- For commercial disputes that do not require urgent interim relief, section 12A of the Commercial Courts Act, 2015 makes pre-institution mediation mandatory before a suit is filed.
- The Mediation Act, 2023 gives a statutory framework for mediation, including enforceability of a mediated settlement agreement as if it were a court decree.
- Mediation is time-bound — 180 days, extendable by a further 180 days by the parties — and confidential.
- A mediated settlement can be challenged only on narrow grounds of fraud, corruption, impersonation or a subject matter not fit for mediation.
Two sources of mediation law
| Route | When it applies | Key rule |
|---|---|---|
| Pre-institution mediation (Commercial Courts Act, s. 12A) | Commercial disputes of the “specified value” where no urgent interim relief is sought | Mandatory before filing a suit; non-compliance leads to rejection of the plaint |
| Court-referred mediation (CPC, s. 89) | After a suit is filed, where the court sees elements of settlement | Court refers the parties to a mediator or other ADR mechanism |
| Mediation under the Mediation Act, 2023 | Parties agree to mediate, or a statute requires it; includes online mediation and mediation of certain government disputes with conditions | Mediated settlement agreement is enforceable like a decree |
Mandatory pre-institution mediation: the practical rules
Section 12A bars a suit in a Commercial Court unless the plaintiff has exhausted the remedy of pre-institution mediation in accordance with the 2018 Rules — except where the plaintiff contemplates urgent interim relief. The Supreme Court has held the requirement mandatory, and a suit filed without it is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure. Mediation is conducted through the District Legal Services Authority or an authorised mediation service, and the period is three months, extendable by two months with the parties’ consent. The time spent in mediation is excluded when calculating limitation.
Pre-institution mediation in sequence
- 01
Application
Applicant files in the prescribed form with the authority, describing the dispute and the relief.
- 02
Notice
The authority issues notice to the other side and fixes a date.
- 03
Sessions
Joint and separate meetings with the mediator; documents shared on a confidential basis.
- 04
Outcome
Either a settlement agreement or a non-starter report, which the plaintiff can file with a suit.
What the Mediation Act, 2023 adds
- Pre-litigation mediation is encouraged for civil and commercial disputes, with a mediation clause enforced by the court.
- Time limits: the mediation is to be completed within 180 days, extendable by a further 180 days by agreement.
- Confidentiality and privilege: communications in mediation are confidential and cannot be used in later proceedings without consent.
- Enforceability: a mediated settlement agreement, signed and authenticated by the mediator, is final and binding and enforceable as a judgment or decree of the court.
- Online mediation and community mediation: the Act recognises both, and establishes the Mediation Council of India.
- Registration: parties can register a mediated settlement agreement with a body notified by the State Legal Services Authority within 180 days to give it evidentiary support.
Mediation suits when…
- The parties want to preserve a continuing commercial relationship
- The dispute is mainly about amount and timing, not liability
- Confidentiality matters more than precedent
- A prompt, enforceable settlement is worth more than a perfect result
Mediation is unlikely to suit when…
- Urgent interim relief or a protective order is needed immediately
- One side wants a binding precedent or public vindication
- The matter involves fraud, criminal offences or other non-mediable subject matter
- A party has no authority to settle and will not send someone who does
Drafting mediation into contracts
A tiered dispute clause — negotiation, then mediation, then arbitration or court — is the commercial default. The clause should name the mediation institution or rules, set the time for each tier, say whether the tiers are conditions precedent, and carve out urgent interim relief. See contract drafting clauses and arbitration timelines.
Frequently asked
Can a mediated settlement be reopened?
Only on narrow grounds, including fraud, corruption, impersonation or a dispute that is not fit for mediation, and within the time limit specified in the Mediation Act.
Does mediation stop limitation running?
The time spent in pre-institution mediation under section 12A is excluded from limitation. For other mediation, the safe course is to file the suit or arbitration notice within limitation and then mediate, or agree a tolling arrangement.
Is the mediator’s recommendation binding?
No. A mediator facilitates; the parties decide. A mediator does not give a binding decision. Only the signed settlement agreement binds.
Does section 12A apply to every commercial dispute?
It applies to commercial disputes that fall within the Act where the plaintiff does not seek urgent interim relief; where it does, the plaintiff must show urgency in the plaint, and the court decides whether the exemption applies.
The Mediation Act, 2023 is implemented by notification in stages, with rules and institutions being set up by the Central and State Governments, and courts continue to interpret section 12A. Check the current notifications and recent decisions. Not a substitute for advice from an advocate or chartered accountant on your facts.