Pre-institution mediation mandatory even for counter-claims in commercial suits: Delhi High Court

The Delhi High Court recently held that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 is a mandatory requirement even for counter-claims in commercial cases. [Aditya Birla Fashion And Retail Limited v. Mrs Saroj Tandon].Section 12A prescribes that a suit, which does not contemplate any urgent interim relief, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation.Justice Manoj Jain held that a counter-claim, like any other commercial suit, has to go through all the stipulated rigours under the law. The Court held,"The Commercial Courts Act 2015 and Civil Procedure Code (CPC) do not contain any provision providing for different treatment for any such counter-claim...During the trial and till its eventual disposal, the rules for the game have to remain same and similar for any plaint and yes, for the counterclaim as well.".The respondent in this case is the owner of a shop and the petitioner is the lessee. During the COVID-19 pandemic, the petitioner had to shut down the shop and terminate the lease. However, the respondent did not refund the security amount deposited by the petitioner.As required in commercial cases, the petitioner first moved an application under Section 12A (remedy of dispute resolution by mediation before instituting suit) of the Commercial Courts Act, 2015 before the Saket district court. The respondent did not appear. Thereafter, the petitioner filed a recovery suit before the Delhi High Court.Before the High Court, the respondent appeared and filed a counter-claim in the same suit without first appearing for the pre-institution mediation. The petitioner sought rejection of the counter-claim, which was dismissed by the trial court. Aggrieved, the petitioner filed a writ petition before the Delhi High Court..The question before the High Court was whether recourse to Section 12A is obligatory or optional in context of counter-claims in a commercial dispute not seeking urgent relief..The High Court rejected the trial court’s view that though such process was mandatory for a suit, it was not necessary for a counter-claim. It held that the opposite party in a counter-claim gets an indefeasible legal right to participate in mediation prior to the institution of the counter-claim."Merely because, such option was availed/ attempted to be availed in the initial stage and proved to be unsuccessful or returned non-starter, would not suggest and signify that any counter-claimant can straightaway file a commercial suit, not contemplating any urgent relief," the judgment stated..Further, the Court observed that counter-claims in a commercial dispute have to mandatorily follow the rules and procedures prescribed for a commercial suit. Referring to the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, the Court said,“...the scheme of the Rules and the intent of the Legislature was never to oust the requirement of pre-institution mediation and settlement for any party and wherever there is a commercial dispute.”.The respondent’s counsel argued that where both the parties have already mediated the matter at the stage of institution of the originally filed suit and such process was unsuccessful, the the same parties cannot be compelled to go through the entire process of mediation all over again.The Court noted that during the first process of mediation, the process was sent to the counter-claimant twice to participate, but it choose not to appear. The same counter-claimant was found to be avoiding the obligatory requirement when it comes to his own suit, on the pretext that such remedy has been exhausted, the Court said. It thus held,"In view of above said discussion, it clearly emerges out that process of pre-institution mediation is mandatory for every suit involving a commercial suit and no distinction can be drawn when it comes to a counter-claim involving a commercial dispute and not contemplating any urgent relief.".Advocates Varun Sharma, Akhil B Kukreja and Sanchita Chamoli appeared for the appellants.Advocates Aastha Dhawan, Shalini Bhardwaj and Aditya Sharma represented the respondents..[Read here]