A year after enactment, India’s Mediation Act lies unused

The delay in implementing the Mediation Act, which received the presidential nod over a year ago, is hindering India’s alternative dispute resolution framework, especially in family disputes, experts told Mint.

The law was enacted to regulate and promote mediation as an alternative to litigation, aiming to resolve conflicts more efficiently and at a lower cost. While the president approved it on 15 September 2023, its implementation is stalled due to a delay in finalizing rules and regulations governing mediation sessions.

The Department of Legal Affairs established a working committee, chaired by former law secretary P.K. Malhotra in January this year, to draft the rules, regulations and standards for mediation. Its report, submitted on 31 August, included draft rules for the Mediation Council of India and cover the registration and payment of mediators as well as the framework for online mediation processes. But the government is yet to notify the law.

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Corporate and financial sectors could greatly benefit from the streamlined approach offered by mediation, said experts. While parties, including government bodies and public sector units, can still opt for it without the act being notified, the act’s formal implementation would create a more structured and attractive ecosystem for dispute resolution.

“Courts, including the Supreme Court, send high-stake disputes involving members of the promoter family of large conglomerates and companies for mediation at an early stage,” said Indranil D. Deshmukh, a partner at law firm Cyril Amarchand Mangaldas. “An expert and trained mediator, supported by a conducive legal ecosystem, can play a vital role in paving the way for amicable settlement of even the most bitter family disputes.”

Possible solution for family disputes

Mediation offers a powerful solution, particularly in family disputes, allowing parties to reach a middle ground and avoid becoming entrenched in rigid legal battles.

“In relation to companies, the stakeholders are not aligned; this could either be a family which controls the company or may even be unrelated. This often leads to disputes,” said Ketal Dalal, managing director at Katalyst Advisors, a boutique structuring and advisory firm. “The enactment of Mediation Act will put an institutional and structured framework around what is expected to be a very useful route in resolving disputes, whether commercial disputes or family disputes.”

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Prolonged litigation can be especially damaging in cases where the future of a company is at risk, and mediation provides a valuable alternative for dispute resolution, he said.

According to Ravi Prakash, an associate partner at law firm Corporate Professionals, traditional litigation often deepens divisions and results in cold, impersonal verdicts, leaving family relationships in ruins.

He referred to the so-called “third-generation curse” to highlight the vulnerability of family legacies as fewer than 10% of family businesses surviving beyond the third generation. In this context, Prakash argued, mediation offers a shared, cooperative solution, helping preserve both family unity and business continuity to ensure enduring legacies.

Overburdened courts

The Mediation Act lays out a less adversarial route to settling disputes, which might otherwise drag on for years in court. “Without its implementation, the judicial backlog remains unresolved,” Prakash said.

A fraction of the civil cases in India land in arbitration. Of nearly 76.98 million civil disputes pending in Indian courts, commercial suits account for 0.36% and arbitration contributes 0.77%, according to the National Judicial Data Grid.

The banking and finance sectors could particularly benefit from the Mediation Act. For example, banks dealing with high volumes of disputes related to loan defaults and restructuring could use mediation to achieve quicker and more efficient resolutions, especially concerning non-performing assets (NPAs). Mediation aligns well with the Reserve Bank of India’s (RBI) guidelines on one-time settlements and inter-creditor agreements, enhancing the sector’s flexibility, Prakash said.

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The delay in implementing the Mediation Act is preventing India from aligning with international mediation standards, which are vital for resolving cross-border disputes in global business contexts, according to Prakash.

In real estate, where disputes often arise over project delays, cancellations and buyer-developer contracts, mediation can provide faster resolutions. Mediation offers a discreet way to resolve contractual conflicts without jeopardizing ongoing in technology and manufacturing.

Foreign investment, too, could get a boost as international investors would be more likely to engage with Indian markets knowing that a structured system exists for resolving cross-border disputes, experts said.