Pre-Institution Mediation Under Section 12A Commercial Courts Act Is Mandatory

On?August 17, a Supreme Court bench of Justices K.M. Joseph and Hrishikesh Roy, in the case of?M/s Patil Automation Pvt. Ltd. & Ors. versus Rakheja Engineers Pvt. Ltd., observed that pre-institution mediation is mandatory, owing to the design and scope of the Commercial Courts Act, 2015, as?amended in 2018, by which?Section 12A?was incorporated, which includes the word ‘shall’ and goes a long way to assist the Court reeling under an extraordinary docket explosion. Moreover, any suit instituted in violation of the mandate under Section 12A must be visited with?suo motu?rejection under?Order VII, Rule 11?of the Civil Procedure Code (‘CPC’) by courts, the bench clarified. The declaration was made effective on August 20, 2022.

Thus, in terms of the said enactments, it was stated that all disputes falling in the ambit of ‘commercial disputes’ under?Section 2(1)(c)?of the 2015 Act with the valuation of three lakh rupees or more, shall not be instituted till the plaintiff mandatorily exhausts the?remedy of pre-institution mediation, which is to be conducted by Legal Service Institutions across the country. In addition to this,?Section 12A?clearly enumerates that?“[a] suit, which does not contemplate any urgent interim relief under this 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”.

The object of the Act is to unerringly direct to at least partly foisting compulsory mediation in cases wherein a plaintiff does not contemplate urgent interim relief. It has been stressed that mediation lightens the load of judges, and section 12A specifically contemplates a class of suits?not warranting urgent reliefs?as for suits that require urgent interim reliefs. Moreover, a series of judicial pronouncements have made the?compulsory requirement of mediation an?alternative means of resolution to ensure that genuine cases come before the court.

In its order in?SBI versus Nilesh?(2021), a Delhi court rejected?the plaint under Order 7 Rule 11(d) owing to its non-maintainability, and the plaintiff was directed to “file fresh suit after complying mandatory provisions of law under Section 12A of [the 2015 Act] subject to a period of limitation and law”.

In the dicta of its judgment in?Deepak Raheja versus Ganga Taro Vazirani?(2021), the Bombay High Court directed the parties to approach the Legal Services Authority for mediation to be conducted within the time frame stipulated under?section 12A?as if it was initiated under that provision.?

Alternatively, In?GSD Constructions Pvt. Ltd versus Balaji Febtech Engineering?(2019), the plaintiff was suffering an irreparable loss and wanted immediate interim relief, due to which the Madhya Pradesh High Court suggested initiating court proceedings rather than resorting to the mediation process.?

Also, in?M/s M.K. Food Products versus M/s S.H. Food Products?(2019),?the Telangana High Court observed that the suit qua permanent injunction restraining the defendant from infringing copyright was ‘urgent in nature,’ and the parties could not be referred to mediation.

And in the latest judgment of Delhi High Court in?Bolt Technology OU. vs. Ujoy Technology Private Limited & Anr.(2022) held that the requirement of Section 12A of the Commercial Courts Act for pre-institution mediation will stand satisfied where a party proposes an amicable settlement, and the other party rejects the same, in response to the issuance of correspondence for an amicable resolution.? The High Court in effect has watered down the requirement of the procedure to be followed under Section 12A of the CCA read with Rule 3 of the Commercial Courts (Pre-institution Mediation and Settlement) Rules 2018. The High Court after consideration of the facts in the present case also came to the conclusion that intellectual property rights are valuable rights not only for the parties but also customers and the public at large and therefore will fall within the exemption of urgent interim reliefs as contemplated under Section 12A(1) of the CCA.

Thus the question which then arises for our consideration is how mediation as an alternative dispute resolution mechanism, wherein a neutral third party facilitates negotiations between the parties to a dispute in order to arrive at a consensual outcome, is a workable solution for commercial disputes and takes a mandatory form under section 12A.