When Should a Court Refer a Dispute to Mediation? 

Litigation is not always the most effective way to resolve every dispute. Indian law encourages courts to refer suitable cases to mediation whenever there is a genuine possibility of settlement. A court may refer a dispute to mediation at any stage of the proceedings if it believes that the parties can resolve their differences through negotiation. However, such referral depends on the nature of the dispute, the applicable law and the possibility of an amicable settlement.

What Is Court-Referred Mediation?

Court-referred mediation is a process in which a court directs the parties involved in a dispute to attempt resolving their differences through mediation instead of immediately continuing with litigation. A neutral and impartial mediator facilitates discussions between the parties and assists them in reaching a mutually acceptable settlement.

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Unlike a judicial decision, a mediator does not decide who is right or wrong. Instead, the mediator helps the parties identify common interests, understand each other’s concerns and explore practical solutions.

Court-referred mediation has become an important feature of the Indian justice system because it helps reduce litigation, saves judicial time and allows disputes to be settled in a less adversarial manner.

What Is the Legal Framework for Court Referral to Mediation?

Several legal provisions empower courts to refer disputes to mediation.

Mediation Act, 2023

The Mediation Act, 2023 is India’s first comprehensive legislation governing mediation. It lays down the framework for domestic mediation, international mediation, community mediation and court-referred mediation.

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Section 7 of the Act specifically empowers courts and tribunals to refer disputes to mediation at any stage of the proceedings. It also allows courts to pass interim orders for protecting the interests of parties while mediation is underway. Further, parties are not compelled to arrive at a settlement merely because mediation has been ordered. 

Section 89 of the Code of Civil Procedure, 1908

Section 89 of the Code of Civil Procedure (CPC), as substituted after the Mediation Act, allows courts to refer disputes to various forms of alternative dispute resolution, including mediation.

Where the court finds that:

• the dispute may be settled; and
• there are elements of settlement acceptable to the parties,

it may refer the parties to mediation through a court-annexed mediation centre, mediation service provider or mediator. 

Order X Rules 1A to 1C CPC

Order X complements Section 89 by requiring courts, after recording admissions and denials, to direct parties to consider settlement through recognised ADR mechanisms. These provisions ensure that mediation is considered at an early stage of civil proceedings whenever appropriate. 

When Should a Court Refer a Dispute to Mediation?

The answer depends upon the circumstances of each case. Courts generally examine whether settlement appears possible and whether mediation is legally suitable.

When There Are Elements of Settlement

The primary condition for referral is the existence of “elements of settlement.”

This does not mean that the parties must already agree on the solution. Instead, it means there appears to be some possibility that negotiations may help resolve the dispute.

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Examples include:

• Parties continue to maintain business relations.
• Family members wish to preserve relationships.
• There is disagreement only regarding the amount payable.
• Parties are willing to discuss compromise.

If no possibility of settlement exists, referral may not be appropriate.

Can a Court Refer a Matter at Any Stage?

Yes.

One of the most significant changes introduced by the Mediation Act, 2023 is that a court or tribunal may refer parties to mediation at any stage of the proceedings.

This means referral may take place:

• before issues are framed;
• after pleadings are completed;
• during trial;
• after recording evidence;
• during appellate proceedings; or
• whenever the court finds that settlement has become possible.

Even if litigation has progressed considerably, mediation may still successfully resolve the dispute. 

Can a Court Refer a Matter Even After Pre-Litigation Mediation Has Failed?

Yes.

Section 7 of the Mediation Act expressly provides that a court may refer parties to mediation even if pre-litigation mediation has not resulted in settlement.

This recognises that circumstances often change after legal proceedings begin. Once pleadings are filed and parties understand the strengths and weaknesses of their cases, they may become more willing to negotiate.

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Therefore, failure of an earlier mediation does not prevent a fresh court-directed mediation. 

Is Consent of Parties Necessary?

Consent plays an important role in mediation because settlement ultimately depends upon the willingness of the parties.

However, the court’s power to refer parties to mediation is wider than merely acting on a joint request.

The court may refer suitable disputes to mediation whenever it considers settlement possible. At the same time:

• parties cannot be forced to accept any settlement;
• mediation remains voluntary in outcome; and
• discussions remain confidential.

Section 7(3) of the Mediation Act clearly states that parties are under no obligation to reach a settlement merely because the matter has been referred to mediation. 

What Factors Does the Court Consider Before Referring a Dispute?

Courts generally evaluate several practical considerations before making a referral.

Nature of the Dispute

Some disputes naturally lend themselves to negotiated settlement.

For example:

• contractual disagreements;
• partnership disputes;
• family disputes;
• landlord-tenant disputes;
• commercial disagreements; and
• consumer disputes.

On the other hand, disputes involving public rights or serious criminal allegations may require judicial determination.

Relationship Between the Parties

Where parties have an ongoing relationship, mediation becomes particularly useful.

Examples include:

• spouses;
• business partners;
• neighbours;
• family members;
• employers and employees; and
• companies engaged in long-term commercial arrangements.

Maintaining relationships is often more valuable than obtaining a purely legal victory.

Possibility of Compromise

Courts assess whether practical solutions exist that satisfy both parties.

Even where complete agreement appears unlikely, partial settlement of certain issues may significantly narrow the scope of litigation.

Conduct of the Parties

Courts may also consider:

• willingness to negotiate;
• previous settlement attempts;
• behaviour during proceedings; and
• whether mediation would genuinely assist resolution rather than merely delay the case.

What Types of Disputes Are Commonly Referred to Mediation?

Indian courts frequently refer the following disputes to mediation:

• Commercial disputes
• Contract disputes
• Recovery suits
• Partnership disputes
• Property disputes
• Partition disputes
• Matrimonial disputes
• Child custody and maintenance matters
• Family settlement disputes
• Landlord-tenant disputes
• Consumer disputes
• Employment disputes
• Neighbourhood disputes
• Certain compoundable criminal matters where legally permissible

These disputes generally involve rights that parties may voluntarily settle without affecting public interest. 

Which Disputes Are Normally Not Referred to Mediation?

Not every dispute is suitable for mediation.

Section 6 of the Mediation Act contains an indicative list of disputes that are not fit for mediation under the First Schedule.

Generally, the following matters are considered unsuitable:

• serious criminal offences;
• disputes involving rights in rem;
• constitutional matters;
• election disputes;
• matters involving public policy;
• issues requiring authoritative judicial interpretation;
• disputes affecting numerous persons who are not before the court.

However, courts may still refer disputes relating to compoundable offences, including compoundable matrimonial offences, to mediation where appropriate.

What Procedure Does the Court Follow Before Referring a Matter?

The referral process generally involves several stages.

Examination of Pleadings

The court first studies:

• pleadings;
• documents;
• admissions;
• denials; and
• the nature of the dispute.

This enables the court to determine whether settlement appears possible.

Identification of Settlement Elements

The judge identifies issues capable of compromise.

Sometimes the entire dispute is referable to mediation.

In other cases, only selected issues are capable of negotiated settlement.

Referral Order

If the court believes mediation is appropriate, it passes an order referring the matter to:

• a court-annexed mediation centre;
• a mediation service provider; or
• an independent mediator.

Interim Protection

Where necessary, the court may grant interim relief to safeguard the interests of either party while mediation continues.

Such orders prevent prejudice during the mediation process. 

What Did the Supreme Court Hold in Afcons Infrastructure Case?

One of the most important judgments on court-referred mediation is Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. (2010).

The Supreme Court clarified several important principles regarding Section 89 CPC.

Referral Is Not Automatic

The Court observed that every case should first be examined to determine whether it is suitable for ADR.

Cases falling within recognised excluded categories need not be referred.

Courts Must Seriously Consider ADR

The judgment emphasised that courts should invariably consider ADR after pleadings are complete.

Where a case is suitable, mediation should ordinarily be preferred over prolonged litigation.

Excluded Categories

The Court identified certain categories generally unsuitable for ADR, particularly disputes involving public rights or matters requiring judicial determination.

Practical Guidelines

The Supreme Court suggested a practical approach:

• understand the dispute;
• exclude unsuitable cases;
• determine whether arbitration requires consent;
• prefer mediation for most suitable disputes;
• monitor progress after referral.

These guidelines continue to influence judicial practice even after the enactment of the Mediation Act, 2023. 

What Powers Does the Court Have After Referring a Matter?

Referral does not mean that the court loses jurisdiction over the case.

The court continues to possess important powers, including:

• passing interim protective orders;
• fixing timelines for mediation;
• monitoring progress;
• calling for mediation reports;
• resuming proceedings if mediation fails.

This ensures that mediation is not misused as a tactic for delaying litigation. 

What Happens After Mediation Is Completed?

The outcome depends upon whether settlement is achieved.

If Settlement Is Reached

The settlement agreement is prepared in accordance with the Mediation Act.

Where applicable, the settlement may be recognised and enforced in accordance with the provisions of the Act.

The litigation usually comes to an end regarding the settled issues.

If Settlement Is Not Reached

Failure of mediation does not prejudice either party.

The mediator submits a non-settlement report, and the case returns to the court for regular adjudication.

Statements made during mediation remain confidential and generally cannot be used during trial.

What Challenges Exist in Court-Referred Mediation?

Despite its growing acceptance, several challenges remain.

These include:

• delayed referral by courts;
• lack of awareness among litigants;
• unwilling participation by one party;
• shortage of trained mediators in some regions;
• misconception that mediation is merely another procedural formality;
• complex legal issues requiring authoritative judicial decisions.

Addressing these challenges through greater awareness, improved mediation infrastructure and judicial support will further strengthen mediation as an effective dispute resolution mechanism.

Conclusion

A court should refer a dispute to mediation whenever the law permits and there is a realistic possibility of an amicable settlement. The Mediation Act, 2023 and Section 89 of the Code of Civil Procedure encourage courts to identify suitable cases at an early stage while also allowing referral at any later stage of the proceedings. Although mediation cannot guarantee settlement, it offers a quicker, less adversarial and more relationship-oriented method of resolving disputes. 

At the same time, disputes involving serious public interest or matters requiring judicial determination continue to remain outside the normal scope of mediation, ensuring that the balance between consensual dispute resolution and the administration of justice is maintained.