In Civil Appeal No.5333 of 2022-SC- Statutory pre-litigation mediation u/s 12A of Commercial Courts Act is mandatory; Any suit violating such mandate must be visited with rejection of plaint under Order VII Rule 11 CPC: SC
Justices K.M.Joseph & Hrishikesh Roy [17-08-2022]

Read Judgment: M/S. PATIL AUTOMATION PRIVATE LIMITED AND ORS v. RAKHEJA ENGINEERS PRIVATE LIMITED 

Tulip Kanth

New Delhi, August 18, 2022:  The Supreme Court has recently declared that pre-litigation mediation contemplated under Section 12A of the Commercial Courts Act, 2015 as amended by the Amendment Act of 2018, is mandatory and any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11 of the CPC. The Top Court has also made this declaration effective from August 20, 2022 so that concerned stakeholders become sufficiently informed. 

The matter herein revolved around a civil appeal arising from  a SLP where a commercial suit was filed by the respondent under Order XXXVII of the CPC before the Additional District Judge praying for recovery of Rs 1,00,40,291 along with 12% interest on a certain sum. The appellant was the defendant in the said suit. It filed an application under Order VII Rules 10 and 11 r/w Sections 9 and 20 of the CPC, contending that the suit was filed without adhering to Section 12A of the Act. The respondent contested the matter contending that the suit was not barred for non-compliance of Section 12A.

A written statement came to be filed but the Trial Court rejected the appellant’s contention and directed that the civil suit be kept in abeyance and the parties were to appear before the Secretary of the District Legal Services Authority for the purpose of mediation.  The appellant filed a Civil Revision Petition but the Punjab and Haryana High Court affirmed the Trial Court’s view. 

In the other appeal arising out of the second SLP, the impugned Order had been passed by the High Court of Madras, rejecting a similar application filed by the appellant-defendant in a commercial suit instituted without having resorted to pre-litigation mediation under Section 12A of the Act. The application was dismissed with costs of Rs 10,000.

There was yet another special leave petition which was filed and supported with an application for permission to file SLP. The applicant was not a party in the suit in question. However, it was his case that a suit was pending in which a similar question arose. Herein, the Top Court mainly addressed the legal issue relating to the effect of non- compliance with Section 12A of the Act.

Before the Division Bench of Justice K.M.Joseph and Justice Hrishikesh Roy, the seminal question which arose for consideration was whether the statutory pre-litigation mediation contemplated under Section 12A of the Commercial Courts Act is mandatory and whether the Courts below had erred in not allowing the applications filed under Order VII Rule 11 CPC, to reject the plaints filed by the respondents in these appeals without complying with the procedure under Section 12A.

Clarifying that  Section 12A of the Act provides for mediation, the Bench asserted that the  Law-giver has declared that if a Suit under the Act does not ‘contemplate’ any urgent interim relief, then, it cannot be instituted unless the plaintiff seeks pre-litigation mediation. The pre- institution mediation is to be done in the manner, procedure, which is to be prescribed by the Central Government.

Noting that Section 12A cannot be described as a mere procedural law and exhausting pre-institution mediation by the plaintiff, with all the benefits that may accrue to the parties and the justice delivery system as a whole, would make Section 12A not a mere procedural provision, the Bench said, “The design and scope of the Act, as amended in 2018, by which Section 12A was inserted, would make it clear that Parliament intended to give it a mandatory flavour. 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.”

“We declare that Section 12A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11. This power can be exercised even suo moto by the court as explained earlier in the judgment. We, however, make this declaration effective from 20.08.2022 so that concerned stakeholders become sufficiently informed,” the Bench said while also emphasizing that each time the plaintiff is compelled to go in for mediation under Section 12A there is a ray of hope that the matter may get settled.

As per the Bench, 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. Still further, 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. Finally, 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, the Bench ordered.

In the matter pertaining to the fist SLP, the Bench noted that the written statement filed by the appellant shall be treated as the application for leave to defend filed within time within the meaning of Order XXXVII and the matter would be considered on the said basis. In the second SLP, the Bench set aside the order directing payment of costs of Rs 10, 000.