Introduction
In a rapidly evolving business environment, commercial disputes are inevitable. Whether they arise from contractual breaches, delayed payments, or partnership disagreements, such conflicts often lead to prolonged litigation—consuming valuable time and resources. Recognizing this, the Commercial Courts Act, 2015 (as amended in 2018) introduced a game-changing concept: Pre-Institution Mediation (PIM).
This mechanism aims to encourage parties to resolve disputes amicably before entering the courtroom—ushering in a new era of efficiency, cooperation, and cost-effectiveness in commercial dispute resolution.
What is Pre-Institution Mediation?
Under Section 12A of the Commercial Courts Act, 2015, parties are required to explore mediation before filing a commercial suit (unless urgent interim relief is sought).
The process is conducted by authorities established under the Legal Services Authorities Act, 1987, ensuring that mediation remains accessible and impartial.
In simple terms, before filing a lawsuit, a business must first attempt to settle the dispute through mediation—providing an opportunity to resolve issues without entering a formal trial.
Objectives of Pre-Institution Mediation
The intent behind introducing this provision is clear:
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To reduce the burden on commercial courts.
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To save time and costs for both parties.
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To promote harmony in ongoing business relationships.
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To encourage dispute resolution through dialogue, rather than adversarial proceedings.
How the Process Works
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Initiation:
The aggrieved party files an application for mediation before the concerned Legal Services Authority. -
Notice to Opposite Party:
The Authority issues a notice to the respondent to participate in the mediation. -
Appointment of Mediator:
A qualified mediator is appointed to facilitate discussions. -
Mediation Sessions:
Both parties engage in a series of confidential discussions to explore settlement terms. -
Settlement Agreement:
If an agreement is reached, it is reduced to writing and signed by both parties—becoming binding and enforceable as a decree of the court under Section 12A(3). -
Failure of Settlement:
If no agreement is reached within three months (extendable by two months), the Authority issues a non-settlement report, allowing the plaintiff to proceed with filing a commercial suit.
Benefits of Mediation in Commercial Disputes
1. Time and Cost Efficiency
Traditional litigation can stretch over years, but mediation offers resolution within 3–5 months, saving significant time and money.
For businesses, this means faster cash flow recovery and minimal operational disruption.
2. Confidentiality
Unlike court proceedings, mediation sessions are private.
This allows companies to safeguard sensitive information such as trade secrets, pricing strategies, or internal communications.
3. Preservation of Business Relationships
In commercial contexts, parties often have ongoing business ties. Mediation helps them resolve disputes without burning bridges, preserving goodwill and future collaboration.
4. Flexibility and Control
Parties design their own settlement terms rather than relying on a judge’s decision. This fosters creative and mutually beneficial outcomes.
5. Reduced Judicial Burden
With rising commercial litigation, mediation serves as a filter mechanism, ensuring that only unresolved or complex disputes reach the courts.
Judicial Recognition of Pre-Institution Mediation
The judiciary has emphasized the mandatory nature of mediation under Section 12A.
In Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022), the Supreme Court held that pre-institution mediation is compulsory, and suits filed without complying with this requirement are not maintainable.
This landmark ruling reinforced India’s commitment to alternative dispute resolution as a foundational pillar of commercial justice.
Challenges in Implementation
Despite its promise, some hurdles remain:
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Lack of awareness among small and medium enterprises.
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Limited trained mediators in certain districts.
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Reluctance of parties to compromise due to mistrust or rigid legal positions.
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Need for uniform infrastructure and digital mediation platforms.
However, with growing government initiatives and corporate acceptance, these challenges are gradually being addressed.
The Way Forward
The future of commercial dispute resolution lies in embracing mediation as the first step, not the last resort.
Integrating online mediation platforms and AI-assisted settlement tools can make pre-institution mediation faster, data-driven, and even more efficient.
Law firms, business leaders, and the judiciary must collectively foster a culture of negotiation over litigation.
Conclusion
Mediation and Pre-Institution Settlement mark a transformative shift in India’s commercial dispute landscape.
By promoting dialogue, reducing backlog, and protecting business relationships, it serves as a boon for litigants and the legal system alike.
As the legal community continues to innovate, mediation will remain a cornerstone in achieving the vision of “Ease of Doing Business through Ease of Dispute Resolution.”
