The Supreme Court of India addressed a significant issue in M/S. Patil Automation Private Limited and Ors. vs. Rakheja Engineers Private Limited: whether pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory. This judgment clarified the scope and applicability of Section 12A, emphasizing its role in promoting alternative dispute resolution and decongesting the judiciary. The decision has far-reaching implications for commercial litigation and procedural law in India.

Background:
The Commercial Courts Act, 2015, was introduced to provide an efficient mechanism for resolving commercial disputes, thereby improving India's business environment. To further this objective, Section 12A was added through the 2018 Amendment, mandating pre-litigation mediation for commercial disputes, barring cases involving urgent interim relief. However, conflicting High Court judgments on its mandatory nature necessitated a ruling from the Supreme Court.

• Nature of the Dispute: The respondent filed a commercial suit under Order XXXVII of the Code of Civil Procedure, 1908 (CPC), seeking recovery of ₹1,00,40,291/- along with 12% interest for unpaid dues arising from a commercial transaction.
• Appellant's Application: The appellants filed an application under Order VII Rule 11 CPC, seeking rejection of the plaint for non-compliance with Section 12A of the Commercial Courts Act, which mandates pre-institution mediation.
• Trial Court's Decision: The trial court dismissed the application, holding that non-compliance with Section 12A was not fatal to the suit. It directed the parties to mediation under the District Legal Services Authority.
• High Court's Ruling: The Punjab and Haryana High Court upheld the trial court's decision, emphasizing that procedural rules are meant to advance justice and should not be used to reject suits on technical grounds.
• Supreme Court Appeal: The appellants challenged the High Court's decision, arguing that Section 12A is mandatory and failure to comply renders the suit non-maintainable.
• Issues Raised:
  • Is Section 12A of the Commercial Courts Act, 2015, mandatory?
  • Can a suit filed without adhering to Section 12A be rejected under Order VII Rule 11 CPC?
  • What is the interplay between procedural compliance and the constitutional right to access justice?
• Appellants' Submissions:
  • Mandatory Nature of Section 12A: The use of the term "shall" in Section 12A indicates a mandatory requirement. The provision aims to promote mediation and decongest courts, aligning with the legislative intent.
  • Legislative Intent: Section 12A was introduced to enhance the ease of doing business by providing an efficient dispute resolution mechanism.
  • Precedents: Reliance was placed on Bhagchand Dagadusa Gujrathi v. Secretary of State for India and State of Madras v. C.P. Agencies, which held procedural requirements like Section 80 CPC to be mandatory.
  • No Prejudice to Plaintiff: Rejection of the plaint under Order VII Rule 11 does not bar the plaintiff from filing a fresh suit after complying with Section 12A.
• Respondent's Submissions:
  • Directory Nature of Section 12A: Section 12A should be interpreted as directory, not mandatory, to uphold the constitutional right to access justice.
  • Substantial Justice Over Technicalities: Courts should prioritize substantive justice over procedural formalities.
  • Flexibility in Mediation: Post-institution mediation, as directed by the trial court, fulfills the legislative intent of Section 12A.
• Judgments and Citations Referred:
• Appellants' References:
  • Bhagchand Dagadusa Gujrathi v. Secretary of State for India (AIR 1927 PC 176): Emphasized the mandatory nature of procedural requirements.
  • State of Madras v. C.P. Agencies (AIR 1960 SC 1309): Held that procedural compliance is essential for maintaining suits.
  • Madiraju Venkata Ramana Raju v. Peddireddigari Ramachandra Reddy (2018 14 SCC 1): Discussed the implications of non-compliance with statutory requirements.
• Respondent's References:
  • Kailash v. Nanhku (2005 4 SCC 480): Held that procedural rules should not defeat substantive justice.
  • Ganga Taro Vazirani v. Deepak Raheja (2021 SCC OnLine Bom 195): Held Section 12A to be directory (later overruled).

Provisions of Law Discussed:
Section 12A, Commercial Courts Act, 2015: Mandates pre-institution mediation for commercial disputes, barring cases involving urgent interim relief. Order VII Rule 11 CPC: Provides for rejection of plaints that are barred by law. Legal Services Authorities Act, 1987: Governs the mediation process under Section 12A. Analysis and Reasoning of the Court Evolution of Law and Insertion of Section 12A in the Commercial Courts Act, 2015 The Supreme Court, in its judgment in M/S. Patil Automation Private Limited and Ors. vs. Rakheja Engineers Private Limited, provided a detailed discussion on the legislative history and intent behind the insertion of Section 12A into the Commercial Courts Act, 2015. Below is an analysis of how the Court traced the evolution of the law and its context:

Origin of the Commercial Courts Act, 2015:
The Commercial Courts Act, 2015, was introduced to address the increasing volume of commercial disputes and to improve the efficiency of the judicial system in handling such cases. The primary objectives were: To facilitate the speedy adjudication of commercial disputes. To enhance India's ranking in the "Ease of Doing Business" index by creating a robust dispute resolution framework. To ensure that commercial disputes of a specified value were adjudicated by specialized courts.

Initially, the Act applied to disputes with a minimum monetary value of ₹1 crore. It also provided for the constitution of Commercial Courts at the district level and Commercial Divisions in High Courts with original jurisdiction. The 2018 Amendment to the Commercial Courts Act:Recognizing the need to further streamline dispute resolution, the legislature enacted the Commercial Courts, Commercial Division, and Commercial Appellate Division of High Courts (Amendment) Act, 2018. The Amendment introduced significant changes:

Reduction of Specified Value:
The threshold monetary value for commercial disputes was reduced from ₹1 crore to ₹3 lakhs to bring more disputes under the Act's ambit. Introduction of Section 12A: This provision mandated pre-institution mediation and settlement for commercial disputes that did not seek urgent interim relief. Legislative Intent Behind Section 12A:The Court highlighted the intent behind introducing Section 12A: Decongestion of Courts: With the reduction in the monetary threshold, the volume of commercial cases was expected to increase significantly.

To prevent overburdening the judiciary, Section 12A introduced a mandatory pre-litigation mediation mechanism. Promotion of Alternative Dispute Resolution (ADR): Mediation was envisioned as a faster, cost-effective, and amicable method to resolve disputes, reducing the need for litigation.Ease of Doing Business: The provision aimed to create a more business-friendly environment by ensuring that disputes were resolved efficiently and amicably wherever possible.The Statement of Objects and Reasons accompanying the 2018 Amendment emphasized that early resolution of even low-value commercial disputes would enhance investor confidence and improve India's global standing in dispute resolution mechanisms.

Text of Section 12A and Its Key Features:
The Court quoted Section 12A in its entirety to analyze its language and implications: Mandatory Pre-Litigation Mediation: Section 12A(1) states that a suit "shall not be instituted" unless the plaintiff has exhausted the remedy of pre-institution mediation. Exceptions for Urgent Interim Relief: The provision allows plaintiffs to bypass mediation if the suit involves an urgent need for interim relief. Mediation Framework: The Central Government was authorized to notify Legal Services Authorities under the Legal Services Authorities Act, 1987, to facilitate the mediation process. Timelines: The mediation process must be completed within three months, extendable by two months with the consent of the parties. Settlement Status: Any settlement reached through this process has the same effect as an arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996.

Judicial Analysis of Section 12A's Evolution:
he Court examined the evolution of procedural laws in India, including analogous provisions like Section 80 of the CPC (notice to the government before filing a suit) and Section 69 of the Indian Partnership Act (bar on suits by unregistered firms). These provisions, despite being procedural, were held to be mandatory because they served larger public policy objectives. Similarly, Section 12A was deemed mandatory because: It was introduced to further public interest by reducing litigation and promoting ADR. The language of the provision, particularly the use of the word "shall," indicated a legislative intent to impose a mandatory obligation. Non-compliance would undermine the legislative intent and defeat the purpose of the provision.

Comparison with Section 89 CPC:
The Court referred to Section 89 of the CPC, which mandates courts to explore ADR mechanisms during litigation. However, Section 12A was distinguished as it operates pre-litigation, making compliance a condition precedent for instituting a suit. The Court emphasized that Section 12A was not a mere procedural provision but a substantive one that conditions the plaintiff's right to file a suit.

Practical Implications of Section 12A:
The Court noted that Section 12A creates a structured mechanism for resolving disputes without resorting to litigation. It reduces costs, saves time, and fosters goodwill between parties. The provision also provides safeguards: If the opposite party refuses to participate in mediation, the process is deemed a "non-starter," allowing the plaintiff to proceed with litigation. The time spent in mediation is excluded from the limitation period under the Limitation Act, 1963.

Judicial Precedents on Section 12A:
The Court acknowledged conflicting High Court judgments on the mandatory nature of Section 12A: Bombay High Court (Ganga Taro Vazirani v. Deepak Raheja): Initially held Section 12A to be directory. Division Bench of Bombay High Court (Deepak Raheja v. Ganga Taro Vazirani): Overruled the earlier decision, declaring Section 12A mandatory. Calcutta High Court: Delivered conflicting judgments, with some treating Section 12A as mandatory and others as directory. The Supreme Court resolved this divergence by unequivocally holding that Section 12A is mandatory.

Decision:
The Supreme Court allowed the appeals, holding that:Section 12A is mandatory. Suits filed without complying with Section 12A, unless they seek urgent interim relief, are barred. Such suits are liable to be rejected under Order VII Rule 11 CPC. 

Concluding Note:
This landmark judgment reinforces the importance of adhering to procedural laws aimed at promoting alternative dispute resolution. It strikes a balance between judicial efficiency and the principles of access to justice, setting a precedent for future cases involving procedural compliance.

Case Title: Patil Automation Private Limited and Ors. Vs. Rakheja Engineers Private Limited
Date of Order: August 17, 2022
Case No.: Civil Appeal No. of 2022 (Arising out of SLP (C) No. 14697 of 2021)
Neutral Citation: Not available in the document
Court: Supreme Court of India
Judge: Justice K.M. Joseph

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Written By: Advocate Ajay Amitabh Suman, IP Adjutor - Patent and Trademark Attorney
Email: ajayamitabhsuman@gmail.com, Ph no: 9990389539