Source: Supreme Court

Why in News? 

A bench of Justice R Mahadevan and Justice JB Pardiwala held that suits filed before 20th August 2022 without following Section 12A cannot be rejected unless specific exceptions in Patil Automation Private Limited v. Rakheja Engineers (2022) apply. 

• The Supreme Court held this in the case of M/s Dhanbad Fuels Private Limited v. Union of India (2025). 

What was the Background of M/s Dhanbad Fuels Private Limited v. Union of India (2025) Case?   

• On 9th August 2019, the Union of India filed Money Suit in the Commercial Court at Alipore against the appellant to recover ₹8,73,36,976 towards differential freight and penalty. 
• No urgent interim relief was sought by the Union of India in the said suit. 
• On 20th December 2019, the appellant, as the defendant, filed a written statement raising a preliminary objection on the maintainability of the suit due to non-compliance with Section 12A of the Commercial Courts Act, 2015, and the Pre-Institution Mediation and Settlement Rules, 2018, which came into force on 3rd July 2018. 
• On 30th September 2020, the appellant filed Interim Application under Order VII Rule 11(d) of the CPC seeking rejection of the plaint for failure to undergo the mandatory pre-institution mediation. 
• On 21st December 2020, the Commercial Court rejected the application, stating it was filed at a belated stage and rejecting the plaint would delay justice instead of facilitating it. 
• The Commercial Court noted that the suit was filed shortly after the establishment of the Commercial Court on 5th July 2019, at a time when proper infrastructure for pre-institution mediation and a standard operating procedure (SOP) had not yet been put in place by the Calcutta High Court. 
• The Court ordered the dispute to be referred for mediation and appointed Mr. Jayanta Mukherjee, an advocate, as the mediator, directing both parties to attend mediation proceedings starting from 4th January 2021 and complete the process by 11th January 2021. 
• Dissatisfied with the rejection of the application, the appellant filed a civil revision before the High Court. 
• In its judgment, the High Court held that rejection of the plaint at that stage would not align with the objective of Section 12A and instead directed the suit to be kept in abeyance, allowing the plaintiff to now comply with mediation. 
• The High Court considered that as of December 2020, the SOP and mediation infrastructure were not yet fully notified or operational in West Bengal, justifying the initial non-compliance. 
• The High Court also noted that the panel of trained commercial mediators was prepared only after the suit was filed. 
• The High Court set aside the Commercial Court’s appointment of the mediator and directed the plaintiff to approach the District Legal Services Authority in accordance with the SOP dated 11th December 2020, within two weeks of the order. 
• The suit was directed to be kept in abeyance for seven months or until receipt of the mediation report, whichever was earlier. 
• Aggrieved by the High Court’s order, the appellant (original defendant) filed the present appeal before the Supreme Court.

What were the Court’s Observations? 

• The following conclusions were laid down by the Court: 
  • The Supreme Court in Patil Automation held that Section 12A of the Commercial Courts Act, 2015 (CCA) is mandatory. 
  • This mandatory nature applies from the date the amendment came into force. 
  • As per paragraph 113.1 of Patil Automation, suits filed without following Section 12A must be rejected under Order VII Rule 11, but this applies only to suits filed on or after 20th August 2022. 
  • If a suit involves a prayer for urgent interim relief, it can be filed without going through mediation under Section 12A. 
  • Unlike Section 80(2) of the CPC, there is no need to get prior permission from the court to skip mediation under Section 12A. 
  • Courts must assess whether the plaintiff genuinely needs urgent interim relief based on the nature of the case. 
  • Courts must be cautious of plaintiffs using fake urgent relief claims to avoid mediation. 
  • Even if the interim relief is ultimately denied, the suit can still proceed without mediation if the urgent need was genuine. 
  • Suits filed before 20th August 2022 without following Section 12A cannot be rejected unless specific exceptions in Patil Automation apply. 
  • In such older suits, if the defendant objects or any party wants mediation, the court should pause the case and send it for time-bound mediation under Section 12A. 
• The Court concluded in the facts of the present case that if the suit was instituted prior to 20th August 2022 without complying with Section 12 A of CCA and the same does not fall within the exceptional categories as mentioned in the judgment of Patil Automation, it would be open to the Court to keep the suit in abeyance and direct the parties to explore the possibility of mediation in accordance with CCA.

What is Pre Institution Mediation and Settlement?

• Pre Institution Mediation and Settlement (PIMS) is provided for under Section 12A of the CCA. 
• This Section provides for the following: 
  • Clause (1): A suit that does not involve any urgent interim relief cannot be filed unless the plaintiff first goes through the process of pre-institution mediation, as per the rules set by the Central Government. 
  • Clause (2): The Central Government can authorize authorities established under the Legal Services Authorities Act, 1987, to conduct pre-institution mediation. 
  • Clause (3): The authorized authority must complete the mediation process within three months from the date the plaintiff applies. This period can be extended by two more months if both parties agree. 
  • Clause (3) – Second Proviso: The time spent in pre-institution mediation will not be counted when calculating limitation periods under the Limitation Act, 1963. 
  • Clause (4): If the parties reach a settlement during mediation, it must be recorded in writing and signed by both parties and the mediator. 
  • Clause (5): A settlement reached under Section 12A will be treated as if it were an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996, and will have the same legal effect. 

What are the Landmark Cases on PIMS? 

• M/s Patil Automation Private Limited v. Rakheja Engineers (2022) 
  • The Court held that Section 12A of CCA is mandatory in nature and any suit instituted violating the mandate of Section 12A shall be rejected under Order VII Rule 11 of Civil Procedure Code, 1908 (CPC). 
• Yamini Manohar v. T.K.D. Keerthi (2024) 
  • The Supreme Court reaffirmed that Section 12A of the Commercial Courts Act is mandatory, requiring pre-litigation mediation before filing a suit, unless urgent interim relief is sought. 
  • A plaintiff cannot bypass the requirement of pre-litigation mediation simply by requesting urgent interim relief. 
  • The Commercial Court must assess whether the plea for urgent interim relief is genuine or merely a pretext to avoid mediation. 
  • The Court emphasized that any claim of urgency must not be a "disguise or mask" to escape the obligations under Section 12A. 
  • Section 12A clearly states that if a suit does not involve urgent interim relief, it cannot be filed without first undergoing pre-institution mediation.