Mandatory mediation hoped to unclog commercial lists

By Sonam Gupta and Anurag Tandon, Bharucha & Partners

The Commercial Courts Act, 2015 (act), expedited the delivery of justice in commercial disputes involving over INR10 million (USD125,500). In 2018, the value of commercial disputes to which the act applied was reduced to INR300,000. Section 12A was added to shorten the list of cases before commercial courts and to promote mediation as an alternative to adversarial litigation. This section mandates mediation prior to the filing of a suit unless the plaintiff is seeking urgent interim relief. However, as the language of section 12A was ambiguous, high courts took differing views on whether pre-institution mediation was mandatory.

Sonam Gupta
Bharucha & Partners

The Supreme Court, in Patil Automation Private Limited and Ors v Rakheja Engineers Private Limited, recently held that pre-institution mediation under section 12A of the act is mandatory. The court took a mediation-friendly approach, holding that section 12A is not merely a procedural provision and that treating it as such would frustrate the intent behind its introduction. The court drew a parallel between section 80 of the Code of Civil Procedure, 1908, which makes it mandatory to issue a notice to the concerned authorities prior to the institution of a suit against any government authority.

The judgment is one in a series in which the court has emphasised strict adherence to timelines and upheld the purpose of the act. The judgment, effective from 20 August 2022, clarifies that it will not revive time-barred claims. Where a high court has already held pre-institution mediation to be mandatory, any case filed without first participating in mediation will be liable to be rejected, either on application or objection being taken by the defendant or by the court.

Considering the huge backlog of cases in the country and India’s endeavour to improve its position in the Ease of Doing Business index, the judgment is a step in the right direction. However, putting it into effect will be challenging, a fact the court acknowledged. Following the reduction of the threshold for commercial disputes, cases have often been filed in district courts that may not have access to qualified mediators experienced in complex commercial disputes. The mediation-friendly approach of the court requires considerable infrastructure strengthening to help mediators deal expeditiously with the complexity and volume of commercial disputes that may now be referred to them. The act prescribes a limit of five months for the completion of mediation proceedings.

Individual states have different eligibility criteria, and lawyers are usually appointed as mediators. To bolster the mediation regime, the legislature should consider amending the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, to prescribe criteria for the qualification of mediators. The increased appointment of subject-matter experts as mediators, if requested by the parties, or where the nature of the case warrants it, will strengthen the mediation process. The appointment may be subject to the concerned individuals receiving appropriate training.

As the judgment observes that section 12A applies only where no urgent interim relief is sought, another consequence, though not one highlighted by the court, is that parties will indiscriminately file applications for urgent interim relief to avoid pre-institution mediation. Courts will have to be more vigilant to determine whether the interim relief sought is indeed urgent, or simply a means to circumvent mandatory mediation. For litigants this may mean heightened judicial scrutiny when proceedings are issued in cases where urgent interim relief is being sought. Unfortunately, the judgment is silent on this aspect and has missed the opportunity to provide guidance to lower courts in such cases. It is also unclear whether such situations will lead to outright rejection of proceedings, or will it simply mean that the matter will be returned to the plaintiff with liberty to participate in mediation.

The judgment, if implemented in letter and spirit, will greatly reduce the number of commercial disputes coming to court. The Supreme Court, in promoting mediation as an alternative to, and not just as a precursor to litigation, has clearly directed potential litigants to resolve disputes in a timely, party-friendly and consultative manner, without incurring exorbitant costs.

Sonam Gupta is a partner and Anurag Tandon is a senior associate at Bharucha & Partners.

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