Mediation Act 2023, Two Years On: Mandatory Pre-Litigation Mediation Reaches Under 12% of Commercial Disputes

NEW DELHI — Two years after the Mediation Act, 2023 gave India its first standalone law on mediation, the figure that best measures its reach is a small one. Of the commercial suits filed last year that were required to go through pre-institution mediation under Section 12A of the Commercial Courts Act, fewer than 12 per cent actually did; the rest pleaded urgent interim relief, which exempts the suit from the requirement, and went straight to court. For the far larger universe of civil disputes to which the Act applies, mediation remains what Parliament made it: an option.

"Mediation cannot be mandated into existence. It has to be trusted," a senior mediator empanelled with a High Court told The Counsel.

What the Act did, and did not do

The Mediation Bill introduced in the Rajya Sabha in 2021 would have required every party to attempt mediation before filing a civil or commercial suit. The Parliamentary Standing Committee objected that compulsory mediation would delay access to the courts and could become another formality, and the Act as passed on 15 September 2023 provides in Section 5(1) that a party "may" take steps to settle the dispute by pre-litigation mediation, whether or not a mediation agreement exists. The one exception is in the proviso: commercial disputes of the specified value must go through Section 12A of the Commercial Courts Act, 2015, which the Supreme Court in Patil Automation v. Rakheja Engineers (2022) held to be mandatory, with suits filed in breach liable to rejection.

What the Act added was structure:

• Enforceability. A mediated settlement agreement is final, binding and enforceable as a decree under Section 27, challengeable only for fraud, corruption, impersonation or unsuitability within ninety days.
• Time. Mediation must conclude within 120 days of the mediator's first appearance, extendable by 60 days, and the time spent is excluded from limitation.
• Confidentiality. Section 22 protects what is said and produced in mediation from disclosure and from use in later proceedings.
• Interim relief. A party may seek urgent interim relief from a court before or during mediation without forfeiting the process.
• Exclusions. The First Schedule lists disputes unfit for mediation — allegations of serious fraud, criminal offences, disputes involving minors or persons of unsound mind, and claims against third parties, among others.
• Institutions. Online mediation, community mediation and institutional mediation through recognised service providers are all recognised; the Mediation Council of India, established under Section 31, is to register mediators and recognise providers.

Why uptake is low

1. The urgent-relief exemption. Section 12A does not apply where the plaintiff contemplates urgent interim relief. The exemption has become the default: commercial plaintiffs plead urgency, obtain an ex parte order or not, and treat mediation as a step avoided. Courts have begun to scrutinise the plea, and some have sent suits back, but the practice persists.
2. No accredited mediators. The Act assumes a market of registered mediators and recognised providers. The Council's regulations on registration, training and recognition have been slow to arrive, so mediation continues to run through court-annexed centres and legal services authorities, whose capacity was already stretched.
3. Lawyers' incentives. The commercial bar is paid for litigation. Mediation fees are low, uncapped only in private institutional settings, and few firms have built the practice.
4. Trust. Parties, particularly public-sector litigants, fear that settling will be questioned later; mediated settlements involving the government remain rare despite the Act's express application to it.

Mediation cannot be mandated into existence. It has to be trusted.

A High Court-empanelled mediator, to The Counsel

Where it is working

Court-referred mediation under Section 89 of the Code of Civil Procedure, which predates the Act, continues to settle large numbers of family, property and motor-accident disputes through the legal services authorities, and national mediation campaigns run by the Supreme Court and the National Legal Services Authority have settled lakhs of pending cases in short windows. Institutional mediation of commercial disputes is growing in Mumbai, Delhi and Bengaluru, mostly in cases with a foreign party or a contractual mediation clause. The Act's enforceability provision has made the resulting settlements more valuable, and the limitation protection has removed the risk that parties who tried mediation would find the courthouse door closed.

What would change the numbers

• Enforce the exemption honestly. A plea of urgent relief that is not pursued, or is refused, should send the suit back to Section 12A, as several High Courts have begun to direct.
• Get the Council working. Registration of mediators and recognition of providers are the Act's missing infrastructure; without them, parties cannot find a mediator the law recognises.
• Pay mediators. A fee schedule that reflects the value of commercial disputes would bring the bar in.
• Revisit mandatory mediation in phases. The Standing Committee suggested a phased introduction, starting with categories of disputes where mediation has a track record; the government has not taken the suggestion up.

The Counsel will report the Council's regulations as they are notified. Parties with a commercial dispute should take advice from a qualified lawyer on whether Section 12A applies before filing suit.

This report is for general information only and does not constitute legal advice. Readers should consult a qualified lawyer about their own circumstances. Case citations are to The Counsel Reports (TCR) unless otherwise stated.