Companies (Mediation and Conciliation) Rules, 2016
The Central Government, in order to facilitate voluntary dispute resolution mechanism, vide Notification dated September 9, 2016 has come up with Companies (Mediation and Conciliation) Rules, 2016
The Rules pertain to section 442 of the Companies Act, 2013 (hereinafter referred to as “Act, 2013”) which provides for the setting up of Mediation and Conciliation Panel for facilitating mediation and reconciliation between the parties during any stage of the proceeding before the quasi judicial bodies i.e. the Central Government, Tribunal or Appellate Tribunal. There was no such mechanism provided under the Companies Act, 1956.
Section 442 of Companies Act, 2013 –Mediation and Conciliation Panel.[ Enforced with effect from 1-4-2014]
442. (1) The Central Government shall maintain a panel of experts to be called as the Mediation and Conciliation Panel consisting of such number of experts having such qualifications as may be prescribed for mediation between the parties during the pendency of any proceedings before the Central Government or the Tribunal or the Appellate Tribunal under this Act.
(2) Any of the parties to the proceedings may, at any time during the proceedings before the Central Government or the Tribunal or the Appellate Tribunal, apply to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, in such form along with such fees as may be prescribed, for referring the matter pertaining to such proceedings to the Mediation and Conciliation Panel and the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, shall appoint one or more experts from the panel referred to in sub-section (1).
(3) The Central Government or the Tribunal or the Appellate Tribunal before which any proceeding is pending may, suo motu, refer any matter pertaining to such proceeding to such number of experts from the Mediation and Conciliation Panel as the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, deems fit.
(4) The fee and other terms and conditions of experts of the Mediation and Conciliation Panel shall be such as may be prescribed.
(5) The Mediation and Conciliation Panel shall follow such procedure as may be prescribed and dispose of the matter referred to it within a period of three months from the date of such reference and forward its recommendations to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.
(6) Any party aggrieved by the recommendation of the Mediation and Conciliation Panel may file objections to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.
Who will appoint penal and and how will the session be conducted ?
Adjudicating Authority will appoint mediator or conciliator (Panelist) from the mediation and conciliation panel notified by the MCA Panelist will hold the mediation or conciliation at the place decided by the Adjudicating Authority or at such other place where the Parties and the Panelist jointly agree. Panelist will fix the dates and the time of each mediation or conciliation session (Session) in consultation with the Parties
Is there any requirement for deposit of Cost ?
Before the commencement of the Session, parties are required to deposit probable costs for the Session. The Session shall commence only on the depositing of probable cost. In case probable cost is not deposited before such commencement, the mediation or conciliation shall be deemed to have terminated
The expenses of the mediation or conciliation (including Panelist’s fee, administrative assistance cost and other ancillary expenses) will be borne equally by the Parties or as may be otherwise directed by the Adjudicating Authority. Adjudicating Authority will fix the Panelist’s fee at the time of referring the matter to the mediation or conciliation and Parties will bear their own costs for production of witnesses or for production of documents.
What is the date of applicability of the Companies (Mediation and Conciliation) Rules, 2016 ?
The Rules, once published, will become applicable from the date of notification in the MCA portal, i.e. from September 9, 2016.
Whether the Rules once enforced, will have retrospective effect?
No. Since sub rule 5 of Rule 3 itself provides that for the financial year 2016-17, the Regional Director may invite for application from the persons interested to become mediator within 60 days from the date of publication of the Rules. Thus, it is clear the Rules will apply from the financial year 2016-17 only.
What is the meaning of mediation?
The term “mediation” has been defined under black law dictionary as “an act of a third person who interferes between two contending parties with a view to reconcile them or persuade them to adjust or settle their dispute“. The term has not been defined under the prescribed Rules.
What is the meaning of conciliation?
The term “Conciliation” has been defined under black law dictionary as “The process of adjusting or settling disputes in a friendly manner through extra judicial mean”. The term has not been defined under the prescribed Rules.
What are the differences between mediation and conciliation?
Conciliation: Conciliator brings the disputants to agreement through negotiation. Further, the Conciliator is appointed only after the dispute has arisen. The decision of the Conciliator is called “award”.
Mediation: Mediation is a structured process. The Mediator assists the disputants to reach a negotiable settlement. The Process results in signed agreement which decides the future behavior of the parties. Further, the decision of the mediator is called “settlement”.
Who can be appointed as a mediator or conciliator?
Pursuant to the rule 4 of Rules, the following persons shall be qualified to be appointed as a mediator or conciliator:
| i. | the Judge of the Supreme Court of India; or | |
| ii. | the Judge of a High Court; or | |
| iii. | the District Judge or Sessions Judge; or | |
| iv. | a Member or Registrar of Tribunal constituted at National Level under any law for the time being in force; or | |
| v. | an officer in the Indian Corporate Law Service or Indian Legal Service with fifteen years experience; or | |
| vi. | a qualified legal practitioner for not less than ten years; or | |
| vii. | a professional for atleast fifteen years of continuance practice as Chartered Accountant or Cost Accountant or Company Secretary; or | |
| viii. | a Member Of President of State Consumer Forum; or | |
| ix. | an expert in mediation or conciliation who has successfully undergone training in mediation and conciliation. |
Who cannot be appointed as a mediator/conciliator?
Pursuant to rule 5 of the prescribed Rules the following persons cannot be appointed as a mediator/conciliator:
| a. | who is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending; | |
| b. | who has been convicted for an offence which is in the opinion of the Central Government, involves moral turpitude; | |
| c. | who has been removed or dismissed from the service of Government or the Corporation owned and Controlled by the Central Government; | |
| d. | who has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or | |
| e. | who, has in the opinion of Central Government such financial or other interest in the subject matter of dispute or is related to any of the parties, as is likely to affect prejudicially the discharge by him of his function as a mediator or conciliator. |
What are the roles of mediator/ Conciliator?
Pursuant to rule 17 of the prescribed Rules the mediator or conciliator shall attempt to facilitate voluntary resolution of disputes by the parties and communicate the view of each party to other, assist them in identifying issues, reducing misunderstanding, exploring areas of compromise and generating options in an attempt to resolve dispute between the parties. Further, on consent of both the parties, themediator may impose such terms and conditions as it may deem fit.
What are the powers of mediator/ conciliator?
Rule 12 of the prescribed Rules provides that the process to be followed by the mediator to resolve dispute between the parties shall be guided by the principal of natural justice and shall not be bound by Indian Evidence Act, 1872 or Code of Civil Procedure, 1908.
Whether the provisions of Arbitration and Conciliation Act, 1996 will be applicable on the matters to be decided by the panel?
Though nothing has been specified in the Act or Rules in this regard, however, for interpretational issues one may take reference from the Arbitration and Conciliation Act, 1996.
Who shall prepare the panel of mediator?
The Regional Director shall prepare a panel of experts willing and eligible to be appointed as mediator or conciliators in the respective region.
What will be the procedure for appointing persons in the panel?
The Regional Director shall invite application (Form MDC-1) from the persons interested and qualified to be appointed as a mediator orconciliator every year during the month of February and update the panel which shall be effective from 1st day of April every year.
Whether the matters which are pending before Tribunal or Appellate Tribunal as on date be referred to the mediatoror conciliator?
For the Financial Year 2016-17, Regional Director may call for applications from the persons willing and qualified to be appointed as amediator/conciliator within 60 days from the date of publication of this Rules in the Official Gazette and prepare the panel for current FY within 30 days. Thus, once the panel will be finalized, it will take up the matters for proceedings.
Whether there is any panel created by the Regional Director as on date?
No. Since rule 3 of the prescribed Rules provides that the Regional Director may call for applications from the persons willing and qualified to be appointed as a mediator/conciliator within 60 days from the date of publication of this Rules in the Official Gazette and prepare the panel for current FY within 30 days and the Rules is yet to be enforced.
How is a matter referred to mediation?
| a. | By application in Form MDC-2 by any of the parties to the proceeding; | |
| b. | By suo moto reference by the Central Government, Tribunal or Appellate Tribunal before which any proceeding is pending. |
Whether the order of the panel will be binding upon the parties?
Rule 18 of the said Rules has specifically provides that “parties alone shall be responsible for taking decision” and the mediatoror conciliator shall not impose any decision on the parties.
Thus, the order of the panel shall not be binding.
What are the matters to be decided by the panel?
Since the very purpose of constitution of the panel is to reduce the burden of quasi judicial bodies, hence, the matters pending before such quasi judicial bodies which can be decided on the basis of natural justice are to be decided by the panel.
Is there any negative list of matter which cannot be decided by the panel?
Since the power conferred to the panel is limited to the extent of natural justice, the panel is not authorized to decide on the matter pertaining to the following:
| 1. | The matters relating to proceedings in respect of inspection or investigation under Chapter XIV of the Act, 2013; or the matters which relates to default or offences for which application for compounding have been made by one or more parties; | |
| 2. | Cases involving serious and specific allegation of fraud, fabrication of documents, forgery, impersonation, coercion etc. | |
| 3. | Cases involving prosecution for Criminal and non-compoundable offences; | |
| 4. | Cases which involve public interest or interest of numerous persons who are not parties before the Central Government, or Tribunal or the Appellate Tribunal as the case may be. |
Procedure of disposal of matter by mediator/conciliator
Panelist can conduct joint or separate Sessions with the Parties. Session will be conducted in the presence of Parties or their authorized representatives only. Persons other than the Parties can attend the Session only after obtaining the permission of the parties and with the consent of the Panelist. If a Party deliberately fails to attend a Session fixed by the Panelist consecutively twice, the mediation or conciliation will be deemed to have failed and the Panelist will report the matter to the Adjudicating Authority.
Further, Parties are required to provide a brief memorandum to the Panelist, 10 days before the commencement of the Session. Such memorandum should state– the which need to be resolved, position of party in respect of those issues and all other information as may be required by the Panelist to understand the issue. A copy of such memorandum shall also be given to the opposite party. Panelist, in its own discretion, can reduce the time period for sharing memorandum in suitable cases. Panelist receiving any information concerning the dispute from one Party is required to disclose the substance of that information to the other Party(unless information is received subject to a specific condition that the information is to be kept confidential), so that the other Party may have an opportunity to present such explanation. There will be no audio or video recording of the Session; also, statement of Parties or the witnesses will not be recorded.
During the course of mediation or conciliation, Panelist will not be bound by the provisions of the Indian Evidence Act, 1872 or the Code of Civil Procedure, 1908 and instead, will 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.
During the pendency of mediation or conciliation, no Party can initiate any arbitral or judicial proceedings in respect of a matter that is the subject matter of the mediation or conciliation. Although a Party may initiate arbitral or judicial proceedings, where a Party thinks that such proceedings are necessary for protecting its rights. Further, Parties may, “without prejudice” offer a settlement to the other Party or may make a, “with prejudice” offer to the other Party at any stage of the mediation or conciliation proceedings with a notice to the Panelist.
Privacy and confidentiality :
Panelist and the Adjudicating Authority cannot communicate on the subject matter of mediation or conciliation. If any communication between the Panelist and the Adjudicate Authority is necessitated, it should be in writing and copies of the same should be given to the Parties or their authorized representatives. Further, any communication between the Panelist and the Adjudicating Authority, should be limited to communications on issues related to Party’s attendance in Session, consent of the Parties, assessment of matter as to suitability for mediation or conciliation or about settlement between the Parties.
Panelist is protected from any liability arising out of any action taken in good faith by him during the mediation or conciliation proceedings. Also, Panelist cannot be summoned by any Party to the suit or proceeding to appear before the Adjudicating Authority to testify regarding information received by him or action taken by him or in respect of documents prepared by him or shown to him during the mediation or conciliation proceedings.
Parties are also obligated to maintain confidentiality in respect of events that transpired during the Session and are restricted from using such information in other proceedings, including views expressed by a party during the Session, documents obtained during the Session which were expressly required to be treated as confidential or other notes, drafts or information given by the parties or the Panelist, or proposals made or views expressed by the Panelist or admission made by a party in the course of mediation or conciliation proceedings.
What will be the time frame of the dispute resolution process by mediator?
Total time frame provided by the Central Government to the mediation and conciliation panel is 3 months from the date of appointment of the expert from the panel. Once the said period expires, the process of the dispute resolution by the mediator shall stand terminated. However, the Appellate Tribunal or Tribunal may, on an application made by the mediator/conciliator or by any of the parties, further extend the period of Conciliation by such period as it may deem fit but not exceeding three months.
Who will bear the expenses of mediation / conciliation?
Rule 27 of the prescribed Rules provides that the expenses of mediation/conciliation including the fee of the mediator/conciliator and other ancillary expenses shall be borne equally by all the contesting parties.
Whether any judicial or arbitral proceedings can be initiated by the parties while the matter is pending before themediator?
Rule 29 of the prescribed Rules provides that the parties may initiate judicial or arbitral proceeding while the matter is pending before themediator. However, It has to be proved by the parties that such proceedings are necessary for protecting his rights.
What are the ethics to be followed by the mediator/conciliator?
Though the mediator does not have power to impose its decision on the parties of his own but it has to follow some ethics as prescribed under rule 28 of the Rules while deciding upon the matters or while conducting mediation/conciliation. Such as: it has to observe that the rules strictly and with due diligence. It shall uphold the integrity and fairness of the mediation process. It shall determine that themediation is based on principal of self determination by the parties and the parties involved in the mediation are fairly informed and have adequate understanding of the procedural aspects of the process.
What will be the consequences of non-settlement of matters by the mediator?
Pursuant to rule 25 of the prescribed Rules, if the matter is not settled before the specified time limit, the mediator/conciliator shall report the same to the Central Government or the Tribunal or the Appellate Tribunal as the case may be and the matter may be initiated by the respective quasi judicial bodies.
What is settlement agreement?
Pursuant to rule 25 of the prescribed Rules, settlement agreement is an agreement reached between the parties by way of themediation/conciliation in regards to all or some of the issues in the proceeding. The same shall be reduced to writing and shall be signed by the parties or the council represented by the parties, as the case may be.
The signed Settlement Agreement should be submitted to the Panelist who will forward the same to the Adjudicating Authority. Where no agreement is reached or issue has remained unresolved between the parties before the expiry of time, or where the Panelist is of the view that no settlement is possible, Panelist shall report the same to the Adjudicating Authority in writing. Any party aggrieved by the recommendation of the Panelist may file objections with the Adjudicating Authority.
After receiving report of the Panelist, Adjudicating Authority will fix a date of hearing within 14 days from the date of receipt of the such report and on such date of hearing, if the Adjudicating Authority is satisfied that the parties have settled their dispute, it shall pass an order in accordance with the terms thereof.However, if the settlement disposes of only certain issues arising in the proceeding, the Adjudicating Authority shall proceed further to decide the remaining issues
In what circumstances the session before the mediator shall stand terminated?
The mediation/conciliation process shall stand terminated in the following circumstances:
| a. | In case the mediation/conciliation could not get completed within 3 months from the date of appointment of expert from the panel. | |
| b. | In case the cost of mediation/conciliation is not paid before the commencement of the mediation/conciliation. |