OPINION | Refusing mediation should come at a cost

India’s Supreme Court Mediation Centre, which deals only with disputes parties agree to mediate, does a little better yet still resolves barely one case in four; its own annual data show settlement ratios stuck in the mid-twenties and sliding below the 30 per cent mark in 2023.

Contrast this with England and Wales, where mediation is not compulsory but staggeringly effective: the latest CEDR audit reports that commercial mediators close 92 per cent of their cases, three quarters on the day, most of the rest within weeks.

In England, walking away can have an adverse consequence 

These figures come from very different legal cultures, yet the gap is too wide to ignore. What explains it? The real explanation lies in risk calculation.

In England, even without a prior agreement to mediate, courts can impose serious financial consequences on a party that unreasonably refuses to participate in mediation. The leading authority on this is the Court of Appeal’s decision in Halsey v Milton Keynes NHS Trust [2004] EWCA Civ 576, where it was held that while mediation cannot be made compulsory, courts may penalise a party whose refusal to mediate is deemed unreasonable.

Factors considered include the nature and merits of the case, the timing of the mediation request, and the parties’ conduct. Under the Civil Procedure Rules, such a refusal can result in indemnity costs, which may cover nearly the entirety of the opposing party’s legal bill, along with additional interest of up to 10% (CEDR, Lexlaw). In modern commercial litigation, where legal costs can run into six figures, this financial deterrent makes walking away from mediation a high-risk move—even for confident litigants.

US incentivises early settlement

A comparable mechanism exists in the United States under Federal Rule 68 of Civil Procedure, which allows a defendant to make a formal “offer of judgment.” If the claimant proceeds to trial and fails to obtain a more favorable result than the offer, they must bear the post-offer costs of the opposing party (Cornell Law). This cost-shifting provision exerts financial pressure on claimants to settle early.

So, these countries do not make mediation compulsory; rather, it is that walking away carries a clearly priced, and often painful, financial consequence. That predictable “sting in the tail” is what keeps settlement rates in commercial mediation above ninety per cent.

Indian position, on paper

Indian law, on paper, is not silent. Sections 35 and 35-A of the Code of Civil Procedure authorise courts to penalise unreasonable conduct, but the colonial-era tariff is still capped at Rs 3,000 which is less than the price of a single hearing in a metropolitan court. Judges can impose “actual” costs, yet such orders are rare enough to make headlines. In May 2024, the Delhi High Court fined an insurer Rs 5 lakh for skipping court-directed mediation and warned that “meaningful participation is not optional”; the decision was news precisely because it is unusual.

The rational defendant therefore calculates that refusing to mediate risks nothing more than a short procedural adjournment, whereas an ill-judged appearance could be read as weakness or, for a public-sector officer, could invite an audit question. Unsurprisingly, attendance withers.

Misaligned incentive for government officials

The problem is magnified because the Indian State is itself the country’s biggest litigator. Government departments and public-sector undertakings account for roughly half of all civil cases pending nationwide, according to a July 2024 statement in Parliament. Public-sector officials face no personal cost for litigating but risk audits or criticism for settling.

The safest bureaucratic strategy is therefore to litigate, however thin the case, and let the calendar absorb the consequences.

To shift this dynamic, India needs predictable financial consequences, not forced mediation.

Probable solutions

Courts could start by estimating litigation costs at the outset and setting these as indicative benchmarks when assessing a party’s conduct during pre-trial resolution efforts. Rather than treating all refusals as unjustified, courts could consider whether a refusal to mediate was reasonable in the circumstances, such as whether a party engaged with the process in good faith.

This approach respects the statutory right to litigate while discouraging purely strategic non-engagement. While a litigant retains the autonomy to litigate or settle the dispute, from the state’s perspective, it is imperative to ensure that its resources are being utilised in the optimal manner to not bar access to speedy justice for other litigants due to increased pendency of such cases. Additionally, treating a sealed settlement offer as a benchmark where failing to surpass it at trial triggers liability for the opponent’s post-offer costs would incentivise early resolution. Both measures are feasible under current law but require a shift in the judicial practice.

Mediation in India today is too often a box to be ticked, a hollow formality. If the Chief Justice’s campaign is to leave a legacy, it must be backed by rules that change incentives. Without a credible cost for walking away, mediation will remain symbolic. With such consequences, however, it could become the pressure valve India’s clogged courts desperately need and, more importantly, a path to faster, fairer justice.

(Prashant Narang is Deputy Director - Research and Programs, TrustBridge Rule of Law Foundation, Delhi. Kritika Sethi is Co-Founder Mentor, WeVaad - an ODR Institution.)

Inputs from - Kshitija Baitalwar, Case Manager at WeVaad.

Views are personal and do not represent the stand of this publication.