Commercial Courts Act- Section 12-A On Pre-Institution Mediation and Settlement Is Not A Mandatory Provision: Madras High Court

The Madras High Court recently held that Section 12-A of the Commercial Courts Act, isnot a mandatory provision.

The Court delved into a thorough analysis of the provisions under Section 12-A  on Pre-Institution Mediation and Settlement. It further analyzed the Rule 3(1) and 3(7) of the Commercial Courts Act, 2015 (Pre-Institution Mediation and Settlement) Rules, 2018.

"Though, the word 'shall' in Section 12-A of the Act, sounds Prelitigation mediation is mandatory on the part of the plaintiff to explore Settlement before filing suit under Commercial Court Act, the Rule framed uses the word 'Shall' and makes it an optional," the Bench held.

"Also even if one party go for pre-litigation mediation the other party may conveniently abstain from participating in the mediation and make it a non-starter. Even otherwise, mediator can proceed only if the both the parties appear and give consent to participate in the mediation process", it added.

Thus, the Court found it to be very clear on a combined reading of the Commercial Courts Act and the Rules framed thereunder, that pre-litigation mediation was subject to urgency for any interim relief and the consent of the sparing parties.

These observations were made by a Single Judge Bench of Justice Dr. G. Jayachandran while hearing a suit filed for recovery of money.

The Court was hearing an application filed under Order XIV and Rule 8 of Original Side Rules read with Order VII Rule 11 of Civil Procedure Code seeking rejection of plaint at the threshold.

The case of the plaintiff ( who was engaged in the business of Shipping Line/Carrier, Shipping containers/cargo around the world) was that the defendants 1 to 4 had colluded with each other to enable the 2nd defendant to take delivery of the cargo coming from Shanghai, China at the discharge Port of Chennai without obtaining delivery order from the plaintiff thereby caused wrongful loss and damages to the plaintiff.

The 2nd defendant, who received the suit summons, filed the instant application to reject the plaint primarily on the ground that the suit is barred by law for-

(a). No privity of contract. Non-disclosure of cause of action against the 2nd defendant.

(b). Non-joinder of "Link Fast Logistics Company Ltd" (a Freight Forwarding Company which is the counterpart of the 1st defendant in China) which is necessary and proper party.

(c). Non-compliance of the statutory requirement under Section 12-A of the Commercial Court Act, 2015. 

The plaintiff's counsel argued that when the suit was filed in 20192, the 2nd defendant after entering appearance in the suit during the early months of 2020 and after filing the written statement, as an afterthought had filed this application as if the plaintiff has failed to comply the procedure envisaged under Section 12-A of the Commercial Court Act.

He added that Order VII Rule 11 (d) of C.P.C envisages rejection of plaint only in case of non-compliance of substantive law and not the procedural law. 

Court's findings:

It was found that the plaint specifically averred that the 1st defendant requested to file Import General Manifest in the name of the 2 nd defendant for 3 House Bills of Lading. Without original delivery advise, from the plaintiff, the 2nd defendant had taken delivery of the goods without paying the charges. Out of 8 Master Bills of Lading, 10 containers of cargo covered under 3 Master Bills of Lading (MBL) been taken delivery by the 2nd defendant and Cargoes falling under 5 Master Bills of Lading were taken delivery by the 1 st defendant.

Moreover, the 4th defendant, the Containers Freight Station (CFS) and the 3rd defendant, the C & F Agent has connived with the defendants 1 & 2 for removing the goods from the Containers Freight Station (CFS). the plaint had stated.

"It is trite law that for rejection of plaint, the averments made in the plaint alone has to be looked into for prima facie satisfaction whether there is any ground to reject the same as envisaged under Order VII Rule 11 of C.P.C.", the Court remarked.

The narration of facts as found in the plaint indicated that the plaintiff has filed Import General Manifest (IGM) in the name of the 2nd defendant on the request of the 1st defendant. Thus, privity of contract between the plaintiff and the 2nd defendant was disclosed in the plaint, the Bench held.

A Harmonious Interpretation took the Court to the irresistible conclusion that Section 12-A of the Commercial Courts Act, was not a mandatory provision.

The right to access justice which is a Constitutional Right cannot be denied or deprived for not resorting to mediation. The Court is not substitute to Alternative Dispute Redressal, it is otherwise. The litigant cannot be denied the doors of justice for directly approaching the Court without exploring the possibility of mediation. There can be no prejudice to the defendant, if the defendant is ready for mediation, even after Institution of the suit.

Also, no impediment either for the party or for the Court was found so as to refer the pending matter to be resolved through mediation or any other Alternative Dispute Redressal mechanism.

This provision is meant for the parties to work out an amicably settlement without involving in the adversary system of litigation. The intention of this Section is not to prevent access to justice or to aid anyone who refuse to subject himself to the judicial process. The intention is to avoid the procedural rigor and to arrive an amicable win-win settlement. Any other interpretation to Section 12-A of the Act contrary to the intention will amount to miscarriage of Justice.

Therefore, the Court held that there was no ground to entertain the application seeking rejection of plaint and it was accordingly is dismissed with costs of Rs.10,000/-

Click here to Download the Order.