Pre-Institution Mediation Under Commercial Courts Act

Chitra Narayan

20 Oct 2022 8:19 AM GMT

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  • Pre-Institution Mediation Under Commercial Courts Act

    A series of judgements since early 2021, culminating in the decision of the Supreme Court in M/s. Patil Automation Private Limited v Rakheja Engineers Private Limited (2022 LiveLaw (SC) 678 )have discussed the scope of section 12A of the Commercial Courts Act, 2015 (the Act), that prescribes mediation before commercial disputes are filed before the court. In August this year, the...

    A series of judgements since early 2021, culminating in the decision of the Supreme Court in M/s. Patil Automation Private Limited v Rakheja Engineers Private Limited (2022 LiveLaw (SC) 678 )have discussed the scope of section 12A of the Commercial Courts Act, 2015 (the Act), that prescribes mediation before commercial disputes are filed before the court. In August this year, the Supreme Court in Patil Automation, declared that section 12A of the Act, is mandatory. Consequently, it held that a suit in respect of a commercial dispute filed without attempting mediation would be barred by section 12A and should be rejected.

    This judgment and judgements of the Madras and Delhi High Courts following it, have raised certain issues on the scope of the exception carved by this section that permits the filing of commercial suits where urgent interim reliefs are sought, without prior recourse to mediation. The High courts have variously interpreted this exemption, considering whether urgent interim relief is an objective assessment to be made by the courts or an assessment of parties who file the suit, and whether the norms for such assessment would vary depending on the subject matter of the suit.

    More problematically, these interpretations have posited the need for urgent interim relief and the requirement of pre-institution mediation as spheres of contestation in section 12A. Contributed in no small measure by the drafting of section 12A, this leads to a false binary of either interim relief or mediation. The policy behind encouraging the use of mediation, indeed the process of mediation itself, accommodates the needs of parties in securing resolution, of which the preservation of their rights is an integral part.

    In the Commercial Courts Act, 2015, mediation is integrated in the dispute resolution process in two stages. The first is in section 12A, mandating mediation before the filing of a suit – that is considered in detail below, and the second is in the amendments to the Code of Civil Procedure, 1908 (CPC) in its application to commercial disputes. Section 35 of the CPC, as amended in this law, states that the court will consider whether any reasonable offer to settle is made by a party and unreasonably refused by the other party when deciding the issue of costs, and will, consider as a part of the costs that will have to be defrayed, costs incurred before the proceedings have begun, that will cover the costs of mediation.

    Section 12A of the Act reads as follows:

    12A. Pre-Institution Mediation and Settlement(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre- institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.

    (2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.

    (3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):

    Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:

    Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963).

    (4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.

    (5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).

    Three aspects stand out in section 12A. The first is that mediation will be attempted before a commercial suit is filed. The second is the mechanism prescribed by the law for the conduct of mediation, which will be under the management of the Legal Services Authorities under the Legal Services Authorities Act, 1987. The Commercial Courts (Pre-Institution Mediation & Settlement) Rules, 2018, ( (PIMS Rules) sets out the framework for application for mediation and the conduct of the process by the Legal Services Authorities. The third is the exemption from mandatory pre-institution mediation in cases where an urgent interim relief is contemplated in a case.

    In the Patil Automation case, the Supreme Court declared that attempting mediation in terms of section 12A read with the PIMS Rules was mandatory, and the court must reject the suit if it is filed without attempting mediation. The Supreme Court held that the provisions of Order 7 Rule 11 of the CPC would apply, and the suit would be rejected as barred by the law in section 12A. While dealing with the exemption provided for cases in which urgent interim reliefs are contemplated, the court acknowledged that suits could be filed with applications for interim relief where none were warranted in order to bypass this provision. The court held that "[i]n a clear case, where on allegations in the suit, it is found that the suit is barred by any law, as would be the case, where the plaintiff in a suit under the Act does not plead circumstances to take his case out of the requirement of Section 12A, the plaint should be rejected without issuing summons."

    Following the judgment in Patil Automation, the Delhi High Court in Bolt Technology v Ujoy Tech and Madras High Court in Micro Labs Ltd. v A Santhosh have considered the exemption from initiating pre-institution mediation where applications for interim reliefs were filed.

    The first is the judgement of the Delhi High Court in Bolt Technology OU v Ujoy Technology Pvt. Ltd (2022 LiveLaw (Del) 826). This case related to infringement of trademarks, sought interim relief against the infringement, and was filed with an application seeking exemption from section 12A. An application was filed by the defendant for rejection of the plaint on the ground of non-compliance with section 12A. The Delhi High Court proceeded on the basis that the fact that an application for interim relief was filed would not by itself exempt compliance with section 12A, and stated "…… that the Court will have to go into the question as to whether such 'urgent interim relief' means only such relief which is sought due to immediate past events or can it be urgent interim relief which the Plaintiff seeks in the overall facts and circumstances of a particular case." The Court set out the specific considerations for interim relief in intellectual property infringements, viz., that the infringement does not affect the property rights of the plaintiff alone, but also larger societal interests such as those of consumers, and that delay in bringing the action by itself would not disentitle the plaintiff to interim relief in infringement cases.

    The court found that the plaintiff was entitled to file an urgent interim application, and had done so. The court also took note of the refusal of the defendant to attempt an amicable settlement of the issue as requested in the pre-suit notice from the plaintiff calling on the defendant to cease and desist from infringing the trademarks. On these bases, the court allowed the application and exempted the plaintiff from complying with section 12A.

    The case of Micro Labs Ltd. v A Santhosh before the Madras High Court also involved a case of infringement of trademarks and copyright of the plaintiff which were used in medicinal preparations. The plaintiff in this case issued a cease and desist notice to the defendant on 28.4.2022, and the plaint was presented on 22.8.2022. Relying on the Patil Automation judgement, the Madras High Court held that the mere filing of an application for interim relief will not exempt the plaintiff from compliance with section 12A. The court will assess and must be convinced that the interim relief sought is urgent and a product of contemplation in every sense. The court then proceeded to reject the plaint on its assessment that the plaintiff had not utilised the four month period between the issuance of notice and the presentation of the suit to comply with section 12A, and as such that the interim relief was neither urgent nor a product of contemplation.

    These approaches of the High Courts tend to segregate urgent interim reliefs as two independent considerations - one for the purposes of section 12A, and the second for the purposes of the interim relief itself. The cleaving of two separate meanings from the very same expression, it is submitted, will not yield much by way of distinction. The aspects considered by the Delhi High Court for the purposes of section 12A are the very same considerations for the purpose of the grant of urgent interim relief.

    It is submitted with respect that this is also not the intent of the policy in section 12A. The purpose in exempting suits from mandatory pre-institution mediation is the acknowledgement that the time spent in mediation before filing the suit may cause harm or an irreparable situation for a party. The purpose behind section 12A is the same as the purpose in provisioning for interim reliefs – that the consideration of the conditions for the relief sought cannot await the duration of the trial, and that there are interests that must be protected and safeguarded presently. When this is a case, the creation of a false binary – either interim relief or pre-institution mediation, frames mediation as a value that contests with urgent interim relief. Subsidiary issues have also been raised in the judgements of the High Courts. Will 'urgent interim relief' for the purposes of section 12A be a straight line assessment of time between the cause of action and filing? Will the assessment of urgency for section 12A vary depending on the subject matter of the dispute? Finally, are not the considerations for exemption under section 12A and the considerations for the grant of interim relief similar and overlapping, if not the same?

    This approach of bifurcating the test of 'urgent interim relief' into two stages will also lead to a misperception that pre-institution mediation is a hurdle or impedes access to justice. The purpose behind mandating participation in mediation is with a view to build awareness not merely about the process of mediation, but to enable litigants to understand and experience the process, and then to effectively choose if they would continue to engage to resolve their disputes through this process.

    Policies concerning mediation and conciliation recognise that mediation will await or accommodate the need for interim reliefs, where no agreement is possible amongst the parties to the mediation on the conditions that warrant the claim to such relief. Section 77 of the Arbitration and Conciliation Act, 1996, is an instance:

    77.Resort to arbitral or judicial proceedings.The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights.

    Thus, while the initiation of proceedings on the issues in the dispute is not permitted, the initiation of proceedings as are necessary for the preservation of the rights of the parties can take place alongside the conciliation.

    Several jurisdictions have policies mandating attempts at mediation or even good faith settlement before cases are filed in court. The Italian Legislative Decree No. 28 /2010 on Mediation, as amended in 2013, prescribes a category of cases where pre-institution mediation is mandatory. However, the law permits filing of the suit without recourse to pre-institution mediation where interim reliefs are sought. The law goes on to direct the court hearing the case to refer the parties to mediation once the application for interim relief has been adjudicated by the court.

    The Civil Dispute Resolution Act, 2011 in Australia is another example. Parties are required to take genuine steps for resolution of disputes before filing a case, and to make a statement of such efforts as a part of their filing.

    6 Genuine steps statement to be filed by applicant

    (1) An applicant who institutes civil proceedings in an eligible court must file a genuine steps statement at the time of filing the application.

    (2) A genuine steps statement filed under subsection (1) must specify:

    (a) the steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent in the proceedings; or

    (b) the reasons why no such steps were taken, which may relate to, but are not limited to the following:

    (i) the urgency of the proceedings;

    (ii) whether, and the extent to which, the safety or security of any person or property would have been compromised by taking such steps.

    The Civil Dispute Resolution Act makes exemptions likewise for situations where there is an urgency involved in filing of the case in court. The law imposes responsibilities on the lawyers to advise parties on genuine steps obligations under this law, and goes on to state that the proceedings filed without taking genuine steps are not invalidated, but could result in costs being imposed on the party or the lawyer where genuine steps have not been taken for settlement.

    The Supreme Court has rightly referred to the fact that there is a gap in section 12A that needs to be addressed. The fact that there is a need for interim relief ought not to divert from the mediation attempt. The courts can, in exercise of their powers under section 89 of the Code of Civil Procedure, 1908, refer the case to mediation after the urgent interim application is decided. As a matter of fact, the Delhi High Court in Bolt Technology v Ujoy Technology did just that. The court referred the case to mediation, and stipulated a time limit of a week for the mediation.

    Another aspect that has arisen from the judgments on section 12A is the observation that an offer to discuss the issues amicably satisfies the requirement of pre-institution mediation. Bilateral discussions on settlement, and mediation, that involves the assistance of a third party, are different processes. The latter bears features that have been acknowledged to overcome obstacles in negotiation. These include the efforts taken by the mediator to convene and keep parties in discussion, the work of the mediator in resolving stalemates in the discussion, in reducing hostility and lack of trust, and in engaging with reality testing with the parties to encourage them to meaningfully consider options for settlement. Section 12A also requires that the mediation be conducted in the manner prescribed in that section. Thus, it will be in keeping with the policy that specifically mandates the mediation process, that it is in fact mediation that is attempted, so that the parties to the dispute are able to utilise and obtain the best that this process can offer.

    The Mediation Bill 2021, is pending before the Rajya Sabha, but does not consider these issues that have arisen. This is an opportunity for the Parliament to evaluate section 12A on this aspect, and to make provision for mediation within a stipulated timeframe following the determination by the court of the 'urgent interim relief'. The amendment could also provide for a standstill in the operation of the time limits stipulated under the Code as amended for the purposes of the Act, so that the time spent in mediation does not affect compliance by parties under the Code. Please see: Red Bull AG v Pepsico India Holdings Pvt. Ltd. 2019 SCC OnLine Del 9901 on this aspect.

    The author is an Advocate and Mediator, and Professor of the Practice at Sai University, Chennai.

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