Supreme Court Upholds Mandatory Mediation In Commercial Disputes: Applicability Of Section 12A Of The Commercial Courts Act, 2015

Introduction

The Supreme Court of India recently delivered a landmark judgment in M/s Dhanbad Fuels Private Limited v. Union of India & Anr.¹, reinforcing that pre-institution mediation in commercial disputes is mandatory in nature. Section 12A of The Commercial Courts Act, 2015 mandates per-institution mediation for commercial suits that do not seek urgent interim relief.

The ruling has significant implications for commercial litigation, particularly in light of the Court's earlier decision in Patil Automation Pvt. Ltd. & Ors. v. Rakheja Engineers Pvt. Ltd.²

Background of the Case

The dispute arose when Union of India (Respondent) filed a commercial suit in 2019 before the Commercial Court at Alipore, West Bengal for recovery of Rs. 8.73 crore from M/s Dhanbad Fuels Private Limited (Appellant) for differential freight and penalties under a contract. The suit did not seek any urgent interim relief. The Appellant filed an application under Order VII Rule 11(d) of The Civil Procedure Code, 1908 (CPC) arguing that the plaint should be rejected due to non-compliance of Section 12A of the Act.

The Commercial Court dismissed the application, citing infrastructural deficiencies and delay in raising objections. The matter was referred for post-institution mediation. Dissatisfied with the decision, Appellant approached the Calcutta High Court, which directed the Respondent to comply with Section 12A via the District Legal Services Authority (DLSA). The Appellant then challenged this order before the Supreme Court.

Key Issues before the Supreme Court

1. Whether non-compliance with Section 12A mandates rejection of the plaint under Order VII Rule 11(d) of CPC?
2. Whether suits instituted before the Patil Automation ruling are protected due to its prospective nature?

Judgment

The Supreme Court relied on its previous judgment of Patil Automation (supra) to conclude as follows:

1. The decision in Patil Automation (supra) lays down the correct position of law as regards Section 12A of the 2015 Act by holding pre-institution mediation to be mandatory in nature and the declaration relates back to the date of the Amending Act.
2. Any suit which is instituted under the 2015 Act without complying with Section 12A is liable to be rejected under Order VII Rule 11. However, this declaration applies prospectively to suits instituted on or after 20.08.2022 as held in para 113.1 of the decision in Patil Automation (supra).
3. In case plaints filed before 20.08.2022 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 declaration as held in para 113.2 and 113.3 of the decision in Patil Automation (supra).
4. In suits instituted without complying with Section 12A of the 2015 Act prior to 20.08.2022 which are pending adjudication before the trial court, the court shall keep the suit in abeyance and refer the parties to time-bound mediation in accordance with Section 12A of the 2015 Act if an objection is raised by the defendant by filing an application under Order VII Rule 11, or in cases where any of the parties express an intent to resolve the dispute by mediation.
5. A suit which contemplates an urgent interim relief may be filed under the 2015 Act without first resorting to mediation as prescribed under Section 12A of the 2015 Act.
6. The test for "urgent interim relief" is, if on an examination of the nature and the subject-matter of the suit and the cause of action, the prayer of urgent interim relief by the plaintiff could be said to be contemplable when the matter is seen from the standpoint of the plaintiff.
7. Courts must also be wary of the fact that the urgent interim relief must not be merely an unfounded excuse by the plaintiff to bypass the mandatory requirement of Section 12A of the 2015 Act.
8. Even if the urgent interim relief ultimately comes to be denied, the suit of the plaintiff may be proceeded with, without compliance with Section 12A if the test for "urgent interim relief" is satisfied notwithstanding the actual outcome on merits.

Conclusion

This ruling reinforces the importance of pre-institution mediation in commercial disputes, ensuring that parties explore settlement before resorting to litigation. It also provides clarity on the prospective application of the Patil Automation ruling, safeguarding suits filed before its pronouncement.

Footnotes

1. Civil Appeal No. 6846 OF 2025

2. (2022) 10 SCC 1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.