Requirements u/r 25 & 26 of Mediation Rules Satisfied: NCLAT Holds Settlement Agreement Valid [Read Order]
The appellants had argued that the settlement violated Mediation Rules, 2016, particularly Rules 25 and 26, as annexures were incomplete and the hearing was not fixed within 14 days.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has upheld the validity of consent terms executed during mediation in the appellants dispute. The Tribunal, however, found that the agreement was reduced to writing, signed by the parties, and duly submitted by the mediator, satisfying Rule 25. It further held that Rule 26’s 14‑day timeline is directory, not mandatory, and therefore no procedural breach occurred.
The appellants Sonali Prashant Shinde and Accurate Engineering Company Pvt. Ltd. & Ors had sought to set aside the settlement, alleging coercion, undue influence, and procedural violations under the Mediation Rules, 2016.
The central plank of their challenge was that the consent terms did not comply with Rule 25 and Rule 26 of the Mediation Rules, 2016. Rule 25 requires that a settlement agreement be reduced to writing, signed by the parties, and submitted to the Tribunal with a covering letter from the mediator.
Rule 26 mandates that the Tribunal fix a hearing within 14 days of receiving the mediator’s report, record its satisfaction, and pass an order in accordance with the settlement.
The NCLAT examined the record and found that Rule 25 had been fully complied with. The consent terms were reduced to writing, signed by all parties, and forwarded to the National Company Law Tribunal (NCLT) by the mediator along with his covering letter dated 18 March 2023.
The Tribunal highlighted that once parties voluntarily sign a settlement agreement, they are bound by their act unless substantial grounds exist to invalidate it.
On Rule 26, the appellants argued that the NCLT failed to fix a hearing within 14 days of receiving the mediator’s report, thereby vitiating the process. The NCLAT rejected this contention, holding that the 14‑day timeline is directory, not mandatory.
Citing the Supreme Court’s decision in State of UP v. Babu Ram Upadhyay (1961), the Tribunal observed that whether a statutory provision is mandatory or directory depends on legislative intent. The purpose of Rule 26 is to ensure expeditious disposal of settled matters, but a delay in fixing the hearing does not invalidate the settlement itself.
The bench of Yogesh Khanna (Judicial Member) and Ajai Das Mehrotra (Technical Member) further noted that the appellants had themselves filed applications to revoke the consent terms months after signing them, which were heard together with the mediator’s report.
The NCLT, after considering all submissions, dismissed the applications on 3 October 2023. The NCLAT endorsed this approach, holding that the procedural sequence did not undermine the validity of the settlement.
By linking Rule 25 and Rule 26, the NCLAT underscored that the mediation process had been conducted in accordance with law. The settlement agreement was properly documented, signed, and submitted, and the Tribunal’s subsequent order recorded satisfaction with the settlement. The appellants’ objections were found to be vague, unsubstantiated, and insufficient to nullify the agreement.
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