Pre-institution Mediation Process stipulated under Section 12A of the Act

Section 12A of the Act provides for resorting to the mediation process prior to instituting a commercial suit which does not contemplate any urgent interim relief. The pre-institution mediation is to be completed within a period of three months from the date of the application made by the plaintiff. The period of three months from can be extended for a period of two months provided there is consent to the same by the parties.

The Act, by the second proviso to Section 12A, has taken care to clarify that the period during which the parties remained occupied with the pre-institution mediation, is not to be reckoned for the purpose of computing the period of limitation for a suit under the Limitation Act, 1963. If the parties arrive at a settlement, the settlement is to be reduced into writing and signed by the parties to the dispute and the Mediator. The Act has accorded the settlement the same status and effect as if it is an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996.

The Court observed that the Section 12A of the Act, supported by rules, substantially manifests a definite scheme to effectively deal with the perceived urgent problem of acute clogging of the justice delivery system. The provision was incorporated in the Act by way of amendment in the year 2018^[3] with an object of enhancing the ease of doing business in India and de-clogging of commercial courts which are assigned with an important task of quickly disposing of commercial matters.

Interpretation under Section 12A of the Act

The question that arose in Patil Automation for consideration was whether the statutory pre-institution mediation contemplated under Section 12A of the Act was mandatory.

While deciding this issue, the Bench drew a parallel between Section 80 of CPC, which mandates issuance of notice when a suit is to be instituted against the Government or against any public officer, and Section 12A of the Act. It was observed that a plaint instituted transgressing the mandate of Section 80, when there is no notice and no urgent relief is contemplated and leave sought, the plaint would have to be rejected, as the suit would not be maintainable. Section 12A of the Act also bars the institution of suit only in a case which does not contemplate urgent interim relief. The Bench while bearing in mind the object of the Act concluded that the right of suit itself will fructify only when the conditions in Section 12A are fulfilled.

Suits with urgent interim relief

The pre-institution mediation has been mandated only in a class of suits, as the suits in which an urgent interim relief is not contemplated, the Legislature has vouch-safed immediate access to justice system to the plaintiff as contemplated ordinarily through the courts. The Bench observed that the carving out of a class of suits and selecting them for compulsory mediation, harmonises with the attainment of the object of the law.

Rejection of Plaint

The Bench observed that nobody has an absolute right to file a civil suit. It further observed that a civil suit can be barred absolutely, or the bar may operate unless certain conditions are fulfilled. The Bench noted that Section 12A of the Act contemplates mediation without involvement of the court as it is done prior to the institution of suit.

The Bench upheld that where the plaintiff in a suit under the Act does not plead circumstances to take his case out of the requirement of Section 12A of the Act, the plaint should be rejected without issuing summons as barred by law. The Bench further upheld that on issuance of summons, it will always be open for the defendant to make an application under Order VII Rule 11 of CPC as well as it is open for the court to exercise the power under Order VII Rule of CPC suo moto.^[4]

Prospective Application of the Judgement

The Bench has made the declaration effective from 20 August 2022 so that the concerned stakeholders become sufficiently informed. The Bench further directed that in case plaints have already been rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this judgement. The Bench also clarified that if the order of rejection of plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff. It finally upheld that if the plaint is filed violating Section 12A of the Act after the jurisdictional High Court has declared Section 12A of the Act mandatory, the plaintiff will not be entitled to the relief.

Questions arising from the decision

Even though mediation has the potential of becoming an alternate dispute resolution device, the Bench has observed that there are a few indispensable requirements. The first requirement is the existence of adequate infrastructural facilities and availability of trained and skilled mediators. The Bench has further raised the concern of the availability of Mediators in the country, particularly, in the light of lowering of the monetary valuation from INR 1 crore to INR 3 lakhs. The Bench has highlighted that the role of Mediator is supreme, and success of mediation is largely dependent and shaped by his knowledge of the law that governs commercial cases.

Further cause of concern is that there can be attempts to bypass the statutory mediation under Section 12A of the Act by contending that the plaintiff is contemplating urgent interim relief, which in reality is not founded on any basis. The Bench has remained silent on the issue while observing that this is not the issue that arises for its concern, however, it has observed that it is a matter which may engage attention of the lawmaker.

Lastly but most importantly, the Act does not take into account the relations between the parties to the suit and possibility of reaching a successful mediation. It is found that various commercial legal battles are merely to satisfy the ‘ego’ of certain individuals and that mediation cannot succeed in such a scenario. At this point, mediation is just an additional burden on the parties who do not wish to settle the matter and seek adjudication by an impartial and trained judge.

Pre-institution mediation in the context of intellectual property disputes

The Delhi High Court had cause to further lay down certain principles on pre-institution mediation in the case of Bolt Technologies OU v. Ujoy Technology Private Limited & Anr in the context of intellectual property matters. It was noted by the Court that intellectual property matters are inherently urgent. In this case, while delay was cited by the Defendant disentitling the Plaintiff from seeking immediate relief, the Court observed that an attempt to amicably resolve the dispute was made by the Plaintiff by issuing a notice prior to filing the suit, which attempt at mediation was rebuffed by the Defendant. The Court laid down two principles with respect to pre-institution mediation viz., firstly, that the Plaintiff attempted to amicably resolve the dispute, which was condemned by the Defendant and secondly, that the Plaintiff had made an application for urgent interim reliefs. In view of the Defendant expressing its willingness to resolve the dispute, the Court directed the parties to mediation, with a condition that if not resolved.

Mediation or Litigation?

The major advantage of Pre-institution mediation is that the parties can tailor their settlement to the situation which is not necessarily susceptible to legal determination. The settlement arrived at has to be satisfactory to both the parties to the mediation as opposed to the decision imposed on one of the parties by an authority.

Further, as compared to the complexity of Court procedure that necessitates and appointment of lawyer to represent any party, the mediation does not necessitate such requirement. However, any person who understands the end requirements of the parties and having good negotiation skills can successfully resolve the dispute to the party’s benefit. Moreover, the maximum fee^[5] payable to the authorities for pre-institution mediation is capped at INR 75,000/- (Indian Rupees Seventy Five Thousand) as against the maximum court fee of INR 3,00,000/- (Indian Rupees Three Lakhs).

The important aspect here is to understand that mediation is not an alternative to Court proceedings, rather, it is an attempt to resolve the dispute amicably, failure of which is ultimately going to result in filing of the Suit and initiation of Court proceedings.

Conclusion

The Bench has observed that there is no option to plaintiff to violate the provisions of Section 12A of the Act. Mediation offers a completely new approach to attaining the goal of justice. It envisages a win-win situation resulting from assigning a greater role to the parties themselves with a spirit of accommodation. However, the same requires greater infrastructural facilities including training by judicial experts. It is anticipated that this judgement will have positive impact considerably reducing the burden of pending cases before the commercial courts.

Footnote

[1] 2022 SCC OnLine SC 1028

[2] 2014 SCC OnLine 438

[3] Act 28 of 2018

[4] Madiraju Venkata Ramana Raju v. Peddireddigari Ramachandra Reddy and others (2018 (14) SCC 1)

[5] Schedule II to the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018

This article was originally published in Mondaq on 01 May 2023 Co-written by: Lalan Gupta, Partner, Atika Vaz, Principal Associate, Anuj Loya, Associate. Click here for original article

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