The Supreme Court has held that commercial suits filed before August 20, 2022, without complying with pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, cannot be rejected on that ground under Order VII Rule 11 of the Code of Civil Procedure (CPC) [M/s Dhanbad Fuels Pvt Ltd v. Union of India]
A Bench of Justices JB Pardiwala and R Mahadevan dismissed an appeal against a Calcutta High Court order that had kept a 2019 money suit in abeyance and referred the parties to mediation instead of rejecting the plaint.
“Thus, what is clear from a joint reading of both these observations is that while Section 12A is held to be mandatory from the date of the inception of the provision itself, the consequence of rejection for non-compliance is only made applicable prospectively,” the Court held.
The Central government had instituted a money suit in August 2019 seeking recovery of ₹8.73 crore from Dhanbad Fuels. The defendant sought rejection of the plaint under Order VII Rule 11(d) CPC for failure to comply with Section 12A, which requires pre-institution mediation in commercial suits where no urgent interim relief is claimed.
Both the commercial court and the Calcutta High Court declined to reject the plaint, instead directing that the suit be kept in abeyance. The parties referred to mediation under the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (PIMS Rules).
The appellant argued that the Supreme Court’s decision in Patil Automation Pvt Ltd v. Rakheja Engineers Pvt Ltd mandated dismissal of all suits not preceded by mediation under Section 12A.
In Patil Automation, the Court held that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory for all commercial suits that do not seek urgent interim relief. The Court ruled that failure to undertake such mediation before filing a suit would render the plaint liable to rejection under Order VII Rule 11 of the Civil Procedure Code. However, to avoid disruption of existing proceedings, the Court applied this ruling prospectively from August 20, 2022.
In the case at hand, the Court acknowledged that Patil Automation had held Section 12A to be mandatory, but also prospectively applied the consequence of rejection of plaints for non-compliance, making that part of the ruling effective only from August 20, 2022.
“Directing the institution of a fresh suit would result in forfeiture of court fees and serve no practical benefit. The High Court’s direction to keep the suit in abeyance and refer the parties to mediation strikes the right balance,” the Court said.
It also accepted the Union’s argument that in 2019, the mediation infrastructure in West Bengal was not yet functional, with the panel of trained mediators and standard operating procedure only being notified in late 2020.
For suits filed prior to the Patil Automation judgment, the Court held that they “cannot be rejected under Order VII Rule 11 on the ground of non-compliance with Section 12A,” unless they fall within specific exceptions outlined in Patil Automation—such as when a plaint was already rejected and limitation has expired, or a compliant fresh suit has been filed.
In such pending suits where “no urgent interim relief was sought,” courts may “keep the suit in abeyance and direct the parties to explore the possibility of mediation in accordance with the 2015 Act, the PIMS Rules and the 2020 SOP.”
The Court explained that “post-institution mediation, while keeping the suit in abeyance, is only envisaged for the limited category of cases” protected by the prospective ruling in Patil Automation, and “not as a substitute for Section 12A, but as a pragmatic solution.”
Ultimately, the Court endorsed the High Court’s approach, holding that it “strikes a perfect balance between the mandatory nature of Section 12A... and the prospective applicability of the consequence of non-compliance.”
The petitioners were represented by Senior Advocates Vikas Singh, Pradip K Tarafder and Advocates Deepeika Kalia, V Singh, Sudeep Chandra, Shambudha Dutta and Anjani Aiyagari.
The respondents were represented by Solicitor General Tushar Mehta, Additional Solicitor General Archana Pathak Dave and Advocates Harshita Choubey, Sudarshan Lamba, Aaditya Dixit, Mili Baxi and Bhuvan Kapoor.
[Read Judgment]