Mandatory Nature of Mediation under Section 12A of the Commercial Courts Act: A Comprehensive Review

Introduction

In a recent judgement, the Supreme Court of India brought light to an issue related to the Commercial Courts Act. Specifically, the focus was on the mandatory nature of pre-litigation mediation as outlined under Section 12A of the Commercial Courts Act. This critical decision was observed by the Bench of Justice KM Joseph and Justice Hrishikesh Roy.

The Case at Hand

The case in question is Patil Automation Pvt. Ltd. & Ors. v. Rakheja Engineers Pvt. Ltd. An application was filed contending that the suit was initiated without adhering to Section 12A of the Commercial Courts Act. The respondent contested the matter, arguing that the suit was not barred due to non-compliance with Section 12A of the Act.

Trial Court’s Decision

Despite Section 12A being mandatory in nature, the Trial Court rejected the appellant’s contention. It held that there was no legislative intent to enact such stringent provisions. The Trial Court further argued that Section 12A is not a penal enactment for punishment and no restriction exists in filing the suit without exhausting mediation, especially when there is clear evidence of the applicant’s intention having been made and failed.

High Court’s Decision

Upon appeal, the Punjab and Haryana High Court affirmed the Trial Court’s findings, stating that courts are meant to deliver substantial justice. If a suit is filed without taking recourse to the prescribed procedure, it should not necessarily result in the rejection of the plaint.

Supreme Court’s Verdict

The Supreme Court disagreed with the lower courts’ decisions. The apex court noted that the design and scope of the Act, as amended in 2018 by which Section 12A was inserted, makes it clear that the Parliament intends to give the scope of pre-litigation mediation a mandatory character.

Interpretation of Section 12A

The Court asserted that any other interpretation would contradict the express language used and would frustrate the object of the Act and the Rules. The Court held that the right to institute the Suit in a plaintiff who does not contemplate urgent interim relief in a commercial matter under the Act is clearly conditioned by the fulfilment of certain conditions as provided in Section 12A.

Importance of Pre-Litigation Mediation

The Supreme Court noted that Section 12A stipulates that the plaintiff must exhaust the remedy of pre-litigation mediation. This means a suit cannot be filed unless after the remedy of pre-litigation mediation, as contemplated under the Act and the Rules, is attempted and exhausted. The use of the term ‘shall’ within Section 12A of the 2015 Act undeniably aids the Court in establishing the mandatory nature of the provision.

The Implication of the Verdict

The Court emphasized that the law’s objective is clear: commercial disputes must be resolved with the highest level of expedition, which in turn could make the country a destination attracting capital by enhancing the ease of doing business. Thus, the Supreme Court set aside the High Court’s order and allowed the applications under Order VII Rule 11 CPC. As a result, a fresh suit would have to be filed, but only after complying with the mandate of Section 12A of the Act as permitted under Order VII Rule 13 CPC

Conclusion

The Supreme Court’s judgement on the mandatory nature of pre-litigation mediation under Section 12A of the Commercial Courts Act has brought about significant implications for the conduct of commercial disputes in India. By asserting the mandatory nature of this provision, the court has sent a clear message about that disputes of a commercial hue must be extinguished with the highest level of expedition. The dispute resolution would witness a termination of the lis between the feuding parties. But even, more importantly, it would prepare the ground for the country becoming a destination attracting capital by enhancing the ease of doing business.

The court also stated that in a case where on allegations in the suit, it is found that the suit is barred by any law, as would be the case, where the plaintiff in a suit under the Act does not plead circumstances to take his case out of the requirement of Section 12A, the plaint should be rejected without issuing summons.

Thus, the court set aside the orders of the High Court and the trial court, allowed the applications under Order VII Rule 11 CPC, and rejected the plaints. It directed that a fresh suit would have to be filed, but only after complying with the mandate of Section 12A of the Act as permitted under Order VII Rule 13 CPC.

Citation

1. Pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 mandatory; any violation would lead to rejection of plaint: SC  – SCC Online Blog
2. Pre-Institution Mediation Under Section 12A Commercial Courts Act Is Mandatory; Suits Filed Violating This Liable To Be Rejected : Supreme Court – LiveLaw
3. Section 12A : Pre-Institution Mediation and Settlement

Written by, Parthvi Patel, United World School of Law