Commercial Disputes: Supreme Court declares that pre-institution mediation and settlement is mandatory for disputes filed under the Commercial Courts Act, 2015 where no urgent interim reliefs is sought failing which the plaint must be rejected
In a ruling having far-reaching impact on commercial litigations, a Division Bench of the Supreme Court of India, on August 17, 2022, in the case of M/s Patil Automation Private Limited and others vs. Rakheja Engineers Private Ltd and other connected matters has ruled that the mediation process contemplated under Section 12A of the of the Commercial Courts Act, 2015 (“Act”) (introduced by the Amendment Act of 2018) is mandatory and any suit instituted without following the mandate of Section 12A, is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908. The Court has held that this power can be exercised even suo moto by the court. The Apex Court has given a prospective effect to this declaration and has made the same effective from 20th August, 2022 so that concerned stakeholders are sufficiently informed.
The Supreme Court has however, clarified that the mandatory mediation procedure under Section 12A of the Act has been contemplated only with reference to plaintiffs who do not seek urgent interim relief.
Re: Legal issue for consideration before the Court
The primary question which arose before the Supreme Court for consideration in the present case was whether the pre-litigation mediation contemplated under Section 12A of the Act was mandatory and whether the Courts below had erred in not rejecting the concerned suit which had been filed without adhering with the procedure stipulated under Section 12A of the Act i.e., instituting a suit without exhausting the remedy of pre-institution mediation and settlement.
Re: Analysis of the Act and the Amendment Act of 2018
With regard to the provision, the Supreme Court has opined that Section 12A of the Act cannot be described as mere procedural law and that exhausting the pre-institution mediation process by a plaintiff, with all the benefits which may accrue to the parties and, more importantly, to the justice delivery system as a whole, would make Section 12A of the Act not a mere procedural provision.
The Court further observed that the design and scope of the Act, as amended in 2018, (by which Section 12A was inserted therein), would make it clear that Parliament intended to give it a mandatory flavour and that 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 framed thereunder.
Accordingly, the Supreme Court has held that the right of a plaintiff to institute a Suit in a commercial matter under the Act, where no urgent interim reliefs are sought, is clearly conditioned on the fulfilment of the conditions provided in Section 12A of the Act.
Re: Requirement of expeditious resolution of commercial disputes and the benefits of mediation
Placing reliance on the Statement of Objects and Reasons set out in the Amendment Act of 2018, the Supreme Court has observed the Act, is a unique experiment to push the pace of disposal of commercial disputes, and that it is in this background that the Court must approach the issue of whether Section 12A has been perceived as being a mandatory provision. In this regard, the Court has observed that disputes of a commercial hue, must be extinguished with the highest level of expedition. This dispute resolution would not only result in 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, as there is a direct relationship between ease of doing business and an early and expeditious termination of disputes, which may arise in commercial matters.
Basis the aforesaid, the Supreme Court has opined that the Statement of Objects and Reasons are explicit that, Section 12A was contemplated as compulsory and that the object of the Act and the Amending Act of 2018, unerringly point to at least partly foisting compulsory mediation on a plaintiff who does not contemplate urgent interim relief.
The ruling of the Supreme Court is also premised on the fact that “mediation” is a meaningful choice in the era of docket-explosion. The Apex Court has observed that the realisation has been growing over a period of time, that formal court rooms, long drawn-out proceedings, procedural wrangles, mounting and crippling costs, delay, which never wanes but only increases with the day that at least, in certain categories of cases, mediation can be the way out. The Court has further observed that Mediation, as an Alternative Dispute Mechanism, has been identified as a workable solution in commercial matters, and must be perceived as a new mechanism of access to justice. The Court has also observed that Section 12A of the Act elevates the settlement under the Act and the Rules to an award within the meaning of Section 30(4) of the Arbitration and Conciliation Act, 1996 giving it meaningful enforceability.
Re: Effect on Suits where urgent interim relief is sought
In addition to the aforesaid, the Supreme Court while clarifying that Section 12A has been contemplated only with reference to plaintiffs who do not contemplate urgent interim relief, has, observed that the Law-giver in Section 12A of the Act, has provided for pre-institution mediation only in suits, which do not contemplate any urgent interim relief and that therefore, pre-institution mediation has been mandated only in a class of suits. The basis for this finding, as elucidated by the Supreme Court was that in suits which contemplate urgent interim relief, the Law-giver has carefully vouch-safed immediate access to justice as contemplated ordinarily through the courts. The carving out of a class of suits and selecting them for compulsory mediation, harmonises with the attainment of the object of the law. The Court was of the view that in this manner, the load on the Judges is lightened and they can concentrate on matters where urgent interim relief is contemplated and, on other matters, which already crowd their dockets.
Re: Final verdict and directions
The Apex Court has accordingly declared that Section 12A of the Act is mandatory and has held that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11. The Court has also directed that (a) in case plaints have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration; (b) if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff; and (c) if the plaint is filed violating Section 12A after the jurisdictional High Court has declared Section 12A mandatory also, the plaintiff will not be entitled to the relief.