2025 (11) TMI 386 - AT - Companies Law

Consent met Rule 25-written, signed, submitted via mediator; settlement valid despite annexures; Rule 26 is directory.

Sonali Prashant Shinde, Accurate Engineering Company Pvt. Ltd. & Ors. Versus Vikram Vilasrao Salunke

NCLAT held that the consent terms met Rule 25's requirements-reduced to writing, signed by the parties and submitted to the Ld. NCLT via the mediator-so ... Valid consent terms or not - free consent or not - case of the Respondents is that the annexures were duly signed but could not be attached with the consent terms due to unavoidable circumstances - HELD THAT:- Rule 25 provides the settlement agreement shall be reduced to writing and signed by the parties. As per Rule 25(2), such agreed terms of the settlement agreement shall be submitted before the Ld. Tribunal (Ld. NCLT in the present case). Further, Rule 26(1) mandates the Ld. Tribunal to fix a date and record its satisfaction that the parties have settled their dispute. Reading of Rule 25 stipulates following three factors; a) the agreement must be reduced to writing. b) it must be signed by the parties, and c) it must be submitted to the proper authority with a proper covering letter. In the instant matter, it is clear from the record after entering the duly signed consent terms by the parties, the mediator had forwarded the consent terms dated 7.1.2023 along with his letter dated 18.03.2023 to the Ld. NCLT. Rule 26 lays down the time frame requiring the Ld. Tribunal to fix a hearing date “normally within 14 days “of receiving the mediator’s report. This is to ensure the expedious and quick disposal of the settled matters. This provision is directory and not mandatory in nature. Hon’ble Supreme Court in State of UP vs Babu Ram Upadhyay [1960 (11) TMI 116 - SUPREME COURT], has held “The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed. The meaning and the intention of the legislature must govern, and these are to be ascertained not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it one way or the other”. Rule 26 is a logical corollary to Rule 25. Rasion d’etre and the scheme of the Mediation Rules 2016 is to give effect to the settlement as expediously as possible. Rule 26 cannot be interpreted narrowly. Additionally the ground qua non-compliance of Rule 26 was never, till the date of the final hearing before NCLAT, was ever taken. This ground has no foundation in pleadings either. It was neither taken before Ld. NCLT nor in the present Appeals. There are no merit in these appeals and accordingly the appeals are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the consent terms executed on 07.01.2023 pursuant to mediation are void, inoperative or unenforceable on account of lack of free consent (coercion, undue influence or duress). 2. Whether the absence or non-attachment of Annexures 1 & 2 (lists of plant and machinery) at the time of signing renders the consent terms incomplete, non-final and therefore non-binding. 3. Whether the mediator's correspondence and reports (including expressions that annexures were not then available) amount to a failure of the mediation process or a ground to set aside the consent terms. 4. Whether the consent terms and the mediator's report complied with Rule 25 and Rule 26 of the Mediation Rules, 2016 and whether any non-compliance vitiates the settlement. 5. Whether disclosure of mediation proceedings by the mediator (and reliance on the decision discussed in Motiram) furnishes a ground to reject or quash the mediator's report or the consent terms. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of consent terms: free consent (coercion, undue influence, duress) Legal framework: Sections 10 and 14-19A of the Indian Contract Act govern validity of contracts and the concept of free consent; Section 15 defines coercion; Section 16 defines undue influence. The party alleging vitiation must plead and prove particulars showing absence of free consent and causal connection to execution of the agreement. Precedent treatment: The Tribunal relied on established principles that consent is presumed free unless particular circumstances rebut the presumption; statutory definitions (Contract Act) delimit coercion to acts forbidden by Penal Code and require evidence for undue influence. Interpretation and reasoning: The Court examined pleadings and evidence and found no particulars or proof demonstrating acts amounting to an offence under the Penal Code (hence no coercion under Section 15). Allegations of pressure, anger or emotional outbreaks were held vague, without specification of the nature, source or effect of such conduct; no evidence of overpowering influence or that the will of any party was dominated to obtain an undue advantage. For duress the Court required proof that the duress was the cause of entering the contract or that, absent it, the agreement would not have been executed - which was not shown. The Court also noted that the parties were adults of full capacity and stood on equal footing (family members) and that statements in the consent terms (e.g., clause acknowledging execution to avoid future disputes and being in the family's best interest) weighed against vitiation claims. Ratio vs. Obiter: Ratio - where allegations of coercion, undue influence or duress are asserted to vitiate mediated consent, courts/tribunals require specific pleaded facts and proof showing acts amounting to coercion under Penal Code, demonstration of dominance/overpowering influence, and causal nexus to execution; mere assertions, conjecture or suspicion are insufficient. Obiter - commentary on familial relations and expectations of parties as 'best masters of their interest.' Conclusion: The Court concluded that the appellants failed to prove coercion, undue influence or duress; the consent terms were not vitiated on these grounds and therefore remained valid and enforceable. Issue 2 - Effect of non-attachment/absence of annexures on finality and binding nature of consent terms Legal framework: Contract principles require agreement on essential terms; mediation practice contemplates reduction to writing and attachment of documents identified in the settlement. The content and signatures on the settlement determine finality unless material terms remain undecided such that no meeting of minds occurred. Precedent treatment: The mediator's reports and contemporaneous communications are admissible to assess whether annexures were merely to be attached subsequently or were essential unsettled terms preventing finality. Interpretation and reasoning: The Court scrutinized the mediator's second and third reports and the mediator's email. The second report recorded that consent terms were drawn up on 07.01.2023 and annexures were to be appended subsequently because of time constraints; it observed the consent terms were 'not complete/final yet' pending lists. The third report, however, records subsequent proceedings on 16.03.2023 where annexures were finalized and signed by the relevant parties (both brothers), and that parties had signed the consent terms on 07.01.2023. The mediator's final report certified that a final copy with all annexures was filed. The Court treated the contemporaneous evidence of signatures and the mediator's final certification as indicating that the annexures were part of the finalized settlement and that execution on 07.01.2023 with subsequent formalization did not render the underlying consent non-binding. Ratio vs. Obiter: Ratio - where a mediated settlement records that annexures will be appended later due to logistical reasons, subsequent finalization and mediator's certification that annexures were signed and appended cures initial non-attachment and renders the settlement binding; initial absence of annexures is not fatal where parties have signed and later completed the annexures in conformity with the settlement. Obiter - remarks on timing of email challenges by signatories (questioning why objections were raised after signing). Conclusion: The Court held that absence of annexures at the moment of signing did not make the consent terms non-final or non-binding because annexures were later finalized and the mediator's final report confirmed a complete executed set; appellants' contention to the contrary failed. Issue 3 - Effect of mediator's correspondence/reports on the enforceability of settlement Legal framework: Mediator's reports and communications to the Tribunal are integral to the mediation process; mediator's factual recitals and certification of settlement inform the Tribunal's satisfaction under Mediation Rules. Precedent treatment: Mediator's interim statements that annexures were not then in possession do not necessarily invalidate a settlement if subsequent acts complete the process; the Tribunal may consider the totality of reports and subsequent compliance. Interpretation and reasoning: The Court acknowledged the mediator's email noting annexures were not received by him as of 14.01.2023, and the second report noting incompleteness. But the third report documented further mediation, attempts to renegotiate, insistence that original consent terms be honoured, and eventual signing of annexures on 16.03.2023. The Tribunal treated the mediator's final account as conclusive evidence of process compliance and of the parties' intention and conduct in finalising the settlement. Ratio vs. Obiter: Ratio - interim deficiency in mediator's possession of annexures does not annul a mediated settlement where later mediation efforts resulted in finalization and where the mediator certifies completeness to the Tribunal. Obiter - mediator's appreciation that some technical disputes required convening a further limited meeting. Conclusion: The mediator's correspondence did not undermine the enforceability of the consent terms because finalization occurred and was certified in the mediator's final report. Issue 4 - Compliance with Mediation Rules, 2016 (Rules 25 and 26) and effect of any non-compliance Legal framework: Rule 25 requires settlement agreements reached to be reduced to writing, signed by parties (and counsel where applicable) and forwarded by the mediator with a covering letter; Rule 26 contemplates fixing a hearing date normally within fourteen days to record settlement and pass an order. Whether the time frame in Rule 26 is directory or mandatory is a statutory-interpretation question guided by legislative intent and consequences. Precedent treatment: The Court cited authority that the mandatory/directory character of a provision depends on legislative intent and purpose; procedural time limits intended to facilitate expedition may be directory rather than mandatory. Interpretation and reasoning: The Court held that the consent terms were reduced to writing, signed by parties and submitted by the mediator with his covering report (compliance with Rule 25). The obligation in Rule 26 to fix a hearing 'normally within fourteen days' was held to be directory in nature given the object of expeditious settlement; delay in fixing a hearing or passing an order does not automatically vitiate a valid settlement. On facts, the Tribunal convened and recorded satisfaction that the settlement was just; the appellants raised Rule 26 non-compliance belatedly without pleading or earlier reliance, and the Tribunal had considered the mediator's report and the revocation applications together before passing the impugned order. The Court therefore found no merit in the Rule 25/26 challenge. Ratio vs. Obiter: Ratio - compliance with Rule 25 (writing, signatures, submission) is essential; the time guideline in Rule 26 is directory, not mandatory, and failure to adhere strictly to the 14-day timeline does not invalidate a properly executed settlement when the Tribunal subsequently records satisfaction. Obiter - discussion of rationale of Rules 25/26 to secure speedy disposal. Conclusion: Rules 25 and 26 were satisfied substantively; any delay in fixation of hearing did not vitiate the settlement and the challenge based on non-compliance was rejected as both unfounded and belated. Issue 5 - Confidentiality/disclosure of mediation proceedings and relevance of Motiram decision Legal framework: Mediator confidentiality obligations are recognised; disclosure of proposals may risk confidentiality and is to be approached with caution. Judicial precedent has cautioned mediators against recording proposals that undermine confidentiality. Precedent treatment: The Motiram decision (cited by appellants) criticized mediator disclosure of proposals made in mediation, but did not treat such disclosure as a ground necessarily to reject a mediator's report in every case. Interpretation and reasoning: The Court observed that while the Motiram decision cautioned mediators about confidentiality, that decision did not operate to automatically invalidate mediator reports or settlements where disclosure occurred. In the present facts, Motiram did not advance the appellants' case to a point that would justify rejecting the mediator's report or setting aside the settlement. Ratio vs. Obiter: Ratio - allegations of mediator's breach of confidentiality or disclosure of mediation proposals do not ipso facto nullify a settlement; relevance depends on whether such disclosure materially prejudiced the process or undermined voluntariness. Obiter - caution to mediators reiterated. Conclusion: Motiram did not furnish a basis to quash the consent terms or the mediator's report in the present matter; confidentiality concerns were not determinative here. Overall Conclusion The Court concluded that appellants failed to prove lack of free consent (coercion, undue influence or duress), that initial non-attachment of annexures did not render the mediated consent non-final (the annexures were later finalized and certified), and that Mediation Rules 2016 (Rules 25/26) were satisfied in substance; therefore the consent terms dated 07.01.2023 and the mediator's report were held to be valid, enforceable and not liable to be set aside. Appeals dismissed.