Pre-Institution Mediation – An Inescapable Mandate or just a Volition

December 14, 2023
Commercial Division and Commercial Appellate Division

By Tanvi Bhatnagar and Rima Majumdar


The Commercial Courts Act, 2015 (hereinafter referred to as the ‘Act’) was introduced with the sole purpose of constituting Commercial Courts, Commercial Division and Commercial Appellate Division in High Courts throughout India for swift adjudication of commercial disputes of a specified value and matters connected therewith.

In 2018, the said Act was amended and Commercial Courts were also set up in District Courts, and bring commercial matters of lesser pecuniary value within its purview. Furthermore, matters relating to intellectual property rights were also included within the definition of a ‘commercial dispute’ under Section – 2(c)(xvii) of the Act.

However, the step taken in order to improve the disposal of commercial matters was advanced by the inclusion of Section – 12A under Chapter III-A of the Act, which for the first time, mandated parties to the suit to exhaust the remedy of pre-institution mediation before instituting a suit of commercial nature. The aforesaid Section – 12A reads as:

“12A. Pre-Institution Mediation and Settlement. – (1) 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.

(2) The Central Government may, by notification, authorize the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.

(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorized by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):
Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:
Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963).

(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.

(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).]”

Mediation is hailed to be one of the foremost method of conflict resolution and as such, has been introduced to encourage parties to a suit to resolve their conflicts quickly and arrive at a settlement that best suits their needs.

Even though the 2018 amendment of the Act makes pre-institution mediation a mandatory condition for all commercial disputes, there exists an exception under Section – 12A(1) of the Act, allowing parties to circumvent the aforesaid mandate and dive straight into litigation, when there is a requirement of an urgent interim relief.

While the exception stands, there exists a disarray among the numerous Courts throughout the country, as to whether the mediation is mandatory or is the same merely directory, whereby a commercial suit can be instituted without compliance with the pre-institution mediation mandate.

Some Courts have been very liberal and allowed non-compliance of the pre-institution mediation requirement, while others have held a stricter view, making pre-institution mediation necessary and mandatory.

The present stance regarding the aforesaid issue can be understood through the varying judgments delivered by the Courts all over the Country.

1. Deepak Raheja v. Gango Taro Vazirani1

Upon an appeal, the Division Bench of Hon’ble Bombay High Court was faced with a dilemma, “whether Section – 12A of the Commercial Courts Act, 2015 is mandatory or directory in nature”. This appeal arose against the order of a learned Single Judge, wherein he had erred in his judgment and observed that Section – 12A of the Act is not mandatory and is procedural and just a substantial compliance of the same is enough. It was opined that Section – 12A of the Act is a procedural provision, and there is no absolute embargo on instituting the suit unless the Plaintiff exhausts the remedy of mediation, as Section – 12A(1) provides for an exemption from pre-institution mediation. The Division Bench held that that Section – 12A of the Act is not directory, but is rather mandatory.

2. Shahi Exports Pvt. Ltd. v. Gold Star Line Ltd.2

The Hon’ble Madras High Court in this case, took a contrary stand and held that the provision of Section – 12A of the Act is not mandatory. The Hon’ble High Court expressed that the right to justice is a constitutional right and a party cannot be deprived of the same, just for not resorting to mediation. It was observed that Court cannot be a substitute to the alternative dispute redressal mechanisms. It was further observed that keeping in mind a liberal interpretation of Section – 12A of the Act read with Rule – 3 (1) of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, the Court came to the conclusion that Section – 12A of the Act was not a mandatory provision. Therefore, a person approaching the Court to seek a resolution of commercial disputes could not be denied justice merely because the party failed to explore an alternative option of mediation and approached the Court directly.

3. Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited3

This judgment came as a landmark precedent by the Hon’ble Supreme Court of India, which held that pre-institution mediation is a mandatory requirement under law, and cannot be circumvented. The trial court and the Hon’ble High Court had initially observed that rejection of a plaint merely due to non-compliance with Section – 12A of the Commercial Courts Act, 2015 could not be said to have been the intention of the Legislature. However, the Hon’ble Supreme Court, took a completely contrary view from that of the trial court and the High Court by interpreting the provision in a strict sense and held that Section – 12A of the Commercial Courts Act, 2015 cannot be described to be a mere procedural law only. It was further observed that the intent and scope of the Act, as amended in 2018, by inclusion of Section – 12A, makes it clear that the Parliament intended to give it a mandatory zest. The Hon’ble Apex Court further stated that disputes of a commercial nature, must be adjudicated with the highest level of promptness and held that pre-institution mediation is a necessary requisite in commercial disputes, except for when an urgent interim relief is claimed.

4. Bolt technology v. Ujoy Technology4

The Hon’ble Delhi High Court, while adjudicating an application seeking exemption from the mandate of pre-institution mediation, observed that pre-institution mediation as provided under Section – 12A of the Commercial Courts Act, 2015 is not mandatory in intellectual property suits seeking urgent interim reliefs. The rationale behind this observation is that such matters not only involve the interests of the Plaintiff and the Defendant but also the interest of the consumers and public at large, since due to the advent of internet there has been huge misuse of various well-known trademarks and brands in recent times, and this has led to consumers of the brand parting with huge amount of money due to such deception, misrepresentation and confusion.

The Hon’ble Court further observed that the scope of urgent interim relief that may be granted varies a lot and depends on the facts and circumstances of each case. It was further observed, that such reliefs are granted by the courts not just for the protection of statutory and common law rights of the parties, but also to prevent confusion, deception, unfair and fraudulent practices in the marketplace.

5. Micro Labs Limited v. A. Santhosh5

The Hon’ble Madras High Court in this case upheld the Patil Automation case (supra) and dismissed the Plaintiff’s case, firstly because there was a considerable delay of four months in filing the suit after sending a cease-&-desist notice, and secondly due to the fact that the parties to the suit did not fulfill the pre-requisite of pre-litigation mediation and no urgent interim relief was contemplated in the same.

6. Chandra Kishore Chaurasia v. R.A. Perfumery Works Pvt. Ltd.6

The Division Bench of the Hon’ble Delhi High Court, setting aside the order of a Single returning the Plaint, held that the requisite of pre-institution mediation is necessary only in cases where a plaintiff to the suit does not contemplate an urgent relief. It was further observed that if a Plaintiff seeks an urgent relief, the suit cannot be dismissed solely on the ground that such Plaintiff has not exhausted the mandate of pre-institution mediation provided under Section – 12A of the Act. It was further observed that the decision, whether there is need of any urgent relief or not is one that rests upon the shoulders of the Plaintiff only.

7. Yamini Manohar v. T.K.D. Keerath7

The Hon’ble Supreme Court of India in this case held that when a plaint is filed under the Commercial Courts Act, 2015 with a prayer for an urgent interim relief, the commercial court should scrutinize the nature and the subject matter of the suit, the cause of action, and the prayer for interim relief. Per se, the prayer for an urgent interim relief should not just be a façade to circumvent the obligation provided under Section – 12A of the Act. It was further held that the facts and circumstances of the case have to be considered holistically from the standpoint of the plaintiff, and refusal to grant an interim relief at the ad-interim stage, when the plaint is taken up for registration/admission and examination, is not enough to rationalize the dismissal of the commercial suit under Order VII, Rule 11 of the Code of Civil Procedure, 1908. The Hon’ble Court further observed that any attempt to bypass the statutory mandate of pre-institution mediation should be checked, when deception and falsity is apparent or has been established.

The Hon’ble Court stated that the words “contemplate any urgent interim relief” mentioned in Section – 12A(1) of the Act, with respect to the suit, should be construed as conferring power on the court to be satisfied, i.e., the plaint, the facts and the documents should illustrate and indicate the need for an urgent interim relief.

Aditya Vats Sharma, Associate at S.S. Rana has assisted in the research of this Article.

1 2021 SCC OnLine Bom 3124
2 2021 SCC OnLine Mad 16514
3 2022 SCC OnLine SC 1028
4 2022 SCC OnLine Del 2639
5 MANU/TN/7367/2022
6 2022/DHC/004454
7 2023 SCC OnLine SC 1382

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