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  • Reetika Gupta

Changing the ways parties resolve disputes: Key Highlights of the Mediation Act 2023 for Start-Ups

Introduction

Mediation is a process by which the parties attempt to resolve their disputes through discussions and negotiations, which is facilitated by a third party, namely, a mediator. Unlike traditional litigation or arbitration, mediators do not issue judgments but facilitate the parties to reach mutually beneficial solutions. Mediation seeks not just to adjudicate rights but to achieve complete and final dispute resolution. Start-ups frequently encounter disputes or conflicts in their business relationships, whether with other parties they collaborate with, work for, or receive services from. It is essential for them to seek efficient and cost-effective ways to resolve these challenges. The Mediation Act 2023, notified on September 15, 2023, by the Ministry of Law and Justice, introduces institutional mediation, reinforces mediated settlement agreements, establishes mediator registration bodies, promotes community mediation, and facilitates cost-effective online mediation. In this article, we'll delve into the significant features of the Mediation Act 2023 and how they can benefit start-ups.


1. Mandatory Mediation

To promote alternative dispute resolution (ADR), the Act mandates the parties to use mediation as the first step to resolve civil or commercial disputes before going to court or a specific tribunal. Even if pre-litigation mediation fails, courts or tribunals can still order parties to mediate at any time during the proceedings. This shows that the legislators intended for Indian businesses to no longer make courts their default choice for resolving commercial disputes. Instead, parties are expected to actively try to reach an amicable resolution through mediation or arbitration. While going to court remains an option if absolutely necessary, it should be a last resort. Additionally, mediation is confidential, which can help reduce the risk of damaging the relationship between the parties, which is a potential consequence of publicly litigated disputes.


2. International Mediation

For start-ups engaged in international business or with foreign partners or investors, the application of the Mediation Act to international mediations can provide a framework for cross-border enforcement of settlement agreements resulting from international mediation. However, it is important to highlight that the Mediation Act applies only to international mediations where the mediation is conducted in India but not applicable to mediations conducted outside India.


3. Time Limits for Mediation

The Act mandates that mediation proceedings must be confidential and completed within 180 days from the date fixed for first appearance before the mediator, with a further 180 (one hundred eighty) days period extendable by the consent of parties. Also, the Mediators are not bound by the procedures of the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872, allowing greater flexibility and party autonomy.


4. Flexible Mediation Agreements

The mediation agreement can take the form of a clause within an existing agreement or as a separate written agreement. The Mediation Act defines 'in writing' broadly, encompassing signed documents, electronic communications under the Information Technology Act, 2000, or any pleadings or proceedings where one party alleges the existence of a mediation agreement without denial by the other. Parties can also opt for mediation after a dispute has arisen.


5. Online Mediation

Online mediation is available to parties who agree in writing, offering start-ups a convenient, cost-effective, and efficient way to resolve disputes while upholding professionalism and confidentiality. It breaks down geographical boundaries, allowing start-ups to collaborate with mediators, parties, or experts worldwide, providing greater flexibility, especially in international dealings.


6. Registration

Parties have the option to formally register a mediated settlement agreement, excluding those arising from court or tribunal-referred mediation or governed by the Legal Services Authorities Act, 1987, within a 180-day window that can be extended if needed. While registration is not obligatory, it imbues the agreement with a notable sense of credibility and formality. This aspect holds particular significance for start-ups when engaging with investors, partners, or other stakeholders, as it underscores a steadfast dedication to the professional resolution of disputes.


7. Legally Binding Agreements

When mediation leads to successful resolution, the resulting agreements carry the same enforceability status as court judgments. These agreements are legally binding and can compel the involved parties to honour the specified terms. This legal binding attribute imparts essential assurance and credibility to the mediation process, fostering trust among participants. Start-ups opting for mediation can be confident that the agreements they forge will receive legal backing, reinforcing mediation as a dependable and robust method for dispute resolution.


Conclusion

For most start-up companies, the preservation of ongoing relationships holds utmost importance. Achieving an amicable resolution to disputes through mediation serves as a means to not only safeguard these relationships but also opens doors for potential future collaborations. Mediation, as a process, is designed to facilitate solutions that are mutually advantageous, promoting outcomes where all parties can succeed, which stands in stark contrast to the inherent winner-loser dynamic of adversarial litigation. By circumventing confrontational approaches, mediation empowers parties to collaboratively reach a harmonious and final resolution, ultimately benefiting everyone involved.


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Reetika Gupta

4 LH, Lanco Hills

Manikonda

Hyderabad- 500089

Email: reetika@aristolegal.co.in

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