In a significant ruling, Patil Automation Private Limited and Ors. VS. Rakheja Engineers Private Limited, SLP (C) No. 14697 of 2021, dated August 17, 2022, a division bench of the Hon’ble Supreme Court of India declared that Section 12A of the Commercial Courts Act 2015, which mandates pre- institution mediation, is mandatory and suits which are filed violating the mandate of Section 12A must be rejected under Order VII Rule 11. Persons authorized by the Central Government can act as Mediators.
BRIEF FACTS OF THE CASE
Proceedings before the Additional District Judge, District Court, Faridabad
Rakheja Engineers filed a commercial suit before the Additional District Judge, District Court, Faridabad, praying for recovery of Rs. 1,00,40,291/- along with 12 per cent interest. In response, Patil Automation filed an application under Order VII Rules 10 and 11 read with Sections 9 and 20 of the CPC, inter alia contending that the suit was filed without adhering to Section 12A of the Act. RAKHEJA ENGINEERS contested the application.
The Trial Court rejected Patil Automation’s contention and disposed of its application observing that that “ On bare perusal of Section 12A, it is crystal clear that the procedure provided is mandatory in nature and if by applying the said principles, the suit of the plaintiff is rejected, then it would have a catastrophe effect. The court is of the view that the legislature has no such intention to frame such stringent provision the said rules. The aim and object of Section 12A is to ensure that before a commercial dispute is filed before the court, the alternative means of dissolution are adopted so that the genuine cases come before the Court. Further, it also appears to the court that the said procedure has been introduced to de-congest the regular courts.” The Trial Court kept the suit in abeyance and directed both the parties to appear before the Secretary, District Legal Services Authority, Faridabad for the purpose of mediation as per the provisions of Section 12A of the Commercial Courts Act and the Rules framed thereunder.
Proceedings before the Punjab & Haryana High Court
However, Patil Automation filed a Civil Revision Petition before the High Court of Punjab and Haryana. The High Court also confirmed the findings of the Trial Court and further held that “the Courts are meant to deliver substantial justice. The rules of procedure are handmaid of justice and are meant to advance the ends of justice and they are not to be bogged down by the technicalities of procedure so as to lose sight of its main duty which is to dispense justice.”
The High Court observed that “It was further found that the purpose of referring the dispute to Mediation Centre is to explore settlement. If the suit is filed without taking recourse to the procedure, it is further found, it should not entail rejection of the plaint. This could not have been the intention of the legislature. It is further observed that an enactment is to be interpreted in a manner that it does not result in delivery of ‘perverse justice”
Proceedings before the Supreme Court of India
Patil Automation was not satisfied and further appeal to the Supreme Court of India. The Supreme Court made the following observations :
“The Act did not originally contain Section 12A. It is by amendment in the year 2018 that Section 12A was inserted. The Statement of Objects and Reasons are explicit that Section 12A was contemplated as compulsory. The object of the Act and the Amending Act of 2018, unerringly point to at least partly foisting compulsory mediation on a plaintiff who does not contemplate urgent interim relief. The provision has been contemplated only with reference to plaintiffs who do not contemplate urgent interim relief.
The Legislature has taken care to expressly exclude the period undergone during mediation for reckoning limitation under the Limitation Act, 1963. The object is clear. It is an undeniable reality that Courts in India are reeling under an extraordinary docket explosion. Mediation, as an Alternative Dispute Mechanism, has been identified as a workable solution in commercial matters. In other words, the cases under the Act lend themselves to be resolved through mediation. Nobody has an absolute right to file a civil suit. A civil suit can be barred absolutely or the bar may operate unless certain conditions are fulfilled. The language used in Section 12A, which includes the word ‘shall’, certainly, goes a long way to assist the Court to hold that the provision is mandatory.
The entire procedure for carrying out the mediation, has been spelt out in the Rules. The parties are free to engage Counsel during mediation. The expenses, as far as the fee payable to the Mediator, is concerned, is limited to a one-time fee, which appears to be reasonable, particularly, having regard to the fact that it is to be shared equally. A trained Mediator can work wonders. Mediation must be perceived as a new mechanism of access to justice. We have already highlighted its benefits. Any reluctance on the part of the Court to give Section 12A, a non-mandatory interpretation, would result in defeating the object and intention of the Parliament.
The fact that the mediation can become a non-starter, cannot be a reason to hold the provision not mandatory. Apparently, the value judgment of the Law-giver is to give the provision, a modicum of voluntariness for the defendant, whereas, the plaintiff, who approaches the Court, must, necessarily, resort to it. Section 12A elevates the settlement under the Act and the Rules to an award within the meaning of Section 30(4) of the Arbitration Act, giving it meaningful enforceability. The period spent in mediation is excluded for the purpose of limitation. The Act confers power to order costs based on conduct of the parties.”
Since the suit did not contemplate an urgent interim relief, the Supreme Court observed that the impugned orders must be set aside and the applications under Order VII Rule 11 be allowed.
The Court went on to clarify that 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.
In the light of the above the Court declared that Section 12A of the Act is mandatory and held that any suit instituted violating the mandate of Section 12A must be rejected under Order VII Rule 11.
The Apex Court added that this power can be exercised even suo moto by the court as explained earlier in the judgment.
This declaration has been made effective from 20.08.2022 so that concerned stakeholders become sufficiently informed
The Court also clarified the position regarding plaints which are pending or are already rejected and directed 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.
• If the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect cannot be availed of by the plaintiff.
• 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.
As far as the present case was concerned the Supreme Court held that it is a case where Patil Automation would have succeeded and the plaint rejected, however in the interest of Justice the Court ordered that the written statement filed by Patil Automation be treated as the application for leave to defend filed within time within the meaning of Order XXXVII and the matter considered on the said basis.
The Apex Court added that it disapproves the reasoning in the impugned orders but it declined to otherwise interfere with the orders and the two appeals stood disposed of accordingly.
Authors Note:
We anticipate that this judgment would have a positive impact of substantially reducing the burden of pending Commercial Cases before the Commercial Courts in the Country; it is also likely to result in much faster and more affordable settlements of Commercial disputes. This judgment should be taken note of in Trademark and Patent disputes particularly where Plaintiff’s are not seeking any interim relief. The matter must first be referred to mediation before the mediation centre of the Court and only after there is no resolution in the Mediation Centre the proceedings can be filed in Court.
