17 October 2016

COMPANIES MEDIATION AND CONCILIATION RULES

Section 442 of the Companies Act, 2013 (`Act`) empowers the Central Government to constitute a panel of experts to mediate and settle disputes pending before the National Company Law Tribunal, National Company Law Appellate Tribunal (`Tribunals`) or the Central Government. The Ministry of Corporate Affairs (`MCA`) through a recent notification enacted the Companies (Mediation and Conciliation) Rules, 2016 (`Rules`) which prescribe the procedural aspects of such mediation and conciliation.

In this legal update we summarise the following important provisions laid down by the Rules:

• Constitution of Panel of Mediators or Conciliators: The Regional Director is empowered to constitute a panel of persons to act as mediators / conciliators, from persons who are (a) former judges of the Supreme Court, High Court, District Court; (b) former Members or Registrars of a Tribunal constituted at the National level under any law for the time being in force; (c) former members of the Indian Corporate Law Service or Indian Legal Service with fifteen years experience; (d) those who are qualified legal practitioners for not less than ten years; (e) those who have been professionals for at least fifteen years of continuous practice as Chartered Accountants or Cost Accountants or a Company Secretaries; (f) former Members or Presidents of any State Consumer Forum, or (g) experts in mediation or conciliation who have successfully undergone training in mediation or conciliation.

• Procedure of mediation and conciliation: The parties are free to appoint a sole mediator or conciliator of their choice. If however, the parties are unable to arrive at a mutual decision, the forum in which their litigation is pending may direct each party to appoint a mediator / conciliator of its choice or appoint a person from the panel of experts to act as the mediator/conciliator. The Tribunal may also suo moto refer a dispute, pending before it to mediation / conciliation if it deems fit.

• Duty of mediator/conciliator to disclose certain facts: It shall be the duty of a mediator or conciliator to disclose to the Tribunal or Central Government, as the case may be, about any circumstances which may give rise to a reasonable doubt as to his independence or impartiality in carrying out his functions.

• Mediator and Conciliator not bound by the provisions of the Indian Evidence Act and CPC: The mediator or conciliator shall not be bound by the Indian Evidence Act, 1872 or the Code of Civil Procedure, 1908 while disposing the matter, but shall be guided by the principles of fairness and natural justice, having regard to the rights and obligations of the parties, usages of trade, if any, and the circumstances of the dispute.

• Role of the mediator/conciliator: The mediator / conciliator shall facilitate a settlement between the parties and attempt to arrive at a mutual consensus. However, he shall not and cannot impose any settlement nor the mediator or conciliator give any assurance that the mediation or conciliation shall result in a settlement and the mediator or conciliator shall not impose any decision on the parties.

• Time limit for mediation or conciliation: The process for any mediation or conciliation shall be completed within a period of three months from the date of appointment of expert or experts from the Panel. However, in the case of a mediation in relation to a proceeding before the Tribunals, it may on the application of the mediator or conciliator or any party to the proceedings, extend the period for mediation or conciliation by such period not exceeding three months. If a party fails to attend a session or a meeting fixed by the mediator or conciliator deliberately or wilfully, two consecutive times, the mediation or conciliation shall be deemed to have failed and mediator or conciliator shall report the matter to the Tribunals/ Central Government, as the case may be.

• Communication between mediator or conciliator and the Central Government/Tribunals: In order to preserve the confidence of parties in the Tribunal, as the case may be, and the neutrality of the mediator or conciliator, there shall be no communication between the mediator and the Tribunal, in the subject matter. However, if any communication between the mediator or conciliator and the Tribunal, as the case may be, is necessary, it shall be in writing and copies of the same shall be given to the parties or their authorised representatives. Further communication between the mediator and the aforesaid authorities can only be limited to the topic stated in the rules.

• Expenses of the mediation/conciliation: At the time of referring the matter to the mediation or conciliation, the Tribunal/Central Government, as the case may be shall fix the fee of the mediator or conciliator. As far as possible, a consolidated sum may be fixed rather than a fee for each individual session or meeting. The expenses of the mediation or conciliation shall be borne equally by the various contesting parties, unless otherwise directed.

• Bar on initiation of judicial or arbitral proceedings during pendency of mediation/conciliation: The parties shall not initiate, during the mediation or conciliation any arbitral or judicial proceedings with respect to the same matter, except that, a party may initiate arbitral or Judicial proceedings, where, in his, opinion, such proceedings are necessary for protecting his rights.

• Matters which shall not be referred to for mediation/ conciliation: The following matters shall not be referred to mediation or conciliation: (a)matters relating to proceedings in respect of inspection or investigation, matters which relate to defaults or offences for which applications for compounding have been made by one or more parties; (b) cases involving serious and specific allegations of fraud, fabrication of documents forgery, impersonation, coercion etc; (c) cases involving prosecution for criminal and non-compoundable offences; (d) cases which involve public interest or interest of numerous persons who are not parties before the Tribunal.

MHCO COMMENT

The notification of these rules and establishment of the Panel of mediators and conciliators is a much needed step, which shall hopefully translate into an increase in the use of mediation and conciliation for commercial disputes and reduce the burden on the Tribunals.

This article was released on 17 October 2016. 

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.