Alternative dispute resolution: arbitration, conciliation, mediation and commercial courts

Detail

What ADR is and why India needs it

• Alternative dispute resolution (ADR) means settling a dispute outside a regular court trial. It is cheaper, faster and private.
• Why India needs it:
• Pendency: crores of cases are waiting in courts, so a regular trial can take years.
• Cost: lawyers' fees and repeated hearings make court cases expensive. ADR is usually cheaper.
• Confidentiality: ADR is held in private. Business secrets and family matters stay out of public records.
• Party autonomy: the parties (the two sides in a dispute) choose the process, the neutral person, the place and sometimes the law.

• Contract enforcement: India has long scored poorly on how fast contracts are enforced. Investors want a quick and certain way to settle disputes. This is a key "ease of doing business" concern.

• Constitutional link: ADR supports Article 39A (equal justice and free legal aid), which was added by the 42nd Amendment, 1976. It also supports the right to a speedy trial, which courts have read into Article 21.

CPC Section 89: courts can send cases to ADR

• Section 89 of the Code of Civil Procedure (CPC) was added by the CPC (Amendment) Act 1999 and came into force in 2002.

• It allows a civil court to send a case to one of four methods if it sees a chance of settlement: 1. Arbitration 2. Conciliation 3. Judicial settlement, including Lok Adalat 4. Mediation

• Salem Advocate Bar Association v. Union of India (2005):

• The Supreme Court upheld Section 89.

• It approved model rules for ADR and mediation, so the section could actually be used.

• Afcons Infrastructure v. Cherian Varkey Construction (2010):

• The court must first decide whether a case is suitable for ADR.
• Cases that are not suitable include criminal offences that cannot be compounded (settled privately), fraud and forgery, claims against minors or persons of unsound mind, and election disputes.

• Cases that are suitable include trade and contract disputes, family and matrimonial disputes, landlord–tenant disputes and consumer disputes.

• Mediation and Conciliation Project Committee (MCPC), 2005: this Supreme Court committee set up court-annexed mediation centres (mediation centres that work inside court premises) and trains mediators.

The methods compared

Method	Is there a third party?	Who decides the outcome?	Is the result binding?
Negotiation	No	The parties talk directly	Only if they sign a contract
Mediation	Yes, a mediator	The parties make their own deal. The mediator only helps	The signed settlement binds (Mediation Act 2023)
Conciliation	Yes, a conciliator	The parties decide, but the conciliator may propose terms	The signed settlement binds, like an arbitral award (s.74, 1996 Act)
Arbitration	Yes, an arbitrator or tribunal	The arbitrator decides, like a private judge	A binding award, enforced like a decree (s.36)
Lok Adalat	Yes, a bench of conciliators	Settlement by compromise	The award is final. No appeal (Legal Services Authorities Act 1987)

• Key difference: arbitration is adjudicative, meaning a third person decides the dispute. Mediation and conciliation are facilitative, meaning a third person only helps the parties agree.
• Award: the final decision of an arbitral tribunal.
• Decree: a court's formal order that can be enforced by the state's power, for example by seizing property.

Arbitration and Conciliation Act 1996

• It is based on the UNCITRAL Model Law 1985, a model law on international commercial arbitration drafted by the UN Commission on International Trade Law. It replaced the Arbitration Act 1940.
• Structure of the Act:

Part	Covers
Part I	Domestic arbitration and arbitration seated in India (the "seat" is the legal home of the arbitration)
Part II	Enforcing foreign awards under the New York Convention 1958 (and the Geneva Convention)
Part III	Conciliation

• Section 34: a court can set aside (cancel) an award only on narrow grounds. Examples are incapacity of a party, an invalid arbitration agreement, no proper notice, a dispute outside the arbitrator's powers, a subject that cannot be arbitrated, or conflict with the public policy of India.
• Section 36: once the time to challenge an award has passed, or a challenge fails, the award is enforced like a court decree.
• Section 74: a signed conciliation settlement has the same status and effect as an arbitral award.
• Section 37: an appeal lies against an order passed under s.34.

Amendments to the 1996 Act

Amendment	Main change
2015	Time limits: domestic arbitrations must finish within 12 months, extendable by 6 months. A model fee schedule for arbitrators was added. "Public policy" was narrowed, so courts cannot re-open the merits of an award. Filing a challenge no longer stops enforcement automatically
2019	Created the Arbitration Council of India (ACI) to grade arbitral institutions and accredit arbitrators. Its provisions have not been brought into force, so the ACI is not yet working (check current status)
2021	Allowed an unconditional stay (a pause in enforcement without any deposit) where the arbitration agreement or award was induced by fraud or corruption

• Draft Arbitration and Conciliation (Amendment) Bill, 2024:
• The Department of Legal Affairs released it for public comments, with a deadline of 3 November 2024 [4].
• Its aims are to give a further boost to institutional arbitration, reduce court interference and make sure arbitrations finish on time [4].
• Check whether it has been introduced in Parliament.

Gayatri Balasamy v. ISG Novasoft (2025): can courts modify an award?

• Background:
• Section 34 follows the UNCITRAL Model Law, and the Model Law does not let courts modify awards [5].

• High courts disagreed on whether a court could only cancel an award or could also correct it.

• Ruling: in a judgment dated 30 April 2025 (2025 INSC 605), the Supreme Court held that courts have a limited power under Sections 34 and 37 to modify an arbitral award [5].

• What courts may do [5]:
• Use the doctrine of severability, which means cancelling only the invalid part of an award and keeping the rest.

• Correct computational, clerical, typographical or other obvious errors, as long as this needs no fresh look at the merits.

• The limit: the court may modify only when there is no doubt about the correction. If the change is debatable, the court cannot make it [5].

Institutional arbitration and the India International Arbitration Centre

• Ad hoc arbitration is arranged by the parties themselves. Institutional arbitration is run by a standing body with fixed rules, a list of arbitrators and administrative staff. India relied mostly on ad hoc arbitration.
• B.N. Srikrishna Committee (2017): a high-level committee on institutional arbitration. It recommended a new body to take over the International Centre for Alternative Dispute Resolution (ICADR).
• New Delhi International Arbitration Centre (NDIAC) Act 2019:
• It set up the NDIAC as an independent, autonomous body for institutional arbitration, including international commercial arbitration.

• It declared the NDIAC an institution of national importance.

• 2022: the NDIAC was renamed the India International Arbitration Centre (IIAC), and the 2019 Act became the India International Arbitration Centre Act 2019.

Mediation Act 2023

• Passage: the Mediation Bill 2021 went to the Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice. Parliament passed it in August 2023 [3].
• Pre-litigation mediation:
• Pre-litigation mediation means trying mediation before filing a case in court.
• The 2021 Bill made it compulsory: a person had to try mediation before going to court or to notified tribunals [3].

• After the Standing Committee's review, the Act made it voluntary.

• Time limit:

• The Committee recommended cutting the Bill's 180 days plus a 180-day extension down to 90 days plus a 60-day extension [3].

• The Act fixed 120 days, extendable by 60 days with the parties' consent [3].

• Mediated settlement agreement (MSA):

• An MSA is final and binding. It is enforceable like a court decree.

• It can be challenged within 90 days, and only on four grounds:

  1. Fraud
  2. Corruption
  3. Impersonation
  4. The subject matter could not be mediated

• Confidentiality: mediation proceedings are confidential [3].

• Online mediation: mediation can be held fully or partly online.
• Community mediation: this is for disputes that may disturb peace and harmony among residents of an area. A panel of three community mediators handles them.
• Mediation Council of India (MCI):
• Section 31 sets it up as a national body to promote mediation as a preferred way of settling disputes [2].

• It registers mediators and recognises mediation service providers [2][3].

• Matters not fit for mediation (Schedule): examples are claims against minors or persons of unsound mind, criminal prosecution, tax disputes and matters affecting third-party rights [3]. The Central Government can amend this list [3].

• Rollout: the Act's provisions are being notified in phases. Check which sections are now in force.
• Singapore Convention on Mediation (2019): India signed it in 2019 but has not ratified it (check current status). This convention lets international mediated settlements be enforced across countries.

Commercial Courts Act 2015

• Full name: the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.
• Purpose: fast-track courts for high-value business disputes. Examples are trade, construction, intellectual property, banking and franchising disputes.
• Structure:
• Commercial courts at district level.
• Commercial Divisions in high courts that have original civil jurisdiction (power to hear a case first, not just on appeal).

• Commercial Appellate Divisions in high courts, which hear appeals.

• Specified value: this is the minimum value for a dispute to count as a commercial dispute.

• It was ₹1 crore under the 2015 Act.

• The 2018 amendment lowered it to ₹3 lakh (Section 2(1)(i)) [6].

• Section 12A, Pre-Institution Mediation and Settlement (PIMS):

• The 2018 amendment added Section 12A [6].
• If the suit does not seek urgent interim relief, such as an injunction, the parties must first try mediation before filing [6][7].
• The mediation is run by authorities under the Legal Services Authorities Act 1987, such as State and District Legal Services Authorities [7].

• It must finish in 3 months, extendable by 2 months [7].

• Patil Automation v. Rakheja Engineers (2022):

• The Supreme Court held that Section 12A is mandatory.
• A suit filed without mediation (when no urgent relief is sought) must be rejected.
• This rule applies from 20 August 2022.

Prelims Hooks

• CPC Section 89 was added in 1999 and came into force in 2002. It lists four routes: arbitration, conciliation, judicial settlement (including Lok Adalat) and mediation.
• Salem Advocate Bar Association (2005) upheld Section 89. Afcons (2010) listed which cases suit ADR. Non-compoundable crimes and fraud are not suitable.
• Conciliation vs mediation: a conciliator may propose terms; a mediator only helps the parties. Under the 1996 Act, a conciliation settlement has the status of an arbitral award (s.74).
• 1996 Act: s.34 sets aside an award; s.36 enforces it like a decree. Part II covers foreign awards under the New York Convention.
• Gayatri Balasamy (2025): courts have a limited power to modify awards under s.34/37, for example to fix clerical or calculation errors or to sever invalid parts. The UNCITRAL Model Law itself allows no modification [5].
• Arbitration Council of India was created by the 2019 amendment and is not yet working. The unconditional stay for fraud or corruption came in the 2021 amendment.
• IIAC: set up by the NDIAC Act 2019 on the B.N. Srikrishna Committee (2017) recommendation. It was renamed in 2022 and is an institution of national importance.
• Mediation Act 2023: 120 + 60 days, challenge within 90 days, and the Mediation Council of India is set up under Section 31 [2][3].
• Commercial courts: the specified value is ₹3 lakh since 2018 [6]. Section 12A makes pre-institution mediation mandatory, with a 3 + 2 month limit and mediation through legal services authorities [7]. Patil Automation (2022) held it mandatory.
• Trap: pre-litigation mediation is mandatory under s.12A of the Commercial Courts Act but voluntary under the Mediation Act 2023.

Mains Points

• ADR as a reform for pendency:
• Sections 89 and 12A, court-annexed centres and the Mediation Act 2023 move simple disputes out of courts.
• This frees judges for cases that need a decision, and it supports Article 39A and the right to speedy justice under Article 21.

• Limit: take-up is low because lawyers resist, the public trusts courts more, and there are too few trained mediators.

• Court control vs finality of awards:

• The 2015 and 2021 amendments and Gayatri Balasamy (2025) show the tension.
• A narrow "public policy" test and limited power to modify make awards more certain.
• But the fraud-based stay (2021) and court corrections may bring back delay [5].

• The draft 2024 Bill aims to reduce court interference [4].

• Institutional arbitration and India as a global hub:

• The IIAC, a working Arbitration Council of India and ratifying the Singapore Convention would build investor confidence.

• Today, the delay in making the ACI work and India's heavy reliance on ad hoc arbitration weaken this goal.

• Voluntary vs mandatory mediation:

• Section 12A shows that mandatory mediation can reduce the number of cases filed [6].
• The Mediation Act 2023 kept pre-litigation mediation voluntary to protect the right to approach a court [3].
• Mains answers can discuss the balance between access to courts and reducing their burden.