Mandatory Mediation In Commercial Dispute Resolution Has Low Success Rate, Should Be Made Voluntary: Sanjeev Sanyal

Sanjeev Sanyal, a member of the Economic Advisory Council to the Prime Minister (EAC-PM), has argued that mandatory mediation in commercial cases should be made voluntary.

In an op-ed piece in the Economic Times, Sanyal, along with EAC-PM consultant Apurv Mishra, contend that mandatory mediation has shown limited effectiveness in resolving disputes and instead adds unnecessary delays to the legal proceedings.

Mediation is a form of alternative dispute resolution (ADR) that involves a neutral third party, known as a mediator, who helps disputing parties to negotiate a mutually acceptable agreement.

The process is designed to be less formal, less adversarial, and often more flexible than traditional court proceedings.

In theory, this can reduce the inflow of cases clogging the legal system.

Under the current legal framework, as stipulated by Section 12A of the Commercial Courts Act 2015, parties involved in commercial disputes are required to attempt mediation before they can file a case in court.

The only exception is if there is a special time-sensitive urgency.

Citing an article that used data from the two district-level commercial courts in Mumbai, Sanyal said the report found that mandatory mediation had a poor record in resolving commercial disputes.

"Since Mumbai is India's commercial capital, it provides a good testing ground for the approach's success. We updated the data till September to see if things had changed," the duo said.

According to Sanyal, there are three types of disposals, as laid down in the 2015 Act and reported by the courts. These include Settled cases, where mediation was successful, and the parties have amicably arrived at a mutual settlement; Failed case, where mediation was attempted and failed; and Non-Starter cases where the opposite party refused to participate in the mediation process.

Between 2020 and 2023, the data shows that around 98 per cent of applications for pre-litigation mediation were non-starters, with parties not participating in the proceedings.

Of the remaining 2 per cent that did attempt mediation, half failed, and only the other half led to a settlement.

This implies that effectively, 99 per cent of cases are delayed by the possibility of a 1 per cent resolution through mediation.

"Between January and September 2023, for instance, there were 3,404 applications for pre-litigation mediation in the two district courts. Data show: An overwhelming 3,170 applications were non-starters. 120 mediations failed. Only 114 cases were settled successfully," Sanyal said.

The requirement of pre-litigation mediation under the 2015 Act is not working, and only adds to the time and cost of inevitable litigation.

Sanyal argue that this mandatory step not only delays the legal process by 3-5 months but also adds to the legal costs, burdening the parties involved.

The EAC-PM member points out that many litigants, aware of the futility of mediation, often seek to bypass it by exploiting a carve-out in Section 12A for urgent cases.

"This leads to many a farcical situation," he added.

"In most business transactions, the parties attempt to amicably settle their disputes through informal and formal consultations before sending legal notices and initiating litigation. Therefore, a mandated mediation at this late stage is unlikely to work in India, especially when forced," Sanyal said.

Sanyal further emphasise the need for the mediation system to prove its efficacy rather than being imposed by mandate.

He suggested that making pre-litigation mediation voluntary would significantly reduce the timeline for dispute resolution in commercial cases and lower legal costs, ultimately benefiting entrepreneurs and the business community at large.

"For the mediation system to be effective, it must earn its place in the dispute-resolution ecosystem by its performance and not by a mandate. The evidence clearly shows that it adds extra time and cost to the process. Hence, Section 12A of the Commercial Courts Act 2015 must be amended to make pre-litigation mediation for commercial cases voluntary. This will reduce the timeline of dispute resolution in commercial cases by 3-5 months and lower the legal costs that entrepreneurs have to bear," he added.