Mediated Settlement Agreements in India - To Enforce or Not ?
Article 30 of the UNCITRAL Model Law on International Commercial Arbitration encourages resolution of disputes through a settlement between parties by way of mediation. A settlement between the parties ensures that disputes end in amicable terms leaving each party satisfied. Additionally, settlement procedures like mediation lessen the burden on courts, mitigate litigation costs for the parties and are more likely to preserve commercial relationships. However, unlike the UK or Singapore, India is not a mediation-friendly country. Various courts in India have frowned upon the legislature for the slip in law.
This post attempts to critically analyze the legal impediments that form the basis for such dilapidated plight of mediation in India. It also draws a comparative analysis with laws of major dispute resolution hubs worldwide and concludes with lessons that India must follow to make its meditation regime more efficacious and party-friendly.
Reason 1 - No Proper Law or Mechanism for Enforcement of Settlement Agreements
Party autonomy, generally the foundation of a settlement agreement, aims at eliminating the traditional enforcement stage. Unfortunately, in cases where one of the parties unilaterally decides to breach this settlement agreement, what is the remedy for the other party, is a very perplexing question.
In India, there exists no law which provides for the enforcement of agreements drawn as a conclusion of mediation between parties. The Indian Arbitration and Conciliation Act 1996 (“Act”) under section 30, aligned with the UNCITRAL Model Law on International Commercial Arbitration, encourages the resolution of disputes by way of mediation in case the arbitral tribunal finds elements of settlement between the disputing parties. In such a scenario, the arbitral tribunal can record the settlement between the parties in the form of an arbitral award on agreed terms, which can be enforced and executed under section 36 of the Act like any other arbitral award.
Section 30 is operative only when the parties have elected to settle a dispute after initiating arbitral proceedings. If parties have opted for private mediation, in pursuance of a mediation clause or otherwise, settlement agreements are not treated as arbitral awards. Thus, they are enforced as mere contracts between the parties.
This causes numerous problems for parties if one party defaults - (1) settlement agreement would not be enforceable as a decree of the court, at best, it may form the basis of a civil suit; (2) it reagitates litigation - despite the matter having been settled.
Consequently, a weak enforcement mechanism defeats the very purpose of mediation and renders the entire process unproductive and otiose. Thus, private mediation isn’t preferred as an ADR process in India and often takes a backseat.
Reason 2 - Preference of Conciliation to Mediation
There has been considerable debate on the differences between mediation and conciliation. While jurisdictions across the world use the terms interchangeably, Indian courts have often distinguished between them. This is evident from the decision of the Hon’ble Supreme Court of India in the case of Salem Advocate Bar Association v. Union of India (2005) 6 SCC 344. This differential treatment poses extreme difficulties when a mediated settlement agreement is sought to be enforced.
While under section 30, both mediation and conciliation settlement agreements can be recorded in the form of an arbitral award on agreed terms and thus treated at par, the enforcement of settlement agreements drawn as part of private conciliation has statutory recognition under Part III of the Act.
Section 73 of the Act empowers a conciliator to draw up a settlement agreement which shall be final and binding on the parties. Section 74 elevates the status of this settlement agreement to an arbitral award. The Hon’ble Delhi High Court confirmed the same in Anuradha SA Investments LLC & Anr. v. Parsvnath Developers Limited & Ors 2017 (4) ARBLR 72 (Delhi).
This stands in stark contrast to the status of private mediated settlement agreements, which are merely treated as contracts. When a settlement is arrived at by mediation, it does not enjoy the status of a court decree, unlike an arbitral award that has been enforced; but when the same settlement is arrived at by terming the mediator as a conciliator, the settlement is deemed to be a decree. Thus, parties prefer conciliation over mediation in India.
In various instances, parties have attempted to enforce mediated settlement agreements under the Act. The landmark judgment in this context was rendered by Hon’ble Delhi High Court in Shri Ravi Aggarwal v. Shri Anil Jagota (2009) SCC Online Del 1475. In this case, the parties had reached a settlement agreement vide private mediation and sought enforcement under sections 30, 73 and 74 of the Act. The court refused to do so, reasoning that Part III of the Act only applies to settlement agreements drawn in pursuance to duly constituted conciliation proceedings.
Reason 3 - Setting Aside of Settlement Agreements
While private mediation suffers from the lack of statutory recognition, the picture is not quite so rosy even in the case where settlement agreements are treated as arbitral awards. The parties have to survive an attack of setting aside under Section 34 of the Act, before they can execute their agreement as awards.
At the onset, one may feel since settlement agreements contain the terms of consent arrived at by parties, there appears to be no rationale for permitting a petition to set aside an arbitral award on agreed terms (settlement agreements). However, since settlement agreements have been conferred the status of an arbitral award, courts have opined that applications under section 34 of the Act naturally follow.
For example, the Hon’ble Delhi High Court in Surinder Kumar Beri v. Deepak Beri & Anr. 2018 (171) DRJ 414, set aside a settlement agreement under section 34 of the Act on the ground that it violated the public policy of India. Similar application of law was upheld by UK Supreme Court in Hayward v. Zurich Insurance Company  UKSC 48. In this case, the court set aside a settlement agreement between an insurer and an insuree on the ground of fraudulent claim.
Lessons from Around the World
The Singapore Arbitration Act treats mediation and conciliation proceedings at par and creates no distinction. However, what sets apart Singapore's domestic mediation regime is the enactment of the Mediation Act in 2017 (Act 1 of 2017), which considerably strengthened the framework for the enforcement of privately mediated settlements conducted in Singapore.
In Singapore, parties to a private mediation can directly apply to a court and record their mediated settlement agreement as an ‘order’ of the court. This allows the agreement to be enforced directly by a court, in the unfortunate event of a unilateral breach.
Similar provisions can be found in the French Code of Civil Procedure, where the parties to a private or contractual mediation may apply to the court for the recognition (homologation) of their mediation settlement. The German Civil Code also allows settlement to be recorded in a deed of execution directly executable under the special procedure with the consent of both the parties. Other countries such as Spain and Belgium also have their laws on similar lines.
As regards to setting aside, courts have usually failed to appreciate that even though legal fiction treats settlement agreements as an arbitral award but there is nothing that compels the court to consider conciliation/mediation as arbitration or a conciliator/mediator as an arbitral tribunal.
In pursuant to the same, the Ontario Superior Court in Rawlins v. Rawlins 258 S.E.2d 187 (Ga. Ct. App. 1979), implored courts to be extremely vigilant and set aside settlement agreements only in exceptional circumstances, such as where there is clear evidence of duress, fraud, bad faith or mistaken instructions.
The lack of a statutory mechanism for enforcement, coupled with a robust conciliation framework, has rendered the mediation regime in India, ineffective and useless. This lends a significant lack of confidence and uncertainty to parties opting for mediation in India. Only a comprehensive statute, namely an ‘Indian Mediation Act’, like an Arbitration and Conciliation Act, can clear the muddy waters). Countries such as Singapore, can offer the guiding light for evolution of mediation law in India.
Since the Indian regime distinguishes between mediation and conciliation, it is inevitable that the law puts both of these on the same footing in terms of uniform enforceability and recognition. Only then will mediation function as a viable ADR process, when it is at par with conciliation and arbitration. Finally, while framing a law on mediation, the legislature must also ensure that it limits the scope of challenge to settlement agreements. Or else even if they are treated as arbitral awards, they will be rendered infructuous.