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Limitation

ISSUES OF LIMITATION DURING MEDIATION
By Preetam D’Souza and Debjani Aich
Kochhar & Co.
Introduction

1.1 A dispute is never a pretty thing, whether it is a civil, commercial or a criminal dispute. Parties are keen to either litigate or resolve the matter, often unaware of the legal technicalities and nuances associated with the dispute resolution process, even though these may have a substantial and significant bearing on the proceedings. An important legal aspect in dispute resolution is the limitation period. While the position is relatively clear and codified for ‘standard’ legal proceedings in India, it is not as clear when it comes to alternative dispute resolution procedures such as mediation.

1.2 The recent few years in India have seen an increasing awareness of the mediation process as a means of viable, quick and effective resolution of disputes. However, lack of codified law can cause situations where parties submitting themselves to mediation are either ignorant or apathetic to legal principles that may impact the mediation process and final settlement, particularly the limitation aspect.

1.3 This paper briefly discusses the current Indian legal position on limitation laws and how they may apply or play out in a mediation matter. One of the most interesting aspects to consider is whether the mediation process ‘suspends’ the limitation period and how this would play out under the Indian Limitation Act, 1963 (“Limitation Act”).

In India, mandatory mediation through courts has now received legal sanction under Section 89 of the Code of Civil Procedure, 1908. Mediation Centres have now been established at many courts and the courts have started referring cases to such Mediation Centres. This is generally referred to as ‘Court-Annexed Mediation’. The terms ‘Court-Annexed Mediation’ and ‘Court-Referred Mediation’ are often used interchangeably in common parlance. However, there is an essential distinction between the two concepts. Court-Annexed mediation entails mediation services provided by the court as a part and parcel of the same judicial system, while, Court–Referred Mediation pertains to disputes which are merely referred by courts to a mediator. The

Bar on mediation after expiry of applicable limitation –

1.4 Unlike various other jurisdictions (particularly the EU with its 2008 Directive 2008/52/EC applying to certain aspects of on certain aspects of mediation in civil and commercial matters), India does not have codified mediation laws. There are various rules issued either by jurisdictional courts (that apply to court-ordered mediation) or guidelines issued by private mediation bodies. What is interesting to discuss is the fact that the Limitation Act and its governing principals have not yet been amended to factor in the mediation process.

1.5 Mediation is a mutual settlement process between parties, albeit in the presence of a skilled, neutral third party officiating the settlement discussions. Unlike codified litigation or arbitration, where a judge or an arbitrator makes a decision, in mediation, the parties jointly and consensually arrive at a resolution of the dispute to their (reasonable) satisfaction through the assistance and facilitation of the mediator. In such a case where the parties are the ones controlling and driving the settlement, from a practical perspective, it does not seem very rational to expect the law to preclude discussions between the parties to revisit and resolve issues which may otherwise be barred as a cause of action under limitation laws.

1.6 If parties mutually agree to resolve the matter by mediation, what stands as a matter of debate is the relevance and propriety of such resolutions arrived at by the parties after the expiry of the legal limitation period. This becomes more relevant in a case where a party is unaware of his legal position under the Limitation Act and has consequently lost significant ground in the mediation process, merely due to his failure or lack of awareness of the technical legal aspect of his statutory rights under limitation law.

1.7 One of the key intentions of mediation is the continuing business relationships between the mediating parties. It is interesting to consider that the propriety of the mediation process in circumstances such as the above (ignorance of law) and the absence of a restriction under law to commence mediation despite expiry of limitation would nevertheless not take away the advantage derived from the ability of the parties to mend relationships and review potential business and commercial interests that may otherwise have been at the receiving end of the dispute.

Postponement of limitation by mutual agreement prior to mediation –

1.8 Another interesting aspect is a situation where a proposed action under a settlement is expected to abridge the timeline under limitation law for the plaintiff to sue or undertake a certain action. More specifically, a situation where, in the interest of honouring the settlement, the plaintiff seeks by a contractual arrangement with the defendant to expressly protect his right under limitation laws by extending such a right for a certain time period, pending conclusion of the mediation process.

1.9 Substantive law under Section 18 of the Limitation Act, which has been re-iterated by the Hon’ble Rajasthan High Court in Nand Lal Thanvi v LRs of Goswami Brij Bhushan has held that, by a fresh set of documents concerning a certain cause of action, which purports to renew the said cause of action or in case of an express acknowledgment of debt in a civil proceedings, would have the effect of renewing afresh the timeline under limitation laws for the plaintiff/petitioner to institute fresh proceedings for relief, even if the previous dispute was barred by limitation. The effect will be the same even after expiry of the limitation period in case of a debt under Sec. 25 (3) of the (Indian) Contract Act, 1872 (“Contract Act”) as shown in the case of E. Ethirajulu Naidu v K. R. Chinnikrishnan Chettiar 2.

1.10 However, the courts do not expressly opine on whether such an consequence will apply if the fresh documents entered into between the parties is limited to an agreement to merely contractually extend the statutory right of the plaintiff/petitioner to bring an action against the defendant, without effectively creating a new cause of action or renewing the previous cause of action.

1.11 In common law decisions such as in the case of Oxford Architects Partnership v Cheltenham Ladies College , the courts have upheld the right of the parties to exclude the rights and limits placed by limitation law and contractually extend or reduce the said timeline, provided such an arrangement has been expressly stated in the agreement between the parties. Even though inclined towards enforcement of clauses providing for shorter contractual limitation periods, as in the case of Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd , the common law courts however appear to be cautious when allowing the provisions in contracts with a view to ensure that the provisions are “reasonable” and “fair”.

1.12 Indian courts are yet to conclusively draw from the common law principles on the enforceability of a contractual provision extending or reducing a statutory limitation right. This is an important aspect to look out for, as a reiteration of such principles by Indian courts will beneficially assist any such agreement that may be entered into by parties prior to commencing or during mediation proceedings. Parties may then freely, without falling back to review their positions under applicable law, agree to contractually to keep in abeyance an existing statutory right available to one of the parties for specified periods.

Section 77 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) –

1.13 In the absence of substantive and procedural laws dealing with mediation in India, over the years courts in India have largely clubbed the concept of mediation synonymously with ‘conciliation’ and consequently the provisions relating to conciliation in the Arbitration Act have been sometimes applied to mediation in India. A reading of various decisions by courts in India would sometimes tend to confuse the reader of the actual distinction between the two concepts. The provisions of conciliation as set out in the Arbitration Act, in its application to mediation, has nevertheless in certain instances bridged the otherwise lacunae in law to deal with certain issues, while in others, a synonymous reading has created ambiguities.

1.14 The above issue of application of limitation during conciliation or ‘mutual discussions’ between the parties has been traversed by the Hon’ble Delhi High Court in its decision of Ravindra Kumar Verma vs. BPTP Ltd. , where the Hon’ble Court generally considered the above situation and was of the view that as “… there is no provision to exclude the period spent in conciliation proceedings, it is perfectly possible that if conciliation proceedings continue when the limitation period expires the same will result in nullifying the arbitration clause on account of the same not capable of being invoked on account of bar of limitation.”

1.15 In dealing with the above issue, the Hon’ble Court also analyzed the above Section 77 of the Arbitration Act, which provided that “parties shall not initiate, during the conciliation

proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights.”

1.16 The Hon’ble Court opined that the provision did not specifically preclude a party from initiating legal (judicial or arbitral) proceedings if the plaintiff is due to lose such a right during the pendency of the conciliation proceedings. A reading of the decision would seem to indicate that, without expressly going into reasons, the court assumed that a pending conciliation (albeit mediation) proceeding would not postpone or delay the right of the plaintiff to institute legal proceedings, but that, on the other hand, it is likely that plaintiff will lose such as right and function of the aforesaid provision was precisely to allow him to preserve it.

1.17 Even though it may seem that the above legal provision does appear to preserve the right of the parties to initiate legal proceedings during pendency of mediation, the provision does seem to contradict the purpose and intent of mediation, being giving the parties the ability to refrain from initiating such proceedings. The intent of and purpose of mediation would likely be furthered if the parties were empowered and allowed under statutory precepts to mutually extend the statutory timeline under the Limitation Act for such reasonable period as may be necessary for them to arrive at a settlement, rather than be allowed to litigate against each other during the pendency of the mediation proceedings, which they would other wise do if they were not drawn to the mediation table.

Implication of parties consciously mediating a dispute after expiry of limitation –

1.18 As the current position stands, if a party initiates mediation, notwithstanding the implication of limitation laws on the rights of one of the parties, it will be presumed that the party’s individual acts or omissions as a consequence of the mediation are likely to be viewed as an independent acknowledgement or substantiation of a waiver of rights that may have otherwise accrued under applicable limitation laws. As of today, an act done by either of the parties as a consequence of a settlement arrived at during the mediation is likely to be measured by a court of law as against legal principles under substantive laws such as Section 18 of the Limitation Act and Section 25(3) of the Contract Act.

1.19 It is therefore recommended that parties looking at mediation should obtain proper advice on all legal aspects involved in the dispute and specifically on the application of limitation and the corresponding statutory rights therein, together with the implications to such rights in case of a settlement.

Author Information

Name: Preetam D’Souza
Designation : Partner,
Organisation : Kochhar & Co
Email : preetam.dsouza@bgl.kochhar.com

Name – Debjani Aich
Designation- Principal Associate
Organisation – Kochhar & Co.
Email id – debjani.aich@bgl.kochhar.com