High Court’s Mediation Mandate: Insurer Hit With ₹5 Lakh Penalty

In the case of Maxwell Partnership Firm Regd v. National Insurance Co Ltd And Anr., the Delhi High Court emphasized the importance of active involvement from public organizations in pre-litigation mediation. Justice Prathiba M Singh stressed that for mediation to be effective and outcome-driven, institutions with a public nature, such as government departments, must engage by ensuring the presence of officials or authorized representatives.

Background of the Case

The court emphasized that failure to participate in mediation should have legal consequences. This stance was taken during proceedings involving Maxwell Partnership Firm’s lawsuit against National Insurance Company Limited. The firm sought to recover over 24 crores, including 15% annual interest from September 01, 2018, to the present.

The claim pertained to an insurance dispute where the firm had a Standard Fire and Special Peril Policy. Allegedly, despite prompt notification, the insurance company unreasonably delayed processing the claim for over a year. The firm argued that the denial of the claim lacked legal justification, highlighting the insurer’s unreasonable behavior throughout the settlement process.

Legal Consequences of Non-Participation

The court noted the insurance company’s absence from pre-litigation mediation, which contradicted the spirit of Section 12A of the Commercial Courts Act. It cited the UK’s practice, where failure to consider ADR, including mediation, can lead to severe penalties. The court suggested adopting a similar approach in Indian courts to encourage effective mediation and improve resolutions.

In summoning the insurance company for the suit, the court ordered them to deposit Rs. 5 lakhs with the Registrar General before filing their written statement. The case is scheduled for further hearing on September 19.

Conclusion

The Delhi High Court’s stance underscores the significance of public organization involvement in mediation proceedings. The court aims to foster effective mediation practices and improve dispute resolution outcomes in India by emphasizing active engagement and highlighting potential legal consequences for non-participation.