Industrial peace is crucial for economic growth, yet India continues to face persistent challenges in resolving labour and industrial disputes. This paper analyses the role of mediation in industrial dispute resolution through a comparative study with arbitration. Using doctrinal research and comparative analysis, it examines the legal provisions under the Industrial Disputes Act, 1947, the Industrial Relations Code, 2020, the Arbitration and Conciliation Act, 1996, and the Mediation Act, 2023. Relevant case laws and global practices are also reviewed to provide a comprehensive perspective. The findings reveal that mediation is more effective in preserving long-term industrial relationships and reducing judicial backlog, while arbitration ensures enforceability and finality. However, both mechanisms have inherent limitations. The study recommends integrating mediation as a mandatory first step in labour disputes, supported by trained mediators and strong institutional frameworks. The analysis further underscores the need for a hybrid model in which mediation precedes arbitration, thereby striking a balance between cooperation and legal certainty.