NCLAT Rules 14-Day Limit Under Mediation Rules Is Advisory, Not Mandatory; Upholds Family Settlement in Accurate Engineering Case

NCLAT Rules 14-Day Limit Under Mediation Rules Is Advisory, Not Mandatory; Upholds Family Settlement in Accurate Engineering Case

Introduction

The National Company Law Appellate Tribunal (NCLAT) in Sonali Shinde v. Vikram Vilasrao Salunke clarified that the 14-day timeline 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 reinforces that procedural timelines should not defeat the substantive intent of expeditious settlement.

Factual Background

The dispute arose within the Salunke family, shareholders of Accurate Engineering Company Pvt. Ltd., involving allegations of oppression and mismanagement. A petition was filed in 2014 before the NCLT, Mumbai. In October 2022, the Tribunal referred the matter to mediation, which led to a mediated settlement and signing of consent terms on January 7, 2023. Subsequently, appellant Sonali Shinde challenged the settlement, alleging that she signed the agreement under pressure and without fair process. She sought to set aside the consent terms, alleging coercion, duress, and undue influence.

Procedural Background

The NCLT, Mumbai, examined the appellant’s allegations and found no evidence supporting her claims of coercion. It held that the settlement was voluntary and binding on all parties. The Tribunal emphasized that mere assertions of pressure do not amount to coercion as defined under Section 15 of the Indian Contract Act, 1872. Dissatisfied with this decision, the appellant filed an appeal before the NCLAT.

Issues

1. Whether the 14-day period under Rule 26(1) of the Companies (Mediation and Conciliation) Rules, 2016, is mandatory or directory.

2. Whether the consent terms signed during mediation were vitiated by coercion, undue influence, or incomplete execution of annexures.

Contentions of the Parties

Appellant’s Contentions: The appellant contended that the mediation process was unfair and that she had signed the consent terms under pressure. It was further argued that the consent terms were incomplete as the annexures listing machinery and equipment were not finalized when the agreement was signed. The appellant also relied on Rule 26 of the Mediation Rules to argue that NCLT failed to fix the hearing within 14 days after receiving the mediator’s report, thereby rendering the settlement invalid.

Respondents’ Contentions: The respondents maintained that the annexures were subsequently signed by both parties, and the settlement was complete. They argued that any procedural delay in listing the matter before NCLT did not affect the substantive validity of the settlement. The respondents asserted that the appellant had already received the amount due under the settlement and was now estopped from challenging it.

Reasoning and Analysis

The coram comprising Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra examined the mediator’s final report dated March 18, 2023, which confirmed that the settlement, including annexures, had been finalized. The Tribunal clarified that Rule 26(1) — which provides that the NCLT should “normally” list the matter within 14 days is directory, meant to ensure expeditious disposal, and not mandatory.

The Bench observed that, “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 provision is directory and not mandatory in nature.”

Further, the Tribunal emphasized that the object of the Mediation and Conciliation Rules, 2016, is to facilitate settlement, not to frustrate it through rigid interpretation of procedural timelines. Finding no evidence of coercion, duress, or undue influence, the NCLAT concluded that the consent terms were voluntary and binding.

Implications

This judgment reaffirms that procedural provisions under mediation rules are intended to promote efficiency, not invalidate settlements for technical delays. It strengthens the legal sanctity of mediated settlements and underscores the judiciary’s support for alternative dispute resolution mechanisms.

Order

The NCLAT upheld the NCLT’s order, holding that:

• The 14-day timeline under Rule 26(1) is advisory, not mandatory.
• The mediated settlement and consent terms are valid and binding.
• The appeal was dismissed as devoid of merit.

In this case the appellant was represented by Mr. Sanjay Kumar Dubey, Mr. Sushil Nimbkar, Ms. Shuchi Singh and Mr. Ujjwal Kumar Dubey, Advocates.

Meanwhile the respondent was represented by Mr. Chinmoy Khaladkar, Mr. Anand Shankar Jha, Mr. Sachin Mintri, Mr. Shrenik Gandhi and Mr. Shubhank Sharma, Advocates.