Listing of Mediated Settlements Within 14 Days is Directory Not Mandatory : NCLAT
The National Company Law Appellate Tribunal (NCLAT) has recently clarified that the 14-day period under Rule 26(1) of the Companies (Mediation and Conciliation) Rules, 2016, for listing a mediated settlement before the Tribunal, is only advisory and not mandatory.A coram comprising Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra made the clarification while hearing...
The National Company Law Appellate Tribunal (NCLAT) has recently clarified that the 14-day period under Rule 26(1) of the Companies (Mediation and Conciliation) Rules, 2016, for listing a mediated settlement before the Tribunal, is only advisory and not mandatory.
A coram comprising Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra made the clarification while hearing an appeal by a shareholder of Accurate Engineering Company Pvt. Ltd., a Salunke family-owned business, against an NCLT Mumbai order that upheld a mediated settlement between the family members
"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 expeditous and quick disposal of the settled matters. This provision is directory and not mandatory in nature."
The dispute arose from allegations of oppression and mismanagement in the family-owned company. A petition alleging Oppression and Mismanagemnt was filed in 2014 by certain shareholders against other family members who were also directors. In October 2022, the NCLT referred the matter to mediation. The mediation led to the signing of consent terms on January 7, 2023.
Soon after, the present appellant- Sonali Shinde objected to the agreement, claiming that she had signed it under pressure and that the process was not conducted fairly. She sought to set aside the consent terms, alleging duress, coercion and undue influence. The NCLT examined these claims but found no evidence that the agreement was forced.
It observed, “Merely, saying that the Applicants were put under coercion would not tantamount to an offence under the Indian Penal Code as is contemplated by Section 15 of the Contract Act. This being so, element of coercion does not exists."
It held that the settlement was voluntarily signed and binding on all parties. Subsequently, the matter reached NCLAT in appeal.
Before the NCLAT, Shinde argued that the consent terms were incomplete because annexures listing machinery and equipment were not finalized at the time of signing. They also said that the NCLT had not followed Rule 26 of the Mediation Rules, which states that a hearing should normally be fixed within 14 days after the mediator's report is received.
The respondents-directors, maintained that the annexures were later signed by both sides and that any delay in listing the case did not affect the validity of the settlement.
The Appellate Tribunal reviewed the mediator's final report dated March 18, 2023, which confirmed that the annexures had been signed and the settlement was complete. The tribunal further observed that the compliance with the timeline provided in the Mediation Rules is advisory and not mandatory.
“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. .”
Finding that the settlement had been finalized and that Shinde had already received the full amount due to her, the NCLAT upheld the NCLT's order.
Case Title: Sonali Shinde v Vikram Vilasrao Salunke
Case Number: Company Appeal (AT) No. 211 of 2023
Appearances:
For Appellant: Advocates Sanjay Kumar Dubey, Sushil Nimbkar, Shuchi Singh, Ujjwal Kumar Dubey
For Respondents: Advocates Chinmoy Khaladkar, Anand Shankar Jha, Sachin Mintri, Shrenik Gandhi, Shubhank Sharma
Click here to read/download order