Rebuking National Insurance Company for failing to appear in the pre-litigation mediation, the Delhi High Court stated that willful defiance of the process carries significant legal ramifications.
A single-judge bench of Justice Pratibha M. Singh in an application filed by Maxwell Partnership Firm observed that such conduct on behalf of the Insurance Company is contrary to the spirit of Section 12A of the Commercial Courts Act, to say the least.
"The Plaintiff has already borne 25% of the court fees in the first round as the same could not be returned in terms of decicion in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited ((2022) 10 SCC OnLine SC 1028). Due to the mediation being a non-starter, it has been compelled to again file the present suit. The entire purpose of pre-litigation mediation has been defeated by the Insurance company", the court said.
The case of the Plaintiff was that despite timely notification, the Defendant's insurance company delayed processing of the claim for over a year. They provided all necessary documentation and cooperated with surveys, but the insurance company ultimately denied liability on 31st March 2021, alleging policy breaches. The Plaintiff asserted that they were not provided with policy terms and that the denial was unjustified. A legal notice was served upon the Defendants on 30th August 2022, demanding payment, but the insurance company did not comply. It was stated that the denial of the claim was arbitrary and without legal basis, highlighting the insurance company's unreasonable conduct throughout the claim settlement process.
The Plaintiff had earlier also filed a suit which was dismissed as withdrawn due to non-availing of the mandatory procedure under Section 12A of the Commercial Courts Act, 2015.
Thereafter, Section 12A of the Commercial Courts Act, 2015 was availed of by the Plaintiff. However, the Delhi High Court Legal Services Committee gave a report of the mediation being a non-starter.
Stating that under the Punjab and Haryana High Court Mediation Rules (Rule 12), parties are mandated to attend mediation sessions, whether in person, through legal representatives, or by means of power of attorney holders, the Court asserted that failure to comply with this requirement may lead to the Mediator or other parties to seek court intervention.
"Upon finding unjustified absence, the Court can impose costs or initiate contempt proceedings against the parties. Similarly, Rule 13 of the Delhi High Court Mediation Conciliation Rules stipulates that deliberate or wilful non-attendance warrants Court intervention, with the Court empowered to issue appropriate directions", the court said.
The Court also highlighted that the principle is also prevalent in Rule 14 of the Telangana High Court Mediation Rules 2015 and Rule 13 of the Karnataka Civil Procedure (Mediation) Rules, 2005 wherein it is elucidated that failure to attend mediation due to deliberate acts may result in judicial intervention and the issuance of necessary directives.
It also brought in examples from foreign legal systems as it mentioned that the UK judiciary in its decisions has insisted on seriously considering Alternative Dispute Resolution (ADR), like mediation. In the said decisions it was held that refusal to engage in ADR without reasonable cause can lead to adverse cost consequences for the non-attending party, emphasizing the importance of actively participating in mediation.
"In the United Kingdom, failure to adequately consider ADR, including mediation, can lead to severe repercussions. The Courts are known to possess the authority to impose cost sanctions on parties unreasonably refusing mediation attempts. The same mechanism can be followed in the Indians Courts such that effective mediations can result in improved resolution", the court said.
In essence, the obligation to attend mediation is of paramount importance as the entire purpose of the enactment of the provision, as a mandatory step to be taken before commencing litigation, would otherwise be defeated, the court concluded adding that especially happens in the case of organizations which have a public character, effective participation in pre-litigation mediation is essential.
"If mediation has to be taken seriously and with a result oriented approach, institutions with a public character including government departments etc., ought to participate through proper appearance of officials or duly authorised persons. Any non-participation ought to invite consequences in law", the court observed in its order.
The Court accordingly imposed a cost of ₹5 lakhs on the defendant-insurance company.
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