Commercial Courts Act, 2015 & Pre-institution Mediation - Paradigm shift in Civil Jurisprudence

The Central Government has enacted  COMMERCIAL COURTS ACT, 2015 to adjudicate all Commercial Disputes, in order to achieve global economic environment;  the tremendous economic development has ushered in enormous commercial activities including foreign direct investments, public-private partnerships, which has prompted initiating new measures for speedy settlement of commercial disputes, widen the scope of the Courts to deal with commercial disputes and facilitate ease of doing business, in  matters of commercial disputes as there exists severe delay in the present Indian Legal system.

The Central Government brought the above Act w.e.f. 23.10.2015, for speedy resolution of commercial disputes of the high value of Rupees One Crore and above and to establish Commercial Courts at the district level and Commercial Division and Commercial Appellate Division in the High Courts. In 2018,  an amendment was introduced to the  Act,  specifically to reduce the specified value of Commercial Disputes from the existing One Crore Rupees to not less than three lakh rupees and also to enable the parties to approach the lowest level of subordinate Courts where High Courts have ordinary civil jurisdiction; to constitute Commercial Courts at District Judge level and also for providing compulsory mediation before institution of a  commercial suit and to introduce Pre – Institution Mediation mechanism, where no urgent interim relief is required while approaching the Court.

Any dispute which is commercial in nature as defined under the Act is treated as Commercial Disputes. It involves action for recovery of immovable property or for the realization of monies out of immovable property given as security or involves any other relief with respect to immovable properties, arising out of the transactions, where the specified value of the dispute is more than three lakh rupees.

The Commercial Court constituted under Commercial Courts Act, 2015 shall entertain commercial disputes arising out of:-

• Ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents;

• Export or import of merchandise or services;

• Issues relating to admiralty and maritime law;

• Transactions relating to aircraft, aircraft engines, aircraft equipment, and helicopters, including sales, leasing, and financing of the same;

• Carriage of goods;

• Construction and infrastructure contracts, including tenders;

• Agreements relating to immovable property used exclusively in trade or commerce;

• Franchising agreements;

• Distribution and licensing agreements;

• Management and consultancy agreements;

• Joint venture agreements;

• Shareholders agreements;

• Subscription and investment agreements pertaining to the service industry including outsourcing services and financial services;

• Mercantile agency and mercantile usage;

• Partnership agreements;

• Technology development agreements;

• Intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits;

• Agreements for sale of goods or provision of services;

• The exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;

• Insurance and reinsurance;

• Contracts of the agency relating to any of the above.

Introduction of the Commercial Courts Act is a welcome change. Hitherto,  Indian Courts had not recognized commercial disputes separately and it had no special priority; now, with thrust being given to providing an exclusive jurisdiction,  with less formal procedures, it is a step in the right direction to encourage faster adjudication of commercial disputes. Similarly, providing designated Commercial Appellate Courts at District Judge level and constituting Commercial Division of High Court will go a long way in ushering confidence in the Judicial process among the business community. State or any of its agencies or instrumentalities, or a private body carrying out public functions shall also fall under the ambit. The Central Government may add such other disputes by a notification, later.

Pre-Institution Mediation

Pre-Institution Mediation meaning  a game-changer.  Recognizing the growth of mediation, more particularly under Court annexed mediation as provided under Section 89  Civil Procedure Code and seeing the success and effectiveness of  Mediation as a Mechanism, the Parliament has thought it fit to introduce meditation as a compulsory mechanism under Commercial Courts Act. Mediation as an alternative dispute redressal mechanism is a new concept under Section 89 of the Code; now, mediation is growing in a very big way in India and when compared to the other ADR mechanism,   Mediation has been able to effectively restore peace in Society.  Most of the litigants and people in the legal fraternity are aware and sensitized about the concept and process of mediation; the popularity and the effectiveness of the mechanism has enabled the Parliament to introduce it as Pre-Institution Mechanism under Commercial Court Act; what was started as an alternative, optional & voluntary mechanism, has now become a compulsory &  Primary mechanism viz litigation an alternative, now. This could not have happened, but for the salient and unique features of mediation, its effectiveness in reducing conflict in Society and popularity as a litigant friendly mechanism.

P I M is a mechanism where the commercial disputants are given a platform to participate and negotiate in the presence of a mediator, who facilitates the parties for a negotiated settlement; there is no compulsion on the parties; they may agree to agree or respectfully disagree and if they disagree, liberty is always available to them to approach the Commercial Court for adjudication of the Dispute. Flexibility and freedom in P I M helps the parties to participate with an open mind and avail the mechanism, which otherwise is available only after a  party files a dispute and after the appearance of the other party, when the parties would be referred to the Court Annexed Mediation. It may not be wrong to say that the success of C A M has encouraged the Parliament to introduce the Pre – Institution Mediation rules, which definitely gives a neutral platform,  participation satisfaction with variety of options generating before a neutral third person, viz the Mediator,  to explore a satisfactory resolution, reserving all liberty to approach the Court only if need be, if there is no agreement on terms, between the parties.

The District Legal Services Authority is the Authority before whom Pre-Institution Mediation (P I M) is to be initiated;  a party who has a dispute arising out of a commercial transaction as defined under the Act shall have to compulsorily explore,P I M before he intends to institute a commercial suit, unless the party has requirement of seeking urgent interim relief against the Respondent; in other words, meditation has been introduced as the Pre – Institution mechanism with a view to provide a platform to resolve the conflict before a neutral third party and also to avoid and reduce institution of Commercial disputes; it also helps the parties to agree or disagree on all or several issues between themselves; if the party/parties arrive at a settlement in the Pre-litigation Mediation, the settlement arrived shall have the same status and effect as if it is an Arbitral Award on agreed terms; thus, it acts as a decree of the Court. Needless to say, such a decree is enforceable before the jurisdictional Civil Court.  Therefore, the attempt of the legislation is to reduce docket explosion and give a platform with facilitative process and assisted negotiation for the commercial litigants to arrive at a solution, in the midst of a Mediator.  This concept is very familiar in some countries and it is hoped that this would become a success in India too.

Now, let us see how one can invoke commercial pre litigation agency; Chapter III(A) of Commercial Courts Act, 2015 speaks about the Pre – Institution Mediation and Settlement;  a suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the party approaching the court exhausts the remedy of Pre – Institution Mediation; the Central Government has authorized the District Legal Services Authority under the Legal Services Authorities Act, 1987 as the Authority for the purpose of Pre – Institution Mediation; the Pre – Institution Mediation popularly known as P I M, process shall be completed the process of mediation within a period of 3 months from the date of application made by the party approaching the authority and the said period may be extended for a further period of 2 months only, with the consent of the parties; such period during which the parties remained occupied with the Pre – Institution Mediation shall not be computed for the purpose of limitation under the Limitation Act; if the parties to PIM  arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute in the presence of the mediator.

Procedure before Pre- Institution Mediation : 

• Party to a commercial dispute desirous of seeking remedy may make an application in Form 1 before the office of the Jurisdictional Legal Services Authority;

• Form 1 is specified in Schedule 1 of Commercial Courts (Pre Institution Mediation and Settlement) Rules 2018;

• The application may be submitted Online or by Post or by Hand;

• The applicant shall pay Rs.1000/- (Rupees One Thousand only) as Fee by Demand Draft favoring the Authority;

• Upon receipt of the application, i.e. Form 1, the Authority shall issue notice to the opponents in the from specified therein vide Form 2,  under Schedule 1, by registered or speed post, electronic media Email,  to appear and consent  to participate in Mediation;  if there is no  response by the opposite party, Authority shall issue a final notice;

• If the notice remains unacknowledged or opposite party refuses to participate, the Authority shall treat the Mediation Process as a non-starter and endorse the parties accordingly;

• If the opposite party acknowledges and seeks time, the authority may extend time;

• If the opposite party fails to appear or refuses to Mediation Process, the authority shall treat the Mediation Process to be a non-starter and endorse the same to the party;

• If the opposite party appears, both parties give consent to Mediation, Process begins and the commercial dispute will be  assigned to a Mediator and a date for the meeting between the Mediator and the parties will be fixed;

• The duration of the mediation is three months from the date of receipt of the application for PIM and extendable by two more months, by consent of both parties;

Principles of Mediation :

There are certain principles in mediation, which are unique and very fundamental to the concept of mediation; voluntariness of the process or right to withdraw from the mediation is a principle very well understood in mediation; the litigant can participate in mediation with open mind, keeping all his options open with liberty to withdraw or modify the proposals/offers;  this liberty gives the parties the freedom to participate and continue in mediation only if it works out to be advantageous or else to withdraw from it at any time.

Win-win situation is another principle, where the parties assess the benefit of settlement in mediation, as against the uncertainty of result in the adjudicatory mechanism;  peace if achieved will be far more satisfactory as compared to justice, which is relative and based on constraints of rules and procedures of law;  Peace through mediation is a logo in mediation and this helps parties to go home with satisfaction and put a quietus to their conflict.

Confidentiality is another important principle where the parties do get protection against disclosure of their information; parties are free to vent out their feelings, discuss their priorities, ideas, aspirations, underlying interest, etc., and offer confidential proposals and also protect them from being disclosed to the other side; in fact,  confidentiality is the key to meditation and that is the sole and the most effective principle which has helped the parties to express their feelings, opinions, contentions with the mediator, which otherwise would remain unaddressed and suppressed.

Neutral person and neutral place is key to the effectiveness of mediation; mediator is a neutral  3rd party and the place of mediation is a place which is away from the conflict zone; the mediator provides facilitation and helps the parties in negotiating; thereby the parties are in the mood to settle and focus on solution rather than on impractical settlement; mediation focuses on present and future and thereby the parties get opportunity to resolve the possible disputes &  conflicts of the future.

Arbitration and Conciliation Act has undergone a major change; Lok Adalat is a very effective mechanism for disposal of certain nature of cases; yet the parliament thought it fit to introduce only mediation as a Pre-Institution Mechanism under Commercial Courts Act and has not recognized the other ADR’s like Arbitration, Conciliation, Lok Adalat or Judicial settlement; this itself highlights the importance, effectiveness, and popularity of Mediation. It is a transparent and Party centric Process where the parties have the right of self-determination and control the terms of their negotiations resulting in a satisfactory resolution.

Now, having understood the concept of Mediation, it’s time to know the differences between P I M and Court Annexed Mediation; which is important because, a party approaching Commercial Court should know the advantages of P I M as against the situation where a party is advised to file an interim application along with Commercial Suit, seeking urgent interim orders, only to bypass  P I M.

Differences between Mediation and Pre-Institution Mediation:

P I M is before the District Legal Services Authority, whereas, CAM is before the Mediation Center.

All disputes which are civil in nature are entertained before a Civil Court whereas only commercial disputes arising out of a commercial transaction, where the specified value is not less than Rs.3,00,000 ( Rupees Three Lakhs  Only)  get attracted to C C A.

Earlier, a litigant had to file a dispute before initiating the process of mediation, whereas now, the commercial litigant need not file the Commercial Dispute act directly. If he does not require urgent interim orders from the Commercial Court, he can postpone the litigation and seek mediation as a mechanism to start the resolution process. In fact, P I M has made litigation itself as an alternative, leaving it to the parties to approach the Commercial Court, if need be, if they are not satisfied with the result of in  P I M. To conclude, the Court Annexed Mediation was only optional and voluntary, whereas now under P I M it is mandatory.

P I M requires only filing of  Form I, an application to initiate the process before the office of jurisdictional District Legal Services Authority( D L S A); it is not before the Court or any mediation Center; Form 1 is available in the office of the D L S A; Form-1 requires filling up minimum details about the disputants, nature of dispute, subject matter of dispute, etc; once the same is presented with a nominal fee of Rs. 1000/- the process gets initiated. This is unlike in a litigation process, where the filing of a plaint/petition is a must before initiating the court process. The application fee for P I M is a fixed fee of Rs. 1000/- and no court fee is payable at that juncture; in case of a plaint, court fee is required to be paid at the institution itself and court fee payable varies from case to case and nature of the relief sought.

Duration of P I M is three months from the date of filing of Form 1 and by consent of parties extendable by two more months, whereas, in CAM it is 60 days, extendable by 30 more days from the date of appearance before the Mediation.  However, the period during which the parties remained occupied with P I M, shall not be computed for the purpose of limitation Act, for filing the Commercial Dispute.

When the matter is referred to Mediation by the Court, no additional court fee is payable and instead, if the matter referred gets settled in  Mediation, 75% of the court fee paid shall be ordered to be refunded to the plaintiff. Whereas, in P I M, once the parties consent for Mediation, Mediation fee is payable as shown below and the matter whether settled or not settled, mediation fee is not refunded. Further, if the parties approach the Commercial Court, no concession of Court fee is provided; the Court fee as envisaged under the Court Fees Act shall have to be paid on the specified value.

A settlement arrived in P I M is reduced into writing and the parties along with the mediator shall sign this settlement;  whereas under CAM, the only parties with their advocates shall sign. Such a settlement drawn shall have to be confirmed by the Court. In other words,  the settlement arrived in CAM is subject to verification & confirmation by the Court, but settlement arrived in P I M shall be final and binding. These are the advantages and fallout of this. The intention appears to provide for speedy disposal of matters and to avoid parties approaching Court to confirm the settlement.

P I M efforts, if not fruitful,  may still lead to various unlimited doorways or options, between the parties; whereas mediation efforts if fail under CAM, the options are limited and the parties have to continue only with the pending case. Further, referred dispute only gets resolved in P I M, whereas in CAM, connected disputes if any between the same parties, also get resolved. Needless to say that there is no bar to re refer the dispute to CAM any number of times or refer to any other A D R  mechanism, viz Arbitration, Conciliation or Lok Adalat.

Mediation Fee

Mediation fee is a one- time payment to be shared equally, by the parties to the dispute.

To sum up, Commercial Courts Act  2015 & Pre – Institution Mediation, the twin concepts  have brought a paradigm shift in Civil Jurisprudence; the time has come for all the stakeholders to explore and use creativity to effectively facilitate the ease of doing business in India.