PRE LITIGATION MEDIATION UNDER SECTION 12A OF COMMERCIAL COURT IS MANDATORY

[Mr. M. GOVINDARAJAN]

Section 12-A of the Commercial Courts Act, 2015 was inserted with effect from 03.05.2018.  The newly inserted Section 12A provides for pre institution of mediation and settlement.   Section 12A (1) provides that a suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted before the Commercial Court, 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.  Section 12A (2) of the Act provides that the Central Government may, by notification, authorize the Authorities constituted under the Legal Services Authorities Act, 1987, for the purposes of pre-institution mediation.

The Authority authorized by the Central Government shall complete the process of mediation within a period of 3 months from the date of application made by the plaintiff.  The period of mediation may be extended for a further period of two months with the consent of the parties. 

The period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963.   If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.   The settlement arrived shall have the same status and effect as if it is an arbitral award on agreed terms under section 30 (4) of the Arbitration and Conciliation Act, 1996.

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 the genuine cases come before the Court.  The said procedure has been introduced to de-congest the regular courts.  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 specially when an attempt is clear to show that the intention of the applicant has already been made and failed. 

Pre institution mediation and settlement is mandatory as per the provisions of Section 12-A of the Act.   In PATIL AUTOMATION PRIVATE LIMITED AND ORS VERSUS RAKHEJA ENGINEERS PRIVATE LIMITED - 2022 (8) TMI 1494 - SUPREME COURT, the Court has examined the purpose behind the requirement for pre-institution mediation.  The Court held that held that any suit instituted, violating the mandate under Section 12-A of the Act, must be visited with the rejection of the plaint.  Such power can be exercised suo moto.  The Court made this declaration effective from 20.08.2022 so that concerned stakeholders become sufficiently informed. 

The Court further held that the language used in Section 12-A, which includes the word “shall”, certainly, goes a long way to assist the Court to hold that the provision is mandatory. Mediation must be perceived as a new mechanism of access to justice. Any reluctance on the part of the Court to give Section 12-A, a mandatory interpretation, would result in defeating the object and intention of Parliament.  Section 12-A elevates the settlement under the Act and the Rules to an award within the meaning of Section 30(4) of the Arbitration Act, giving it meaningful enforceability.

In M/S SABSONS AGENCIES PRIVATE LIMITED VERSUS M/S HARIHAR POLYMERS & ANR. - 2024 (3) TMI 584 - DELHI HIGH COURT, the suit has been filed for recovery of an amount of Rs. 6,13,07,075/-, including principal amount of Rs.3,51,27,626/- and interest thereupon, and for future interest.  There is no urgent interim relief was sought by the plaintiff.  The plaintiff filed an application before the High Court with the prayer to grant exemption from pre-litigation medium which is a pre requisite for filing a suit before the Commercial Court.  The exemption was sought on the plea that the parties made an attempt to settle the matter in mediation, in the course of proceedings under Section 138 of the Negotiable Instruments Act, 1881, but were unsuccessful.

The applicant relied on a judgment of Division Bench of Delhi High Court in  AMIT WALIA VERSUS SHWETA SHARMA - 2023 (10) TMI 1374 - DELHI HIGH COURT  In the said case it was held that once mediation has taken place, albeit not in the manner prescribed under Section 12-A of the Act, the Court may not be required to relegate the matter to fresh mediation.

The High Court observed that in the present case is predicated only on the fact that it has already undertaken efforts to settle the disputes between parties.  However the High Court observed that this case is to be supported by the documents annexed to the application. There is no report of any mediation centre stating that mediation has failed. The orders of the learned Judicial Magistrate, Chandigarh, annexed to the application, also demonstrate only that the parties submitted before the Court that there was chance of compromise, but the attempt was ultimately found to be futile.

The High Court found that the case law relied on by the applicant in ‘Amit Wadia’ (supra) is not applicable to the present case.  That judgment was rendered in a case where mediation had taken place under the aegis of Delhi High Court Mediation and Conciliation Centre.  The Court held that this would be sufficient compliance with Section 12-A, even though the mediation had not taken place before the District Legal Services Authority, as required under the Act.

The High Court relied on the judgment in ‘Patil Automation’ (supra).  The High Court observed that in the present case, there is no record that an attempt has been made in mediation, and that no urgent relief is sought. The High Court, therefore, held that Pre-litigation mediation was therefore mandatory.  The High Court dismissed the application filed by the applicant. The plaint was also rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908.  The High Court also dismissed the suit.  However, the High Court has given liberty to the plaintiff to institute a fresh suit, in accordance with law, after compliance with Section 12-A of the Act.