Settlement agreements are documents that act as proof of agreement between two parties and that tie them in an agreement to adhere to the terms and conditions mentioned in the agreement. These terms and conditions are decided beforehand and added to the agreement after the two parties have held relative negotiations for the same.
Similar to other types of contracts, settlement agreements might not always be drafted in a written format. However, it is still advisable to make such agreements in written format as there are times where they need to be in a written format to be enforceable. In addition, similar to other contracts, settlement agreements cannot be enforced by any party unless it is valid to do so.
Considering settlement agreements are a special kind of agreement, they may include general elements of a contract along with several unique requirements for it to be deemed valid.
Simply reaching an understanding is not considered enough and there is a need to go through legal formalities for the validity of the agreement. For example, missing signatures of any party involved can become grounds for challenging the draft in the future in Court.
| Although not necessary, settlement agreements may be signed by two witnesses. |
Both parties shall thereafter register the agreement as the subject matter of the agreement shall be considered immovable property. Under Section 17 of the Indian Registration Act, settlement agreements that claim to assign immovable property must be duly registered with the authorities or it shall be deemed invalid.
| The payable stamp duty shall vary depending upon the value of the property. |
While settlement agreements can be challenged in a Court of law, they cannot be revoked without a Court decree. Settlement agreements may be challenged if they involve fraud, coercion, misrepresentation, or inadequate execution.
Once the parties have resolved their conflicts and reached a settlement, they may state those settlement terms in the agreement, which would then act as guidelines for when a breach occurs. A breach refers to when either party refuses to work in accordance with the terms and conditions stated in the settlement agreement.
| To put it simply, any party that breaches the settlement agreement shall risk being forced to complete the terms mentioned under the agreement and pay legal expenses of the party that wishes to enforce the agreement. |
Out of Court Settlements
The majority of the cases are actually settled outside the court, as individuals often prefer an out-of-court settlement over having to deal with the tedious legal proceedings and relevant expenses to get the same result.
One of the key advantages of out-of-court settlements is the safety of your privacy, as you would not be required to disclose details, such as terms of agreement, that would otherwise be made public if you choose legal proceedings as the resolution method.
In addition, both parties can choose to back out of a settlement agreement if both parties consent and the draft has not been incorporated into a court order. However, it must be noted that such issues are majorly a result of one party disagreeing with the other. Therefore, this might not be the case for a lot of cases.
Courts are often hesitant to allow a party to backout of a settlement agreement, if the draft has been made in good faith with the involvement of both parties.
| Settlement agreements may be deemed void if any fraud or misrepresentation is made while drafting the agreement. |
Individuals may choose to not sign settlement agreements depending upon how it was formed. For example, if it is an oral agreement between both parties, a signature might not be needed.
| Note: It is strongly advised to thoroughly research the local jurisdiction to understand how the Court will proceed in cases of oral agreements. |
The Court may hold a hearing to find out if a meeting between the parties has taken place in good faith to agree to the settlement. If yes, it is highly unlikely for any party to backout from settlement at a later stage.
Mediation
Although there are numerous references to it, there is no definition of ‘mediation’ in Indian laws. The most applicable provisions with respect to commercial mediations are the Code of Civil Procedure, 1908 and the Commercial Courts Act 2015.
Section 89 of the Code of Civil Procedure 1908 gives power to the Court to refer disputes for agreements outside the Court, such as through mediation. The issues with this Section lied with the fact that it mandates that where the Court finds that parties are acceptable to settlement, it shall draft the terms of settlement and once it has received comments from all relevant parties, it may reformulate these terms post which it shall refer them for arbitration, conciliation, judicial settlement, or mediation.
In cases of settlements in Court-annexed mediations, the settlement shall be enforced through the Courts as the Court passes an order in terms of the written settlement.
Now as we move on, Section 30 of the Arbitration and Conciliation Act, 1996, which promotes dispute settlement, is only useful in cases when parties have decided to settle a dispute after they have begun arbitration proceedings.
In situations where the parties have chosen private mediation with respect to a mediation clause or otherwise, settlement agreements cannot be treated as arbitral awards, as they are forced as contracts between parties. This can lead to several problems as the settlement agreement cannot be enforced like a Court order but may actually end up forming the basis of a civil suit, which shall then render the whole point of going for alternate dispute resolution useless.
This may take place even after parties have consented to settle the issue. The lack of compliance with respect to such cases results in making the whole process ineffective and rather useless. Hence, in India, private mediation is not a commonly preferred method for settlements.
Relevant Judicial Proceedings
There have been instances where parties have tried to legally enforce the settlement agreement while staying in accordance with all relevant laws and regulations.
In the case of
Shri Ravi Aggarwal vs. Shri Anil Jagota, both parties had consented to conduct a private mediation and requested that the agreement so reached, be implemented in accordance with Section 30, Section 73 and Section 74 of the Arbitration and Conciliation Act, 1996. The Court denied it as Part III of the Arbitration and Conciliation Act could only be applied to settlement agreements prepared with mutual consent via duly constituted conciliation proceedings.
As per Section 74 of the Arbitration and Conciliation Act, 1996, a settlement agreement has a similar effect as an arbitral award on agreed terms. Its position in the Commercial Court Act is the same as a settlement in a pre-institution mediation proceeding under the Act and is similar to an arbitral award under the Arbitration and Conciliation Act. Such arbitral awards are enforceable as a Court order under Section 36 of the Arbitration and Conciliation Act, 1996.
Furthermore, the Commercial Courts Act, to some extent, promotes mediation in settlement agreements in commercial cases as well. The Government of India amended the Commercial Courts Act and made pre-institution mediation mandatory before a commercial suit is filed for issues that do not demand interim relief. This process shall result in any settlement agreement that is reached upon shall be drafted in writing and duly attested by the parties and the mediator.
| This settlement agreement has the same position as an arbitral award prepared on agreed terms. |
Conclusion
As per the Arbitration and Conciliation Act and the Commercial Court Act, mediation agreements are deemed to be on the same level as arbitral awards, and therefore, can be challenged for the same reasons as arbitral awards. Troubling aspects include fraud, coercion, corruption, political party incompetence, or agreements that violate the basic principles of public order or Indian law.
When you are talking about India, mediators are not needed for mediation evidence or so-called agreements in litigation and arbitration. This legal provision allows you to keep the entire proceeding and all its details confidential as well.
Thank you for getting in touch! 
