The Supreme Court in an important judgment adjudicated upon the issue of whether pre-litigation mediation provided under Section 12A of the Commercial Courts Act (the Act) is mandatory in nature.

The Bench of Justice KM Joseph and Justice Hrishikesh Roy observed that Section 12A of the Act is mandatory and any suit instituted in violation of the mandate of Section 12A must be visited with the rejection of the plaint under Order VII Rule 11 CPC.

The Court while holding so, held –

"We declare that Section 12A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11. This power can be exercised even suo moto by the court as explained earlier in the judgment."

In this case, an application under Order VII Rules 10 and 11 read with Sections 9 and 20 CPC was filed inter alia contending that the suit was filed without adhering to Section 12A of the Act. The Respondent contested the matter pleading that the suit was not barred for non-compliance of Section 12A of the Act.

The Trial Court rejected the contention of the Appellant and held that although the procedure under Section 12A of the Act is mandatory in nature, however, the legislature has no such intention to frame such stringent provisions in the said rules. The Court while placing reliance on Ganga Taro Vazirani v. Deepak Raheja held that the procedure provided under Section 12A of the Commercial Courts Act is not a penal enactment for punishment and there is no embargo in filing the suit without exhausting the remedy of mediation especially when an attempt is clear to show that the intention of the applicant has already been made and failed.

The Trial Court further directed that the suit be kept in abeyance and further directed both the parties to appear before the relevant Authority for the purpose of mediation.

Aggrieved, the Appellant filed Civil Revision Petition before the Punjab and Haryana High Court. The Court confirmed the findings of the Trial Court and further held that Courts are meant to deliver substantial justice. The Court also held that if the suit is filed without taking recourse to the procedure, it is further found, that it should not entail rejection of the plaint.

Senior Counsel Sanjeev Anand appeared for the Appellant in civil appeal arising out of SLP (C)No. 5737 of 2022, Counsel Ayush Negi appeared for the other Appellant, Counsel Sharath Chandran appeared for SLP (C) Diary No. 29458 of 2021, and Counsel Saket Sikri appeared for civil appeal arising from SLP (C)No. 14697 of 2021 before the Apex Court.

The Supreme Court made a reference to Section 12A of the Act which states provisions for Pre-Institution Mediation and Settlement.

The Court noted that the design and scope of the Act amended in 2018, by which Section 12A was inserted, makes it clear that the Parliament intended to give it a mandatory flavor.

"Any other interpretation would not only be in the teeth of the express language used but, more importantly, result in frustration of the object of the Act and the Rules," the Bench noted.

Further, the Court held that the right to institute the Suit in a plaintiff who does not contemplate urgent interim relief in a commercial matter under the Act is clearly conditioned by the fulfillment of certain conditions as provided in Section 12A. This cannot be likened to allowing a party to file his written statement.

The Bench additionally placed reliance on various precedents of the High Courts and also referred to the various provisions of the Commercial Courts Act, 2015.

While referring, the Court noted that Section 12A declares that the plaintiff must exhaust the remedy of pre-litigation mediation. What, apparently is required is that the Suit cannot be filed except after the remedy of pre-litigation mediation, contemplated under the Act and the Rules, is attempted and exhausted.

The Court held that it is of the clear view that Section 12A is mandatory in nature.

The Bench further added, "The whole object of the law is clear as day light. Disputes of a commercial hue, must be extinguished with the highest level of expedition. The dispute resolution would witness a termination of the lis between the feuding parties. But even, more importantly, it would prepare the ground for the country becoming a destination attracting capital by enhancing the ease of doing business."

"A perusal of the Act and the Rules reveal the existence of a complete Code. Mediation contemplated under Section 12A and the Rules, may not succeed in every case. To begin with, the figures may not be reassuring but even if success does not elude the Mediator, in a few of the cases, a good part of the object of the Legislature, would stand achieved. Such is the condition of the docket explosion perceived particularly in commercial disputes. It is not difficult to appreciate the concern of the people through their elected representatives. Particularly with the lowering of the monetary limit from rupees one crores to rupees three lakhs, there would be a stupendous load on the courts to achieve the timeline and dispose of commercial matters by the conventional mode of adjudication, even with the amended provisions of the CPC as applicable under Section 16 of the Act," the Court held.

The Court also held that in a case where on allegations in the suit, it is found that the suit is barred by any law, as would be the case, where the plaintiff in a suit under the Act does not plead circumstances to take his case out of the requirement of Section 12A, the plaint should be rejected without issuing summons.

Thus, the Court set aside the impugned order of the High Court and allowed the applications under Order VII Rule 11 CPC, meaning that the Court rejected the plaints. The Court directed that a fresh suit would have to be filed but only after complying with the mandate of Section 12A of the Act as permitted under Order VII Rule 13 CPC.

Cause Title - M/s. Patil Automation Pvt. Ltd. & Ors. v. Rakheja Engineers Pvt. Ltd.

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