NAVIGATING
SECTION 12A OF THE COMMERCIAL COURTS ACT, 2015: A CRITICAL PERSPECTIVE FROM
INDIA AND BEYOND
Introduction
The Commercial Courts Act, 2015, marked a
significant step toward creating a specialized judicial framework for the swift
resolution of commercial disputes. The need for timely dispute resolution in
commercial cases is essential for fostering a business-friendly environment,
and to further this objective, the introduction of Section 12A through the
Commercial Courts (Amendment) Act, 2018, was pivotal. Section 12A mandates
pre-institution mediation as a necessary pre-litigation step, aiming to
facilitate the faster settlement of disputes, thus improving the ease of doing
business in India.
In this context, the Legal Services Authorities
under the Legal Services Authorities Act, 1987, were empowered to conduct these
mediation proceedings. However, the implementation of Section 12A has raised
critical concerns regarding the efficiency and expertise of mediators, often
burdening the system instead of alleviating it. The question arises: How has
Section 12A evolved, and why is it crucial in today's commercial legal
landscape?
This article explores the evolution of Section 12A,
its procedural nuances, and its impact on India's legal system, providing
insights into its current significance in promoting efficient dispute
resolution in commercial matters.
Understanding Section 12A
Section 12A of the Commercial Courts Act, 2015,
mandates pre-institution mediation for commercial disputes before filing a suit
in Court. This provision was introduced by an amendment in 2018 to promote
alternative dispute resolution methods and reduce the burden on courts.
The primary aim of Section 12A is to encourage
parties to resolve their disputes through mediation before resorting to
litigation. The mediation process must be conducted in accordance with rules
prescribed by the Central Government and is mandatory for all commercial suits
that do not seek urgent interim relief.
The pre-institution mediation process is initiated
by filing an application with an authority constituted under the Legal Services
Authorities Act, 1987. According to the Commercial Courts (Pre-Institution
Mediation and Settlement) Rules, 2018, the mediation must be completed within
90 days from the filing of the application. This period may be extended for
another two months with the consent of both parties. Any settlement reached
through this process is legally binding and has the status of an arbitral award
under Section 30(4) of the Arbitration and Conciliation Act, 1996.
Pre-institution mediation is a crucial requirement
before initiating a commercial suit, except where urgent relief is required.
Courts have held that the provision can be dispensed with in cases where
mediation would cause irreparable harm or delay, as demonstrated in GSD
Constructions Pvt. Ltd v Balaji Febtech Engineering. If the court
determines that a suit does not seek urgent relief and the plaintiff has not
pursued pre-institution mediation, the court may refuse to issue summons or
even reject the plaint under Order VII Rule 11(d) of the CPC.
The Legal Impact and Court
Interpretations
In Patil Automation Pvt. Ltd. v. Rakheja
Engineers Pvt. Ltd. (2022), the Supreme Court reinforced the mandatory
nature of pre-litigation mediation under Section 12A of the Commercial Courts
Act. The Court clarified that suits filed without complying with this mandate
must be rejected under Order VII Rule 11 of the CPC unless urgent interim
relief is sought. This landmark ruling emphasized that pre-institution
mediation cannot be bypassed, as the provision is compulsory for non-urgent
cases.
Facts of the Case: Rakheja Engineers had filed a
commercial suit before the District Court, Faridabad, seeking recovery of Rs.
1,00,40,291 along with 12% interest. Patil Automation, in response, filed an
application under Order VII Rules 10 and 11 of the CPC, arguing that the suit
had been filed without complying with the mandatory pre-institution mediation
under Section 12A of the Commercial Courts Act. The trial court, while
recognizing the mandatory nature of Section 12A, allowed the suit to proceed
and referred the parties to mediation, holding that the legislative intent
behind the provision was to ensure settlements but not to automatically reject
suits for non-compliance.
Dissatisfied with the trial court’s decision, Patil
Automation appealed to the Punjab & Haryana High Court, which upheld the
trial court’s ruling, stating that procedural rules should not obstruct
justice.
Finally, Patil Automation approached the Supreme
Court. The Supreme Court ruled that Section 12A is indeed mandatory, and
non-compliance requires the rejection of the plaint. It emphasized that
mediation serves as a crucial mechanism to reduce court congestion. The Court
declared that all suits violating Section 12A must be dismissed unless urgent
interim relief is involved, marking a shift towards strict adherence to
alternative dispute resolution mechanisms in commercial litigation.
The court in the judgment stated : “48- In
contrast, Section 12A cannot be described as a mere procedural law.
Exhausting pre-institution mediation by the plaintiff, with all the benefits
that may accrue to the parties and, more importantly, the justice delivery
system as a whole, would make Section 12A not a mere procedural provision. The
design and scope of the Act, as amended in 2018, by which Section 12A was
inserted, would make it clear that Parliament intended to give it a mandatory
flavour. Any other interpretation would not only be in the teeth of the express
language used but, more importantly, result in frustration of the object of the
Act and the Rules. ”
Benefits and challenges
The rationale behind the mandatory mediation
requirement in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd.
stems from the need to encourage out-of-court settlements and expedite the
resolution of commercial disputes. The judgments emphasized mediation's role as
a faster, more cost-effective alternative to litigation, aligning with global
best practices and India's goal to improve the ease of doing business. By
mandating mediation, the judiciary aims to cultivate a culture that prioritizes
negotiation and settlement.This change benefits parties involved by potentially
saving time and resources while contributing to the judicial economy by
decreasing the caseload on commercial courts.
Despite the clear mandate of Section 12A, practical
challenges arise. The requirement's success depends on having enough trained
mediators and raising awareness among businesses about mediation's advantages.
Commercial entities, typically driven by profit and efficiency, are ideal
candidates for mediation as it minimizes disruption to their business
operations and avoids protracted legal proceedings. However, making mediation
mandatory—rather than voluntary—raises concerns, as it contrasts with the very
essence of mediation, which relies on party autonomy.
International Perspective
Many countries have embraced mediation as a key
part of resolving commercial disputes, with some even mandating it before
litigation. In the UK, while mediation isn't compulsory, courts encourage it
through cost sanctions, as seen in Dunnett v Railtrack. The EU’s
Directive on Mediation similarly promotes mediation in cross-border disputes,
and countries like Italy require parties to mediate before filing lawsuits in
certain sectors. Australia and the US also integrate mediation into their civil
procedures, with some federal and state courts mandating it, especially in
commercial cases.
Singapore and Hong Kong have strong frameworks
promoting mediation, with Singapore’s Mediation Act and the Singapore
Convention on Mediation enhancing the enforceability of mediated settlements
globally. In Canada, provinces like Ontario and British Columbia have mandatory
mediation programs for civil and commercial disputes, while Brazil and New
Zealand have also implemented laws encouraging mediation before litigation.
This global trend reflects a shared aim to reduce litigation costs, ease court
burdens, and foster amicable resolutions, aligning with India’s introduction of
mandatory pre-institution mediation under Section 12A of the Commercial Courts
Act.
While the exact nature of mandatory mediation
provisions varies globally, there is a shared recognition of mediation’s value
in resolving commercial disputes. Whether as a court-mandated step or a
strongly encouraged option, mediation is increasingly seen as a way to alleviate
court congestion, reduce litigation costs, and promote more amicable and
efficient dispute resolutions.
Conclusion
Section 12A of the Commercial Courts Act represents
a significant development in the modern legal landscape, mandating
pre-institution mediation for commercial disputes. This provision is vital in
promoting efficient and amicable resolutions, ultimately alleviating the burden
on commercial courts and encouraging a culture of negotiation over adversarial
litigation. Despite the challenges in its implementation—such as the need for
trained mediators and raising awareness among businesses—the initiative is a
crucial step toward enhancing the ease of doing business in India.
Looking ahead, as India’s business environment
continues to evolve and expand, the importance of effective dispute resolution
mechanisms like Section 12A will only increase. By fostering a more conducive
atmosphere for mediation, stakeholders can navigate commercial conflicts with
greater agility, ensuring that businesses can focus on growth and innovation
rather than protracted legal battles. This proactive approach to dispute
resolution positions India as a forward-thinking jurisdiction, aligning with
global best practices in commercial law.
References
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