Alternative Dispute Resolution

Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd.

(2022) 10 SCC 1

Citation: (2022) 10 SCC 1
Court: Supreme Court of India
Date: 17 August 2022
Bench: K.M. Joseph and Hrishikesh Roy, JJ.

Facts

Section 12A of the Commercial Courts Act, 2015 was introduced to require pre-institution mediation in specified commercial disputes.
It states that a commercial suit which does not contemplate urgent interim relief shall not be instituted unless the plaintiff first exhausts pre-institution mediation.
Several commercial recovery suits were filed without following this procedure.
The plaintiffs did not seek genuine urgent interim relief.
Defendants applied for rejection of the plaints under Order VII Rule 11 CPC.
The trial courts and High Courts took differing approaches.
Some treated Section 12A as merely directory.
Others believed that directing mediation after filing the suit substantially satisfied the statutory purpose.
The Supreme Court considered whether non-compliance affected the validity of the institution of the suit.

Issue

Whether pre-institution mediation under Section 12A is mandatory or merely directory.
Whether a suit instituted without compliance must be rejected.
Whether mediation ordered after institution can cure the original defect.

Rule

A commercial suit that does not contemplate urgent interim relief cannot be instituted before the plaintiff exhausts pre-institution mediation.
The word “shall,” read with the provision’s purpose and scheme, creates a mandatory condition precedent.
Non-compliance attracts rejection of the plaint under Order VII Rule 11.
The court may reject the plaint even on its own motion.
Rejection does not permanently extinguish the claim; a fresh suit may ordinarily be filed after compliance, subject to limitation.
Post-filing mediation does not retrospectively cure non-compliance with a pre-institution requirement.
The requirement does not apply where genuine urgent interim relief is contemplated.

Application

The Supreme Court examined the statutory wording and found it prohibitory.
Section 12A does not merely advise plaintiffs to consider mediation.
It declares that the suit “shall not be instituted” until the prescribed process has been exhausted.
Parliament deliberately placed mediation before institution so that parties would attempt settlement:
before incurring full litigation costs;
before adversarial positions hardened;
before court time was consumed; and
while commercial relationships might still be preserved.
Treating the provision as optional would allow every plaintiff to bypass it by directly filing a suit.
That would defeat the statutory design.
The Court rejected the argument that a plaintiff possesses an unrestricted fundamental right to institute a civil suit in any chosen manner.
Legislation may impose lawful procedural conditions before a particular category of action is filed.
It also rejected the argument that mediation would be pointless where the defendant appeared unwilling.
The statutory process includes the possibility that the opposite party may refuse participation.
Even such a non-starter report demonstrates formal exhaustion of the required process.
The Court distinguished pre-institution mediation from mediation ordered after filing.
A later reference does not alter the fact that the suit was instituted in violation of an express statutory bar.
Therefore, post-filing mediation cannot validate the original institution.
The settlement mechanism further supported mandatory interpretation.
A settlement reached under Section 12A receives the same status and effect as an arbitral award on agreed terms.
Parliament therefore intended the process to produce legally effective outcomes, not informal discussions.
Where a plaint is filed without compliance and no urgent interim relief is involved, the court must reject it under Order VII Rule 11.
The Court, however, applied the declaration prospectively from 20 August 2022 to prevent disruption of numerous suits filed under the earlier conflicting judicial understanding.
It also warned courts to examine claims of “urgent interim relief” realistically.
A plaintiff cannot evade mediation merely by adding an artificial interim-relief prayer.

Conclusion

The Supreme Court held that Section 12A pre-institution mediation is mandatory.
A commercial plaint filed without complying with it, where no urgent interim relief is contemplated, must be rejected.
Mediation after institution does not cure the defect.
The declaration was made operative prospectively from 20 August 2022.
Use this case for: pre-institution mediation is a compulsory gateway for commercial suits that do not genuinely require urgent interim relief.