[The Viewpoint] Mediation Races Ahead of 'Alternative' Status

The articles discusses the contradictive perspective of the courts regarding Section 12A of the Commercial Courts Acts 2015.
Ashima Obhan, Anubhav Chakravorthy
Ashima Obhan, Anubhav ChakravorthyADMIN

Amendment to the Commercial Courts Act, 2015

In the year 2018, the Government of India amended the Commercial Courts Act, 2015 ("Act") and inserted Section 12A therein. Section 12A of the Act stipulated that any suit which did not contemplate an urgent interim relief under the Act could only be instituted after the plaintiff has exhausted the remedy of pre-institution mediation in accordance with the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018.

This section gave the Central Government the power to authorize the authorities constituted under the Legal Services Authorities Act, 1987 to carry out the aforesaid pre-institution mediation. It also stipulated that the said authorities are required to complete the process of mediation within 3 (three) months from the date of the application being made by the plaintiff. However, the duration can be extended for a further period of 2 (two) months, with the disputing parties' consent.

Further, Section 12A(5) of the Act stated that a settlement arrived pursuant to this section would be accorded the same status and effect as an arbitral award pursuant to Section 30(4) of the Arbitration and Conciliation Act, 1996.

Draft Mediation Bill, 2021

In extension of the pro-mediation stance of the Government of India, the Ministry of Law & Justice proceeded to issue a circular dated November 5, 2021, to place the Draft Mediation Bill, 2021 ("Draft Bill") in public domain and invited comments and suggestions from the general public and other stakeholders.

On the same track as the Act, the Draft Bill too states that a party shall take steps to settle the disputes by pre-litigation mediation prior to the filing of any suit/proceeding in any court/tribunal, pursuant to the provisions of the Draft Bill. The Draft Bill goes a step further to clarify that this requirement would stand regardless of the existence of a mediation agreement between the parties. [Section 6 of the Draft Bill]

Perspective of the Courts

Thereafter, the issue regarding whether Section 12A of the Act imposes a mandate upon parties in dispute was greatly dissected by several High Courts across the country.

Notably, in Deepak Raheja v. Ganga Taro Vazirani, the Bombay High Court, on October 1, 2021 held that Section 12A of the Act is indeed mandatory in case of a commercial suit of a specified value which does not contain any application for urgent interim relief. Similarly, the Calcutta High Court in Laxmi Polyfab v. Eden Realty also observed that a plaintiff's right to approach the Commercial Court/Commercial Division of a High Court for the adjudication of a commercial dispute is not unconditional and the plaintiff must first adhere to Section 12A of the Act.

This view was further solidified by the Calcutta High Court in Dredging and Desiltation Company Pvt. Ltd. v. Mackintosh Burn and Northern Consortium where the court held that the purpose of such pre-institution mediation is to expedite the disposal of commercial disputes. However, the Madras High Court in Shahi Exports Private Limited v. Gold Star Line Limited, had held that a plaintiff's constitutional right to access justice could not be taken away on the ground that the plaintiff failed to first resort to mediation.

Ultimately, these contradicting perspectives were resolved by the Supreme Court, vide its judgement dated August 17, 2022, in Patil Automation Private Limited v. Rakheja Engineers Private Limited. The Supreme Court held that pre-institution mediation is indeed compulsory in nature and non-compliance with the requirements of Section 12A of the Act would cause the plaints to be rejected under Order VII, Rule 11 of the Civil Procedure Code, 1908. By way of a detailed analysis of several judgements opining on the statutory interpretation of mandatory statutory provisions, the Supreme Court arrived at the conclusion that Section 12A of the Act is indeed mandatory, primarily pursuant to: (a) the use of the word "shall" therein; and (b) the legislative intent behind according the same status to a settlement under Section 12A of the Act to that of an award under the Arbitration & Conciliation Act, 1996.

The Road Ahead

This judgement and the legislative landscape it is situated within will likely provide the necessary dilution to the "alternative" status of alternative dispute resolution mechanisms like arbitration, conciliation and mediation. This will foreseeably provide some repose to the conventional court system which is otherwise over-burdened by the large number of pending cases. Commercially, it will also provide entities with a cost-effective avenue to amicably resolve disputes and arrive at speedy, mutually agreeable settlements without significant impact to their goodwill.

Further, it is imperative to note that Section 12A of the Act only mandates that the disputing parties attempt to resolve their dispute through mediation. If a settlement, as contemplated by the Act is not arrived at within the stipulated timelines, the parties will continue to have the right to approach the relevant courts and tribunals to have the dispute adjudicated. Therefore, the moves by the Government to encourage mediation is not only encouraged, but necessary.

Ashima Obhan is a Partner and Anubhav Chakravorty is an Associate at Obhan & Associates.

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