Compulsory Pre-Litigation Mediation for Commercial Suits – A Boon or a Bane

Introduction

The increased sophistication with which mammoth corporates, mid-segment businesses and even small & gig economy players conduct their businesses today has bred a trusting atmosphere in which entities are willing to accept amicable forms of dispute resolution, such as mediation, instead of turning to traditional litigation. Commercial entities are benefited from this shift since it helps them to maintain a healthy business relationship with their contemporaries even in the face of commercial disputes that may arise in the course of business, without having to compromise on confidentiality or reputation.

Burgeoning Pro-mediation Environment in India

The legislature introduced Chapter IIIA into the Commercial Courts Act, 2015 (“CCA”) through an amendment in 2018 which inserted Section 12A mandating compulsory pre-institution mediation in case of a commercial suit of specified value, which does not contain any application for urgent interim relief.

Further, in a bid to strengthen and codify the law on mediation, the government of India has also presented the Draft Mediation Bill, 2021 (“Draft Bill”) for public comments. Interestingly, Section 6 of the Draft Bill is also worded to make pre-litigation mediation compulsory before the institution of any formal adjudicatory proceedings before any court or tribunal. Notably, even the non-existence of a specific mediation agreement to this effect shall not qualify as a bar to the aforesaid mandate.

Compulsory pre-litigation mediation can aid in speedy and effective disposal of commercial suits.  The speed with which the justice delivery system in any country responds to the problem of docket explosion, particularly in the realm of commercial disputes can be regarded as a safe index of the ease of doing business in that country.[1] Resultantly, an emerging pro-mediation environment may uplift India on the Ease of Doing Business index and tackle the challenge of docket explosion in commercial suits.

Nature of Section 12A of the CCA

The requirement for parties to mediate prior to the institution of a suit, before a commercial court of appropriate jurisdiction under Section 12A of the CCA is different from mediation ordered by courts after the institution of a commercial suit under Section 89 of the Code of Civil Procedure,1908 (“CPC”). In the former, the parties have to comply with the mandate of pre-litigation mediation by themselves at the pre-institution stage without the involvement of courts.

Disputes under Section 12A can be bifurcated into two distinct classes of commercial suits: (a) where no urgent interim relief is sought—in this case the requirement of pre-litigation mediation must be satisfied before institution of a commercial suit; and

(b) where an urgent interim relief is sought ­— in this case,  the parties are allowed to approach the courts directly without exhausting the requirement of pre-institution mediation.[2]

Despite several pro-mediation steps taken by the legislature and the judiciary, thus far, there existed contrasting views on whether pre-litigation mediation contemplated under Section 12A of the CCA is mandatory or procedural in nature. The next section briefly analyses the evolution of law vis-à-vis consequences of non-compliance with pre-litigation mediation under Section 12A of the CCA.

Pre-litigation mediation: end of discordant judicial trends 

Amidst a positive focus on mediation in the background, the Apex Court has recently dealt with the seminal question of the nature of Section 12A of the CCA in its landmark judgment in Patil Automation Private Limited & Ors. vs. Rakheja Engineers Private Limited[3](“Patil Automation”) declaring that pre-institution mediation is compulsory in nature and non-compliance with the same shall result in rejection of plaints under Order VII, Rule 11 of the CPC. A crucial implication of the said judgment is that, in regard to a suit covered under Section 12A of the CCA, where interim relief is not contemplated, there can be no substantial compliance with Section 12A of the CCA by way of post institution reference to mediation by the courts. Thus, parties must satisfy the requirement of pre-litigation mediation before institution of a commercial suit.

Previously, the nature of Section 12A of the CCA lacked clarity due to discordant judicial opinions laid down by High Courts of various states.

While the Bombay High Court[4] and the Calcutta High Court[5] held that Section 12A of the CCA is mandatory in nature, the Hon’ble Madras High Court[6] had taken a starkly opposite view. The Hon’ble Madras High Court in the case of Shahi Exports Pvt. Ltd vs. Gold Star Line Limited[7] held that the court is not a substitute to alternative dispute redressal mechanisms, but it is the other way round and the right to access to justice, being a constitutional right, cannot be deprived for not resorting to mediation.[8] Thus, a dichotomy was evident in the difference in opinion expressed by High Courts in India on the nature of Section 12A , which has been effectively settled by the Supreme Court through the Patil Automation judgment.

In the case of Patil Automation, supra, the Supreme Court has reversed the decision of the lower courts after an analysis of the nature of the CCA and the jurisprudence laid down by different High Courts to declare that Section 12A of the CCA is mandatory in nature. In this regard, the trial court had previously held that Section 12A of the CCA is a procedural provision and any rejection of a plaint on the ground of non-compliance with it would have a catastrophic effect. The High Court confirmed the stance taken by the trial court and further observed that procedures are a handmaid of justice and are meant to advance justice and courts are not to be bogged down by the technicalities of procedure so as to lose sight of their main duty which is to advance justice. Additionally, the High Court observed that rejection of a plaint due to non-compliance with Section 12A of the CCA could not have been the intention of the legislature. Contrastingly, the Hon’ble Supreme Court, took a diametrically opposite view from the trial court and the High Court by interpreting the provision strictly and held that Section 12A of the CCA cannot be described as a mere procedural law. The Hon’ble Supreme Court further observed that the design and scope of the CCA, as amended in 2018, to insert Section 12A, makes it clear that the Parliament intended to give it a mandatory flavor.[9]

Uncertainty and potential concerns

While the judicial mandate has settled the dust on whether there is a need for compulsory  exhaustion of pre-litigation mediation, litigating parties may continue to face some level of  obscurity for initiating an action under Order VII, Rule 11 of the CPC on the ground of non-compliance with Section 12A of the CCA.

For instance, Section 12A of the CCA is worded in a manner whereby the requirement to mediate before institution of a suit can be bypassed when the plaintiff seeks an “urgent” interim relief. However, neither the CCA nor the courts in India have defined the contours of what constitutes “urgent” interim relief or what is the standard that demonstrates such urgency in claiming relief in the context of pre litigation mediation. A plaintiff, therefore, has a wide choice of defenses to circumvent the flimsy boundaries of what may constitute “urgent” interim relief.

Another issue that has come to the fore is whether the conduct of the defendant has any bearing on the question of compliance with Section 12A of the CCA. A recent judgment passed by the Delhi High Court in Bolt Technology, OU vs. Ujoy Technology Private Limited and Another[10], has seemingly added to the interpretation drawn by the Supreme Court regarding the mandatory nature of pre-litigation mediation by holding that refusal of the defendant to amicably settle the disputes satisfies the requirement of pre-litigation mediation. While reiterating that pre-litigation mediation provided under Section 12A of the CCA is a mandatory provision, the single judge bench of the Delhi High Court in the said decision held that the conduct of a defendant involving refusal to amicably settle a dispute violates the spirit of Section 12A of the CCA. Therefore, the defendant cannot turn around and object to the institution of a plaint on the ground of non-compliance with the provision, the Court noted. Notably, the decision rendered by the Apex Court in Patil Automation does not visibly carve out a situation wherein the defendant’s conduct can have a bearing on exhaustion of the pre-litigation mediation requirement before instituting a plaint. Thus, judicial guidance in this regard may still be needed for an expeditious disposal of commercial suits.

It may well be the case that non-compliance with Section 12A of the CCA hinges directly on the maintainability of a commercial suit. The judicially affirmed mandatory nature of the provision may benefit parties in a potential adversarial action to resolve their dispute amicably, resulting in a win-win situation for all. However, several intertwined aspects pertaining to the maintainability of such commercial suits wherein the pre-litigation mandate is foregone by the parties‑‑‑for example the apparent lack of conclusiveness on what can be considered “urgent” interim relief ‑‑‑ is a question that remains open to debate. In the absence of absolute clarity on the foregoing aspects, the courts may subject applications under Order VII, Rule 11 of the CPC on the basis of non-compliance with Section 12A of the CCA to a case-by-case enquiry.


[1] Para 53, Patil Automation Private Limited & Ors. vs. Rakheja Engineers Private Limited, 2022 SCC OnLine SC 1028.

[2] Deepak Raheja vs. Ganga Taro Vazirani (2021) SCC OnLine Bom 312.

[3] 2022 SCC OnLine SC 1028.

[4] Deepak Raheja vs. Ganga Taro Vazirani, 2021 SCC OnLine Bom 312.

[5] Laxmi Polufab vs. Eden Realty, 2021 SCC OnLine Cal 1457

[6] Shahi Exports Pvt. Ltd vs. Gold Star Line Limited, Judgment dated 17 August 2021 passed by The Honourable Dr. Justice G. Jayachandran in A.No.35 of 2021 in C.S.No.669 of 2019.

[7] Judgment dated 17 August 2021 passed by The Honourable Dr. Justice G. Jayachandran in A.No.35 of 2021 in C.S.No.669 of 2019

[8] Para 25, Shahi Exports Pvt. Ltd vs. Gold Star Line Limited, Judgment dated 17 August 2021 passed by The Honourable Dr. Justice G. Jayachandran in A.No.35 of 2021 in C.S.No.669 of 2019.

[9] 48, Patil Automation Private Limited & Ors. vs. Rakheja Engineers Private Limited, 2022 SCC OnLine SC 1028.

[10] 2022 SCC OnLine Del 2639.