Pre-Institution Mediation under Section 12A of the Commercial Courts Act: Mandatory Requirement and the Test for Urgent Interim Relief. | Research Work
- Legitimate Scrutiny
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Synopsis
The Commercial Courts Act, 2015, through the introduction of Section 12A, instituted compulsory pre-institution mediation for commercial disputes that do not contemplate urgent interim relief.¹ This provision represents a significant development in Indian commercial jurisprudence, as it positions Alternative Dispute Resolution (ADR) as the primary avenue for resolving commercial conflicts before resorting to litigation. The objective of this mechanism is to reduce judicial backlog, facilitate negotiated settlements between parties, and promote the expeditious resolution of commercial disputes. Nevertheless, its practical application has raised important legal concerns regarding the scope of the provision, its mandatory character, and the criteria for determining the existence of urgent interim relief sufficient to warrant exemption.
This article provides a critical analysis of the evolution and current status of pre-institution mediation under Section 12A. It examines the legislative intent underlying the provision, the procedural framework established under the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, and the enforceability of settlement agreements resulting from the mediation process. The paper further analyses judicial interpretations of the provision, particularly the landmark 2022 decision of the Supreme Court in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd., which clarified the mandatory nature of Section 12A. In addition, the study considers the manner in which courts interpret the concept of “urgency” for the purpose of exemption and highlights the challenges associated with the effective enforcement of the pre-institution mediation framework.
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1 Commercial Courts Act, 2015, § 12A (India).
Introduction
As commercial litigation in India has gradually increased, the judicial system has been required to address a growing number of complex disputes involving businesses. In order to ensure the expeditious disposal of such matters and to improve the ease of doing business in India, the legislature enacted the Commercial Courts Act, 2015. While the principal objective of the Act was the establishment of specialized commercial courts, a significant reform was introduced in 2018 through Section 12A, which mandated pre-institution mediation for all non-urgent commercial disputes.
Section 12A reflects the contemporary philosophy of dispute resolution, wherein courts are viewed not as the first recourse but as the last resort. The provision signifies India’s movement towards alignment with international standards, where mediation is increasingly promoted as a primary mechanism for resolving commercial disputes. Nevertheless, since its introduction, the provision has generated considerable judicial debate regarding its mandatory nature, its procedural soundness, and the correct interpretation of “urgent interim relief.” This article therefore analyses the scope, efficacy, and exemption mechanism under Section 12A, with particular attention to the evolving judicial developments in this area.
Background and Purpose of Section 12A of the Legislation
Section 12A was introduced through an amendment by the Commercial Courts (Amendment) Act, 2018.² The Statement of Objects and Reasons accompanying the amendment emphasized the following objective:
Reduction in the pendency of cases.
Promotion of amicable settlements,
Enhancement of the ease of doing business,
Facilitation of cost-effective dispute resolution.
The legislature recognized that a substantial number of commercial disputes could be effectively resolved through negotiation and mediation, without resorting to the formal adjudicatory process of the courts.
Section 12A essentially provides that a suit shall not be instituted unless the plaintiff has first exhausted the remedy of pre-institution mediation, except in cases where urgent interim relief is sought.³ The provision therefore operates as a jurisdictional bar, requiring parties to undergo mediation prior to the institution of a commercial suit.
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² Commercial Courts (Amendment) Act, No. 28 of 2018, Statement of Objects and Reasons, India.
³ Commercial Courts Act, 2015, § 12A(1) (India).
Nature and Mandatory Character of Section 12A
Initially, conflicting opinions emerged among various High Courts regarding whether Section 12A was mandatory in nature or merely directory.⁴ Certain courts regarded the provision as procedural, suggesting that non-compliance could be cured at a later stage, whereas other courts took a stricter approach and dismissed plaints filed without first undertaking pre-institution mediation.
The Supreme Court resolved this controversy in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd.⁵, wherein the Court held that:
Section 12A is mandatory in nature.
A suit instituted without complying with the requirement of pre-institution mediation is liable to rejection under Order VII Rule 11 of the Code of Civil Procedure, 1908.⁶
Only where the dispute falls within the exception of urgent interim relief can the courts entertain such a suit without prior mediation.
The Court reasoned that the use of the word “shall”, together with the legislative objective of reducing the burden on courts, indicates that the provision is mandatory in nature. The judgment therefore resolved the earlier uncertainty regarding the procedural character of Section 12A and established it as a strict threshold requirement before the institution of a commercial suit.
Application of Section 12A
Section 12A applies to:
All commercial disputes as defined under Section 2(1)(c) of the Act⁷,
Disputes where the specified value meets the statutory threshold,
Cases in which the plaintiff does not seek urgent interim relief.
1. Meaning of Commercial Dispute
The Act defines commercial disputes as those arising out of transactions relating to:
Trade and commerce,
Banking and finance,
Infrastructure contracts,
Partnership and joint venture agreements,
Intellectual property rights,
Mercantile contracts.
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⁴ Ganga Taro Vazirani v. Deepak Raheja, 2021 SCC OnLine Bom 195.
⁵ Patil Automation (P) Ltd. v. Rakheja Eng’rs (P) Ltd., (2022) 10 SCC 1.
⁶ Code of Civil Procedure, 1908, Order VII Rule 11 (India).
⁷ Commercial Courts Act, 2015, § 2(1)(c) (India).
Therefore, Section 12A operates within a broad scope, encompassing a wide range of contemporary commercial disputes.
2. Specified Value
Section 12A applies only to disputes whose monetary value exceeds the statutory threshold as notified under the Act. This requirement ensures that smaller claims are not burdened with additional procedural formalities.
3. Exception in Cases of Urgent Interim Relief
The only statutory exception to the application of Section 12A arises where the plaintiff seeks urgent interim relief. This exception constitutes the most debated aspect of the provision and is discussed in detail below.
Procedural Framework of Pre-Institution Mediation
In order to operationalize Section 12A, the Central Government framed the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018.⁸ These rules establish the procedural mechanism governing the mediation process.
The procedure generally includes the following stages:
The plaintiff submits an application before the Legal Services Authority.
Notice is issued to the opposite party within ten days.
Participation proceeds upon the mutual consent of the parties.
The mediation process must be completed within three months, with a possible extension of two additional months upon mutual agreement of the parties.⁹
Where a settlement is reached, the settlement agreement is treated as equivalent to an arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996.¹⁰
A failure report is issued where no settlement is achieved between the parties.
This framework ensures that the mediation process remains time-bound and structured, thereby preventing prolonged delays.
Status and Enforceability of Settlement Agreements
Settlement agreements reached pursuant to Section 12A possess statutory binding force.¹¹ They are treated as arbitral awards and are enforceable under the Arbitration and Conciliation Act, 1996.
This provision significantly strengthens the mediation framework by:
Providing finality to settlements,
Eliminating the need for separate enforcement proceedings,
Enhancing confidence in mediation among commercial entities.
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⁸ Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, Gazette of India, Jan. 3, 2018.
⁹ Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, r. 3(8).
¹⁰ Arbitration and Conciliation Act, 1996, § 30(4) (India).
¹¹ Commercial Courts Act, 2015, § 12A(5) (India).
Judicial Interpretation of Section 12A
Apart from Patil Automation, several High Courts have contributed to the development of the jurisprudence surrounding Section 12A. In Ganga Taro Vazirani v. Deepak Raheja¹³, the Bombay High Court held that:
Any plaint filed without compliance with Section 12A is not maintainable,
The plaint must be rejected unless it falls within the statutory exemption,
Post-filing mediation cannot cure the defect arising from non-compliance.
Similarly, the Delhi High Court in Dhanbad Fuels Ltd. v. Union of India¹² reiterated the legislative mandate requiring compulsory pre-institution mediation. These judicial pronouncements collectively clarify that Section 12A constitutes a condition precedent to the institution of a commercial suit.
Meaning of “Urgent Interim Relief”
One of the most significant ambiguities under Section 12A concerns the expression “urgent interim relief.” The Act does not expressly define this term, leaving its interpretation to the judiciary.
Courts have generally held that:
A mere assertion of urgency is insufficient,
The plaintiff must demonstrate the likelihood of direct and irreparable injury,
The relief sought must be of such a nature that it cannot reasonably await the completion of the mediation process.
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¹² Dhanbad Fuels Ltd. v. Union of India, 2020 SCC OnLine Del 1537.
¹³ Ganga Taro Vazirani v. Deepak Raheja, 2021 SCC OnLine Bom 195.
In Patil Automation, the Supreme Court observed that the element of urgency must be genuine, real, and demonstrable, and not artificially created to circumvent the process of mediation.¹⁴
Test to Ascertain Urgency for Exemption
Despite the absence of a rigid formula, courts have developed certain guiding principles to assess the existence of urgency:
1. Nature of the Right Threatened
Where the dispute involves:
Encashment of bank guarantees in the near future,
Apprehended dispossession,
Ongoing infringement of exclusivity agreements,
Dissipation of secured assets,
courts are more likely to regard the matter as urgent.
2. Irreparable Injury
The plaintiff must demonstrate that:
Monetary damages would not constitute an adequate remedy,
Any delay would result in irreparable loss.
The damage cannot be effectively remedied through subsequent monetary compensation.
3. Balance of Convenience
The court considers whether:
Temporary protective measures are necessary to preserve the status quo,
Granting or refusing exemption would result in an unfair advantage to either party.
4. Bona Fide Intention
Courts also examine whether:
The alleged urgency is genuine or artificially created,
The relief sought is genuinely interim in nature,
The plaintiff is attempting to circumvent the mediation requirement.
Abuse of the Urgency Exception
One of the practical concerns surrounding Section 12A is the strategic misuse of claims of urgency. Plaintiffs sometimes include prayers for interim injunctions primarily to bypass the mediation process.
Courts have strongly discouraged this practice. In certain cases, even where suits were initially entertained on the basis of alleged urgency, courts have subsequently directed the parties to resort to mediation at the earliest stage. This judicial approach strengthens the underlying objective of Section 12A while ensuring that the exception remains available only in cases of genuine urgency.
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¹⁴ Patil Automation (P) Ltd. v. Rakheja Eng’rs (P) Ltd., (2022) 10 SCC 1, ¶¶ 79–82.
Effectiveness of Pre-Institution Mediation
1. Reduction in Litigation Burden
Pre-institution mediation has contributed to a noticeable reduction in the volume of commercial suits across several jurisdictions. Many disputes relating to:
Recovery of money,
Contractual payments,
Business partnerships,
are effectively resolved at the mediation stage itself.
2. Swift and Cost-Effective Justice
Mediation under Section 12A is:
Time-bound (not exceeding five months),
Cost-effective,
Flexible and confidential.
These features are particularly beneficial for small and medium enterprises, which may lack the resources to engage in prolonged litigation.
3. Preservation of Business Relationships
Unlike adversarial litigation, mediation promotes a cooperative environment that helps preserve ongoing business relationships and allows parties to continue their commercial collaboration in the future.
Problems in Implementation
Despite the effectiveness of Section 12A, several practical challenges remain in its implementation.
1. Lack of Awareness
Many litigants, and even some legal practitioners, remain unaware of the mandatory nature of Section 12A, which often results in the rejection of plaints at the initial stage for non-compliance.
2. Infrastructure Deficiency
Several districts continue to face infrastructural limitations, including:
A shortage of trained mediators,
Insufficient mediation centres,
Inadequate administrative support.
3. Lack of Judicial Consistency
Although the Supreme Court has clarified the mandatory character of Section 12A, inconsistencies persist among lower courts regarding the interpretation of urgency and procedural compliance.
Comparative Perspective
Several jurisdictions across the world, including:
The United Kingdom,
Singapore,
Australia,
have adopted similar approaches encouraging or mandating mediation in commercial disputes.
have incorporated compulsory or strongly encouraged mediation in commercial disputes.¹⁵ Section 12A, as adopted in India, similarly reflects a pro-ADR trend. However, greater institutional strengthening and more effective enforcement mechanisms remain necessary for its optimal functioning.
Suggested Reforms
In order to enhance the effectiveness of Section 12A, the following reforms may be considered:
A statutory definition of “urgent interim relief.”
Uniform guidelines for determining urgency.
Development of mediation infrastructure at the district level.
Continuous training of mediators in commercial law.
Establishment of online mediation platforms to improve efficiency and accessibility.
Conclusion
The introduction of Section 12A of the Commercial Courts Act represents a significant shift in India’s commercial dispute resolution framework by mandating pre-institution mediation. The provision seeks to promote amicable settlements, reduce court congestion, and facilitate a system of dispute resolution that is both swift and cost-effective. The Supreme Court’s decision in Patil Automation has removed earlier uncertainties regarding the mandatory nature of the provision.
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¹⁵ Nadine Alexander, Global Developments in Mandatory Mediation, 45 Int’l J.L. & Pol’y Dispute Resol. 112 (2019).
The mandatory character of the provision has now been firmly established, and mediation is gradually becoming an integral component of the commercial litigation framework.
Nevertheless, the absence of a clear definition of the term “urgent interim relief” continues to generate litigation and inconsistent judicial practices. Although courts have developed practical tests to determine urgency, a statutory clarification remains desirable. Despite existing infrastructural limitations and issues relating to awareness, the positive impact of Section 12A in reducing unnecessary litigation and promoting a business-friendly system of dispute resolution cannot be denied.
Author: Drishti Shukla Student of Law at Indore Institute of Law
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