Pre-Litigation Mediation U/S. 12A Commercial Courts Act Mandatory; Non-Compliance Can Result In Rejection Of Plaint: Supreme Court

The Supreme Court has reiterated that Section 12A of the Commercial Courts Act, 2015 (CCA) is mandatory in nature.

The Court reiterated thus in a Civil Appeal preferred against the Judgment of the Calcutta High Court, which disposed of the Revision Application.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan summarized its findings as under –

a. The decision of the Court lays down the correct position of law as regards Section 12A of the 2015 Act by holding it to be mandatory in nature.

b. The declaration of the mandatory nature of Section 12A of the 2015 Act relates back to the date of the Amending Act.

c. Any suit which is instituted under the 2015 Act without complying with Section 12A is liable to be rejected under Order VII Rule 11. However, this declaration applies prospectively to suits instituted on or after August 20, 2022.

d. A suit which contemplates an urgent interim relief may be filed under the 2015 Act without first resorting to mediation as prescribed under Section 12A of the 2015 Act.

e. Unlike Section 80(2) of the CPC, leave of the Court is not required to be obtained before filing a suit without complying with Section 12A of the 2015 Act.

f. The test for “urgent interim relief” is if on an examination of the nature and the subject-matter of the suit and the cause of action, the prayer of urgent interim relief by the plaintiff could be said to be contemplable when the matter is seen from the standpoint of the plaintiff.

g. Courts must also be wary of the fact that the urgent interim relief must not be merely an unfounded excuse by the plaintiff to bypass the mandatory requirement of Section 12A of the 2015 Act.

h. Even if the urgent interim relief ultimately comes to be denied, the suit of the plaintiff may be proceeded with without compliance with Section 12A if the test for “urgent interim relief” is satisfied notwithstanding the actual outcome on merits.

i. Suits instituted without complying with Section 12A of the 2015 Act prior to 20.08.2022 cannot be rejected under Order VII Rule 11 on the ground of non-compliance with Section 12A unless they fall within the exceptions stipulated in paragraph 113.2 and 113.3 of the decision in Patil Automation case.

j. In suits instituted without complying with Section 12A of the 2015 Act prior to August 20, 2022 which are pending adjudication before the Trial Court, the Court shall keep the suit in abeyance and refer the parties to time-bound mediation in accordance with Section 12A of the 2015 Act if an objection is raised by the defendant by filing an application under Order VII Rule 11, or in cases where any of the parties expresses an intent to resolve the dispute by mediation.

Senior Advocate Vikas Singh appeared for the Appellant while Additional Solicitor General (ASG) Archana Pathak Dave appeared for the Respondents.

Case Background

The Respondent-Union of India instituted a Money Suit in the Commercial Court against the Appellant company for the recovery of Rs. 8,73,36,976/- towards differential freight and penalty. Indisputably, no urgent interim relief was prayed for in the said suit. The Appellant raised a preliminary objection in its written statement as regards the maintainability of the suit without availing the remedy of pre institution mediation under Section 12A of the CCA read with Pre-Institution Mediation and Settlement Rules, 2018 (PIMS Rules), which came into force with effect from July 3, 2018.

The Appellant filed an Interim Application under Order VII Rule 11 (d) of the Civil Procedure Code, 1908 (CPC) read with Section 12A of CCA, seeking rejection of the plaint, inter alia, on the ground that the Money Suit suffered from institutional defects and was violative of the mandatory provisions of pre-institution mediation. The said application was rejected by the Commercial Court against which a Civil Revision Application was filed before the High Court, which disposed of the same. Resultantly, the case was before the Apex Court.

Reasoning

The Supreme Court in the above context of the case, said, “The aim and object of Section 12A is to ensure that before a commercial dispute is filed before the court, the alternative means of dissolution are adopted so that only genuine cases come before the courts. The said procedure has been introduced to decongest the regular courts.”

The Court clarified that the test under Section 12A is not whether the prayer for the urgent interim relief actually comes to be allowed or not, but whether on an examination of the nature and the subject-matter of the suit and the cause of action, the prayer of urgent interim relief by the plaintiff could be said to be contemplable when the matter is seen from the standpoint of the plaintiff.

“Further, what is also to be kept in mind by the courts is that the urgent interim relief must not be merely an unfounded excuse by the plaintiff to bypass the mandatory requirement of Section 12A of the 2015 Act”, it added.

The Court observed that the Supreme Court has been endowed with the power to mould the relief to do complete justice in a given situation, and to avoid the possibility of chaos and confusion that may be caused in the society at large.

“As we have discussed, factors like forfeiture of court fees, ambiguity over the applicability of Section 14 of the Limitation Act, unsettling of settled cases, etc. were a few other reasons which weighed with the Court in arriving at its decision of according prospectivity to the judgment. Thus, we find it difficult to accept the argument advanced by the appellant that the plaint must be rejected for the reason that the suit has not made substantial progress after its institution”, it further held.

Conclusion

The Court explained the following two important points –

a. If the suit is instituted on or after the date of the decision in Patil Automation (supra), i.e., 20.08.2022, without complying with Section 12A of the 2015 Act, then it must meet with rejection under Order VII Rule 11, either on an application by the defendant or suo motu by the Court.

b. If the suit was instituted prior to 20.08.2022 without complying with Section 12A of the 2015 Act, and the same does not fall within one of the exceptional categories as explained in paragraph 47 of this judgment, then it would be open to the Court to keep the suit in abeyance and direct the parties to explore the possibility of mediation in accordance with the 2015 Act, the PIMS Rules and the 2020 SOP.

“… we find it difficult to accept the contention of the appellant that the Trial Court as well as the High Court committed an error in refusing to reject the plaint under Order VII Rule 11. On the contrary, the approach adopted by the High Court in the impugned order in keeping the suit in abeyance and referring the parties to mediation, strikes a perfect balance between the mandatory nature of Section 12A of the 2015 Act as well as the prospective applicability of the consequence of non-compliance with Section 12A as held in Patil Automation (supra)”, it concluded.

The Court also added that the mediation proceedings must be completed within the time frame stipulated by Section 12A of the CCA and the PIMS Rules, that is, within a period of three months and extendable by two more months, if the need so arises.

Accordingly, the Apex Court dismissed the Appeal and directed the Registry to circulate a copy of the Judgment to all High Courts.

Cause Title- M/s Dhanbad Fuels Private Limited v. Union of India & Anr. (Neutral Citation: 2025 INSC 696)

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