The Supreme Court's recent judgement clarifies the ambit of mandatory pre-institution mediation under the Commercial Courts Act, 2015. In spite of the court's clear interpretation of Section 12A, there is a dire need to add teeth to this provision by introducing reforms in the mediation apparatus so as to ensure quick settlement of commercial disputes.
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ON August 17, a Supreme Court bench of Justices K.M. Joseph and Hrishikesh Roy, in the case of M/s Patil Automation Pvt. Ltd. & Ors. versus Rakheja Engineers Pvt. Ltd., observed that pre-institution mediation is mandatory, owing to the design and scope of the Commercial Courts Act, 2015, as amended in 2018, by which Section 12A was incorporated, which includes the word 'shall' and goes a long way to assist the Court reeling under an extraordinary docket explosion. Moreover, any suit instituted in violation of the mandate under Section 12A must be visited with suo motu rejection under Order VII, Rule 11 of the Civil Procedure Code ('CPC') by courts, the bench clarified. The declaration was made effective from August 20, 2022.
“The object of the 2015 Act, as amended in 2018, is to unerringly direct to at least partly foisting compulsory mediation in cases wherein a plaintiff does not contemplate urgent interim relief. It has been stressed that mediation lightens the load of judges, and section 12A specifically contemplates a class of suits not warranting urgent reliefs.
The seminal question which then arises for our consideration is how mediation as an alternative dispute resolution mechanism, wherein a neutral third party facilitates negotiations between the parties to a dispute in order to arrive at a consensual outcome, is a workable solution for commercial disputes, and takes a mandatory form under section 12A.
The recommendations of 253rd Law Commission of India report reflected the need for setting up of courts to deal exclusively with complex commercial matters. On its lines, the Commercial Courts Act, 2015 was promulgated with the objective of achieving speedy adjudication of commercial disputes. Further, the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 were also enacted in tandem with the aforementioned Act to ensure resolution of commercial matters in an expeditious way.
In terms of the said enactments, it was stated that all disputes falling in the ambit of 'commercial disputes' under Section 2(1)(c) of the 2015 Act with valuation of three lakh rupees or more, shall not be instituted till the plaintiff mandatorily exhausts the remedy of pre-institution mediation, which is to be conducted by Legal Service Institutions across the country. In addition to this, Section 12A clearly enumerates that "[a] suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government".
The object of the 2015 Act, as amended in 2018, is to unerringly direct to at least partly foisting compulsory mediation in cases wherein a plaintiff does not contemplate urgent interim relief. It has been stressed that mediation lightens the load of judges, and section 12A specifically contemplates a class of suits not warranting urgent reliefs as for suits which require urgent interim reliefs, the lawmakers have carefully vouch-safed the access to justice ordinarily through the courts.
Moreover, a series of judicial pronouncements have also underscored the compulsory requirement of mediation as an alternative means of resolution to ensure that genuine cases come before the court. In the dicta of its judgment in Deepak Raheja versus Ganga Taro Vazirani (2021), the Bombay High Court directed the parties to approach the Legal Services Authority for mediation to be conducted within the time frame stipulated under section 12A as if it was initiated under that provision. In Ambalal Sarabhai Enterprises Ltd. versus KS Infraspace LLP & Anr. (2020), the Supreme Court observed: "The use of the words "shall not be instituted" in section 12 A of the Act clearly mandates that the suit of commercial nature cannot be filed at all unless Pre Institution Mediation step is followed where there is no urgent interim application for seeking some immediate relief. Dictionary meaning of word 'instituted' is read as 'commence or start'. Section 12 A of the CC Act is not a simple formality but is a necessary condition to be followed before filing of the suit or before commencing the proceedings itself."
“The benefits of pre-institution mediation are immense, and include confidentiality of negotiations, a time-bound and cost-effective procedure, finality, autonomous implementation, along with easing the judicial load and de-congesting the regular courts. It also bestows upon the authorities a three-month deadline for completion of mediation and resultantly becomes a meaningful choice in the times of docket explosion.
In cases of non-compliance, the court can exercise powers under Order VII Rule 11 of the CPC to suo motu reject the plaint after hearing the plaintiff and recording its reasons. In its order in SBI versus Nilesh (2021), a Delhi court rejected the plaint under Order 7 Rule 11(d) owing to its non-maintainability, and the plaintiff was directed to "file fresh suit after complying mandatory provisions of law under Section 12A of [the 2015 Act] subject to period of limitation and law".
On a bare perusal of section 12A, it is clear that it is mandatory in nature, although in certain cases, based on the discretion of the court, a party can initiate court proceedings for the want of an interim relief.
For instance, in GSD Constructions Pvt. Ltd versus Balaji Febtech Engineering (2019), the plaintiff was suffering an irreparable loss and wanted an immediate interim relief, due to which the Madhya Pradesh High Court suggested initiating court proceedings rather than resorting to the mediation process. Also, in M/s M.K. Food Products versus M/s S.H. Food Products (2019), the Telangana High Court observed that the suit qua permanent injunction restraining the defendant from infringing a copyright was 'urgent in nature,' and the parties could not be referred to mediation.
The adjudication of commercial litigation in civil courts has always been a herculean task with never ending delays and lengthy procedures. The benefits of pre-institution mediation are immense, and include confidentiality of negotiations, a time-bound and cost-effective procedure, finality, autonomous implementation, along with easing the judicial load and decongesting the regular courts. It also bestows upon the authorities a three-month deadline for completion of mediation and resultantly becomes a meaningful choice in the times of docket explosion.
Moreover, the entire process to carry out mediation has been contemplated by way of the 2018 Rules. As per the aforesaid rules, the plaintiff must file an application for mediation before the authorities instituted under the Legal Services Authorities Act, 1987, which subsequently issues a notice to the opposing party for appearance within 10 days. In case the opposing party fails to appear, the mediation process is treated as a non-starter and a report is prepared in that respect.
Howbeit, if the opposing party agrees to participate and arrives at a settlement, it is recorded in a settlement agreement. Furthermore, the parties have the freedom to engage a counsel during mediation and as far as expenses are concerned, they are limited to a one-time fee, which is quite economical, also having regard to the fact that it is to be shared equally.
“A realisation is rapidly dawning over a period of time that the best solution to avoiding a formal court room's long drawn proceedings, procedural wrangles, mounting costs and delays is the route of mediation.
In case a court is reluctant to render section 12A a mandatory interpretation, it does a disservice to the object and intention of the legislature, which has given the provision a modicum of voluntariness for the defendant; on the other hand, the plaintiff who approaches the court must mandatorily resort to it.
For the purpose of limitation, the period spent in mediation is excluded from it.
Mediation can become a strong antithesis to mechanical court procedures. However, there are certain indispensable requirements which must be taken care of.
The fundamental requirement is the presence of adequate infrastructural facilities and trained mediators. State governments and relevant authorities must direct their attention towards rendering adequate facilities. Besides, a strong grasp of laws is quintessential for a mediator to discharge their duties efficiently.
To ensure a robust cohort of mediators, training must be conducted by experts including State Judicial Academies on a regular and urgent basis. The concerned high courts can do their bit by undertaking periodic exercises with the aim to establish a panel of trained mediators at the district and taluka levels. Another aspect of concern is the availability of adequate number of mediators, especially in light of decreasing the eligible monetary valuation from one crore rupees to three lakh rupees.
Moreover, a dedicated Bar for mediation must be established, and an effective participation from the Bar in assisting the court must be adequately remunerated. The role of the Bar is extremely important in taking mediation forward. M/s Patil Automation Pvt. Ltd. has also proffered such progressive recommendations.
With an increasing population, a skewed judge-population ratio and the massive burden of litigation in courts, it is prudent and just to come up with out-of-the-box ideas like mediation. A clean break with the past is the need of the hour. A realisation is rapidly dawning over a period of time that the best solution to avoiding a formal court room's long drawn proceedings, procedural wrangles, mounting costs and delays is the route of mediation.
Lastly, the provision of pre-institution mediation needs to be resuscitated back in our judicial ecosystem by spreading awareness about its benefits to litigants, and juxtaposing it with the cumbersome delays in waiting in long serpentine queues for the day of reckoning to arrive in the court of law.