Decoding Mediation Act 2023: A PSU oriented perspective

With the enactment of the Mediation Act, mediation has been made mandatory for PSUs, which enter into umpteen commercial transactions with varied entities where arbitration or other forms of ADR clauses already exist.
MCO Legals - Amit Meharia, Paramita Banerjee, Tamoghna Chattopadhyay
MCO Legals - Amit Meharia, Paramita Banerjee, Tamoghna Chattopadhyay

The age-old concept of ‘Mediation’ received legislative recognition in India for the first time under the Industrial Disputes Act, 1947 followed by the Legal Services Authorities Act, 1987. A severe backlog of cases and the emergent necessity to unburden our over-saddled judicial system led to the popularization of Alternate Dispute Resolution (ADR) mechanisms in India. This non-adversarial backdrop led to the introduction of the Code of Civil Procedure (Amendment) Act, 1999 which amended Section 89 of the CPC with effect from July 1, 2002, providing for the reference of cases pending before courts to ADR, including mediation.

Appreciating the ease of access to justice while maintaining the rule of law, on July 1, 2019, India signed the Singapore Convention on Mediation, promulgated its own draft of the Mediation Bill in 2021 and thereafter enacted and proceeded to give effect to its first independent legislation on mediation, which was published in the Official Gazette on September 14, 2023, thereby vastly broadening the horizon of mediation.

Mediation Act, 2023 and Public Section Undertakings: Need for cautious drafts

Section 2 of the Mediation Act, 2023 ('Act') deals with its applicability. Under Section 2 (iv) of the Act, mediation has been made mandatory for Public Sector Undertakings ('PSUs'), amongst others. PSUs enter into umpteen commercial transactions with varied entities where arbitration and/ or other forms of ADR clauses are pre-existing. The natural concerns which arise as a result of the above mandate and which should be taken care of is that what would be the effect of such provisions on existing contracts with standard clauses of ADR? Active strides need to be taken to bring changes in contracts, both subsisting and future, to ensure the existence of a mediation agreement with a well-defined jurisdiction clause, keeping in mind that there would be no scope for interim orders and/ or relief either by the Court or from a Mediator for preserving the subject matter when either party invokes mediation.

Section 4 of the Act provides guidance on a ‘Mediation Agreement’. The intention to mediate can be either through a written agreement or in the form of a contractual clause. Similar to commonplace arbitration agreements, a mediation agreement is also independent of its underlying contract. The Act further contemplates a situation where in a pleading, if it is pleaded that there is a mediation agreement and the same is not denied by the other party, then it is deemed to be an agreement between the parties to mediate.

A mediation agreement may cover certain disputes and/ or future disputes between parties. A party may also be added in mediation as a party claiming through the other two parties. Such reasoning finds resonance in the ‘group companies’ theory under arbitration.

It is always better to err on the side of caution while following the law. Note must be taken of the expanding ambit or scope of a mediation agreement to cover future disputes, which may lead to a floodgate of situations difficult to contemplate or control, let alone pre-define or discern. It may lead to the settling of some or all issues, where such issues may go beyond the disputes referred to mediation.

Mediated settlement agreement: Over-reaching consequences?

Section 19 of the Act deals with Mediated Settlement Agreement (MSA). It is the agreement in writing that results from the mediation, settling some or all of the referred disputes between parties and it may extend beyond the disputes referred. It is to be signed by the parties and authenticated by the mediator. Once signed and authenticated, the MSA is final and binding like a decree - rather, a consent decree - between the parties which is enforceable under the Code of Civil Procedure, 1908 (‘CPC’) as per Section 27 of the Act.

MSA requires careful consideration since a decree is being attained without intervention and/ or adjudication and/ or authentication done by any court of law. It is a mere product of discussions and deliberations between parties, bordering on the edge of nuances of what seems right and its commercial implications for each party.

Since the MSA is capable of covering disputes beyond the mediation reference or since it could extend its coverage to more than one contract or to future disputes, it must be drafted with utmost care and extreme caution. Being a decree enforceable under the CPC, 1908, it shall also be subject to necessary provisions of security deposit, withdrawal of such securities, etc.

The MSA can be challenged only before the court having necessary pecuniary or territorial jurisdiction, having jurisdiction over the subject matter of mediation. Section 28(2) of the Act provides restrictive grounds for challenge like fraud, corruption, impersonation or where the subject matter of mediation fell under the ambit of clause 6 of the Act, which makes the Act inapplicable to certain disputes. The time limit to file such a challenge has also been capped to 90 days from date of receipt of the copy of the MSA, with further discretion of another 90 days upon ‘sufficient cause’ of delay being shown.    

The contours of the Act provide for space to accommodate the administrative functioning of a PSU, amongst others. Where the government or agency (includes PSU/PSE) is a party, then MSA shall be signed post the written consent of the competent authority of such government or any of its entities (Section 49). The existence of such a provision allows PSUs to bring in a checking process.

The Hardship and possible way out

The need of the hour for PSUs to maybe re-think the procedure for conducting mediation or formulating a Standard Operating Procedure keeping in mind that the MSA is a consent decree with limited scope for challenge or that while Section 56 of the Act specifies that the Act is not applicable to “ongoing conciliation”, it is silent on whether conciliations where parties have agreed to conciliate but not commenced and where conciliation has been referred to but not commenced falls under the ambit of “ongoing conciliation.”

The pre-existing procedure adopted for conciliation by some PSUs may also form the basic structure for mediation, which may be built on while keeping in mind that Section 61 of the Act does away with conciliation as it existed under the Arbitration and Conciliation Act, 1996, in addition to considering the common hardships plaguing PSUs like the concerned officers being transferred and the practical difficulties arising therefrom, issues of accountability, responsibility and decision making within the time frame of the Act.

About the authors: Amit Meharia is the Managing Partner of MCO Legals (Meharia & Company). Paramita Banerjee is a Legal Head and Tamoghna Chattopadhyay is an Associate at the firm.

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