Plaintiff Must Demonstrate Need For 'Urgent Interim Relief' To Avoid Pre-Litigation Mediation U/S 12A Commercial Courts Act: Calcutta High Court

The instant proceedings arose out of a dispute in respect of a credit facility agreement of March 24, 2017 executed between the petitioner and respondents whereby the petitioner advanced a sum of Rs. 150 crores with the assurance that that the respondents would repay the said amount within two years by selling the treasury shares of the respondent no. 6 which the respondents, jointly and severally, neglected to do and in response whereto the plaintiff/petitioner filed a suit praying for a decretal amount of Rs. 132,00,04,279 along with interest and allied prayers against the respondents, jointly and severally, as also applications for grant of ad interim relief and leave to file the said suit by dispensing with the statutory preconditions of S. 12A.

Counsels for the petitioner contended that the urgency for the applications for injunctive interim reliefs and dispensing with S.12A arose from the apprehension that the respondents will continue to illegally transfer/dispose of treasury shares of the respondent no. 6 and divert the proceeds thereof which would render a decree in favour of the petitioner, a mere paper decree incapable of execution. Counsels for the respondents contended that additional documents which were introduced through the application for seeking leave to file the suit by dispensing with S.12A was in violation of Order XI Rule 1 of the Code of Civil Procedure ("CPC") and the same could not be relied upon to plead urgency of the interim reliefs sought in the plaint on the basis that the plaint did not contain any document to support the ingredients of Order XXXVIII Rule 5 of CPC. The respondents further contended that no basis for urgency was made out by the petitioner and the same contention ought to have been rejected as the petitioner became aware of the default of the respondents as early as in the year 2017 and consequently there could have been no urgency after expiry of five years hence.

Deciding on merits the application seeking leave to file the suit by dispensing with S. 12A, Justice Krishna Rao contradistinguished the two types of commercial suits contemplated within the statutory scheme of sub-section (1) of Section 12A: (i) firstly, suits which necessitate, contemplate or plead for urgent relief and are exempt from the mandatory route of pre-litigation mediation under Section 12A and (ii) secondly, suits which do not necessitate, contemplate or plead for urgent relief and are statutorily mandated to exhaust the remedy mandatory pre-litigation mediation under Section 12A prior to its institution, observing:

"The two categories of the suits under Section 12A of the Act of 2015 are treated differently. In the category of suits where the plaintiff does not seek urgent relief, the plaintiff is statutorily required to exhaust pre-institution mediation, whereas a plaintiff seeking urgent interim relief is not required to do so. In a suit where the plaintiff does not seek urgent reliefs, limitation is extended or kept in abeyance, as one may perceive it, till the conclusion of the statutorily mandated period of mediation while in the other category no such benefit is extended.

Given the nature of the language used in the Section 12A of the Act of 2015, and the two categories of suits being dealt with thereunder, and taking into consideration the distinction between 'filing' of a suit and its 'institution' in my view, it requires the Court to apply its mind at the time of the suit being presented before it, as to whether the plaintiff in a suit which does not contemplate any urgent interim relief under the Act of 2015 exhausted the remedy of pre-institution mediation in accordance with the manner and the procedure prescribed or not. Sub-Section (1) of Section 12A of the Act of 2015 casts a duty upon the Court to ensure that a suit is instituted by a plaintiff in accordance with procedure laid down therein. The duty is akin to a duty under Section 3 of the Limitation Act, 1963. A plaintiff may not undertake pre-institution mediation if the plaintiff is in a position to demonstrate that, the plaintiff requires urgent interim relief. In order to do so, the plaintiff has to approach the Court before which the suit is to be instituted and satisfied the Court that it needs to institute such suit without undertaking a pre-institution mediation in view of the urgency claimed by the plaintiff."

Therefore, the onus is on the plaintiff to demonstrate to the Court as to its legitimate need for urgent interim relief prior to the institution of the commercial suit, so as to institute the said suit by dispensing with the statutory prerequisites of S. 12A. In the instant proceeding, the plaintiff/petitioner was successful in demonstrating to the Court on merits as to the contemplation of such urgent interim reliefs within the suit sought to be instituted and accordingly, was granted leave to file the suit without exhausting the remedy of mandatory pre-litigation mediation under S.12A.

In arriving at the decision, the Court placed reliance on the judgment of the Supreme Court in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited reported in (2022) SCC OnLine SC 1028 to reaffirm the settled position of law that S. 12A is mandatory for suits which do not contemplate urgent relief. The Single Judge placed further reliance on the division bench decisions of the Delhi High Court in Dinesh Lal Dabani and Anr. v. DSPC Engineering Private Limited and Ors., of October 14, 2022 and Intense Fitness and Spa Private Limited v. Apnaghar Builders Private Limited of February 16, 2022 which held that the interpretation of "contemplation" within the ambit of Section 12A is confined only to the desire of the plaintiff to seek urgent relief and the same does not permit to the Court to decide whether a case for grant of urgent relief, ex parte or otherwise, is made out or not.

The Court also observed that a caveator is only entitled to be heard at a stage prior to the passing of any interim order and not stricto sensu at the time of hearing an application seeking leave to file a suit by dispensing with the statutory precondition of mandatory pre-litigation mediation under S. 12A. The Court distinguished the application of Mahadev Govind Gharge and Ors. v. Special Land Acquisition Officer, Upper Krishna Project Jamkhandi, Karnataka, reported in (2011) 6 SCC 321 and as relied upon by the respondent no. 6, from the factual conspectus of the instant proceedings, noting that a caveator is only entitled to be heard in respect of applications seeking urgent interim relief and not in respect of applications seeking to dispense with S. 12A. Applying such distinction within the factual conspectus of the instant case, the Court opined that the caveator's right to be heard would remain reserved at the stage of hearing the application for urgent interim relief subsequent to the admission of the application seeking to dispense with Section 12A. The Court observed:

"In the instant application (GA 2 of 2022), the petitioner has not prayed for any interim order against any party but the petitioner has only prayed for leave to file the suit without exhausting the remedy of preinstitution mediation. The petitioner prays for leave to file the said suit so as to enable the petitioner to move an application for grant of urgent interim relief and thus this Court is of the view, the judgment relied by the respondent no. 6 is not applicable in the instant application as the respondent will get an opportunity of hearing at the time of hearing of application for grant of interim relief."

The interlocutory application seeking leave to file the suit by dispensing with S.12A was according allowed and disposed of.

Case: Aditya Birla Finance Limited v. Williamson Financial Services Ltd. & Ors., CS 227 of 2022

Date: 03.11.2022

Citation: 2022 LiveLaw (Cal) 330 

Click Here To Read/Download Order