M/S DHANBAD FUELS PRIVATE LIMITED versus UNION OF INDIA & ANR (14/05/2025) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

A Union of India money suit filed in August 2019 in the Commercial Court, Alipore without pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 was kept in abeyance by the High Court with a direction to undergo mediation rather than rejected under Order VII Rule 11 CPC. Upholding that approach, the Court held that while Section 12A is mandatory from the date of the 2018 Amending Act, the consequence of rejection of the plaint declared in Patil Automation applies only to suits instituted on or after 20.08.2022; for earlier suits still pending, the court should keep the suit in abeyance and refer the parties to time-bound mediation when the defendant objects or a party wishes to mediate, and it also clarified the test for 'urgent interim relief'.

Issues

Whether the High Court erred in declining to reject the plaint under Order VII Rule 11(d) CPC for non-compliance with Section 12A of the Commercial Courts Act, 2015 and instead keeping the suit in abeyance with a direction to undergo mediation.
Whether a commercial suit instituted before 20.08.2022 without pre-institution mediation must be rejected under Order VII Rule 11 in view of Patil Automation, or may be kept in abeyance while the parties explore mediation.
How the expression 'a suit which does not contemplate any urgent interim relief' in Section 12A is to be construed, and whether leave of the court or an exemption application is required.
Whether the lack of mediation infrastructure when the suit was filed excused compliance on the maxim lex non cogit ad impossibilia.
Whether the suit's being at a nascent stage required rejection of the plaint and institution of a fresh suit after mediation.

Provisions considered

Section 12A, Commercial Courts Act, 2015Section 12A(1) bars a suit not contemplating urgent interim relief unless the plaintiff exhausts pre-institution mediation, which is time-bound (three months, extendable by two), excluded from limitation, and yields a settlement with the status of an arbitral award on agreed terms. Reaffirming Patil Automation, the provision is mandatory and the declaration relates back to the 2018 Amending Act, but the consequence of rejection of the plaint applies prospectively to suits instituted on or after 20.08.2022. For earlier pending suits the court may keep the suit in abeyance and refer the parties to mediation; this does not mean Section 12A envisages post-institution mediation. (¶¶ 27, 32, 33, 34, 35, 41, 42, 46, 57, 58, 59, 60, 62, 63)
Order VII Rule 11 (with Rules 12 and 13), Code of Civil Procedure, 1908A plaint shall be rejected where any specified condition exists, including clause (d) where the suit appears from the plaint to be barred by law; the power may be exercised at any stage and suo motu, and rejection does not preclude a fresh plaint (Rule 13). Following Patil Automation, Madanuri and Popat and Kotecha, the stage of the suit or belatedness of the application is no ground to refuse rejection for non-compliance with Section 12A; but under the prospective declaration, suits instituted before 20.08.2022 cannot be rejected on that ground unless within the exceptions in paragraphs 113.2 and 113.3 of Patil Automation. (¶¶ 34, 39, 40, 41, 47, 59, 62, 63)
Section 80(2), Code of Civil Procedure, 1908Contrasted with Section 12A: Section 80(2) permits a suit seeking urgent relief against the Government to be filed with leave of the court and its proviso allows return of the plaint if no urgent relief is needed, whereas Section 12A contains no requirement of leave; a plaintiff may file a suit contemplating urgent interim relief without seeking leave, and an application for exemption, though helpful, is not a condition. (¶¶ 36, 38, 42, 62)
Rule 3, Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018Rule 3 lays down the procedure for initiating mediation before the Authority under the Legal Services Authorities Act, the notices to the opposite party, treatment of the process as a non-starter where the opposite party does not participate, and completion within three months extendable by two with consent. The Court directed that the court-referred mediation in pending pre-20.08.2022 suits be conducted in accordance with the 2015 Act, these Rules and the State SOP, within the time frame they prescribe. (¶¶ 31, 60, 63, 65)
Section 14, Limitation Act, 1963Noted as one of the reasons Patil Automation gave its declaration prospective effect: uncertainty over whether Section 14 (exclusion of time spent in proceedings in a wrong forum) would apply to fresh suits filed after rejection of a plaint for non-compliance with Section 12A, together with forfeiture of court fees and the unsettling of concluded cases. (¶¶ 53, 61)

Held

Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1 lays down the correct law: Section 12A of the 2015 Act is mandatory and the declaration of its mandatory character relates back to the date of the 2018 Amending Act; but the consequence that a suit instituted without complying with Section 12A must be visited with rejection of the plaint under Order VII Rule 11, on application or suo motu, applies prospectively to suits instituted on or after 20.08.2022. The two observations in paragraphs 104 and 113.1 of that decision must be harmoniously read: the provision is mandatory from inception, the consequence of rejection only prospectively. (¶¶ 34, 37, 46, 58, 62, 63)
Suits instituted before 20.08.2022 without compliance with Section 12A cannot be rejected under Order VII Rule 11 on that ground unless they fall within the exceptions in paragraphs 113.2 and 113.3 of Patil Automation (plaints already rejected with no steps taken within limitation, rejections acted upon by filing a fresh suit, or plaints filed after the jurisdictional High Court had declared Section 12A mandatory). The Union's suit, filed in August 2019, fell within none of these exceptions and was squarely protected by the prospective ruling. (¶¶ 46, 47, 54, 59, 62)
Prospectivity does not obviate giving the parties a chance to resolve the dispute through mediation. In a pre-20.08.2022 suit pending before the trial court, where the defendant objects to non-compliance with Section 12A by an application under Order VII Rule 11 or any party expresses an intent to mediate, the court shall keep the suit in abeyance and refer the parties to time-bound mediation in accordance with the 2015 Act, the PIMS Rules and the SOP, proceeding with the suit only on receipt of the mediator's report. This is confined to that category of cases and does not mean Section 12A envisages post-institution mediation; suits already decided cannot be reopened on this ground. The approach received tacit approval in Patil Automation, which declined to interfere with an order referring the parties to mediation while keeping the suit alive. (¶¶ 57, 59, 60, 62, 63, 64)
Section 12A does not require leave of the court, unlike Section 80(2) CPC, nor an application for exemption as a condition for filing a suit contemplating urgent interim relief; pleadings and oral submissions ordinarily suffice. Following Yamini Manohar v. T.K.D. Keerthi, the test is not whether the prayer for urgent interim relief is actually granted but whether, on an examination of the nature and subject-matter of the suit and the cause of action, such relief could be said to be contemplable from the plaintiff's standpoint; courts must ensure the prayer is not an unfounded excuse to bypass the mandate. Non-grant of ad interim relief, or denial of interim relief on merits after arguments, does not by itself justify rejection of the plaint if the test is satisfied. (¶¶ 36, 38, 42, 43, 44, 62)
The power under Order VII Rule 11 is not confined to any stage of the suit; the use of 'shall' obliges the court to reject a plaint hit by any of the specified infirmities, even without the defendant's intervention, and it is the merit of the objection rather than the stage at which it is raised that has primacy. After Patil Automation, courts cannot refuse rejection for non-compliance with Section 12A merely because the application was belated, as the trial court had done here, though in this case the prospective operation of the consequence saved the suit. (¶¶ 39, 40, 41)
Courts may declare an interpretation of law to operate prospectively to avoid the chaos of unsettling earlier transactions, and this Court has the power to mould relief to do complete justice. Patil Automation gave prospective effect because the provision was in its infancy, High Courts had taken conflicting views, and rejection of all non-compliant suits would have led to forfeiture of court fees and uncertainty about Section 14 of the Limitation Act. (¶¶ 48, 53, 61)
On the maxim lex non cogit ad impossibilia (Raj Kumar Dey; U.P. SRTC v. Imtiaz Hussain), the record showed that after the Commercial Court at Alipore was established in July 2019 the statutory framework, panel of trained mediators and SOP were put in place progressively until December 2020, so that referring the dispute to pre-suit mediation when the suit was filed was impossible; awaiting the infrastructure would have impeded recovery of public funds contrary to the object of the 2015 Act. (¶¶ 49, 50, 51, 52)
The contention that, the suit being at the nascent stage of the written statement, the plaint should be rejected and a fresh suit filed after mediation was rejected: directing a fresh suit would benefit no one, would forfeit the court fees paid and burden the public exchequer, and substantial progress of the suit was not the only reason Patil Automation accorded prospectivity. Keeping the suit in abeyance and directing the parties to the competent authority for mediation harmonises the mandatory nature of Section 12A with the prospective consequence of non-compliance. (¶¶ 61, 64)

Result

Appeal dismissed; the High Court's order keeping the money suit in abeyance and directing the Union of India to approach the Legal Services Authority for mediation under the PIMS Rules and the SOP upheld; mediation to be completed within three months, extendable by two months if needed; pending applications disposed of; Registry directed to circulate the judgment to all High Courts.