ROLE OF MEDIATION IN COMMERCIAL AND BUSINESS DISPUTES

ROLE OF MEDIATION IN COMMERCIAL AND BUSINESS DISPUTES
-Aishwarya Prusty

INTRODUCTON
Over the past couple of years, alternate methods of dispute resolution have drawn favourable
attention of parties in conflicts, especially in the field of commerce and business. In the
modern times where almost all activities take place through some kind of exchange or
transaction, disputes and disagreements are inevitable. But imagine if such disputes threaten
successful business partnerships. These businesses may try to resolve their dispute through
the traditional methods of litigation or arbitration but at the cost of their valuable business
relationships. This is where mediation comes in as a powerful tool that resolves all disputes,
mends business relationships, and strengthens them, all at the same time. This article will
delve into the concept of mediation as well as the crucial part it plays in commercial and
business disputes.
WHAT IS MEDIATION?
Mediation is a structured process of settlement where a neutral and impartial mediator helps
the parties to resolve their disputes amicably. It is an alternative method of dispute resolution
that is voluntary and binding in nature in India. It may be considered an informal way when
compared to litigation and arbitration. 1 Nonetheless, in what was seen as a much-needed legal
development, mediation was finally codified in India on 14 th September 2023 with the
enactment of The Mediation Act of 2023. The Act aims at encouraging the practice of
mediation as an alternative method of dispute resolution for commercial as well as other
types of disputes. It also aims to promote online mediation as an acceptable and cost-effective
process. Section 3(h) of the Act defines mediation where parties work towards establishing
“an amicable settlement of their dispute with the assistance of a third person referred to as
mediator, who does not have the authority to impose a settlement upon the parties to the
dispute.” 2
IMPORTANCE AND ADVANTAGES IN BUSINESS CONTEXT
Mediation is especially advantageous in cases where the parties may wish to maintain their
business relationship after resolving the dispute. This method has several other advantages.
1 Mediation and Conciliation Project Committee, Mediation,
https://main.sci.gov.in/pdf/mediation/Brochure%20-%20MCPC.pdf
2 The Mediation Act of 2023.

Firstly, it saves time of the parties because it takes place over a short span of time and
conflicts are resolved faster than litigation which may go on for several years. This minimises
any loss caused to the businesses and also allows the parties to mend their relationships
sooner. Secondly, costs and resources of businesses are saved. Essentially, mediation is
immensely helpful for small businesses. Thirdly, the entire process of mediation is
confidential which means sensitive details shared by the parties will not be further disclosed
to third parties. This helps to preserve reputation, unlike in court proceedings which take
place in front of the public eye. Further, mediation allows for flexibility. It aims to
accommodate any specific concerns of the parties, which leads to greater satisfaction for both
the sides. It is entirely up to the parties whether they want to settle or move the court, and the
terms of settlement. There is mutual agreement, so it is a win-win situation for both parties.
Mediation respects long term interests of businesses and minimises usage of aggressive or
damaging approaches of dispute resolution.
Apart from benefitting businesses, it also assists the legal system of the country. Courts in our
country are already overburdened with five crore pending cases. 3 So, when parties choose to
resolve conflicts through mediation, there is decrease in the influx of cases which helps
alleviate the burden.
LEGAL AND REGULATORY FRAMEWORK IN INDIA
Up until now, we have learnt what is mediation and how it is beneficial to businesses, both
large and small. Next, we will look into the laws governing mediation in India.
Even before commencement of The Mediation Act of 2023, it was mandatory for parties in a
commercial dispute to first go through mediation, and then file petitions in courts. Section
12A of the Commercial Courts Act, 2015 mandated cases dealing with up to Rs 3 lakh to first
go through mediation and later litigation, with exception only in cases that might require
urgent interim relief.” 4 Apart from this, the 2023 Act is the main legislation governing
mediation cases in India. Section 27 (1) of the Act states that the final settlement agreement
arrived at and signed by the parties is final, binding, and enforceable by law. However, the
settlement is not appealable. This may be the case because a mediated settlement is expected
to be achieved over a number of meetings and sessions so that both the parties are satisfied

3 Over 5 crore court cases pending, government tells Lok Sabha, THE TIMES OF INDIA (Dec 16, 2023, 02:06
IST), https://timesofindia.indiatimes.com/india/over-5-crore-court-cases-pending-government-tells-lok-
sabha/articleshow/106032857.cms?from=mdr.
4 The Commercial Courts Act, 2015 §12A.

with the outcome. So, it is believed all disputes are finally resolved upon reaching a
settlement. 5
The mediation process has four key stages. 6
i. Introduction and opening statement- Here, the parties are introduced to the
mediator, who begins the process by informing the parties about the rules and
approach of mediation.
ii. Joint session- This session focuses on gathering relevant facts and information
about the dispute. Both parties share their concerns, and the mediator tries to
understand the key issues behind the disagreement.
iii. Separate sessions- These are one-on-one meetings between the mediator and each
of the parties which allows for disclosure of sensitive information. Here, the
mediator tries to delve deeper into the underlying concerns of the parties.
iv. Closing- Finally when a settlement is reached and both parties ae satisfied with
the outcome of the mediation, a binding and legally enforceable contract is signed
between them.

Additionally, India was one of the first countries to sign the Singapore Convention on
Mediation. This gives legal enforceability to international settlement agreements resulting
from mediating any commercial disputes. 7
RECENT STATISTICS
Mediation should be strongly encouraged as the preferred mechanism for dispute resolution
in commercial and business transactions. The Supreme Court in the landmark judgement
Afcons Infrastructure Ltd v. Cherian Varkey Construction Co. (P) Ltd clarified the types of
cases that may be referred to ADR, which includes cases relating to trade, commerce,
contracts or consumer disputes, among others. 8 Further, according to the latest data, 49,618
cases have been solved through mediation in India between April 2023 and September 2023. 9

5 Mediation and Conciliation Project Committee, Mediation,
https://main.sci.gov.in/pdf/mediation/Brochure%20-%20MCPC.pdf
6 Id.
7 SINGAPORE CONVENTION ON MEDIATION, https://www.singaporeconvention.org/ (last visited Jan. 15,
2023).
8 Afcons infrastructure and Ors. v. Cherian Verkay Construction and Ors, 2010 (8) SCC 24.
9 NATIONAL LEGAL SERVICES AUTHORITY, https://nalsa.gov.in/statistics/settlement-through-mediation-
report/settlement-through-mediation-report-april-2023-to-september-2023 (last visited Jan. 15, 2023).

Reports from past few years also show that this number reaches a high of around 90,000
during a 12-month period.
CHALLENGES TO MEDIATION
Although mandatory pre-litigation mediation is aimed at speeding up the process of dispute
resolution and reducing inflow of cases in Courts, it has raised concerns about its efficiency
in practice. Since the participation is mandatory, parties may take part in it unwillingly even
when there is no possibility of mediating the dispute. However, the 2023 Act does not
mandate this process for civil cases. The Economic Advisory Council to the Prime Minister
raised the question that, “if mandating pre-litigation mediation is unsuitable for civil cases,
why should it be compulsory for commercial cases?” 10 The Council further adds that this
mandate under 2015 Act is not really efficient and only delays dispute resolution by months
along with increasing the expenditure for legal fees. This is because in most commercial
disputes, the parties first make efforts to settle through several meeting and consultations
before initiating the litigation process at later stages. So, it is improbable for a forced
mediation to work at this point. 11
One example is the case of Apple v. Samsung which took place in 2011 when Apple accused
Samsung of imitating the appearance and aesthetics of the iPhone in its Galaxy line of
phones. The mediated talks between the parties did not reach a settlement and the suit went to
trial twice later. Both the parties were rivals in this case and possibility of success of
mediation was unlikely, so the sessions only led to unnecessary delay and expense. 12
Additionally, there might be power imbalance between the parties. Discussions may appear
one-sided which benefit only one party while barely benefiting the other. The more influential
party may try to force a settlement even when the other party is not fully satisfied. It is
important to ensure that the procedure is carried out in a balanced way where both parties can
fully and freely express their perspectives of the situation.
CONCLUSION

10 Sanjeev Sanyal, et al., Why Commercial Mediation Should be Voluntary, November 2023 EAC-PM Working
Paper Series, 2023, https://eacpm.gov.in/wp-content/uploads/2023/10/EACPM-WP25-Why-Commercial-
Mediation-Should-be-Voluntary.pdf
11 Id.
12 Pon Staff, Negotiation in Business: Apple and Samsung’s Dispute Resolution Case Study, DAILY BLOG, (Jan.
15, 2023, 01:56 IST) https://www.pon.harvard.edu/daily/business-negotiations/apple-v-samsung-an-example-of-
negotiation-in-business-gone-bad/

Mediation is an effective alternative method of dispute resolution. It is of great value to
businesses who wish to resolve conflicts and disagreements without damaging healthy
professional relationships. It also complements the legal system of the country. It is no doubt
that both parties as well as the judiciary benefit from it. However, in particular cases, whether
mediation will be helpful or not depends on several other factors such as the nature of the
dispute or the laws involved. So, whenever possible, the first attempt to resolve
disagreements should proceed through mediation before approaching the traditional
procedures.