2022 (8) TMI 1494 - SC - Indian Laws

Pre-litigation mediation under Section 12A Commercial Courts Act mandatory for commercial disputes, plaints rejectable without compliance

Patil Automation Private Limited and Ors Versus Rakheja Engineers Private Limited

The SC held that pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory for commercial disputes. Courts erred in not ... Pre-Institution Mediation and Settlement - Whether the statutory pre-litigation mediation contemplated Under Section 12A of the Commercial Courts Act, 2015 as amended by the Amendment Act of 2018 is mandatory? - whether the Courts below have erred in not allowing the applications filed Under Order VII Rule 11 of the Code of Civil Procedure, 1908 to reject the plaints filed by the Respondents in these appeals without complying with the procedure Under Section 12A of the Act? HELD THAT:- A mediation settlement arrived at Under Section 89 of the Code of Civil Procedure must be scrutinised by the court and only on its imprimatur being given it is effective - Since a settlement Under Section 12A of the Act is accorded the status of an award under the Arbitration & Conciliation Act, it unerringly points to the object of the legislature to make pre-litigation mediation compulsory. Timelines are contemplated, both in the matter of pleadings and also other steps to be taken. They are geared to ensure an expeditious culmination of the proceedings. Originally, the specified value within the meaning of Section 2(i) was fixed as 'which shall not be less than one crore rupees'. Within three years of the birth of the Act, Parliament found that it was necessary to reduce the specified value from the sum of Rs. 1 crore to Rs. 3 lakhs, which is what is reflected in the present avatar of the definition of the word 'specified value'. It is simultaneously with the reduction of the specified value and by the same amendment that Section 12A came to be inserted. Parliament is presumed to be aware of the felt necessities of the times. It best knows the manner in which the problems on the ground are redressed. Section 89 of the Code of Civil Procedure, does contemplate mediation ordered by a Court. However, it must be noticed that Section 12A contemplates mediation without any involvement of the Court as it is done prior to the institution of the suit. Mediation can become a potent alternate dispute resolution device. There are, however, a few indispensable requirements. The first requirement is the existence of adequate infrastructural facilities and, what is more important, availability of trained and skilled Mediators. The role of the Mediator, as per Rule (5) of the Rules, is to facilitate the voluntary resolution of a commercial dispute and assist the parties in this regard - It is all well to pass a law with sublime objects as in this case. However, the goal will not be realised unless the State Governments and all other relevant Authorities bestow their attention in the matter of providing adequate facilities. Knowledge of the laws, which are the subject matter of the suits under the Act, is indispensable for a Mediator to effectively discharge his duties. His role is supreme and it is largely shaped by his own knowledge of the law that governs commercial cases. There must be training by Experts, including at the State Judicial Academies. This must be undertaken on a regular and urgent basis, particularly keeping in mind when there is a dearth of trained mediators. There is a need to have a dedicated bar for mediation. The effective participation of the bar which must be adequately remunerated for its service will assist in mediation evolving. The concerned High Court may also undertake periodic exercise to establish a panel of trained mediators in District and Taluka levels as per need. The impugned orders must be set aside and the applications Under Order VII Rule 11 allowed. This would mean that the plaints must be rejected. Necessarily, this would involve the loss of the court fee paid by the Plaintiffs in these cases. They would have to bring a fresh suit, no doubt after complying with Section 12A, as permitted Under Order VII Rule 13. Moreover, the declaration of law by this Court would relate back to the date of the Amending Act of 2018. The Doctrine of prospective overruling began its innings with the decision of this Court in L.C. Golak Nath and Ors. v. State of Punjab and Anr. [1967 (2) TMI 95 - SUPREME COURT]. This Court in the said case relied upon Articles 32, 141 and 142 of the Constitution and extended this doctrine which was in vogue in the United States. The principle involves giving effect to the law laid down by this Court, from a prospective date, ordinarily the date of the judgment. There is no dispute that while initially the doctrine was confined to matters arising under the Constitution, later on it has been applied to other areas of law as well. Section 12A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint Under Order VII Rule 11. This power can be exercised even suo moto by the court as explained earlier in the judgment. We, however, make this declaration effective from 20.08.2022 so that concerned stakeholders become sufficiently informed. Still further, we however direct that in case plaints have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration. Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the Plaintiff. Finally, if the plaint is filed violating Section 12A after the jurisdictional High Court has declared Section 12A mandatory also, the Plaintiff will not be entitled to the relief. Petition disposed off. Issues Involved:1. Whether pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015, as amended by the Amendment Act of 2018, is mandatory.2. Whether the courts erred in not allowing applications filed under Order VII Rule 11 of the Code of Civil Procedure to reject plaints for non-compliance with Section 12A.3. The implications of non-compliance with Section 12A on the institution of suits and the jurisdiction of courts.4. The appropriate relief and prospective application of the court's decision.Analysis:1. Mandatory Nature of Section 12A:The core issue was whether the statutory pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory. The court examined the language of Section 12A, which uses the word 'shall,' indicating a mandatory requirement. The court emphasized the legislative intent behind the provision, which aims to decongest courts and promote alternative dispute resolution mechanisms. The court concluded that Section 12A is mandatory, and non-compliance would result in the rejection of the plaint under Order VII Rule 11 of the CPC.2. Error in Not Allowing Applications Under Order VII Rule 11:The court found that the lower courts erred in not allowing the applications filed under Order VII Rule 11 to reject the plaints for non-compliance with Section 12A. The trial courts and the High Courts had taken a lenient view, allowing the suits to proceed and directing parties to mediation post-institution. The Supreme Court disagreed, stating that such an approach undermines the mandatory nature of Section 12A and the legislative intent to ensure pre-litigation mediation.3. Implications of Non-Compliance with Section 12A:The court discussed the broader implications of non-compliance with Section 12A. It highlighted that the provision aims to reduce the burden on courts and promote amicable settlements. The court noted that non-compliance does not affect the inherent jurisdiction of the court but bars the institution of the suit. The court also addressed concerns about the potential loss of court fees and the impact on the limitation period, emphasizing that these consequences are necessary to uphold the mandatory nature of Section 12A.4. Relief and Prospective Application:The court declared that Section 12A is mandatory and that any suit instituted without complying with it must be rejected under Order VII Rule 11. However, to mitigate the impact on existing suits, the court applied this declaration prospectively from 20.08.2022. The court provided specific directions to address cases where plaints had already been rejected or suits filed in violation of Section 12A after High Courts had declared it mandatory. The court also addressed the specific cases before it, setting aside the impugned orders and providing relief to the appellants.Conclusion:The Supreme Court's judgment clarifies that pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory. Non-compliance with this provision will result in the rejection of the plaint under Order VII Rule 11 of the CPC. The court's decision aims to uphold the legislative intent to promote alternative dispute resolution and decongest courts, while also providing prospective application to ensure fairness to parties involved in ongoing litigation.