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Requirement of pre-institution mediation under the Commercial Courts Act


 

The Apex Court[1] has resolved the long-standing controversy whether statutory pre- institution mediation under Section 12-A of the Commercial Courts Act 2015 (“Act”) is mandatory. Holding in the affirmative, the Court has further held that unless urgent interim reliefs are sought, the plaint is liable to rejected if the statutory pre-institution mediation is not complied with.


Background Facts:


The Court was dealing with Special Leave Petitions challenging orders of various High Courts dismissing applications for rejection of the plaint for non – compliance with the statutory pre-institution mediation.


  • The Respondent filed a commercial suit before the District Court, Faridabad, seeking recovery of monies. The Appellant preferred an application for rejection of the plaint for non – compliance with the statutory pre-institution mediation.

  • The Trial Court vide order (dated 16.8.2021) rejected the application. Following the dicta in Ganga Tara Vizirani v Deepak Raheja[2], the Court inter alia, held that the procedure contemplated under Section 12 – A of the Act is not a penal enactment and there is no embargo in filing a suit without first complying with the statutory pre-institution mediation. The Trial Court directed that the Suit be kept in abeyance and further directed parties to appear before the Secretary, District Legal Services Authority for the purpose of the statutory mediation.

  • The Appellant filed a Civil Revision Petition against the aforesaid order before the High Court of Punjab and Haryana, who confirmed the findings of the Trial Court. In another Petition, the Petitioner challenged the order passed by the Madras High Court rejecting a similar application in respect of a commercial suit instituted without complying with the statutory pre – institution mediation.


The Apex Court dealt with the following issues:


1. Whether the statutory pre-litigation mediation provided under Section 12 – A of the Act is mandatory?


2. Whether a plaint filed without complying with the statutory pre - institution mediation (under Section 12 – A of the Act) is liable to rejected under Order 7 Rule 11 of the CPC?


Submissions of the Appellants:

The Appellants argued that that the legislative objective of inserting Section 12 – A in the Act was to enhance the ease of doing business in India by de-clogging the commercial courts which are assigned the task of speedy disposal of commercial matters. Against this context, the term ‘shall’ (appearing in Section 12 – A of the Act) ought to be construed as mandatory. Despite the said section being couched in mandatory language, the Trial Court erred in placing reliance on the words used in Rule 3 (1)[3] of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (“CCR”) to hold statutory pre-institution mediation to be directory.


Reliance was placed on precedents interpreting Section 80 of the Code of Civil Procedure 1908 (“CPC”) and Section 69 of the Indian Partnership Act, 1932 (“IPA”), to contend that requirement under Section 12 – A ought to be construed as mandatory. The decision in Ganga Tara Vazirani v. Deepak Raheja has been reversed by the Division Bench of the Bombay High Court. The Court is empowered to suo moto reject a plaint without any application.


Submissions of the Respondents:

Contrary to the Appellant’s stand, it was argued by the Respondents that Section 12-A of the Act should be considered to be directive in as there have been no penal consequences contemplated for non – compliance. In the event pre-institution mediation is held as mandatory, it would amount to rejection of a plaint for non – compliance thereby prejudicing against a plaintiff who had paid the court fees for the plaint. Furthermore, such an interpretation may impact the limitation period for a fresh suit.


It was submitted that keeping in mind the objective of Section 12 – A, the approach adopted by the Trial Court (i.e. directing parties to mediate post institution of the suit) would suffice the requirement under the aforesaid Section especially since no right of the defendant is imperilled.


Decision of the Apex Court:


1. While rejecting the Respondent’s submissions, the Hon’ble Apex Court held that the language used in Section 12 – A is imperative in nature.


a. The Hon’ble Court drew a parallel with the wordings and interpretation of Section 80 of CPC and Section 69 of IPA to understand the object, scheme and language of the legislation. In spite of the aforesaid Sections not providing any consequences for violation of its terms, the Courts have held that a suit filed in violation of the requirements aforesaid Sections would not be maintainable and the plaint is liable to be rejected. In such cases, the effect of Order VII Rule 11 cannot be diluted regardless of the prejudice caused by the loss of the court fee paid, .


b. It was held that the object of the legislation cannot be construed narrowly only with reference to the impact on parties. If the mediation is successful, it would be a “win - win” situation for all sides and the opposite party will be saved from the expensive ordeal of proceeding in court. Hence it cannot be argued that no legal right of the defendant would be impacted.


c. Similar to Section 80 (1) of the CPC, the bar on institution of a commercial suit without exhausting pre-institution mediation is applicable only to cases which do not require urgent interim relief. The requirement of pre-institution meditation cannot be complied by way of post – institution mediation in suits which do not require urgent interim reliefs.


2. The Court ruled that there is no conflict between the Section 12 – A and Rule 3 of CCR. Rule 3 simply gives discretion to the applicant in choosing the mode of making the application for pre – institution mediation. The Trial Court’s view that language of Rule 3 detracts from Section 12 – A being construed as mandatory is untenable.


3. It was also held by the Hon’ble Court that a relief of rejection of the plaint does not require an application. This power can be exercised by the Court suo moto. Although, the Court ought to give the Plaintiff a chance to be heard prior to exercising such powers and pass a reasoned order. However, in clear cases where upon pleadings in the suit, it is found that the suit is barred by law (i.e. there is absence of pleadings for exemption of the case from the statutory pre – institution mediation) the plaint should be rejected without issuing of summons.

 

[1] M/s Patil Automation v. Rakheja Engineerings Pvt. Ltd 2022 SCC OnLine SC 1028 [2] Ganga Tara Vizirani v Deepak Raheja (2021) SCC OnLine Bom 312 [3]A party to a commercial dispute may make an application to the Authority as per Form-1 specified in Schedule-I, either online or by post or by hand, for initiation of mediation process under the Act….”

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