India: Mandating The Duty To Consider ADR In India?

"Discourage litigation. Persuade your neighbour to compromise whenever you can. As a peacemaker, the lawyer has a superior opportunity of being a good man. There will still be business enough."

-Abraham Lincoln

1. Introduction

The Chief Justice of India ("CJI") while delivering his keynote address¹ at the India-Singapore Mediation Summit "Making Mediation mainstream: Reflections from India and Singapore" issued a clarion call to prescribe Mediation as a mandatory first step for resolution of every allowable dispute to promote mediation. He further espoused an omnibus law in this regard is needed to fill the vacuum regarding Mediation in India. The CJI clarified that the clarion call is not limited to Mediation alone and also extends to other forms of Alternative Dispute Resolution ("ADR") such as Conciliation. The present article seeks to examine this statement in light of the Indian ADR Landscape and explore the possibility of making ADR mandatory in India.

2. Current State of ADR Framework in India

It is widely accepted that the ADR principles are deeply embedded and in synchronicity with Indian Ethos, since traditionally community-based ADR was widely practised through the elders in families and chieftains in villages in towns, well before even the concept of an Adversarial Legal System was introduced by the British. Therefore, the recent initiatives to revitalise ADR Mechanisms in the Indian Legal System can be viewed as nothing but a campaign to recalibrate the Indian legal system with its age-old ethos.

With the passage of time, various Mechanisms such as Lok Adalat's under Legal Services Authorities Act, 1987 have brought a much-needed breath of fresh air to unclog and relieve the already overcrowded rosters of Judges in India. This was further augmented with the introduction of the Arbitration and Conciliation Act, 1996, which brought the Indian regime in conformity with the internationally recognised UNCITRAL Model Law.

However, the biggest boost came with the amendment of Section 89 of the Civil Procedural Code (CPC). However, due to ambiguity in the language of the statute, the ultimate push towards ADR come had to come from the  Supreme Court. On expected lines, the Supreme Court in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd.² (Afcons International) while interpreting Section 89 of Civil Procedure Code, 1908 ("CPC") and having regard to Order 10 Rule 1-A CPC, held that after pleadings are complete and after seeking admission and denials, but prior to framing of issues, it is mandatory for the court to consider referring parties to one of ADR  processes. In other words, the court have to mandatory consider whether it is appropriate to refer the parties to ADR, in the facts and circumstances of the case. However, actual reference to ADR process is not mandatory for the courts under Section 89 CPC, if the court deems that the case is unfit for referral to ADR. The Supreme Court in Afcons International further held that whilst, consent of parties is required to refer the parties to arbitration or conciliation, however, no consent needs to be obtained from the parties for the other three ADR processes i.e. Lok Adalat, mediation and judicial settlement. Therefore, if it is appears suitable and appropriate to the court, then the court can direct the parties to resort to such an ADR process. In making this choice court will have to keep in view various factors- the nature of disputes, interests of parties, and policy of timely dispute resolution. This judgement was a thus giant leap towards court directed ADR/ mediation in India. However, as explained above, this mandatory duty to consider ADR was solely imposed on the courts, and there was no corresponding duty on the parties. 

1. Introduction of Mediation/ADR in Specialised Statues

This boost to ADR/Mediation was further bolstered by the inclusion of Mediation in various specialised statutes such as:

1. Section 442 of the Companies Act, 2013, which provides for referral of company disputes to Mediation by the National Company Law Tribunal (NCLT) and Appellate Tribunal read with the Companies (Mediation and Conciliation) Rules, 2016. 
2. Section 32(g) of the Real Estate (Regulation and Development) Act, 2016, which provides for amicable conciliation of disputes between the promoters and allottees through dispute settlement forums set up by consumer or promoter associations.
3. Section 37, and Sections 74 to 81 of the Consumer Protection Act, 2019, which  provides for reference of a dispute to Mediation as an ADR Mechanism and setting up of a Consumer Mediation Cell at each of the District Commissions, the State Commissions and National Commission.
4. Section 18 of the Micro, Small and Medium Enterprises (MSME) Development Act, 2006,  which provides for conciliation when disputes arise on payments to MSMEs.
5. Section 4 of the Industrial Disputes Act, 1947, which authorises the appropriate government to engage such number of persons as may be deemed necessary by notification in the Official Gazette as conciliation officers, for discharging the responsibility of mediating in and promoting the settlement of industrial disputes.

2. Introduction of Mandatory Mediation by Statute

The landscape of Mediation in India entered an unchartered territory through the introduction of Mandatory Mediation in India, through the Commercial Courts, Commercial Division And Commercial Appellate Division Of High Courts (Amendment) Act, 2018, which  inserted Section 12A to the Commercial Courts Act, 2015 ("CCA"). Section 12A of CCA provides for a Mandatory Pre-Institution Mediation and Settlement. Section 12A clearly states that a suit, which does not contemplate any urgent interim relief shall not be instituted unless the plaintiff exhausts the remedy of Pre-Institution Mediation in accordance with such manner and procedure as may be prescribed by the rules made by the Central Government. This section was thus a harbinger of winds of change, in so far, as it provided for mandatory mediation. Nonetheless, it is pertinent to note that the ambit of this section is limited only to commercial matters.

Section 12A CCA seemingly makes it mandatory for parties to exhaust remedy of pre-institution mediation under the Act before the institution of a suit. However, the Bombay High Court, in Ganga Taro Vazirani  v.  Deepak Raheja ³ (Ganga Taro),  while interpreting Section 12A CCA has held that that the provision that "compulsorily" requires disputing parties to attempt an amicable settlement through mediation is procedural and there is no absolute prohibition to file a suit before attempting mediation. The court reasoned that the provision itself contemplates that where any urgent interim relief is applied for, the party seeking relief is not required to exhaust the remedy of mediation before approaching the court. Therefore, according to the Court, the purpose of the law appears to be that parties should try and resolve their disputes before coming to court. However, when parties have tried to resolve their disputes unsuccessfully, it would be futile to still drive the parties to pre-institution mediation. This decision seems to indicate that the purport of Mandatory Mediation in the statute only extends to impose a duty upon the parties to consider mediation.

3. Analysis of Indian Position

The Indian position on ADR is pre-dominantly non-mandatory. Whilst Section 89 does impose a duty on the court to consider ADR, it is not mandatory for the court to direct parties to any form of ADR. Moreover, there is no parallel duty on the parties to consider ADR. The only statute that seems to impose a duty on the parties to consider ADR (Mediation) is the Commercial Court Act. A drawback of not imposing a duty on the parties to consider ADR is that, if the parties are not pressurised with some detriment for failing to atleast consider ADR, the parties become entrenched in their respective positions, instead of making genuine attempts at settling the disputes through ADR.

3. Position in England & Wales

The English legal system in stark contrast with the Indian legal system, has a more structured and streamlined approach to ADR. ADR is enshrined as an Overriding Objective of Civil Procedure Rules (CPR), to deal with cases "justly and at proportionate cost"⁴. The CPR obligates the parties to help the Court to further the overriding objective. In this light, CPR imposes a duty on the parties to consider ADR with possible cost consequences for failing to consider or engage in the ADR process. CPR 44.1(3)(a)(ii) enumerates that the Court will examine "the efforts made, if any, before and during the proceedings in order to try and resolve the dispute".

The courts also have the power to direct parties to pursue a particular form of ADR, even if the parties have not consented to it. ⁵ Where a party unreasonably fails to mediate or attempt ADR it may be penalised by the court by the imposition of Costs,⁶ or even imposition of Indemnity costs. ⁷ Thus, there is a departure from the general principle "costs follow the event" in case of unreasonable refusal to engage in ADR. In the case of Halsey v Milton Keynes General NHS Trust ⁸, the Court enumerated various factors that the Courts would consider in ascertaining whether a party has acted unreasonably in refusing to engage in ADR:

It is further pertinent to mention, that even a defence by the parties, that mediation would have been unlikely to succeed and therefore they have refused to engage in ADR, may not vindicate them from the negative costs consequences flowing from the arrangement⁹. Furthermore, a party can also be penalised for withdrawing from mediation ¹⁰or refusing to engage with the opponent as to the possibility of Mediation by remaining silent following an invitation to mediate.¹¹

The English laws further strengthen the duty to consider ADR, through the usage of Pre-Action Protocols (which mandate the parties to take certain steps before initiating court proceedings)  and CPR Part 36 offers to settle (risk of adverse cost consequences on the losing party for rejecting a genuine offer to settle). The intricacies of the aforesaid provisions are beyond the scope of this instant article. However, the effect of these provisions is that they facilitate the early disclosure of the case of the parties, which consequently allows the parties to narrow down the issues and achieve a possible settlement. The Pre-Action Protocols operate even before the issuance of proceedings by the parties, thus allowing the parties to attempt to settle with an open mindset because it allows for the possibility of resolving the claims even before approaching the courts. It is often the case that once a matter has reached the portals of the court, the parties have a proclivity to become entrenched in their respective positions.

4. Conclusion

In light of the decision in Ganga Taro (supra), there is some ambiguity as to the purport of mandatory mediation in India. Multiple studies have clearly shown that the best way, if not the only way, to significantly increase the number of mediated disputes, is to impose a mandatory duty on litigants to make a serious and reasonable initial effort at mediation.¹² For this, India can perhaps take a page (or a chapter!) out of the English Law, to impose a mandatory duty to consider ADR backed by costs sanctions on the parties to consider the possibility of resolving the disputes through the use of ADR. Thus, Mandatory Mediation should be interpreted to mean that parties have a duty to consider ADR in good faith.

This will not only help in reducing the burden in the docket of the already overburdened courts but will also ensure speedy and efficient dispute resolution through the use of less acrimonious legal processes. Furthermore, the use of various other mechanisms such as the introduction of pre-action protocols, and provisions imposing adverse costs consequences for rejecting "without prejudice save as to costs" offers, will go a long way in ensuring that the parties always have ADR in the back of their minds. This is will allow the parties to disclose their case and any issues to the opponent, even before the initiation of the Claim in Court and will facilitate settlement of issues between the parties pre-litigation. An advantage of imposing such provisions is that even where the parties do not end up settling all the issues, it will allow the parties to streamline and narrow down the issues which need to be adjudicated by the courts. The introduction of possible cost consequences might also force the parties to take a cost-benefit analysis of pursuing their case in courts, with expectations of a higher pay-out.

Thus, the India should consider amending the CPC to bring about a more expansive provision to provide for a duty to consider ADR with cost implications, which may go a long way in ensuring a more efficient dispute resolution system.

Footnotes

1 https://www.livelaw.in/pdf_upload/cji-speech-at-mediation-summit-396853.pdf, accessed on 30.03.2022 at 11.00AM.

2 (2010) 8 SCC 24

3 2021 SCC OnLine Bom 195

4 CPR 1(2)

5 Lomax v Lomax [2019] EWCA Civ 1467, it was held that the court had the power pursuant to CPR 3.1(2)(m) to order early neutral evaluation (ENE) even though one party had not consented to it

6 Dunnett v Railtrack plc [2002] EWCA Civ 303.

7 Dyson and Field v Leeds City Council [1999] EWCA Civ 3013.

8 [2004] 4 All ER 920

9 Attorney General of Zambia v Meer Care & Desai [2007] EWHC 1540

10 Roundstone Nurseries Limited v Stephenson Holdings Limited [2009] EWHC 1431

11 PGF II SA v OMFS Company and another [2013] EWHC 83

12 Giuseppe De Palo, "A Ten-Year-Long "EU Mediation Paradox" When an EU Directive Needs To Be More ...Directive." Accessed at, https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/608847/IPOL_BRI(2018)608847_EN. Pdf, on 30.03.2022 at 11.30 AM.

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