Mediation Act 2023: What It Changes for Commercial Disputes

  Articles, Arbitration & ADR

India’s Mediation Act 2023, enacted on 14 September 2023 and partly notified from October 2023, is the first standalone comprehensive legislation governing mediation in India. Before the Act, mediation existed principally as a court-referred process (under Section 89 of the Code of Civil Procedure 1908) or through sector-specific provisions (such as pre-institution mediation under the Commercial Courts Act 2015). The Mediation Act 2023 India commercial disputes enforceability framework transforms mediated settlement agreements from informally negotiated documents into enforceable court decrees, establishes a regulatory framework for mediators, and formally integrates mediation into India’s dispute resolution architecture. For businesses managing commercial disputes, contracts, and ADR strategies, understanding this legislation is now essential.

Scope and Application: Who and What Does the Act Cover?

Section 2 of the Mediation Act 2023 defines key terms. Section 3 addresses the Act’s application:

The Act applies to mediations conducted in India where:

1. All parties habitually reside or are incorporated in or have their place of business in India; OR
2. The mediation agreement provides that any dispute shall be resolved in accordance with the Act; OR
3. There is an international mediation (at least one party is a foreign national/entity) in relation to a commercial dispute; OR
4. One of the parties is the Central Government, a State Government, or any government entity, but only for commercial disputes or disputes as notified

Pre-litigation mediation in commercial disputes: The Act encourages but does not make pre-litigation mediation mandatory for all commercial disputes. However, commercial disputes of specified value continue to be subject to the mandatory pre-litigation mediation under Section 12A of the Commercial Courts Act 2015. The Mediation Act 2023 provides: such pre-litigation mediation in commercial disputes of specified value shall be undertaken in accordance with the Commercial Courts Act, not the Mediation Act 2023.

Online mediation: Section 30 of the Mediation Act 2023 expressly recognises online mediation as a valid mode of mediation, and mediated settlement agreements arising from online mediation carry the same legal force as in-person settlements.

Pre-Litigation Mediation: The Key Provisions

Section 5 of the Mediation Act 2023 provides that parties to a civil or commercial dispute may (voluntarily, with mutual consent) refer their dispute to mediation before filing a case in court, even in the absence of a mediation agreement.

This is a permissive provision, it does not mandatorily require all parties to attempt mediation before litigating. However, courts and tribunals may at any stage of a proceeding refer parties to mediation under Section 7, irrespective of whether a mediation agreement exists.

Interaction with Section 12A of the Commercial Courts Act 2015:

Where a commercial dispute of specified value (above INR 3 lakh) is involved and a plaintiff wishes to file suit, they must first exhaust the pre-institution mediation mechanism under Section 12A of the Commercial Courts Act 2015 (unless the suit is urgent). The Mediation Act 2023 clarifies that this statutory pre-institution mediation continues to be governed by the Commercial Courts Act regime, the Mediation Act 2023 creates a parallel voluntary mechanism, not a replacement.

The Timeline: Section 18

Under Section 18 of the Mediation Act 2023, mediation proceedings must be completed within 120 days from the date fixed for the first appearance of the mediator:

• Initial period: 120 days
• Extendable by a further 60 days by mutual agreement of the parties

This is a significant discipline compared to the open-ended mediation processes that existed previously. The total outer limit of 180 days prevents mediation from becoming an indefinite delaying tactic.

The Mediation Council of India: Section 33

The Mediation Act 2023 establishes the Mediation Council of India (MCI) under Section 33 as a statutory regulatory body. Functions of the MCI include:

• Registration of mediators (and renewal, suspension, or cancellation of registration)
• Recognition and regulation of Mediation Service Providers (institutions that administer mediation)
• Maintenance of an electronic depository of mediated settlement agreements
• Setting standards of conduct for mediators
• Developing India as a hub for international commercial mediation
• Submitting annual reports to the Central Government on implementation

The MCI is a corporate body with a statutory basis, representing a significant step toward professionalising the mediation sector in India.

Enforceability of Mediated Settlement Agreements: Section 27

Section 27 is the transformative provision of the Mediation Act 2023. It provides:

A mediated settlement agreement (MSA) signed by the parties and authenticated by the mediator is **final, binding, and enforceable in the same manner as if it were a judgment or decree passed by a court**.

This is a fundamental change from the prior position, where a mediated settlement was merely a contractual agreement enforceable through a fresh suit for specific performance or breach. Now:

• The MSA itself is the decree, no further litigation is needed
• Any party can take the MSA to a civil court for execution
• The other party cannot resist execution except on the narrow grounds under Section 28

Comparison with arbitral awards: An arbitral award is also enforceable as a decree under Section 36 of the Arbitration and Conciliation Act 1996. The Mediation Act 2023 now creates an equivalent pathway for mediated settlements, significantly elevating the commercial value of a successful mediation.

Challenge to Mediated Settlement Agreements: Section 28

The grounds to challenge an MSA are deliberately limited under Section 28. An MSA may be challenged only on:

(i) Fraud, if the MSA was procured by fraud

(ii) Corruption, if the MSA was procured by corruption

(iii) Impersonation, if one party was impersonated during the mediation

(iv) Subject matter not fit for mediation, under Section 6 of the Act

Limitation for challenge: An application challenging an MSA must be filed within 90 days of the party’s receipt of a copy of the MSA, extendable by a further 90 days where the court is satisfied that sufficient cause exists for the delay.

Notably, the Mediation Act 2023 does not explicitly stay enforcement during a pending challenge, an issue that courts will likely need to address through interpretation.

What Disputes Cannot Be Mediated: Section 6 and the Schedules

Section 6 and the First Schedule to the Mediation Act 2023 list categories of disputes that are not fit for mediation. These include:

• Disputes involving minors or persons of unsound mind
• Criminal matters (except compoundable offences)
• Tax disputes (direct or indirect taxes, levies, penalties, refunds)
• Disputes under investigation, inquiry, or proceedings before specified regulatory authorities (including TRAI, TDSAT, and under the Competition Act 2002)
• Disputes affecting third parties who are not party to the mediation, where the rights of such third parties would be affected by any settlement
• Insolvency matters under the Insolvency and Bankruptcy Code 2016 (where specific forums are provided)
• Any matter where mediation is prohibited by law

Online Mediation: Section 30

Section 30 of the Mediation Act 2023 formally recognises online mediation:

• Mediation conducted through electronic means (video conferencing, email communication, online platforms) is valid
• Mediated settlement agreements reached through online mediation have the same legal force as in-person settlements
• The Mediation Council of India may prescribe standards and guidelines for online mediation platforms

This provision is particularly significant for commercial disputes where parties are in different cities or countries, removing the earlier uncertainty about whether an online mediation process would produce a legally enforceable agreement.

Comparison with Pre-Existing Mediation Frameworks

Note: The Mediation Act 2023 proposes to repeal Part III of the Arbitration and Conciliation Act 1996 (which governed conciliation) once it is fully notified, integrating conciliation within the Mediation Act 2023 framework.

Practical Implications for Commercial Contracts and Dispute Strategy

1. Include mediation as a contractual step: The Mediation Act 2023 makes it significantly more attractive to include mediation as a pre-arbitral or standalone dispute resolution step, MSAs are now enforceable as decrees, substantially increasing the value of a successful mediation outcome.

2. Specify the institution and timeline: In a contract’s mediation clause, specify the Mediation Service Provider (institution) and reference to the Mediation Act 2023 timelines, this triggers the Act’s 120-day outer limit, creating commercial discipline.

3. Understand the narrow challenge grounds: Unlike arbitration (where Section 34 provides several grounds for challenge), an MSA can only be challenged on fraud, corruption, impersonation, or non-mediability. This makes mediated settlements more final than a negotiated settlement agreement.

4. Online mediation is now valid: Cross-city or cross-border commercial mediations can be conducted fully online under Section 30, no need for in-person meetings as a matter of law.

5. Register the MSA with the MCI depository: Upon full implementation of the Mediation Act 2023, the MCI electronic depository will maintain records of MSAs, enhancing their authenticity and ease of enforcement.

Key Takeaways

• The Mediation Act 2023 India provides that a mediated settlement agreement signed by parties and authenticated by the mediator is enforceable as a court decree under Section 27, this transforms mediation from a contractual process to a decree-producing mechanism, significantly increasing its value for commercial dispute resolution.
• Challenges to MSAs are limited to four grounds (fraud, corruption, impersonation, non-mediable subject matter) under Section 28, with a 90-day limitation period, making mediated settlements more durable than ordinary settlement agreements.
• The Act establishes the Mediation Council of India to regulate mediators and service providers, recognises online mediation under Section 30, and imposes a 120-day (extendable to 180-day) timeline under Section 18, creating a structured, professional framework for commercial mediation in India.

This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.

META TITLE: Mediation Act 2023 India: What It Means for Commercial Disputes

META DESCRIPTION: A complete guide to the Mediation Act 2023 India, enforceability of mediated settlements under Section 27, challenge grounds, the Mediation Council of.