How Mediation Can Help Settle Business Disputes Fast

Disputes in business are common these days, each aspect of commerce has the potential for issues to arise; whether payments are delayed, contracts are breached, partners disagree on a key point, or shareholders conflict. Until recently in India, the usual route for resolving them was litigation in courts, but the delays, costs, and damage to business relationships may dissuade you from that option. A case can take years, times which often comes at a cost of both money and energy.

Mediation can be faster and much more practical. Mediation is a process in which a neutral third person (mediator) will assist the parties with reaching a resolution that will be acceptable to all them. Mediation can be quicker and more economical, respects confidentiality, and is less adversarial than a judgment in a court. With current legislative reforms, with the recent passing of the Mediation Act, 2023, this may pave the way for a stronger framework for promoting mediation in India and it may become a preferred way of resolving commercial disputes in a timely and effective manner.

What is Mediation?

Mediation is a way to resolve conflict without litigation. Mediation occurs when the parties to the conflict meet with a neutral, third party; that third party is called a mediator. The role of the mediator is to facilitate communication between each party to each other, to help each party understand the other’s perspective on the conflict, and in the end, to help the parties work towards the resolution of the conflict/ dispute that is acceptable to both parties. The mediator does not decide like a judge or arbitrator, rather they control the discussion and help the parties reach their own settlement.

The most important factors for parties to know about mediation are that it is voluntary, meaning parties cannot be forced to agree to a settlement and that it is confidential. Confidentiality means that the parties can not only not introduce anything said in mediation into any later court proceeding, it also means the parties cannot tell third parties anything said in mediation. This is not only attractive to parties out of concern of being embarrassed and wanting to protect their good name or reputation, but for business parties who may want to protect their proprietary information.

Mediation is a separate process from arbitration and litigation. In litigation, the judge or jury decides the case, and in arbitration, the arbitrator makes a binding award, or at least as binding as a court may make an award. In mediation, the parties control the process and the outcome. If the parties reach agreement on terms of settlement, the parties have bound themselves to fulfill the terms, as the terms will be signed as a binding agreement under Indian law.

Legal Framework of Mediation in India

Mediation has slowly but surely taken shape as a legally accepted method of dispute resolution in India. There are a number of laws that endorse and encourage mediation, particularly on business and commercial issues. Below are the important legal provisions which support mediation in India:

1. Section 89 of the Civil Procedure Code (CPC), 1908

This section allows Indian courts to refer cases for an Alternative Dispute Resolution (ADR) process, including mediation, if it seems that a settlement is possible. This is basically to relieve some of the pressure on the courts and provide parties with faster results. Courts under this section of the CPC will often refer civil and commercial disputes to mediation.

2. Arbitration and Conciliation Act, 1996 (Part III – Sections 61 to 81)

This Act is mainly about arbitration, but does have a whole part (Part III) on conciliation which is very close to mediation. Within this part of the Act there is procedure for the appointment of conciliators, their roles and how settlement agreements are recorded. Most importantly, Section 74 clearly states that a signed settlement agreement is as binding in court as an arbitral award.

3. The Companies Act, 2013 (Section 442)

A new section which provides for the formation of a Mediation and Conciliation Panel to resolve disputes under company law. Disputes can arise from shareholder disagreements, issues relating to corporate governance, and other conflicts occurring internally in companies, and the Panel offers mediators to help settle disputes amicably providing a time bound mechanism to avoid litigation in the National Company Law Tribunal (NCLT).

4. Commercial Courts Act, 2015 (Section 12A)

This development is significant for disputes for business purposes, as this section provides that mediation is mandatory before the commencement of any commercial suit in court (unless the suit is for urgent interim relief). The requirement for mediation before commencing litigation has made a dent in the total number of commercial cases coming before the courts, as many disputes have already been resolved during mediation.

5. The Mediation Act, 2023

This is India’s first stand-alone legislation dealing with mediation, and it marks the beginning of major reforms:

• Mediated settlement agreements will now be enforceable through law.
• Mediation Councils will be established to promote institutional mediation.
• Online mediation will be permitted to increase accessibility.
• Clear timelines were set to ensure the speed of the mediation process.
• Community mediation and cross-border mediation are also provided for.

When these laws are combined, they now create an environment, legally supported, time bound, and accessible, encouraging businesses to take advantage of mediation as a viable dispute resolution process.

Why Mediation Works Well in Business Disputes

Mediation is becoming increasingly common in India for businesses, as there are several advantages over litigation in a court. Here are some of the reasons it works so well:

1. Speed

Court cases in Indian take an extremely long time, often years, if not decades, particularly in commercial situations. Mediation, on the other hand, normally takes weeks or a couple of months. While mediation is a negotiation process, the collaborative nature of it means you will spend less time resolving the issues and getting back to business.

2. Cost savings

With the cost of legal fees, court costs, and various other costs involved, litigation is extremely expensive. There is a considerable reduction in costs by using mediation. Since mediation is often shorter and much less formal, businesses incur less lawyer fees, judicial costs, and future downtime.

3. Confidentiality

Business disputes often include sensitive information, including finance, trade secrets or operational strategies. The mediation sessions are confidential, and so the session details cannot be disclosed in court or to anyone else. This will prevent damage to the company’s reputation and no public exposure.

4. Relationship Maintenance

Mediation promotes collaboration unlike litigation which can generate bitterness. This is particularly important if the occurrence of a dispute has a negative effect on existing partnerships, supply chain relationships and family businesses. The aim of mediation is to settle disagreements with mutually acceptable solutions that does not leave the parties with lingering frustration towards the opposite party. Business partnerships and supplier relationships are often very difficult to mend and often lead to longer-lasting disagreements.

5. Flexibility 

Mediation allows parties to create creative solutions that interest them specifically – something that is wholly appropriate to their circumstances – that the courts cannot provide. A settlement could involve phased payments, agree to work together in the future or even reorganization of operations.

6. Legally Enforceable Agreements

The Mediation Act, 2023, makes all sets made through mediation an enforceable contract under Indian law. Once signed it is on the same level of enforceability as a court order, so parties can expect compliance without going back to litigation.

7. Reduce Court Congestion

Mediation is a different way of resolving a dispute that reduces the demands placed on the courts in India. By not relying on the court system to resolve disputes, the demands on the current backlog of cases is reduced and the business community can reap indirect benefit from a justice system that is faster.

To summarize, mediation offers advantages with speed, cost, confidentiality, flexibility, and legality as they relate to dispute resolution and parties. The business world in particular can benefit greatly by enforcing and resolving disputes while also keeping and preserving business and professional relationships thus maintaining the quality of reputation the business has built.

Step-by-Step Process of Mediation

1. Agreement to Mediate: The parties must have an agreement to mediate. This could be a voluntary agreement, a mediation clause in a contract, or a court referral under Section 89 inthe CPC or Section 12A ofthe Commercial Courts Act.
2. Selection of Mediator: The parties select a neutral mediator (jointly, by institution, or by the court). A mediator is a professional who has been trained to assist the parties to have meaningful discussions without taking sides.
3. Initial Preparations for Mediation: The mediator is going to schedule time separately with each party to understand the issues, expectations, and priority. The parties may share and exchange documents and evidence on a confidential basis.
4. Joint Sessions: In this the parties come together to speak and express their view points. The mediator helps in framing issues, and then clarifying any misunderstandings.

Types of Business Disputes Suitable for Mediation

Mediation has a broad scope of application in business in India. It is most effective when the parties want to reach a cooperative, swift and confidential resolution. Some examples are:

1. Partnership Disputes

Mediation is useful to resolve disputes among business partners on matters such as profit-sharing, decision making processes, or exit options. The ongoing professional relationship is sustained and court processes are avoided.

2. Contractual Disputes

Payment delays and non-performance can have serious consequences for relationships, and to everyone can benefit from an alternative dispute mechanism like mediation. Mediation allows parties to structure solutions that suit both parties, for example phased payments for goods or revised delivery schedules.

3. Shareholder Disputes

Differences among shareholders, on issues such as voting rights, dividend distributions, or management control of the company often lead companies into contentious court proceedings. Mediation is a useful method by which shareholders resolve differences, and retain some harmony for the company.

4. Intellectual Property and Licensing Disputes

Disputes among parties relating to copyrights, trademarks, patents, licensing agreements and similar matters can be resolved through mediation without bombardment of diverging public narrative and detail that is not in the public interest.

5. Employment and HR-related disputes

Disputes that arise between companies and workers over wages, termination or workplace-related issues, can all be mediated in a private atmosphere with more timely resolutions.

FAQs on Mediation in India