Section 12A of the Commercial Courts Act

Source: Supreme Court  

Why in News? 

Recently, the bench of Justices Sanjay Kumar and Alok Aradhe has held that The Supreme Court ruled that the mandatory pre-institution mediation under Section 12A of the Commercial Courts Act does not apply to cases involving continuing intellectual property infringements, such as trademark or patent violations. The Court clarified that requiring mediation in such cases would leave plaintiffs without effective remedies against ongoing infringement. 

• The Supreme Court held this in the matter of Novenco Building and Industry A/S v. Xero Energy Engineering Solutions Private Ltd. & Anr. (2025). 

What was the Background of Novenco Building and Industry A/S v. Xero Energy Engineering Solutions Private Ltd. & Anr. (2025)? 

• The appellant, Novenco Building and Industry A/S, is a Danish company engaged in manufacturing highly efficient industrial fans marketed under the brand 'Novenco ZerAx', developed after investing approximately 3.66 million euros between 2007 and 2015, with several patents and design registrations secured in India and abroad. 
• A dealership agreement was executed on 1st September 2017 between the appellant and respondent No.1, Xero Energy Engineering Solutions Private Limited, Hyderabad, for marketing and sale of Novenco ZerAx fans across India. 
• The appellant discovered in July 2022 that Xero Energy's Director, in violation of the distribution agreement, had incorporated respondent No.2, Aeronaut Fans Industry Private Limited, for manufacturing and selling identical fans under deceptively similar name and appearance. 
• The appellant sent multiple communications to Xero Energy on 22nd August 2022, 30th August 2022, and 14th October 2022 seeking clarification, but no satisfactory explanation was offered, leading to termination of the dealership on 14th October 2022. 
• A cease-and-desist notice was sent to Aeronaut Fans on 23rd December 2022, which replied on 1st February 2023 and 3rd March 2023, and subsequently filed a petition under Section 148A of the Code of Civil Procedure before the Madras High Court. 
• The appellant's technical expert inspected the fans installed by Aeronaut Fans at Cavendish Industries and Hero Moto Corp, Uttarakhand, on 6th December 2023 and submitted an affidavit on 6th February 2024 confirming the alleged infringement. 
• The appellant filed a commercial suit on 4th June 2024 before the High Court of Himachal Pradesh alleging infringement of its patent and design rights, along with applications seeking ad interim injunction and exemption from pre-institution mediation under Section 12A of the Commercial Courts Act. 
• The respondents filed applications for return and rejection of the plaint under Order VII Rules 10 and 11 of the Code of Civil Procedure, contending that no urgency was involved and there was a delay of six months between the inspection and filing of the suit, making non-compliance with Section 12A fatal to the suit. 

What were the Court’s Observations? 

• The requirement of pre-institution mediation under Section 12A of the Commercial Courts Act cannot be mechanically applied in cases involving continuing infringement of intellectual property rights, as insisting on mediation would effectively leave the plaintiff remediless, allowing the infringer to continue profiting under procedural formalities. 
• In actions alleging continuing infringement of intellectual property rights, urgency must be assessed in the context of the ongoing injury and the public interest in preventing deception, and mere delay in institution of a suit by itself does not negate urgency when the infringement is continuing. 
• Each act of manufacture, sale, or offer for sale of an infringing product constitutes a fresh wrong and recurring cause of action, and the urgency is inherent in the nature of the wrong and does not lie in the age of the cause but in the persistence of the peril. 
• Intellectual property disputes are not confined to the private realm, as when imitation masquerades as innovation, it sows confusion among consumers, taints the marketplace, and diminishes faith in the sanctity of trade, making public interest the moral axis upon which urgency turns. 
• The High Court erred in construing the test for urgent relief by examining the entitlement to urgent relief based on the merits of the case rather than looking at the urgency as evident from the plaint and documents from the standpoint of the plaintiff. 
• The appellant's prayer for injunction cannot be characterised as mere camouflage to evade mediation, as it is a real grievance founded on the continuing nature of infringement and irreparable prejudice likely to be caused by delay. 
• A plaintiff can be exempted from the requirement of Section 12A only when the plaint and documents clearly show a real need for urgent interim intervention, and the court is not concerned with the merits of the urgent relief but whether it seems plausibly urgent from the plaintiff's standpoint. 
• Section 12A of the Commercial Courts Act was not intended to achieve the anomalous result of rendering the plaintiff remediless by allowing the infringer to continue profiting under the protection of procedural formality in cases of ongoing intellectual property infringement. 

What is the Commercial Courts Act? 

• The Commercial Courts Act, 2015 is a legislation enacted to establish specialized Commercial Courts, Commercial Appellate Courts, Commercial Divisions and Commercial Appellate Divisions in High Courts for adjudicating commercial disputes of specified value. 
• The Act extends to the whole of India and came into force on 23rd October 2015, creating a dedicated judicial framework for resolution of commercial disputes including intellectual property rights, construction contracts, joint ventures, shareholders agreements, and various business transactions. 
• A "commercial dispute" under the Act encompasses disputes arising from ordinary transactions of merchants, bankers, financiers, traders, and matters relating to intellectual property, franchising, distribution agreements, and other commercial matters as notified by the Central Government. 
• The "Specified Value" threshold for jurisdiction under the Act is not less than three lakh rupees or such higher value as may be notified by the Central Government. 

Purpose of the Act  

• The Act aims to ensure early resolution of commercial disputes to create a positive image amongst investors about India's strong and responsive legal system and facilitate ease of doing business. 
• The legislation provides a specialized and expedited mechanism for adjudication of high-value commercial disputes through dedicated courts staffed with judges experienced in commercial matters. 
• The Act seeks to reduce disposal time through streamlined procedures, case management hearings, strict timelines, and tailored amendments to the Code of Civil Procedure for commercial disputes. 
• The objective is to enhance India's competitiveness in global commerce by establishing efficient judicial infrastructure for handling complex commercial disputes, thereby boosting investor confidence and supporting economic growth. 

What is Section 12A?  

Section 12A - Pre-Institution Mediation and Settlement 

• Section 12A of the Commercial Courts Act, 2015, introduced by Amendment Act No. 28 of 2018, mandates compulsory pre-institution mediation for commercial disputes before filing suit in court. A suit which does not contemplate any urgent interim relief shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in the prescribed manner. 
• The Central Government authorizes bodies under the Legal Services Authorities Act, 1987 to conduct such mediation, which must be completed within three months, extendable by two months with parties' consent. The period spent in mediation is excluded from limitation period computation. If settlement is reached, it carries the same status as an arbitral award under the Arbitration and Conciliation Act, 1996. 
• The critical exception is for suits "contemplating urgent interim relief" where parties are exempted from mandatory mediation. This recognizes that in situations involving continuing wrongs or irreparable harm, insisting on mediation would render the plaintiff remediless. The Supreme Court clarified that this exception must apply meaningfully in cases of continuing intellectual property infringement, where each day of delay aggravates injury and public interest demands immediate intervention, as mechanical application would allow infringers to profit under procedural protection.