Mediation Act 2023: Pre Litigation Mediation, Settlement Agreements and Enforcement

Overview

The Mediation Act 2023 establishes India's first dedicated mediation legislation. It aims to resolve commercial and civil disputes within 180 days through a private mediation process. The Act creates a framework for pre-litigation mediation, Mediated Settlement Agreements (MSAs), and their enforcement. It also establishes the Mediation Council of India to regulate mediators and ensure settlement enforceability. The Act received Presidential assent on September 14, 2023, and came into force on October 9, 2023.

The governing law

The Mediation Act 2023 received Presidential assent on September 14, 2023, and came into force on October 9, 2023. The Act applies to all civil and commercial disputes, except those specifically excluded. Section 5 establishes the framework for pre-litigation mediation, while Sections 19, 27, and 28 deal with settlement agreements and their enforcement. The Act works in conjunction with Section 12A of the Commercial Courts Act, 2015, which makes pre-litigation mediation mandatory for commercial disputes exceeding Rs. 1 crore. The Supreme Court in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. clarified that this requirement applies prospectively from August 20, 2022, meaning suits filed without compliance face rejection.

Who can invoke this and when

Any party to a civil or commercial dispute may invoke pre-litigation mediation under the Mediation Act 2023. For commercial disputes exceeding Rs. 1 crore, Section 12A of the Commercial Courts Act, 2015 makes pre-litigation mediation mandatory. The Supreme Court in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. clarified that this requirement applies prospectively from August 20, 2022, meaning suits filed without compliance face rejection. For non-commercial disputes, pre-litigation mediation remains voluntary. Parties must approach the appropriate mediation center within 30 days of the cause of action arising. The mediation center maintains a panel of approved mediators who specialize in different subject matters.

Step by step procedure

The pre-litigation mediation process follows these steps:

1. Application to Mediation Center: The aggrieved party files an application with the designated mediation center, stating the nature of the dispute and relief sought. The application must be in Form A as prescribed under the Mediation Rules 2023.

2. Notice to Opposite Party: The mediation center issues a notice to the opposite party, requiring them to appear before the mediator within 15 days. The notice must be served through registered post or electronic means as per Section 8.

3. Selection of Mediator: Parties select a mediator from the panel maintained by the Mediation Council of India or agree on a private mediator. The mediator must be registered under the Mediation Council of India and have at least five years of experience in dispute resolution.

4. Mediation Sessions: The mediator conducts sessions with both parties to facilitate settlement. The process must be completed within 120 days, extendable by another 60 days with mutual consent. The mediator maintains a record of proceedings in Form B.

5. Drafting of MSA: If settlement is reached, the mediator drafts the Mediated Settlement Agreement (MSA) in writing, signed by both parties and the mediator. The MSA must contain the terms of settlement, the date of settlement, and the signatures of all parties.

6. Filing in Court: The MSA is filed in the appropriate civil court, which records it as a decree of the court under Section 27. The court may modify the MSA only if it is against public policy or illegal.

Documents and evidence required

The following documents are required for pre-litigation mediation:

• Application form with details of the dispute
• Copy of the cause of action documents
• Proof of service of notice to the opposite party
• Identity proof of parties
• Power of attorney if represented by counsel
• List of documents relied upon
• Valuation statement for determining court fees

The mediation center may require additional documents based on the nature of the dispute. All documents must be self-attested and submitted in duplicate. If any document is missing, the mediation center may reject the application or ask for the missing documents within 7 days.

Timelines, limitation and fees

The Mediation Act 2023 sets specific timelines for the mediation process:

• Application to mediation center: Within 30 days of cause of action
• Response from opposite party: Within 15 days of notice
• Completion of mediation: Within 120 days, extendable by 60 days
• Filing of MSA in court: Within 30 days of execution

The entire mediation period is excluded from limitation calculations under Section 18. Court fees for filing the MSA vary based on the dispute value:

Dispute Value	Court Fee
Up to Rs. 5,00,000	Rs. 500
Rs. 5,00,001 to Rs. 10,00,000	Rs. 1,000
Rs. 10,00,001 to Rs. 20,00,000	Rs. 2,000
Above Rs. 20,00,000	As per court fee schedule

If the application is filed after the 30-day limitation period, the mediation center may reject it or require an explanation for the delay. If the mediation fails, the aggrieved party may file a suit in the appropriate civil court within the remaining limitation period.

What the courts have held

The Supreme Court in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. held that pre-litigation mediation is mandatory for commercial disputes exceeding Rs. 1 crore under Section 12A of the Commercial Courts Act, 2015. The Court emphasized that non-compliance with pre-litigation mediation requirements would result in rejection of the suit. The Court also clarified that the 120-day timeline for mediation is mandatory and cannot be extended unilaterally by the mediator. Both parties must agree to any extension.

In another significant judgment, the Supreme Court clarified that Mediated Settlement Agreements are enforceable as court decrees under Section 27, with the same force as a court judgment. The Court held that the confidentiality provisions under Sections 22 and 23 do not prevent the enforcement of MSAs. The Court also held that the Mediation Council of India has the power to regulate mediators and ensure the enforceability of settlements.

Common mistakes and how to avoid them

Common mistakes in pre-litigation mediation include:

• Filing the application after the 30-day limitation period
• Not serving proper notice to the opposite party
• Selecting an inappropriate mediator
• Failing to execute the MSA properly
• Not filing the MSA in court within the prescribed period

To avoid these mistakes, parties should:

• File the application promptly
• Ensure proper service of notice
• Choose mediators based on expertise in the subject matter
• Execute the MSA with all required signatures
• File the MSA in court within 30 days

If the mediation fails, parties should not use the mediation proceedings or documents as evidence in the subsequent litigation, as these are protected by confidentiality provisions under Sections 22 and 23.

Practical checklist

Before initiating pre-litigation mediation:

• Verify that the dispute is not excluded under Section 5
• Calculate the court fees based on dispute value
• Prepare all necessary documents
• Identify potential mediators
• Check the mediation center's availability
• Confirm the 30-day limitation period
• Arrange for legal representation if needed

After mediation:

• Ensure the MSA is properly executed
• File the MSA in court within 30 days
• Obtain a certified copy of the court decree
• Keep all documents for future reference

Frequently asked questions

What is the difference between pre-litigation and post-litigation mediation?

Pre-litigation mediation occurs before filing a suit in court, while post-litigation mediation happens after the suit is filed. Pre-litigation mediation is mandatory for commercial disputes exceeding Rs. 1 crore, whereas post-litigation mediation is voluntary. The timelines and procedures differ significantly between the two types of mediation.

Can a Mediated Settlement Agreement be challenged in court?

Yes, under Section 28, a Mediated Settlement Agreement can be challenged on grounds of fraud, misrepresentation, or undue influence. However, the challenge does not automatically stay the enforcement of the MSA. The court may stay the enforcement only if it is satisfied that there is a prima facie case of fraud or misrepresentation.

What happens if the mediation fails?

If mediation fails, the aggrieved party may file a suit in the appropriate civil court. The mediation proceedings and documents are confidential and cannot be used as evidence in the subsequent litigation. The limitation period for filing the suit is calculated from the date of failure of mediation, excluding the mediation period.

Is pre-litigation mediation mandatory for all commercial disputes?

No, it is mandatory only for commercial disputes exceeding Rs. 1 crore under Section 12A of the Commercial Courts Act, 2015. For disputes below this threshold, pre-litigation mediation is voluntary. The central government may also mandate pre-litigation mediation for specific civil or commercial disputes in the future.

What is the role of the Mediation Council of India?

The Mediation Council of India regulates mediators, maintains a panel of approved mediators, sets standards for mediation practice, and ensures the enforceability of mediated settlements. It also maintains a register of mediators and can take disciplinary action against mediators who violate the standards of practice.

Can a party be represented by a lawyer during mediation?

Yes, parties can be represented by lawyers during mediation. However, the mediator may encourage direct participation by the parties to facilitate settlement. The lawyer's role is to advise the client and represent their interests during the mediation process.

Key takeaways

• Pre-litigation mediation is mandatory for commercial disputes exceeding Rs. 1 crore under Section 12A of the Commercial Courts Act, 2015
• The mediation process must be completed within 120 days, extendable by another 60 days with mutual consent
• Mediated Settlement Agreements are enforceable as court decrees under Section 27
• The entire mediation period is excluded from limitation calculations
• Confidentiality protections under Sections 22 and 23 ensure that mediation proceedings cannot be used as evidence in subsequent litigation
• The Mediation Council of India regulates mediators and maintains standards for mediation practice
• Parties must file the MSA in court within 30 days of execution to ensure enforceability

Disclaimer

This article is published for general information on Indian law and does not constitute legal advice. Statutory provisions, rules and judicial positions change, and the position can differ from state to state. Consult a qualified advocate about your specific facts before acting.