Compulsory v. Voluntary Mediation: The Dichotomy Introduced by the Mediation Act, 2023

The landscape of dispute resolution in India has witnessed a significant shift with the introduction of mandatory pre-litigation mediation for commercial disputes under the Commercial Courts Act, 2015. This development has sparked a debate on the efficacy and appropriateness of compulsory mediation, particularly in light of the recently enacted Mediation Act, 2023, which takes a contrasting approach for civil disputes. Section 12A of the Commercial Courts Act mandates pre-litigation mediation for commercial disputes, unless urgent interim relief is sought. This provision has been subject to several court rulings. The Supreme Court of India, in Patil Automation Private Limited v. Rakheja Engineers Private Ltd., held that non-compliance with Section 12A would lead to the dismissal of the suit itself.

However, this strict interpretation is now up for reconsideration on account of the Supreme Court of India’s order dated 7 February 2025 in Novenco Building and Industry v. Xero Energy Engineering Solutions Private Limited, wherein a two (2) Judge bench headed by the Chief Justice of India has framed the following issue for consideration:

“The question that requires consideration by this Court is whether, due to non-compliance with Section 12A of the Commercial Courts Act, 2015, a suit should be dismissed under Order VII Rule 11 of the Code of Civil Procedure, 1908, or whether it should be kept in abeyance, directing the parties to first explore the possibility of settlement by instituting mediation.”

This reconsideration effectively questions whether a suit instituted under the Commercial Courts Act, which include suits pertaining to business-related matters including merchant transactions, international trade, maritime law, aviation, construction contracts, franchising, joint ventures, intellectual property disputes etc., will be dismissed at the threshold if mandatory pre litigation mediation is not attempted, or whether the suit will remain in abeyance until the parties to attempt mediation. Either way, the Supreme Court is not reconsidering the mandatory nature of mediation under the Commercial Courts Act by itself.

However, the Mediation Act takes a different approach for “civil” cases, making mediation a voluntary act for the parties under section 5 of the Mediation Act. Initially, this was not the case, as the Mediation Bill, 2021 had adopted language that made mediation compulsory in “civil” cases. However, comments from critics and recommendations from the parliamentary standing committee led to a reconsideration of this provision. Therefore, while parties in civil disputes, such as cases involving property transfers, wills and estates, family law matters, non-commercial contract disputes, torts, and consumer issues can voluntarily choose mediation under the Mediation Act, those involved in commercial disputes are compelled to attempt mediation before litigation. The mandatory approach in commercial cases effectively strips away party autonomy in choosing the dispute resolution method. The contrast between voluntary mediation for civil cases pursuant to the Mediation Act and compulsory mediation for commercial disputes pursuant to the Commercial Courts Act highlights the complex and sometimes contradictory nature of India’s current alternative dispute resolution landscape.

The enactment of the Mediation Act represents a missed opportunity to establish a more coherent and uniform framework for dispute resolution across both civil and commercial disputes in India. While the Commercial Courts Act mandates mandatory pre-litigation mediation for commercial disputes, a compelling argument can be made to highlight how the same has not furthered the mediation landscape in India. A recent report by the Economic Advisory Committee, which considered empirical data from Mumbai’s courts, painted a worrying picture of how mandatory pre-litigation mediation is playing out in India. Between 2020 and 2023, about 98% of mediation applications were non-starters, with parties not even participating. Out of the 2% that did attempt mediation, only half reached a settlement. More specifically, in the first nine months of 2023, out of 3,404 applications in two Mumbai district courts, 3,170 were non-starters, 120 mediations failed, and only 114 cases were successfully settled through mediation. These statistics suggest that the mandatory approach is not achieving its intended goal of reducing court backlogs and promoting amicable dispute resolution. Instead, it often adds 3-5 months of delay and additional costs to the litigation process.

Further, the mandatory pre-litigation mediation requirement under the Commercial Courts Act has a significant loophole - it is waived when urgent interim relief is sought. This exception has been widely exploited, with parties frequently making perfunctory requests for urgent interim relief to bypass the pre-institution mediation process. Courts have had to consistently step in to prevent parties from circumventing the process. For instance, the Calcutta High Court in Asa International v. Northern Arc Capital and Anr. had held that where the Suit was instituted after a considerable delay, no urgent relief can be sought thereafter. The Supreme Court of India in Yamini Manohar v. T.K.D Keerthi has expressly observed “the prayer for urgent interim relief should not be a disguise or mask to wriggle out of and get over Section 12A of the CC Act.”

Even the parliamentary standing committee, while deliberating the Mediation Act, highlighted this issue, noting:

“…Further it has emerged from the experience of implementation of prelitigation mediation under the Commercial Courts Act, 2015, that the provisions of interim relief were being used by the parties to delay prelitigation mediation, wherein the party files an application for interim relief, which does not get decided for a long period of time.”

This observation underscores a fundamental flaw in the mandatory pre-litigation mediation framework. Despite the legislative intent to promote alternative dispute resolution, parties have consistently found ways to circumvent this provision. The strategy of filing interim relief applications not only delays the mediation process but often results in prolonged periods of legal limbo, as these applications frequently remain undecided for extended periods. The widespread circumvention of mandatory pre-litigation mediation also reveals a deeper issue: the assumption that forcing parties to mediate would make it an effective alternate dispute resolution mechanism has proven misguided. Instead of fostering a culture of amicable settlement, this approach has led to creative evasion tactics, ultimately undermining the very purpose of the legislation.

It is in this context, the Mediation Act misses the mark. The current framework creates unnecessary confusion by treating the same form of dispute resolution—mediation—differently based on the nature of the dispute. This inconsistency risks hindering the broader objectives of mediation, such as alleviating the burden on courts and facilitating quicker, more amicable resolutions. As a result, the Mediation Act represents a missed opportunity to establish a more unified and effective approach to alternative dispute resolution in India. Rather than fostering this divide, the Act could have drawn on successful mediation models and applied them uniformly across all types of disputes in the country.

An option worth exploring could have been the Italian model, which has been discussed on this blog. This approach requires parties to attend only an initial mediation session with their lawyers, after which they can choose to continue or opt out without penalties. In Italy, this has led to nearly 200,000 mediation requests annually, with success rates averaging 50%. Further, in Italy, a successful mediation can result in tax credits for both parties. Other jurisdictions’ novel ideas can also be looked at – for instance, Singapore follows an approach by allowing judges to take into account any unreasonable refusal to mediate when awarding costs in subsequent litigation. This creates an indirect incentive for parties to consider mediation seriously before proceeding to court

Italy’s “opt-out” model, where parties must attend at least one session before exiting, succeeded by balancing compulsion with autonomy. In contrast, India’s half-measures—voluntary for civil cases, weakly enforced for commercial ones—reflects a missed opportunity. Without addressing cultural resistance, infrastructure deficits, and judicial inconsistency, mediation remains a procedural formality rather than a transformative tool.

The Supreme Court’s reconsideration of the mandatory nature of pre-litigation mediation in commercial disputes presents an opportunity to reassess and potentially realign India’s approach to mediation. Whatever the outcome, simply mandating mediation without addressing underlying issues of quality, infrastructure, and party perception is unlikely to yield the desired results.