India: Pre-Litigation Mediation Mandatory In Commercial Cases

The Hon`ble Supreme Court recently passed a judgement in Patil Automation Private Limited and Ors vs Rakheja Engineers Private Limited wherein Section 12A of the Commercial Courts Act 2015 (Act) has been declared to be mandatory with effect from 20 August 2022 and the plaint filed in non-adherence of the same has been held to be liable for rejection under Order VII Rule 11 of the Code of Civil Procedure 1908 (CPC) .

ISSUE

The seminal question which arises for consideration is whether the statutory pre-litigation mediation contemplated under Section 12A of the Act is mandatory and whether the courts should reject the plaints filed in non-compliance of the same under Order VII Rule 11 of the CPC.

SECTION 12A IS NOT MERELY PROCEDURAL LAW

Section 12A of the Act states that a suit, which does not contemplate any urgent interim relief , shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation. The intention behind the said Section is to provide for a fast-track route to de-clogging the trial courts, particularly having regard to the reduction of pecuniary jurisdiction for commercial suits from Rs 1 crore to Rs 3 lakhs.

The Supreme Court after analysing the aforesaid Section 12A, held that exhausting pre-institution mediation by the plaintiff will be beneficial to all parties. It further observed that the design and scope of the Act makes it clear that Parliament intended to give it a mandatory flavour. Accordingly, it held that Section 12A is not a mere procedural provision.

CONSEQUENCE OF NON-ADHERENCE: REJECTION OF PLAINT

The Court held that a plaint filed in non-compliance of Section 12A of the Act, is liable to be rejected under Order VII Rule 11 of the CPC. The Court made this declaration effective from 20 August 2022.

The power under Order VII Rule 11 is available to the court to be exercised suo motu and the plaint may even be rejected without issuing summons. However, the Court has to hear the plaintiff before it invokes its power besides giving reasons under Order VII Rule 12 of the CPC. Undoubtedly, on issuing summons it will be always open to the defendant to make an application as well under Order VII Rule 11 of the CPC.

MHCO Comment : In our experience, it has rarely been observed that the commercial suits are filed without an accompanying application for interim-relief. Therefore, considering that most commercial suits will have an urgency, the requirement of pre-litigation mediation will be rendered irrelevant, for all practical purposes.

This update was released on 20 Aug 2022.

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