Pre-Institution Mediation Under Section 12A Commercial Courts Act Is Mandatory; Suits Filed Violating This Liable To Be Rejected : Supreme Court

In a judgment having far reaching impact in commercial litigations, the Supreme Court on Wednesday declared that Section 12A of the Commercial Courts Act, which mandates pre- institution mediation, is mandatory and suits which are filed violating this mandate are liable to be rejected at the threshold under Order VII Rule 11 of the Code of Civil Procedure.

The Court has however made this declaration effective from August 22, 2022.

A bench comprising Justices KM Joseph and Hrishikesh Roy gave this ruling in the batch case  M/s Patil Automation Private Limited and others versus Rakheja Engineers Private Ltd and connected matters.

The seminal question which arose for consideration in this case was whether the statutory pre-litigation mediation contemplated under Section 12A of the Commercial Courts Act, 2015 is mandatory.

Answering the issue in the affirmative, the bench held as follows :

"We declare that Section 12A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11. This power can be exercised even suo moto by the court.

We, however, make this declaration effective from 20.08.2022 so that concerned stakeholders become sufficiently informed.

Still further, we however direct that in case plaints have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration.

Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff. Finally, if the plaint is filed violating Section 12A after the jurisdictional High Court has declared Section 12A mandatory also, the plaintiff will not be entitled to the relief".

What does Section 12A say?

According to Section 12A,  any suit, which does not contemplate any urgent interim relief under the Commercial Courts Act, shall not be instituted unless the plaintiff exhausts the remedy of pre- institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government. Such mediation has to be done before the authorities authorized by the Central Government.

The provisions gives the authorities a three-month deadline for the completion of mediation, which can be further extended by two months with the consent of the parties. The mediation period will not be counted for the purposes of limitation under the Limitation Act.

Any settlement arrived at the mediation can be executed as if it was an award passed under the Arbitration and Conciliation Act 1996. This provision was inserted in the Act by the 2018 amendment, which came into force in 03.07.2018.

In the case before the Supreme Court, the appellants had sought the rejection of the plaint under Order VII Rule 11 CPC on the ground that the suit was filed by the respondents without exhausting the remedy of pre-litigation mediation. However, the Commercial Court dismissed the application to reject the plaint. The Supreme Court considered the case along with a host of other appeals raising the same issue.

Senior Advocate Sanjeev Anand and Advocates Ayush Negi,Sharath Chandran appeared for the appellants arguing that Section 12A was mandatory. Advocate Saket Sikri, appearing for the respondents, argued that the provision was directory.

Section 12A not a mere procedural provision, says Supreme Court

The Supreme Court observed in the judgment that Section 12A cannot be described as a mere procedural law.

"Exhausting pre-institution mediation by the plaintiff, with all the benefits that may accrue to the parties and, more importantly, the justice delivery system as a whole, would make Section 12A not a mere procedural provision. The design and scope of the Act, as amended in 2018, by which Section 12A was inserted, would make it clear that Parliament intended to give it a mandatory flavour. Any other interpretation would not only be in the teeth of the express language used but, more importantly, result in frustration of the object of the Act and the Rules", the judgment authored by Justice KM Joseph stated(Para 43).

Provision mandatory in a class of suits not requiring urgent interim relief, this lightens the load of judges

The judgment further observed :

"At this juncture, it must be immediately noticed that the Law-giver has, in Section 12A, provided for pre- institution mediation only in suits, which do not contemplate any urgent interim relief. Therefore, pre- institution mediation has been mandated only in a class of suits. We say this for the reason that in suits which contemplate urgent interim relief, the Law-giver has carefully vouch-safed immediate access to justice as contemplated ordinarily through the courts. The carving out of a class of suits and selecting them for compulsory mediation, harmonises with the attainment of the object of the law. The load on the Judges is lightened. They can concentrate on matters where urgent interim relief is contemplated and, on other matters, which already crowd their dockets".

Mediation offers win-win situation, a meaningful choice in the era of docket explosion

The judgment further stated that mediation is a "meaningful choice" in the era of docket explosion.

"A win-win situation resulting from assigning a greater role to the parties themselves, with no doubt, a spirit of accommodation represents a better and what is more in the era of docket explosion, the only meaningful choice. The realisation has been growing over a period of time, that formal court rooms, long drawn-out proceedings, procedural wrangles, mounting and crippling costs, delay, which never wanes but only increases with the day that at least, in certain categories of cases, mediation can be the way out. It, undoubtedly, requires a complete change in the mindset. The change in approach, undoubtedly, can be achieved only if the litigants become aware of its benefits in comparison with the great disadvantage in waiting in the serpentine queue for the day of reckoning to arrive in a court of law. The role of the Bar is vital in taking mediation forward.

With increase in population and a skewed Judge-population ratio and a huge spiralling of litigation in the courts, it is logical, just and imperative, to attempt and persevere in out of the box thinking. We can no longer afford to remain in the past. A clean break with the past is urgently needed. What was a mere writing on the wall as early as in the last decades of the previous century has become the harsh reality. It is important that the courts also adapt to the changing times. At least when the Parliament has decided to move ahead, it becomes the court's duty not to greet it with undue scepticism. It becomes necessary to fulfil the intention of the Parliament by realising the true role of judiciary".

Case Title : M/s Patil Automation Private Limited and others versus Rakheja Engineers Private Ltd.

Citation : 2022 LiveLaw (SC) 678

Commercial Courts Act 2015 -Section 12A - Pre-institution mediation declared to be mandatory- any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11. This power can be exercised even suo moto by the court- Declaration with effect from 22.08.2022 (Paragraph 84)

Commercial Courts Act 2015- Pre-institution mediation - Section 12A not a procedural provision- Exhausting pre-institution mediation by the plaintiff, with all the benefits that may accrue to the parties and, more importantly, the justice delivery system as a whole, would make Section 12A not a mere procedural provision. The design and scope of the Act, as amended in 2018, by which Section 12A was inserted, would make it clear that Parliament intended to give it a mandatory flavour (Para 43)

Commercial Courts Act 2015- Mediation lightens the load of the judges- Section 12A contemplated only for a class of suits not requiring urgent relief- suits which contemplate urgent interim relief, the Law-giver has carefully vouch-safed immediate access to justice as contemplated ordinarily through the courts. The carving out of a class of suits and selecting them for compulsory mediation, harmonises with the attainment of the object of the law. The load on the Judges is lightened. They can concentrate on matters where urgent interim relief is contemplated and, on other matters, which already crowd their dockets (Para 54)

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