India's Mandatory Commercial Mediation System Shows Alarming Failure Rates
Nearly seven years after India implemented mandatory pre-court mediation for commercial disputes, the system appears to be fundamentally broken. Government statistics reveal a startling reality: only about 1.75% of over 270,000 applications routed through this process have been successfully settled since its introduction in 2018. This represents a systemic failure of what was intended to be a faster, more efficient alternative to traditional litigation.
Stark Numbers Tell a Troubling Story
Data presented before the Rajya Sabha by the Ministry of Law and Justice paints a grim picture of India's mediation framework. While lakhs of commercial disputes have been directed toward mandatory pre-institution mediation under the Commercial Courts Act of 2015, only a minuscule fraction has reached resolution. The disclosure came in a written reply on January 29 to a question raised by Trinamool Congress lawmaker Sagarika Ghose.
According to the official figures, over 270,000 applications have been filed for pre-institution mediation since Section 12A of the Commercial Courts Act was introduced in 2018. This provision governs commercial disputes specifically to facilitate faster resolution. However, the vast majority of these disputes never progressed to actual mediation sessions or concluded without any settlement agreement.
Year-by-Year Breakdown Reveals Worsening Trend
The annual government statistics underscore how limited the outcomes have been across multiple fiscal years:
- July 2018-March 2019: Only 25 cases settled out of 3,680 applications
- FY20: 167 settlements from over 18,000 applications
- FY21: 186 settlements from over 18,000 applications
- FY22: 368 settlements from 32,335 applications
- FY23: 1,449 settlements from 46,412 applications
- FY24: 1,139 settlements from nearly 60,000 applications
- FY25: 877 settlements from nearly 60,000 applications
This data reveals a particularly concerning pattern: as mediation applications have surged from 3,680 in FY19 to nearly 60,000 in FY25, settlement rates have remained negligible, indicating the system's effectiveness has actually deteriorated over time.
Legal Community Voices Serious Concerns
Prominent lawyers and dispute resolution experts have expressed deep concerns about the current framework. Gauhar Mirza, partner at Saraf and Partners, noted: "In most commercial cases, mediation fails before it even begins. Often the other side simply does not show up. Even when they do, they lack authority or preparation. When genuine mediation happens, settlements do follow, but very few cases ever reach that stage."
Shaneen Parikh, partner and head of international arbitration at Cyril Amarchand Mangaldas, highlighted the stark reality: "The numbers tell a stark story. In 2024-25, fewer than 900 settlements came out of nearly 60,000 mediation applications. Parties clearly do not see value in the process and prefer to litigate or settle informally."
According to Parikh, rather than reducing court congestion as intended, mandatory mediation has created an additional procedural layer that businesses must navigate before their cases can proceed through the traditional legal system.
Why Is the System Failing?
Legal experts identify several fundamental problems with India's mandatory mediation framework:
- Procedural Hurdle Mentality: Parties widely treat mediation as a box-ticking exercise rather than a serious settlement effort
- Reluctance to Engage Early: In high-value commercial cases, companies hesitate to compromise at initial stages
- Lack of Authority: Representatives often attend without decision-making power
- Enforcement Uncertainty: Little certainty exists around enforcing mediated settlements
- Strategic Concerns: Businesses worry mediation could weaken their negotiating position in subsequent litigation
Shiv Sapra, partner at Kochhar & Co., warned: "There is a risk that repeated failures of pre-institution mediation may dampen business confidence in ADR, especially when such low settlement rates are seen as evidence that the process does not work."
Compulsory Nature Contradicts Mediation Principles
Lawyers argue that the mandatory aspect of pre-court mediation fundamentally contradicts the basic philosophy of mediation itself. Mediation, as part of alternative dispute resolution (ADR), traditionally depends on voluntary settlement with assistance from a neutral mediator. By making it compulsory, the system has inadvertently weakened business confidence in the entire process.
Under Section 12A of the Commercial Courts Act, parties involved in commercial disputes above ₹3 lakh must attempt mediation before filing a lawsuit, unless urgent interim relief is required. This compulsory requirement appears to be creating resistance rather than cooperation.
Policy-Level Recognition of Problems
Concerns about mandatory mediation have reached the highest policy levels. In 2023, a paper by the Economic Advisory Council to the Prime Minister (EAC-PM) argued that pre-litigation mediation under the Commercial Courts Act should be made voluntary. The paper noted that compulsory mediation can add three to five months to dispute timelines and increase legal costs for businesses.
In September 2023, Parliament passed the Mediation Act, 2023, establishing a broader framework for how mediation works in India. However, this legislation did not alter the mandatory pre-court mediation requirement under the Commercial Courts Act. Compulsory mediation for commercial disputes continues unchanged, with the new law primarily regulating the mediation process and enforcement of settlements.
International Comparisons Highlight Structural Issues
In mature jurisdictions like the United Kingdom, mediation is embedded within civil procedure rather than governed by separate legislation. Courts actively encourage mediation through cost sanctions for unreasonable refusal, creating strong judicial pressure while maintaining the process's voluntary nature.
In the United States, mediation operates under a mix of federal rules, state laws, and court-specific procedures rather than a single statute. Many federal courts encourage or require mediation under local rules, while states regulate it through their civil procedure laws.
The Path Forward: Necessary Reforms
Dispute resolution experts suggest several critical reforms to make India's mediation framework effective:
- Penalties for Non-Engagement: Implementing consequences for refusing to participate in good faith
- Decision-Maker Requirements: Mandating that parties attend with proper authority to settle
- Judicial Oversight: Closer monitoring and intervention by courts
- Singapore Convention Ratification: India signed this UN treaty in August 2019 but hasn't ratified it
The Singapore Convention on Mediation would allow international commercial mediation settlements to be enforced directly across borders. For investors, this is crucial as settlements reached through mediation could be enforced without initiating fresh court cases or arbitration proceedings.
An IndiaCorpLaw analysis notes that under current Indian law, mediation settlements are often treated as private contracts, making enforcement slow and uncertain. Ratifying the Singapore Convention would address this gap, making mediation more reliable for cross-border business, reducing legal costs, and boosting investor confidence in India's dispute-resolution system.
From an investor perspective, Parikh emphasized that quicker enforcement of mediated settlements combined with India's ratification of the Singapore Convention could help restore confidence in the mediation process.
As India's commercial mediation system approaches its seventh year, the overwhelming evidence suggests significant structural reforms are urgently needed. What began as a well-intentioned effort to reduce court congestion and expedite dispute resolution has become an additional procedural burden with minimal success rates. The coming years will determine whether policymakers can transform this failing system into the efficient alternative dispute resolution mechanism it was designed to be.
