Soumen Mohanty
AQUILAW, Kolkata
soumen.mohanty@aquilaw.com

Piyush Kumar Ray
AQUILAW, Bhubaneswar
piyush.ray@aquilaw.com

Upasana Mohanty
AQUILAW, Bhubaneswar
upasana.mohanty@aquilaw.com

Introduction

In an era where global commerce thrives on speed, certainty and collaboration, the way nations resolve disputes has become as crucial as the way they conduct business. Reflecting this shift, India’s legal landscape is evolving from adversarial litigation to dialogue-driven dispute resolution.

Recognising the need for timely and cost-effective resolution of commercial disputes, Section 12A of the Commercial Courts Act, 2015 introduced ‘pre-institution mediation’, encouraging parties to seek amicable settlement of their disputes before filing a commercial suit except where urgent interim relief is sought. Furthermore, the Mediation Act, 2023 has consolidated the fragmented provisions under a unified and enforceable framework aligned with global standards. By institutionalising time-bound, confidential and party-driven mediation, India now offers a viable alternative to litigation.

Evolution and legal framework of pre-institution mediation

Pre-institution mediation was introduced by the 2018 amendment to the Commercial Courts Act, 2015, aiming to reduce court burden and expedite dispute resolution. Under Section 12A, parties must undergo mediation before initiating commercial suits, unless urgent interim relief is sought. The process is operated through the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (2018 Rules), which designate the District Legal Services Authorities (DLSA) as the nodal agencies under the Legal Services Authorities Act, 1987. This ensures an institutional, accessible and cost-effective mechanism for settlement.

Moreover, the Mediation Act, 2023 now provides a comprehensive and standardised legal structure for mediation proceedings. The process in commercial matters begins with an application before the DLSA, which notifies the opposite party and appoints a mediator upon mutual consent. Mediation must be completed within three months, extendable by two months with the consent of the parties. If parties settle, the agreement, which the mediator authenticates, becomes enforceable under Section 74 of the Arbitration and Conciliation Act, 1996. If unsuccessful, a ‘non-settlement’ report is issued.

In Ganga Taro Vazirani v Deepak Raheja,^[1] a single judge bench of the Bombay High Court held that pre-institution mediation was directory and procedural, allowing suits to proceed without prior mediation. However, on appeal, the Division Bench of the Bombay High Court in Deepak Raheja v Ganga Taro Vazirani^[2] overturned this, declaring Section 12A mandatory for suits not seeking urgent relief, emphasising that parties must first exhaust mediation. The Calcutta High Court in Laxmi Polyfab v Eden Realty^[3] similarly held that plaintiffs cannot bypass Section 12A without first attempting mediation. Conversely, the Madras High Court in Shahi Exports Pvt Ltd. v Gold Star Line Ltd^[4] viewed Section 12A as non-mandatory, citing the constitutional right to access justice.

This divergence was conclusively settled by the Supreme Court in Patil Automation (P) Ltd v Rakheja Engineers (P) Ltd,^[5] which held that pre-institution mediation is compulsory, and suits filed in violation are liable to rejection under Order VII Rule 11 of the Code of Civil Procedure (CPC). The Court affirmed that Section 12A embodies legislative intent to promote early and amicable resolution.

Following the Supreme Court’s ruling in Patil Automation Pvt Ltd (supra), which held Section 12A of the Commercial Courts Act, 2015 to be mandatory, a jurisprudential dilemma arose regarding whether the provision should be applied prospectively or retrospectively. This ambiguity led to conflicting interpretations on the fate of suits instituted without complying with Section 12A. The Supreme Court, in M/s Dhanbad Fuels Pvt Ltd v Union of India & Anr^[6] resolved this by delineating two scenarios for uniform application. First, suits instituted on or after 20 August 2022 without adherence to Section 12A must be rejected under Order VII, Rule 11 of CPC, either on an application made by the defendant or suo motu. Second, suits instituted prior to the said date may be kept in abeyance and directed to explore mediation.

Furthermore, it was clarified that prospective overruling does not apply where the plaint was rejected and no steps were taken within the limitation period, a new suit was filed after rejection, or the plaint was filed after the High Court declared Section 12A mandatory. This approach balances mandatory mediation with procedural fairness.

Globally, countries have adopted innovative practices to strengthen pre-litigation mediation. In the United States, mandatory mediation disclosure and early neutral evaluation have integrated mediation into the justice system. In the United Kingdom, the Centre for Effective Dispute Resolution (CEDR) conducts audits and publishes empirical data on mediation outcomes, enabling evidence-based policy. Australia mandates pre-litigation steps in sectors like farm debt and tenancy disputes. Singapore offers Singapore International Mediation Centre (SIMC) support, judicial settlement rules, hybrid Arb-Med-Arb models, the Singapore Convention, and artificial intelligence-powered case management.

Empirical insights and practical challenges

Empirical research and practical experience highlight several challenges in the implementation of pre-institution mediation in India. The 2023 EAC-PM Working Paper Series, Why Commercial Mediation Should be Voluntary, published by the Economic Advisory Council to the Prime Minister (EAC-PM),^[7] critically evaluates the effectiveness of mandatory mediation under Section 12A of the Commercial Courts Act, 2015. The study found that between 2020 and 2023, nearly 98 per cent of pre-litigation mediation applications in Mumbai district courts were non-starters, with only 1 per cent resulting in successful settlements. It further noted that mandatory mediation often delays dispute resolution by three to five months and increases legal costs, as parties frequently exploit exceptions for urgent relief to bypass the process.

Moreover, research by the DAKSH Centre of Excellence for Law and Technology at IIT Delhi^[8] analysed cheque bounce cases, which disproportionately contribute to docket congestion in Indian courts. The study revealed that mandating mediation in such cases adds approximately three hearings and around 100 days to the time required for disposal. These results challenge the assumption that mediation automatically reduces court involvement and case duration. Both research initiatives indicate that while pre-institution mediation has its significance, however, its mandatory application may not yield the desired efficiencies unless carefully calibrated to case type, party willingness, and institutional capacity.

Beyond these quantitative insights, qualitative factors also hinder adoption. Awareness of mediation remains limited, particularly among small businesses, and litigants often doubt the enforceability and credibility of mediated settlements despite the Mediation Act, 2023 granting them legal sanctity. Cultural resistance persists, as India’s adversarial legal tradition equates justice with judicial pronouncement. Institutional limitations, including a shortage of trained mediators, inadequate infrastructure and limited sector-specific expertise, undermine confidence in neutrality and competence, while ambiguity surrounding ‘urgent interim relief’ has allowed parties to circumvent pre-institution mediation, reducing its intended impact.

The way forward

Addressing these challenges requires a comprehensive and nuanced approach. Expanding institutional capacity is critical. While High Court and State Legal Services Authority mediation centres provide a foundation, the sheer volume of mediation-suitable cases (16.8 million) necessitates additional centres, enhanced infrastructure and the development of sector-specific expertise. Implementing a uniform, national certification framework can ensure consistent professional and ethical standards.

Voluntary participation should be actively promoted, as coercive processes risk undermining the collaborative essence of mediation. Awareness campaigns targeting businesses, litigants and legal professionals, along with integration into legal education and professional training, can cultivate a culture of early and amicable dispute resolution. Procedural clarity, particularly in defining ‘urgent interim relief’, will reduce misuse and improve predictability.

Mandatory mediation can initially be applied to select categories, including environmental, climate, healthcare, intellectual property and public contract disputes. This phased approach enables the development of specialised mediator expertise, promotes best practices and demonstrates effectiveness. Gradual expansion to other dispute types can then ensure sustainable integration as institutional capacity, mediator availability and public awareness grow.

Collectively, these measures can strengthen India’s mediation ecosystem, preserving the voluntary and collaborative essence of the process while enhancing efficiency, credibility and public acceptance. Pre-institution mediation thus holds the potential to transform India’s commercial dispute resolution framework into a system that prioritises dialogue, cooperation and procedural efficiency.

Conclusion

Pre-institution mediation marks a paradigm shift in India’s commercial dispute resolution from confrontation to collaboration. By mandating early negotiation through Section 12A of the Commercial Courts Act, 2015, and reinforcing it via the Mediation Act, 2023, India is building a culture of amicable settlement that conserves judicial resources and encourages business efficiency.

As the Supreme Court observed in the case of Patil Automation (P) Ltd (supra), mediation offers a way out of the ‘crippling costs, procedural wrangles, and delays’ of litigation and ‘must be seen not as a secondary option, but as a legitimate and powerful first resort in resolving disputes.’

Pre-institution mediation represents more than a procedural requirement; it reflects India’s evolving jurisprudence committed to dialogue over dispute, cooperation over confrontation, and a justice system that values efficiency, fairness and modernity.