By : Anandi Katiyar
Abstract
Mediation in commercial disputes is a cost-effective alternative to litigation, yet India’s framework faces significant hurdles, particularly the issue of non-starter cases where parties fail to engage meaningfully. This paper explores how India can address this challenge by adopting Italy’s successful “carrot-and-stick” approach. Italy’s mediation reforms of 2023 incentivise participation through financial benefits, such as tax credits on session fees, while penalising non-compliance to ensure meaningful engagement. By implementing similar measures, India can reduce non-starter rates in commercial mediation and enhance compliance with mandatory pre-institution mediation (PIM). Additionally, closing loopholes that allow parties to bypass mediation under the guise of urgent interim relief is essential. By learning from Italy’s model, India can improve mediation effectiveness, reduce judicial burden, and foster a more business-friendly dispute resolution mechanism.
Introduction
India’s dedication to Alternative Dispute Resolution (ADR) is reflected in its adoption of the Singapore Convention on Mediation in 2018 and its ongoing initiatives to promote mediation as an effective dispute-resolution tool. As the nation strives to become the world’s third-largest economy by 2030, establishing a robust dispute-resolution framework is essential. The World Bank’s B-READY Index highlights the critical role of a strong ADR system in improving business efficiency and attracting foreign investment. Although arbitration remains a prevalent ADR method, its quasi-judicial nature often makes it complex and expensive. Mediation, by integrating the advantages of both arbitration and conciliation, presents a more adaptable and cost-efficient alternative. The Kerala State Mediation and Conciliation Centre’s ‘Annual Mediation Statistics 2023’ shows a 39.4% success rate in a country where there are over 4.5 Crore pending cases as of January 2025. Mediation allows individuals to assess their options and weigh the costs and benefits, empowering them to make the most favourable decision independently.
Time is scarce in the commercial landscape, and profit maximisation is key in both the public and private sectors. Long-drawn legal processes are not just financially detrimental but also pose a significant threat to investor confidence in a company owing to the potential escalation of costs and loss of earnings. At a fraction of the cost of undertaking litigation, mediation allows parties to arrive at mutually beneficial terms while maintaining and fostering trust. Thus, it becomes imperative to incentivise commercial mediation. This article analyses mediation data from Indian courts to assess the impact of mandatory mediation and identify key challenges. By comparing India’s approach with Italy’s model, it explores strategies to improve Pre-Institution Mediation and enhance dispute resolution efficiency.
The Non-Starter Conundrum
ADR has seen a shift towards mediation as per recent policy decisions and statements, and the same is being shown in the various reports. As cases referred for and applied to mediation continue to grow, it is met with an unexpected glass wall in the form of non-starter cases wherein the opposite party in a conflict, refuses to appear for mediation, consequently bringing down the overall settlement rates. Of the 1045 applications for mediation at the Delhi District Courts’ Mediation Centre for Pre-institution Mediation and Settlement in November 2024, 95% of cases are non-starters. This unexpected hurdle has led to the staggering settlement rate of the Delhi District Courts’ Mediation Centre at 1% for 2023 and 0.84% for 2024.
According to the Delhi High Court’s Commercial Court Statistics for November 2024, 8,828 out of 9,173 cases remained pending as of November 30, 2024, resulting in a commercial case pendency rate of 96%. In an effort to alleviate the burden on the judiciary, Section 12A of the Commercial Courts Act, 2015, mandates pre-institution mediation (PIM) for all commercial disputes, except in cases where urgent interim relief is sought. However, this requirement is frequently bypassed through the strategic invocation of urgent interim relief, often on insubstantial grounds. To address this issue, the Draft Commercial Courts (Amendment) Bill, 2024, proposes amendments to Section 12A, ensuring that parties are directed back to mediation following the grant of interim relief. This reform aims to reinforce the effectiveness of mandatory mediation and reduce the strain on the judicial system.
A Page from Italy’s Books
The Non-Starter issue is best addressed by Italy in its carrot-and-stick approach to mandatory PIM in commercial disputes.
Italy took its first step towards mandatory mediation following Legislative Decree No. 28/2010 mandating parties to engage in a preliminary mediation session at a mediation centre authorized by the Ministry of Justice before filing a suit in certain civil and commercial dispute cases or as directed by a judge in an ongoing case. Furthermore, the objective of the mediation session is to foster communication between the parties and initiate a mediation process without any imposition concerning attendance. Per the decree, legal counsels are mandatory to ensure that the parties are made aware of their rights and the various options available to them. Pursuant to the 2023 reforms pertaining to civil justice procedures and mediation brought under its wing a wider range of commercial disputes while introducing a carrot-and-stick approach to mandatory mediation. Italy, on the one hand, penalised absence at PIMs and used financial incentives for those who attended sessions to encourage attendance. For parties involved in business conflicts, financial advantages, including tax credits on session costs are especially lucrative. By borrowing a page from Italy’s mediation practices, India can seek to benefit by reducing non-starter mediation rates in commercial disputes while providing a cost-effective, confidential and secure manner of dispute resolution while ensuring top-quality standards.
While the introduction of mandatory mediation has proven to be fruitful for the Italian Justice System and commercials and has inspired other countries to integrate the same, the Italian formula has not proven true for other jurisdictions.
Romania introduced mandatory mediation through amendments to its Mediation Act, 2006 in 2012 and 2013, requiring plaintiffs to attend a free informational session with a mediator before initiating litigation. Non-compliance with this provision could result in the inadmissibility of the claim if the plaintiff failed to provide evidence of successful attendance in the mandatory mediation session. However, the legislative framework did not impose corresponding obligations on defendants, nor did it take to the Italian carrot-and-stick model to encourage their participation. Moreover, the absence of any systematic data collection mechanisms limited the efficiency assessment of these mandatory sessions, leaving their impact on judicial caseloads and party satisfaction largely unassessed.
In a similar turn of events, Bulgaria’s attempt to mandate mediation within the first two months of initiating litigation fell flat on grounds of unconstitutionality per the Bulgarian Constitutional Court. The lack of incentivisation furthered the reasoning of the court in painting it as a hindrance to access to justice. Thus, Romania and Bulgaria’s experience with PIMs has been far from a cakewalk, serving as a prime example of the need for a delicate balance while introducing mandatory processes.
The importance of the ‘carrot’ is best illustrated through the aforementioned examples; thus, India, in its attempt to mandate PIM in commercial mediations, must learn from these shortcomings and devise a similar model of incentivization that is attractive for parties most engaged in commercial disputes, i.e. corporations and commercial entities.
The concept of incentivisation is not a foreign one to the Indian system, the various forms of which are seen through the various tax deductions and incentives available under the Central Tax System. These incentives not only have an impact on government revenue but also serve as a flagbearer of India’s public policy and commitment to its economic and overall growth.
Conclusion
In the interest of justice and India’s economic goals, it must draw from these international models and develop a framework that not only mandates mediation but also motivates participation through targeted benefits, particularly for corporations and commercial entities. By integrating financial incentives akin to those in tax policy and ensuring stricter enforcement, India can transform mediation into a truly effective tool for commercial dispute resolution, reducing litigation burdens while fostering a more efficient and business-friendly legal system.
About the Author:
Anandi Katiyar is a penultimate-year law student at Jindal Global Law School with a keen interest in dispute resolution, trade, tax, employment laws and sustainability.
NICKELED AND DIMED 