Summary
In commercial suits filed without pre-institution mediation, the defendants sought rejection of the plaints under Order VII Rule 11 CPC. The Punjab and Haryana and Madras High Courts treated Section 12A of the Commercial Courts Act, 2015 as directory. The Court held Section 12A mandatory, given its imperative language, its Statement of Objects and Reasons and its scheme. Like Section 80 CPC and Section 69 of the Partnership Act, it conditions the right to sue where no urgent interim relief is contemplated. A suit filed in breach must have its plaint rejected, and the court may do so suo motu, with no substantial compliance by post-institution referral to mediation. The declaration was made effective from 20.08.2022, with stated exceptions.
Issues
- Whether pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory, so that a suit filed without it, contemplating no urgent interim relief, must be rejected under Order VII Rule 11 CPC.
- Whether a post-institution referral to mediation is substantial compliance, and whether the declaration should operate prospectively.
Provisions considered
- Section 12A, Commercial Courts Act, 2015A suit that contemplates no urgent interim relief shall not be instituted until the plaintiff exhausts pre-institution mediation. The language, objects and scheme, including exclusion of mediation time from limitation and award status for a settlement, make it mandatory. (¶¶ 24, 43, 51, 53, 66, 72, 84)
- Order VII Rules 11 and 13; Section 80, Code of Civil Procedure, 1908A suit filed in breach of Section 12A is barred by law, so the plaint must be rejected under Order VII Rule 11(d), even suo motu. As with Section 80(1), there is no substantial compliance by post-filing referral, and Order VII Rule 13 permits a fresh suit. (¶¶ 59, 63, 67, 68, 76, 84)
- Rule 3, Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018The word may in Rule 3(1) gives only a choice of the mode of applying, online, by post or by hand. Read with the parent Act, it does not dilute the mandatory nature of Section 12A. (¶ 51)
Held
- Section 12A is mandatory. Its language is imperative and its Statement of Objects describes the mediation as compulsory. It was enacted with the drastic reduction of the specified value to cut commercial litigation and improve the ease of doing business. It excludes mediation time from limitation and gives a settlement the status of an arbitral award. A non-starter mediation or the absence of a penalty does not make it directory. (¶¶ 43, 51, 53, 54, 59, 72)
- There is no absolute right to file a civil suit, and a law may bar it absolutely or conditionally. Like Section 80(1) CPC and Section 69 of the Partnership Act, Section 12A conditions the right to sue where no urgent interim relief is contemplated. Lack of prejudice to the defendant, possible waiver and loss of court fee do not alter its mandatory character. (¶¶ 55, 59, 60, 61, 62, 63)
- A suit filed in breach of Section 12A must be met with rejection of the plaint under Order VII Rule 11. The court may act suo motu after hearing the plaintiff, without issuing summons. Keeping the suit in abeyance and referring the parties to mediation after institution is not substantial compliance. (¶¶ 63, 68, 76, 84)
- The law was new, the High Courts were divided and plaintiffs risked losing court fees and limitation. Using its power to mould relief, the Court made the declaration effective from 20.08.2022. Rejected plaints not acted on within limitation cannot be reopened, plaintiffs who have filed fresh suits gain nothing, and suits filed after the jurisdictional High Court declared Section 12A mandatory get no protection. (¶¶ 77, 82, 83, 84)
- Effective mediation needs infrastructure, trained mediators with knowledge of commercial law, expert training including at State Judicial Academies, and a dedicated, adequately paid mediation bar. High Courts may set up panels of trained mediators at district and taluka levels. (¶ 74)
Result
Appeals disposed of. Section 12A was declared mandatory from 20.08.2022, and the impugned orders were left otherwise undisturbed. In one appeal the written statement is to be treated as a timely leave-to-defend application under Order XXXVII, and in the other the Rs 10,000 costs order was set aside.