Requirement Of Pre-litigation Mediation Under Section 12-A Of Commercial Courts Act Is Mandatory: Delhi High Court

Section 12-A of the Act outlines the mandatory requirement for pre-institution mediation before filing a suit, provided urgent interim relief is not sought. The Central Government may authorize Legal Services Authorities for this purpose, with a three-month mediation timeframe extendable by two months with parties' consent. Settlements reached hold the same status as arbitral awards under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

Brief Facts:

The Plaintiff approached the Delhi High Court and field an application requesting for an exemption from pre-litigation mediation, as mandated by Section 12-A of the Commercial Courts Act, 2015. The Plaintiff filed a suit seeking the recovery of Rs. 6,13,07,075/-, comprising a principal amount of Rs. 3,51,27,626/- and accrued interest, along with future interest.

The Plaintiff, argued for exemption from pre-institution mediation, asserting that a prior mediation attempt occurred during proceedings under Section 138 of the Negotiable Instruments Act, 1881, albeit not in strict accordance with Section 12-A. It argued that once mediation has taken place, the court may not necessitate fresh mediation, even if not strictly adhering to Section 12-A's provisions.

Observations by the High Court:

The High Court noted that the circumstances in this case was distinguishable from the precedent in Amit Walia v. Shweta Sharma. In that case, the judgment was rendered based on mediation conducted under the Delhi High Court Mediation and Conciliation Centre, which the Court deemed sufficient compliance with Section 12-A, despite not occurring before the District Legal Services Authority as stipulated by the Commercial Courts Act.

The High Court emphasized the significance of mediation as a mandatory pre-litigation exercise in commercial disputes. It highlighted the mandatory language of Section 12-A, the detailed procedure outlined in the Rules, the potential benefits of mediation, and the legislative intent to provide a level of voluntariness for the defendant while making it obligatory for the plaintiff. It underscored that Section 12-A elevates settlement to an award, making it enforceable akin to Section 30(4) of the Arbitration Act, and excludes the mediation period for limitation purposes.

Consequently, the High Court held that pre-litigation mediation was mandatory. As a result, the application was dismissed, and the plaint was rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908, leading to the dismissal of the entire suit.

Case Title: M/s Sabsons Agencies Private Limited Vs M/s Harihar Polymers & Anr.

Citation: 2024 LiveLaw (Del) 286

Case Number: CS(COMM) 899/2023 & I.As. 25472-25473/2023, 4893/2024.

Advocate for the Plaintiff: Ms. Kaveeta Wadia, Mr. Shashank Tripathi and Mr. Majeebur Rehman, Advocates.

Advocate for the Defendant: None.

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