Judgment Name: Patil Automation Private Limited and Others v. Rakheja Engineers Private Limited
Citation: 2022 SCC OnLine SC 1028
Court: Supreme Court of India
Coram: K.M. Joseph & Hrishikesh Roy, JJ,
Date: 17th August, 2022
Keywords: Pre-Litigation Mediation, Section 12A, Commercial Courts Act 2015, Civil Procedure Code (“CPC”), Interim Relief
A Bench of the Supreme Court ruled that pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 (“the Commercial Courts Act”) is mandatory.
Rakheja Engineers, (“the Respondent”), filed a commercial suit before the Additional District Judge, Faridabad, praying for the recovery of Rs. 1,00,40,291/- along with 12 per cent interest. To counter this, Patil Automation, (“the Petitioner”), filed an Application under Order VII, Rule 10 and 11 read with Sections 9 and 20 of the CPC claiming that the Respondent’s suit was filed without reference to Section 12A of the Commercial Courts Act, 2015 which requires the Court to refer the parties to pre-litigation mediation. The Trial Court at Faridabad accepted the contention and referred the parties to mediation under Section 12A of the Commercial Courts Act. The petitioner filed a Civil Revision Petition as an Appeal, before Punjab and Haryana High Court, which confirmed the Trial Court’s decision, which stated that the purpose of Section 12A is to “explore settlement… the enactment is to be interpreted in a manner that does not deliver perverse justice.” Thus, the Petitioner made a final Civil Appeal before the Supreme Court of India through a Special Leave Petition mentioned as No. 5737 of 2022.
Whether pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory.
The Supreme Court observed that Section 12A was a subsequent addition to the Commercial Courts Act, wherein the Statement of Objections and Reasons declared it as a mandatory provision, proving that the statute takes precedence. Therefore, regardless of any judicial interpretation, it could not be held otherwise unless a subsequent Amendment was to be made. The provision uses “shall”, indicating that the provision is mandatory, and any interpretation to the contrary would only be against the objective of the Commercial Courts Act, and if the object of a provision is defeated due to non-compliance, it could be regarded as mandatory. The Court also held that due to the nature of mediation, the period of mediation would not be considered within the Limitation Act, since the award is tantamount to an Arbitral Award and can act as a bar to a civil suit as there is no absolute right to file a suit.
The Petitioner’s counsel argued that since there was no penalty for the violation of Section 12A, it could not be held as mandatory. However, the Court rejected this contention and added that a violation of Section 12A would be rejected under Order VIII, Rule 11 and that this power could be exercised suo moto, thereby providing the Courts with a larger scope for the rejection of a suit, whilst promoting mediation. The Court also held that there must be consent between both parties to begin pre-litigation mediation, which is subject to any interim relief to be granted, and party autonomy.
Mandatory pre-litigation mediation is a boon to Courts as a whole, since it “explores the possibility of settlement”, preventing the parties from utilizing the time and money of the Courts and burdening an already overworked system. It provides a safe, efficient, and amicable alternative to the existing system by allowing parties to exercise their autonomy and create a mutually acceptable solution outside the adversarial system practised in courts, which pits one party against the other. The insertion of Section 12A of the Commercial Courts Act should therefore be upheld, as it provides a viable filter for cases that may require a clarification vis-à-vis an issue of law, as opposed to cases that could be either settled outside of regular dispute resolution mechanisms or resolved extra-judicially.
[This case update has been authored by Aditya Joby, a Senior Editor at Mapping ADR.]