Introduction
The contemporary world’s desire for profit and comfort, along with the growing eagerness to fulfil them, has led to many new businesses sprouting across the spectrum from large corporations and mid-sized enterprises to small firms and gig economy participants. With the ever-increasing sophistication of operations of businesses, a new cultural norm of trust has emerged in the commercial dealings between them, resulting in different businesses being able to interact and strengthen their ties for providing further aid to each other in future commercial endeavours. This has had the inadvertent consequences of parties being encouraged to prefer consensual dispute resolution mechanisms such as mediation over conventional litigation to safeguard their interests. This shift is notably advantageous for commercial entities as it enables dispute resolution with negligible harm to ongoing business relationships, while ensuring confidentiality in their operations and preserving their reputation in the corporate world.
India’s Evolving Approach to Pre-Litigation Mediation
Businesses were further incentivised for alternative dispute resolution in commercial matters by the legislature through the introduction of Chapter IIIA into the Commercial Courts Act, 2015 (CCA), through the 2018 amendment, which mandated pre-institution mediation to be undertaken for commercial suits of a specified value, under Section 12A of the bill, provided that the suit does not seek urgent interim relief.
The Government of India has taken further steps to strengthen and formalise the mediation framework by releasing the Draft Mediation Bill, 2021, for public consultation. Significantly, Section 6 of the Draft Bill also seeks to make pre-litigation mediation mandatory prior to initiating any formal adjudicatory proceedings before a court or tribunal. Notably, the absence of an express mediation agreement between the parties is not intended to operate as a barrier to this requirement.
Mandatory pre-litigation mediation has the potential to ensure quicker and more efficient resolution of commercial disputes. The ability of a country’s justice delivery system to manage and reduce case backlogs, particularly in commercial litigation, is often considered a key indicator of its ease of doing business. Consequently, the growing pre-mediation landscape in India may not only help address the issue of docket congestion in commercial courts but also contribute positively to India’s standing on the Ease of Doing Business index.
Legal Character of Section 12A of the Commercial Courts Act
There exists a clear contrast between undertaking mediation prior to filing a suit before a competent commercial court under Section 12A of the Commercial Courts Act, 2015 (CCA) and the court-referred mediation conducted after the institution of a commercial suit under Section 89 of the Code of Civil Procedure, 1908 (CPC). Under Section 12A of the Commercial Courts Act, 2015 (CCA), parties are obliged to independently comply with the mandate of pre-litigation mediation at the pre-institution stage, without any judicial intervention.
Commercial disputes under Section 12A of the Commercial Courts Act, 2015, could broadly be classified into two categories:
(a) cases where no urgent interim relief is claimed, in which parties must mandatorily complete the process of pre-institution mediation before filing the suit; and
(b) cases incorporating a plea for urgent interim relief, where parties are authorised to approach the courts straightaway without prior compliance with pre-litigation mediation.
The idea of mediation was promoted through consistent efforts from both the legislature and the judiciary; still, there has been considerable debate on whether the pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory in nature or merely procedural. The following judgment briefly examines the development of legal principles governing the consequences of non-compliance with the pre-litigation mediation requisition under Section 12A of the Commercial Courts Act, 2015.
Pre-Litigation Mediation: Resolution of Conflicting Judicial Approaches
In the light of an ever-increasing mediation-friendly legal landscape, the Supreme Court addressed the pivotal issue concerning the nature of Section 12A of the Commercial Courts Act, 2015 (CCA), in its recent landmark decision in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited[1] in which the Apex Court came to the decisive conclusion that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory, and failure to comply with its requirement would yield a rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC). Consequently, suits falling within the domain of Section 12A of the Commercial Courts Act, 2015, where no urgent interim relief is sought, cannot amount to substantial compliance through post-institution court-referred mediation. Hence, parties are mandated to exhaust the pre-litigation mediation process before instituting a commercial suit.
This authoritative pronouncement elucidated upon the mandatory or procedural nature of Section 12A of the Commercial Courts Act, 2015, which hereinto, remained ambiguous in its interpretation due to conflicting views expressed by the various High Courts. While the Bombay High Court and the Calcutta High Court interpreted Section 12A of the Commercial Courts Act, 2015 as mandatory, the Madras High Court adopted a rather contrary stance on the matter. In Shahi Exports Pvt. Ltd. v. Gold Star Line Limited[2], the Madras High Court held that courts are not substitutes for alternative dispute resolution mechanisms rather, the converse is valid. It was further emphasized that the constitutional right of access to justice cannot be circumscribed merely due to non-compliance in mediation. This divergence in judicial opinion displayed a glaring dichotomy regarding the interpretation of Section 12A of the Commercial Courts Act, 2015.
The Supreme Court in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited, resolved this inconsistency by overturning the decisions of the lower courts. While the trial court had previously characterized 12A of the Commercial Courts Act, 2015 as a procedural provision and cautioned against the severe consequences of rejecting a plaint for non-compliance, a view later endorsed by the High Court, the Supreme Court adopted a strictly interpretative approach. The lower courts had reasoned that procedural laws are intended to further the cause of justice and should not obstruct it, and that rejection of plaints could not have been the legislature’s intent. However, the Supreme Court rejected this reasoning and held that Section 12A of the Commercial Courts Act, 2015, cannot be treated as a mere procedural formality. On the contrary, it observed that the structure, purpose, and legislative intent underlying the 2018 amendment to the CCA clearly demonstrate Parliament’s intention to confer a mandatory character upon Section 12A of the Commercial Courts Act, 2015.
Uncertainty and Emerging Concerns
Although judicial pronouncements have conclusively clarified that pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 (CCA) must be mandatorily exhausted, parties may still encounter a degree of uncertainty when proceeding upon Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) on the ground of non-compliance with this provision.
One such instance of a complication arises due to the way Section 12A of the Commercial Courts Act, 2015 uses its language regarding its definition, as this clause permits parties to bypass pre-institution mediation when the plaintiff seeks “urgent” interim relief. However, neither the CCA nor judicial precedents have clearly delineated what constitutes this “urgent” interim relief or the threshold called for while establishing such urgency in the context of pre-litigation mediation. This definitional ambiguity provides plaintiffs with considerable discretion and potential leeway to avoid the mediation requirement by invoking urgency.
The question of whether the conduct of the defendant has any influencing role in determining compliance with Section 12A of the Commercial Courts Act, 2015, is also a contentious issue. In a recent judgement by the Delhi High Court in Bolt Technology OU v. Ujoy Technology Private Limited[3], the defendant’s refusal to amicably resolve the dispute might as well be treated as sufficient compliance with the pre-litigation mediation requirement. After a reconsideration of the nature of Section 12A of the Commercial Courts Act, 2015, the Court noted that in a case of a defendant declining to engage in settlement discussions, it is an act contradicting the spirit of the provision and, therefore, cannot later challenge the maintainability of the suit on the ground of non-compliance. Contrary to which, the Supreme Court’s ruling in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited, did not explicitly consider the defendant’s conduct as a factor influencing the completion of pre-litigation mediation. Consequently, further judicial clarification may be necessary to ensure consistency and expeditious resolution of commercial disputes.
It has become increasingly apparent in recent years that non-compliance with Section 12A of the Commercial Courts Act, 2015, has comprehensive implications upon the maintainability of a commercial suit. The mandatory nature of the provision may motivate parties to pursue amicable settlement and achieve mutually beneficial outcomes albeit, several issues still remain unaccounted for and unresolved. In particular, the absence of a definitive standard for determining “urgent” interim relief continues to spark debate across the nation. Until greater articulation of the term emerges, courts are likely to assess applications under Order VII Rule 11 of the CPC for non-compliance with Section 12A of the Commercial Courts Act, 2015, on a case-by-case basis.
Authored By – Shantanu Garg
Co Author – Sourav Naik, intern
- 2022 SCC OnLine SC 1028
- C.S.No.669 of 2019
- CS (COMM) 582/2022
