[S.12A Commercial Courts Act] Pre-Institution Mediation Is Intended To Encourage Parties To Use Litigation As Last Resort: Calcutta HC

The Calcutta High Court bench of Justice Soumen Sen and Justice Biswaroop Chowdhury has held that the clear intent of Section 12A of the Commercial Courts Act, 2015 is to encourage parties to use litigation as a last resort and to resolve commercial disputes amicably, informally, cheaply and quickly under the process of mediation. Additionally, the court modified the interim relief to the effect that upon the appellant making payment of Rs.2 crores and filing an affidavit of assets and schedule of payments respectively for other creditors. The appellant shall be permitted to utilize the rest of the amounts injuncted by the impugned order. Brief Facts: The plaintiff/respondent no. 1 is a guarantor of Non-Convertible Debentures in favour of CDC group Plc aggregating Rs.40 Crores. The plaintiff contended that there was a default in payment of the plaintiff as per the Debenture Trust Deed and the Debenture Trustee had invoked the deed of guarantee. Also, the plaintiff as a guarantor paid the default amounts to the respondent no.2, debenture trustee. Now, a total amount of Rs.18 crores is due and payable by the appellant as per clause 4 of the Payment Undertaking. The appellant didn't discharge its liabilities despite repeated demands. Then, a suit was filed in the Commercial Division of the department concerned for dispensation of the mandatory requirement of Section 12A of the Commercial Courts Act, 2015. The Judge passed two orders and granted leave. Then, the plaintiff filed an application under Section 12(A) of the Commercial Courts Act, 2015 for exemption from applying for Pre-institution Mediation in view of the urgent interim reliefs. Also, the plaintiff filed an application for interim relief under Order XXXIX Rules 1 and 2 read with Section 151 of the Code of Civil Procedure. Then, the Commercial Judge passed an order granting leave under Section 12(A). Thereafter, an ex-parte ad-interim order was passed restraining the appellant from making any payment including any payment to any third-party creditors before the petitioners' monetary overdue is cleared. Aggrieved by this order, the appellant challenged this order in court. The appellant argued that no application was served upon the appellant before such leave was obtained. The appellant also relied on the judgment in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022), wherein the court held that it has a suo motu power to reject the plaint, in the event the court is satisfied that the urgency pleaded was not genuine and is only a pretext to circumvent the mandatory provision of Section 12A. Also, the creditors contended that the order ought not to have been passed without hearing the IDFC Frist Bank. Observation of the court: The court examined Section 12(A) of the Act and observed that the clear intent of this provision is to encourage parties to use litigation as a last resort and to resolve commercial disputes amicably, informally, cheaply and quickly under the process of mediation. Moving further, the court noted that “Contemplation” would not mean an instant immediacy but the prejudice and the irreparable loss and injury that the plaintiff is likely to suffer if the plaintiff is made to wait for pre-litigation mediation. The court has to examine whether the facts and circumstances justify a genuine apprehension as opposed to a camouflage of an irreparable injury the plaintiff is likely to suffer. Further, the court relied on the judgment in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022). Thereafter, the court held that the impugned order shows that preferential treatment was given to the plaintiff as regards repayment of the loan or advances by the plaintiff over other creditors. Finally, the court modified the interim relief to the effect that upon the appellant making payment of Rs.2 crores and filing an affidavit of assets and schedule of payments respectively for other creditors. The appellant shall be permitted to utilize the rest of the amounts injuncted by the impugned order. Case Title: Asa International India Microfinance Ltd. v. Northern ARC Capital Ltd. & Anr. Case Number: FMAT 3 of 2025 with IA No. CAN 1 of 2025 CAN 2 of 2025 Counsel for the Appellant: Mr. Surajit Nath Mitra, Sr. Adv Mr. Swatarup Banerjee Ms. Saheli Sen Mr. Rajib Mallick Ms. Ayantika Saha Counsel for the Respondent No. 1: Mr. Jishnu Chowdhury, Sr. Adv Ms. Trisha Mukherjee Mr. Chetan Kabra Counsel for the Intervenor/IDFC First Bank/Creditor: Mr. Pramit Bag Mr. Dip Jyoti Chakraborty Mr. Anuj Mishra Mr. Amit Pareek Date of Judgment: 17.01.2025 Click Here To Read/Download The Order

[S.12A Commercial Courts Act] Pre-Institution Mediation Is Intended To Encourage Parties To Use Litigation As Last Resort: Calcutta HC

Soumya Chakrabarti

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[S.12A Commercial Courts Act] Pre-Institution Mediation Is Intended To Encourage Parties To Use Litigation As Last Resort: Calcutta HC

Soumya Chakrabarti

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