NCLAT Clarifies: 14-Day Limit For Listing Mediated Settlements Under Rule 26 Is Directory, Not Mandatory
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has clarified that the 14-day period prescribed under Rule 26(1) of the Companies (Mediation and Conciliation) Rules, 2016 for listing a mediated settlement before the Tribunal is directory and not mandatory. The ruling underscores that procedural timelines are meant to facilitate expeditious adjudication and cannot be construed to defeat the substance of a valid and voluntarily executed settlement. A Bench comprising Justice Yogesh Khanna (Judicial Member) and Ajai Das Mehrotra (Technical Member) made this observation while dismissing the appeals filed by Sonali Prashant Shinde, a shareholder of Accurate Engineering Company Pvt. Ltd., against the order of the National Company Law Tribunal (NCLT), Mumbai Bench, which had upheld a family settlement reached through mediation.
The case arose from long-standing disputes within the Salunke family, who jointly owned and managed Accurate Engineering Company Pvt. Ltd. The appellant and other shareholders had filed a petition in 2014 under Sections 397–398 (now 241–242) of the Companies Act, 1956, alleging acts of oppression and mismanagement by certain family members who were also company directors.
Following prolonged litigation, the NCLT referred the matter to mediation in October 2022 under Section 442 of the Companies Act, 2013, read with the Mediation and Conciliation Rules, 2016. The mediation was conducted by an approved mediator and culminated in the signing of consent terms on January 7, 2023, by all parties. The settlement recorded the division of shareholding, assets, and management responsibilities among the family members.
Subsequently, however, Sonali Shinde objected to the settlement, alleging that she had signed the consent terms under pressure and that the mediation process was not fairly conducted. She claimed that the annexures listing machinery and equipment were not finalized at the time of signing, rendering the settlement incomplete. The appellant sought to have the consent terms set aside on grounds of coercion, duress, and undue influence.
The NCLT, Mumbai, after examining the record and submissions, found no evidence to support the allegations of coercion. It noted that the mediation was conducted with the active participation of all parties and their legal representatives, and that the appellant had voluntarily signed the settlement agreement. The Tribunal observed: “Merely stating that the applicants were put under coercion would not tantamount to an offence under the Indian Penal Code as contemplated under Section 15 of the Indian Contract Act. This being so, the element of coercion does not exist.” Finding the consent terms valid and binding, the NCLT approved the mediated settlement and disposed of the original oppression and mismanagement petition. Aggrieved, Shinde approached the NCLAT, challenging both the validity of the mediation process and the timing of its listing before the NCLT.
Before the Appellate Tribunal, the appellant contended that Rule 26(1) of the Mediation and Conciliation Rules, 2016, which mandates that the Tribunal “shall fix a date for hearing the matter normally within 14 days of the receipt of the mediator’s report,” had not been complied with. She argued that the NCLT’s failure to list the case within this period vitiated the settlement proceedings.
The respondents, representing other members of the Salunke family, countered that the 14-day period was directory, not mandatory, and that any delay in listing the matter did not affect the legality of the settlement. They also produced evidence showing that the annexures to the consent terms—particularly the list of machinery and equipment—were finalized and signed by both parties after the mediation concluded.
The NCLAT, after carefully reviewing the mediator’s final report dated March 18, 2023, found that the annexures were indeed completed and that the settlement was comprehensive. The Appellate Tribunal noted that the appellant had already received the full financial consideration due under the consent terms, further demonstrating voluntary acceptance of the mediated resolution.
In interpreting Rule 26(1), the NCLAT held that the provision serves as a procedural safeguard to ensure prompt action by the Tribunal but does not impose an absolute timeline. The Bench explained: “Rule 26 lays down the time frame requiring the learned Tribunal to fix a hearing date ‘normally within 14 days’ of receiving the mediator’s report. This is to ensure the expeditious and quick disposal of settled matters. This provision is directory and not mandatory in nature.”
The Tribunal relied on the principle that whether a statutory provision is mandatory or directory depends upon legislative intent rather than the mere presence of the word “shall.” Referring to the Supreme Court’s decision in State of Uttar Pradesh v. Babu Ram Upadhyay (1961 AIR 751), the NCLAT reiterated that procedural provisions intended to advance justice should not be construed in a manner that causes its defeat.
The order elaborated that Rules 25 and 26 of the 2016 Rules must be read harmoniously to achieve their purpose—ensuring that settlements reached through mediation are given effect promptly. It further observed: “Rule 26 is a logical corollary to Rule 25. The raison d’être and the scheme of the Mediation Rules, 2016, is to give effect to settlements as expeditiously as possible. Rule 26 cannot be interpreted narrowly or in a way that frustrates the intent of the mediation process.”
Having found that the settlement was voluntarily executed, supported by the mediator’s report, and implemented in good faith, the NCLAT upheld the NCLT’s decision. It concluded that minor procedural lapses or delays cannot nullify a mediated agreement that satisfies the essential requirements of consent and fairness. The Tribunal dismissed the appeal, affirming that compliance with the 14-day timeline under Rule 26 is directory and advisory and that the mediated settlement remains valid and binding on all parties.
Appearance
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
Cause Title: Sonali Shinde v Vikram Vilasrao Salunke
Case No: Company Appeal (AT) No. 211 of 2023
Coram: Justice Yogesh Khanna (Judicial Member), Ajai Das Mehrotra (Technical Member)
