Introduction
While Mediation as a mode of dispute resolution, received a fillip with the passage of the Mediation Act, 2023 (hereinafter “The Act”), the same cannot be said for international mediation, as it may be seen as an extremely cautious approach with respect to the promotion of cross-border mediation. While focusing on domestic mediation, the act, though it has provisions for cross border mediation, leaves much to be desired.
This article seeks to analyze the provisions of the act with respect to cross-border mediation and offer suggestions for improvement. For achieving the purpose, it is structured into two parts. The first part will expound upon the scope of the Act and argue that the provisions curtail the ambit of cross-border. The second part argues that instead of limiting the scope of cross-border mediation, India should evolve a mechanism where settlement agreements not conforming with the public policy, or the laws should be unenforceable.
The Scope and definition of International Mediation
The United Nations Convention on International Settlement Agreements Resulting from Mediation (hereinafter the Singapore Convention) was a watershed moment in the history of cross-border mediation. Much like its arbitration counterpart, the New York Convention, it stood poised to change the international mediation landscape by providing for uniform procedural and enforcement mechanisms for its signatories. Since its promulgation, 55 countries have signed it, with India being among the first ones to do so. India, however, has not ratified the convention.
The Mediation Act of India is an attempt to standardize the mediation landscape in the country and promote mediation with the ultimate objective of making India a hub. To this end, Section 2 of the Act explicitly delineates its scope. It states that the Act shall apply only when the mediation is conducted in India. Hence, cross-border mediation is recognized solely when it is conducted in India. Thus, the possibility of a mediation in a foreign country with Indian Parties is outside the ambit of the act and is not recognized. The rest of the provisions of the act are premised on this basis and explicitly or impliedly reject the location being anywhere but India.
The scope of a cross-border mediation agreement is given under Section 4(6) of the Act which lays down that the scope of the agreement would be defined according to Section 3(a) of the Act. This section states that cross border mediation is limited to commercial disputes as defined in the Commercial Courts Act. The Singapore Convention, while also limiting cross border mediation to commercial cases, gives a different scope owing to differing definitions of the term “commercial.” Commercial disputes according to the Singapore Convention is as per the illustrative list in Footnote 1 of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation. In India, the term is defined in the Commercial Courts Act and is extremely wide, making a non-exhaustive list of 22 entries which may be a “commercial dispute”. Furthermore, Section 2(xxii) of Commercial Courts Act gives the Central Government the discretion to notify disputes as commercial. This may lead to the ambiguity of scope as to what disputes are resolved by mediation.
Apart from the requirement of the commercial nature of the dispute, two further requirements are laid down by the Act. Firstly, Section 3(1)(g)(i) lays down the requirement of foreign nationality or place of business of one of the parties to qualify for cross-border mediation. Secondly, Section 3(1)(g) defines international mediation as “mediation undertaken under this act and relating to a commercial dispute arising out of a legal relationship, contractual or otherwise, under any law for the time being in force in India”. The words “under any law for the time being in force in India” explicitly reject the possibility that the dispute may arise as a breach of foreign law thus imposing yet another limitation on cross border mediation in India.
Furthermore, the act creates a dichotomy in treatment of commercial disputes. Section 5(1) of the Mediation act states that pre litigation mediation in matters of “Specified value” shall be undertaken as per Section 12A of the Commercial Courts Act. It further states that proceedings falling below the “Specified value” are subject to the provisions of this Act. The specified value as mentioned under Section 12 of the Commercial Courts Act is rupees 3 Lakhs. Cross Border disputes, in most cases involve amounts much higher than this amount, thus they are forced to be subject to the rules of a different statute for conducting the proceedings.
Mediation Council and appointment of Mediators
The Mediation Council as laid down under Section 31 is envisaged as a regulatory body tasked with the promotion, development, and establishing rules, regulations, standards pertaining to mediation. It has the aim of making India, a domestic and international mediation hub. To this end, Section 38(h) confers it the power to enter into Memorandums of Understanding with domestic and foreign institutions. Furthermore, it can recognize mediation institutes and service providers and renew, withdraw or cancel such recognition. It is only upon such recognition that these Mediation Service Providers may provide mediation facilities to their clients.
Mediation Service Providers are bodies which provide for the conduct of mediations. Section 40 of the Act lays down the guidelines for becoming a mediation service provider. This section has caused ambiguity as to the nature of these mediation service providers. The usage of the words “a body or an organization that provides for the conduct of mediation under this act and the rules and regulations made thereunder” (emphasis mine) suggests that it should only be limited to Indian Mediation Service Providers. This is given strength by the requirements mentioned under Sections 40(1)(b) and (c) which portray the image that the service provider is an Indian. Foreign institutes may only be recognized through entering into MoU with the Council. This reduces the scope of cross-border mediation conducted under international mediation institutions.
Furthermore, the act is arbitrary when it comes to the appointment of foreign mediators. Section 8(1) states that mediators of foreign nationality have to possess necessary qualifications and experience as mentioned in the rules laid down by the council whereas there is no such requirement for Indian mediators. The same was observed by the Parliamentary Committee which called for a uniform treatment of mediators irrespective of their nationality [Pg. 40 ¶3.121].
Jurisdiction of Courts
Section 13 lays down that the mediation has to be conducted within the territorial jurisdiction of a court or tribunal. However, when the parties agree to the contrary, it may be conducted otherwise or through an online medium. Despite this, even where the parties have agreed to the contrary, for the purposes of enforcement, challenge and registration, the mediation will be deemed to be within the territorial jurisdiction of a competent court or tribunal.
This has massively curtailed the ambit of cross border mediation because a mediation seated outside of India won’t be enforceable under the act. Article 1(1)(b) of the Singapore Convention as well as Section 2(1) of the Act lay down that the place of enforcement depends on the location of the parties’ place of business. This provision would discourage mediation held outside India where there is an Indian party or the party has a place of business in India as the same would not be enforceable. Thus, foreign parties would be hesitant towards incorporating a mediation clause in agreements with Indian parties.
Enforcement Woes
Section 27 of the Act provides that the enforcement of a mediated settlement agreement should be in the same manner as a judgment, or a decree of the court as mentioned in the CPC. This is in direct contravention to the Singapore Convention where Article 1(3)(a)(ii) provides that the convention would not apply where the mediation agreement is enforced as a court decree. In this context, it is important to point out the difference between recognition and enforcement. A mediation settlement agreement which is recognised as a judgment can be enforced under the Convention [Pg. 26]. However, where it is enforced as a judgment, the Convention does not apply. Section 27(2) of the Mediation Act specifically lays down that the “mediation settlement agreement shall be enforced in accordance with the provisions of the CPC, 1908, in the same manner as if it were a judgment or decree passed by the court,” (emphasis mine). This also has the absurd effect of discouraging Indian parties to opt for mediation. Where a cross border mediation settlement agreement is reached, the foreign party may enforce the award against the Indian party as a decree of the court. However, the Indian party would not be able to enforce the award because the Convention does not recognize the settlement agreement as a decree for the purpose of enforcement.
The Way Forward: Bridging the gap between the Act and the Convention
Treatment of a Mediation settlement agreement as a mediation settlement agreement for the purpose of enforceability.
Presently, as discussed above, the mediation settlement agreement is treated as a decree of the court for the purposes of enforcement. The same expressly prohibited in the Singapore Convention. The primary objective of this prohibition is to maintain the distinctiveness between mediation and litigation. The flexibility, private nature and party control inherent in mediation are vastly distinct from court processes, and identical treatment might deter parties from pursuing mediation to resolve their disputes. This will have the added benefit of promoting cross border mediation amongst Indian Parties as they would have a mode of enforcement of the settlement agreement via the Singapore Convention.
Furthermore, the act must expand to include mediations involving Indian parties which are held outside India. It must also recognize that; the cause of action cannot be limited only to the breach of Indian Law and include the law of the parties to the agreement [Pg. 18, ¶3.29].
Evolution of public policy as a standard in enforcement of mediation settlement agreements
Article 5(2)(a) of the Convention expressly recognizes public policy as a ground for non-enforcement of a mediation settlement agreement. The Indian Mediation Act is silent on this aspect. In the Indian context, Section 19(1) states that the agreement is unenforceable where it is void under the provisions of the Indian Contract Act. This is in consonance with the provisions of the Singapore Convention as well as the New York Convention that the laws of the country of enforcement have to be respected [Article V(2)(b)]. Apart from this, Section 28 lays down additional grounds for non-enforcement. Due to the possibility of potential misuse of the grounds given under Section 28, the Parliamentary Committee recommended that the court be given powers to take note of frivolous cases and award exemplary damages [Pg 50 ¶3.174].
The parliamentary committee also recommended that a mechanism must be put in place which tests the mediated settlement agreement on the anvil of public policy at the stage of enforcement [Pg 21 ¶3.37]. However, the same was not incorporated. The subsequent section, while arguing for the same, will try to delineate the grounds of the public policy exception by borrowing from the arbitration jurisprudence of the last 3 decades.
The Scope of Public Policy
Article 5(2)(a) of the Singapore Convention states that the Mediation Settlement Agreement may not be enforced where it goes against the public policy of the party seeking relief. There are multiple reasons for extending the arbitration jurisprudence on public policy to mediation. Courts have intervened in Mediation Settlement Agreements conditions that are not in public interest, frustrate the purpose of mediation, or are prohibited by the law of the land [Pg. 302-303]. Furthermore, the Courts have an obligation to ensure that the Settlement does not violate the provisions of the Contract Act [Pg. 304]. Furthermore, as will be demonstrated below, the arbitration jurisprudence has developed over the past three decades keeping in mind the principle of minimum judicial interference. To make India a Mediation hub, sufficient freedom and respect have to be accorded to the Settlements. Thus, the developed arbitration jurisprudence will essentially balance the freedom while protecting the public interest.
The 1996 case of Renusagar Power Plant Co. v. General Electric Company, saw a narrow interpretation being given to the term by the Supreme Court. It adopted a pro arbitration stance and limited non-enforcement to only three grounds: “fundamental policy of Indian law,” “interests of India as a nation,” and “justice and morality” [¶66]. The term fundamental policy of Indian law refers to a breach of law which is so integral that it is must not be compromised.
Post the passage of the Arbitration and Conciliation Act, 1996, a wider interpretation became the norm. The judgment in ONGC v. Saw Pipes Ltd. recognized patent illegality as a part of public policy. Over the next two decades conflicting decisions clouded the enforcement landscape with decisions like BALCO giving narrow definitions and Bhatia International offering a wide interpretation.
To remedy this, the Parliament amended the 1996 Act. The amended portions were extensively referenced in the SSanyong Engineering and it was held by the court that a wide interpretation would be contrary to the mandate of the Act. The amended act reduced the grounds under which the defense could be invoked to three. Firstly, if the award “violated the fundamental principles of justice and morality.” Secondly if the award “contravened a fundamental policy of India” and third if the award was “induced by fraud or corruption.” It further stated that a review about whether the award violates the fundamental principles of Indian Law will not entail a substantive review on the merits.
Judgments hence, have further interpreted public policy as the basic reasoning, values and principles which underlie the statutes of India.Vijay Karia held that mere violation of a law should not be a cause of non-enforcement of the award and is not a ground of violation of public policy. Thus, the trend has been to limit the interpretation of the ground of public policy and not make it a convenient excuse to litigate and waste the efforts of alternative dispute resolution.
Conclusion
The Mediation Act, while a pioneering attempt leaves considerable loopholes from the perspective of international mediation. The narrow scope, restrictive provisions, especially with regard to enforcement of the settlement agreement hinder the development of India as a mediation hub. The excessive focus on territoriality leads to the unwanted consequence of limiting cross border mediation to India. To deal with this, various solutions including the ones proposed by the Parliamentary Committee were highlighted. The immediate need to change the provision which curtails enforceability, as well as add provisions expanding the scope of the act was highlighted. Additionally, the novel solution of incorporating the “public policy” scope as used in the enforcement of arbitration award was proposed. It is argued that this solution will change the landscape of regulation of Cross Border Mediation. A robust mechanism for checking before enforcing the settlement agreement would obviate the need of overly narrow construction of cross border mediation. At the same time, it will promote this efficient mode of dispute resolution.
Author(s)
Rudra Singh Krishna
Student at NUJS, West Bengal