Act of 2015.[15]A judgment of the Bombay High Court in the case of Manesh Rajkumar Kanhed v. Ramesh Bhagwansa Walale was also quoted wherein it was stated that a hand loan given for starting a business agency does not fall within the purview of commercial transaction. Such precedential reasonings have expanded the purview pertaining to the scope of commercial disputes and they also implicate a need for an amicable mechanism wherein such disputes are adjudicated amicably.

Conclusion

The pursuit for accentuation on the jurisprudence of commercial disputes consistently requires a prevalent reconnaissance as the nature of such disputes is mercurial. Even though history indicates how mediation was considered a preeminent preference for resolving disputes of merchants, the insistence for a traditional court format was reasoned to be incumbent becuase although a settlement mechanism was in place, there was no legislative inclusivity or enforcement mechanism to structure the resolution of commercial disputes amicably via settlements. Another deliberation which supports a separate premise on the resolution of commercial disputes is that commercial law is reasoned to be a separate realm from civil law.[16] Hence a need for separate legislation is justified which can be amended with time to suit the prevailing segments of disputes and are backed by sanctions which can invigorate the sapience that a good settlement is always better than a good lawsuit, lestwise for commercial disputes

References

[1]* The author is an Advocate & a Mediator, practising in the High Court of Delhi.

[2]* The author is a 4th Year law student at U.I.L.S, Chandigarh University.

[3] Bryan Druzin, ‘Law Without the State: The Theory of High Engagement and the Emergence of Spontaneous Legal Order within Commercial Systems’ (2010) 41(3) Georgetown Journal of International Law 559.

[4] Mediation Act, 2023.

[5] Melvin, D. P. (2011) “Divine Mediation and the Rise of Civilization in Mesopotamian Literature and Genesis 1–11”, The Journal of Hebrew Scriptures, 10. D.O.I: https://doi.org/10.5508/jhs.2010.v10.a17 

[6] Sayers, M. R. (2012). Claiming Modes of Mediation in Ancient Hindu and Buddhist Ancestor Worship. Journal of Ritual Studies, 26(1), 5–18. (JSTOR) http://www.jstor.org/stable/44368844 

[7] 27 Hamline J. Pub. L. & Pol'y 275 (2005-2006) Mediation: Its Origin and Growth in India. (HeinOnline). https://heinonline.org/HOL/LandingPage?handle=hein.journals/hplp27&div=16&id=&page= 

[8] 2024 LiveLaw (Del) 286.

[9] Requirement Of Pre-Litigation Mediation Under Section 12-A Of Commercial Courts Act Is Mandatory: Delhi High Court, LiveLaw, (Delhi High Court, 2024). https://www.livelaw.in/high-court/delhi-high-court/requirement-of-pre-litigation-mediation-under-section-12-a-of-commercial-courts-act-is-mandatory-delhi-high-court-251785.

[10] Section 89 of Code of Civil Procedure, 1908: Settlement of disputes outside the Court.

[11] https://ibbi.gov.in/uploads/whatsnew/5432fd4873e30cdb2e4ab4802454565c.pdf 

[12] https://uncitral.un.org/en/texts/mediation/conventions/international_settlement_agreements 

[13] 2021 SCC OnLine Cal.

[14] Punjab University vs. Unit Trust of India; (2015) 2 SCC 669.

[15] Ladymoon Towers Private Limited v/s Mahendra Investment Advisors Private Limited 2021 SCC OnLine Cal 208. Pg 3-12.

[16] Enrique Lalaguna Dominguez, ‘The Interaction of Civil Law and Commercial Law’ (1982) 42(5) Louisiana Law Review 1629.

Also see: Murray Raff, ‘The importance of reforming civil law in formerly socialist legal systems’ (2015) 1(1) International Comparative Jurisprudence 24.