Mandate of Pre-Litigation Mediation for Commercial Suits
In 2018, the legislature amended the Commercial Courts Act, 2015 to incorporate Section 12A. This provision mandates that parties in commercial disputes must engage in mediation before initiating legal proceedings, provided the case does not involve an application for urgent interim relief.
Section 12A highlights three key aspects. First, it mandates that parties shall make an attempt to mediate before filing a commercial suit. Second, it provides a specific process for conducting mediation, which is managed by the Legal Services Authorities under the Legal Services Authorities Act, 1987. The framework for applying for mediation and overseeing the process is detailed in the Commercial Courts (Pre-Institution Mediation & Settlement) Rules, 2018 (PIMS Rules). Third, it provides an exemption from the requirement of pre-institution mediation in cases where urgent interim relief is sought.
The Hon’ble High Court of Delhi in Bolt Technology OÜ v. Ujoy Technology (P) Ltd. dealt with a case wherein the plaintiff sought interim relief for the infringement and filed an application requesting exemption from Section 12A. The defendant then filed an application to reject the plaint on the grounds of non-compliance with Section 12A. The Delhi High Court ruled that the mere filing of an interim relief application would not automatically exempt the plaintiff from adhering to Section 12A. It was of the view that the Court must examine whether such 'urgent interim relief' pertains solely to relief sought due to immediate past events, or whether it can include urgent relief the plaintiff seeks based on the overall facts and circumstances of the case. Additionally, the Court emphasized that a delay in filing the suit should not automatically disqualify the plaintiff from interim relief in these cases.
Section 12A has twofold objectives. It highlights India’s dedication to fostering alternative dispute resolution (ADR) methods, aligning with both international standards. It also aims to mitigate the overwhelming case backlog in Indian courts by encouraging the resolution of disputes without resorting to litigation.
Mediation is also integrated vide Section 35 of the CPC which states that the court will consider whether any reasonable offer to settle is made by a party and unreasonably refused by the other party while making an order for the payment of costs.
If the parties reach a settlement, the agreement is binding and enforceable as a court decree. If no settlement is achieved within three months, the parties are free to pursue litigation. This pre-institution mediation is mandated to ensure that only genuine cases reach the Court. Mediation helps filter out frivolous claims, allowing the judicial system to adjudicate only those which truly require judicial intervention.
In the landmark case of Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., wherein the Supreme Court held that Section 12A contemplates making of Rules to give effect to the pre-litigation mediation. These Rules were drafted and published on July 3, 2018. Rule 3 provides a detailed procedure for initiating the mediation process. It stipulates that a party involved in a commercial dispute can submit an application to the Authority. While Rule 3 refers to a party, Section 12A specifically mandates that the plaintiff must first exhaust the remedy of pre-litigation mediation before filing a suit. This means that a suit cannot be filed unless the pre-litigation mediation process, as outlined in the Act and the Rules, has been attempted and completed. The application can be submitted online, by post, or in person.
It also held that Section 12-A elevates the settlement under the Act and the Rules to an award within the meaning of Section 30(4) of the Arbitration Act, thereby granting it meaningful enforceability. The period spent in mediation is excluded for the purpose of limitation. It is settled law that time spent attempting to resolve a dispute through mediation should not be counted against the party's right to file a suit if the mediation is unsuccessful or unresolved. This means that if a party engages in mediation, the duration of the mediation process will not be deducted from the relevant limitation period for filing a suit before court.
Author: Yashvi Aswani, Senior Associate with Pratap & Co.