BACKGROUNDPost independence the Parliament has made

laws regarding Alternate DisputesResolution(“ADR”) under the Legal ServicesAuthorities Act, 1987 and the Arbitration andConciliation Act, 1996 (“A&C Act”). Theincorporation of ADR mechanisms underSection 89 and Order X Rules 1A,1B and 1C ofthe Civil Procedure Code, 1908 (“CPC”) was aradical step towards the promotion of ADRmechanisms in India.

Under Section 89 of the CPC, where itappears to the Court that there exist elementsof settlement which may be acceptable to theparties, it shall formulate the terms ofsettlement and give them to the parties for

their observation.The Court may reformulatethe terms of possible settlement after receiptof observation and refer the same forarbitration or conciliation or judicialsettlement including settlements through LokAdalat or Mediation.

For conciliation the provisions of A&C Actunder Part III, which is modeled on UNCITRALConciliation Rules, 1980 shall apply, whereas,mediation follows such procedure as may beprescribed under Part II of the Civil ProcedureAlternative Dispute Resolution and MediationRules, 2003 (“Civil Procedure ADR &MediationRules”). The Rules under Part II of the CivilProcedure ADR & Mediation Rules are calledCivil Procedure Mediation Rules (“MediationRules”).

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ADR under the Companies Act, 2013 -Is India Inc. Ready?

n K.P.S Kohli

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Mediation & Conciliation – TheDifferentiators

Under the Civil Procedure ADR&Mediation Rules, “Mediation” has beendefined, inter-alia, as the process bywhich a Mediator appointed by parties orby the Court, facilitates discussionbetween parties, assists parties inidentifying issues in dispute, reducemisunderstandings, clarifying priorities,generating options in an attempt to solvethe dispute and emphasizing that it isthe parties’ own responsibility for makingdecisions which affect them.

"Conciliation" under the MediationRules has been defined, inter-alia, as theprocess by which a Conciliator who isappointed by parties or by Court, appliesthe of provisions of the A&C Act insofaras they relate to conciliation, and inparticular, make proposals for settlementof the dispute and formulate or re-formulate the terms of a possiblesettlement.

The scope of conciliation and mediationmay vary, but both depend on the will ofthe parties. In Conciliation, theConciliator brings the parties to anagreement through negotiation after thedispute has arisen and agreement is an

"award" on agreed terms under the A&CAct and is executable like a decree.

On the other hand, a Mediator assiststhe disputants to reach a negotiablesettlement, which results in a signedagreement which is called "settlement”.The Court has to pass a decree on thebasis of settlement for the same to beexecuted as a decree.

CHANGE IN GEARSThe past few years have seen a flurry of

reforms in various laws to enhance easeof doing business in India. Numerous oldand feeble laws have been repealed orreplaced with robust enactments and newlaws have been introduced to draw aparallel to the altered national andinternational economic environment.There is a common overriding objectivethat the plethora of recent legislationsand amendments are trying to achieve i.e.early resolution of disputes especially incommercial matters.

Section 442 of the Companies Act,2013

One of the many recent enactmentsthat perhaps covers a large number ofcommercial disputes is the Companies

Act, 2013 (“Companies Act”). Section 442of the Companies Act interestinglyprovides the ADR mechanism vis-a-visMediation and Conciliation as possibleoptions for parties involved at any stageof the proceedings.

The Companies (Mediation andConciliation Rules, 2016 (“M&C Rules”)have been notified by the Governmentunderthe powers conferred by Section442 read with Section 469 of theCompanies Act. The M&C Rules lay downthe procedure for disposal of matters byadopting ADR mechanismsby parties atany stage of the proceeding before theCentral Government, “Tribunal” or“Appellate Tribunal”. The NationalCompany Law Tribunal (“NCLT”) is a“Tribunal” constituted under Section 408of the Companies Act and similarly, the“Appellate Tribunal” is the NationalCompany Law Appellate Tribunal(“NCLAT”) constituted under Section 410of the Companies Act.

MEDIATION & CONCILIATION UNDERTHE M&C RULES The M&C Rules are unique in many

ways from the existing provisions formediation and conciliation in India. Theprovisions of M&C Rules are broadly basedon the Mediation Rules and provisions ofconciliation under the A&C Act. However,certain new provisions have beenintroduced in the M&C Rules, which aresummarized below:

1. Rule 6 provides for application forappointment of Mediator or Conciliatorand makes it mandatory for the CentralGovernment or the NCLT or the NCLAT, torefer the matter pending before it formediation and conciliation upon anapplication made in Form MDC-2 alongwith the requisite fee. The ADRmechanisms of mediation or conciliationcan be initiated either upon consent ofthe parties or where the Court feels thatthere is a scope for settlement under ADRmechanisms.

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2. Rule 11 regarding the procedure fordisposal of matters, mandates each party toprovide to the mediator or conciliator as wellas exchange amongst them a briefmemorandum setting forth the issues whichneed to be resolved, within ten days before asession or shorter period at the discretion ofthe mediator and conciliator. The Rule 11 issimilar to Section 65 of the A&C Act, butunder Section 65 of the A&C Act conciliatorhas to ask for information.

3. Rule 14 provides that if a party fails toattend a session or a meeting fixed by themediator or conciliator deliberately orwillfully for two consecutive times, themediation or conciliation shall be deemed tohave failed. There is no automatic failure ofmediation and conciliation under the A&CAct.

4. Time limit of three months has beenprovided for completion of mediation orconciliation under Rule 19 and on expiry ofthree months, the mediation or conciliationprocess shall stand terminated. However,upon application by the mediator orconciliator or any party to the proceedings,the period of mediation or conciliation maybe extended by such period not exceedingthree months. There is no time limit forconciliation under the A&C Act, althoughunder Rule 18 of the Mediation Rules,mediation expires after sixty days from thedate fixed for first appearance. Themediation may further extend by not morethan thirty days either suo moto, or uponrequest by the Mediator or any or the parties.

5. Rules 25 and 26 seems to be at variancewith the provisions of Sections 73 and 74 ofthe A&C Act. Under Section 73 parties uponsettlement of dispute may draw up and signa written settlement agreement and suchsettlement agreement in terms of Section 74shall have the same status and effect as if itis an arbitral award on agreed terms renderedby an arbitral tribunal under the A&C Act.However, under Rule 25, the settlementagreement signed even in conciliation shallbe forwarded to the Central Government or

the NCLT or the NCLAT and under Rule 26,upon satisfaction of the Central Governmentor the NCLT or the NCLAT regardingsettlement of dispute, it shall pass an orderin accordance with terms thereof;

6. Rule 29 states that the parties shall notinitiate any arbitral or judicial proceedings inrespect of a matter that is the subject matterof the mediation or conciliation, exceptwhere, such proceedings are necessary forprotecting the rights of the parties. The saidRule is similar to Section 77 of the A&C Act,but the Rule 29 also provides for similar bareven in case of mediation.

THE CLOSING NOTEWe should attune our mediation practices

with global best practices. Ad-hoc applicationof ADR mechanisms for resolution of disputesunder the Companies Act have often beenmisused to cause delay by unscrupulouslitigants. Thus, introduction of M&C Rules isa welcome measure. The M&C Rules establisha framework for application of ADRmechanisms to disputes arising under theCompanies Act. The M&C Rules provides forconstitution of a panel of expert mediatorsand conciliators for disputes arising underthe Companies Act. Further, the M&C Rulesgive power to the Central Government, NCLTsand NCLAT to refer parties to mediation orconciliation if it feels there is a scope ofsettlement. The disputing parties, who areeither, referred by the Central Government orNCLTs or NCLAT or with mutual agreementadopt the M&C Rules have the benefit of thewell-definedprocedure. The M&C Rulesprovides for automatic closure of the ADRprocess, if any party does not attend twoconsecutive sessions and an automatic closerof proceedings upon completion of threemonths, if no one time extension of anotherthree months is granted.

The M&C Rules have great potential foreffective resolution of disputes arising underthe Companies Act, but it remains to be seenif in practice the M&C Rules achieve theobjective of early resolution of disputesunder the Companies Act.

With nearly ten years’ experience,

KPS Kohli is the Associate Partner

of the firm and specializes in

Telecommunications, IT, Arbitration,

Corporate and Commercial. He has

worked with various notable

conglomerates and regularly

advises clients on complex legal

matters. An alumni of National

Institute of Law, Mr. Kohli offers

hands-on legal advice and overall

strategic inputs in a wide range of

matters that addresses the client’s

interests and make them trust his

legal acumen. He represents the

firm in reputed forums as a

speaker and also regularly

publishes articles/research papers

in various publications.

w

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