Introduction: The case of Dhanbad Fuels Private Limited Vs. Union of India & Anr., decided by the Hon’ble Supreme Court of India, raised critical questions surrounding the applicability and enforcement of Section 12A of the Commercial Courts Act, 2015, which mandates pre-institution mediation in commercial disputes where no urgent interim relief is sought. The matter drew significant attention as it juxtaposed statutory mandates with practical impediments concerning legal infrastructure and judicial discretion. The ruling serves as an authoritative interpretation of procedural law and sets a precedent on the prospective application of mandatory mediation requirements.
Detailed Factual Background: The Union of India filed Money Suit No. 28 of 2019 on 09.08.2019 before the Commercial Court, Alipore, against M/s Dhanbad Fuels Private Limited seeking recovery of Rs. 8,73,36,976 towards differential freight and penalty. Notably, the suit did not seek any urgent interim relief. The cause of action arose from allegations that the appellant had wrongfully claimed concessional freight rates under specific rate circulars.
Upon the institution of the suit, the appellant, as defendant, submitted its written statement on 20.12.2019. Subsequently, the appellant contended that the suit was instituted in violation of Section 12A of the Commercial Courts Act, 2015 and the Pre-Institution Mediation and Settlement Rules, 2018. It was argued that the mandatory requirement of attempting pre-litigation mediation had been bypassed, thus rendering the suit institutionally defective.
Detailed Procedural Background:On 30.09.2020, the appellant filed an application under Order VII Rule 11(d) of the Civil Procedure Code, 1908, read with Section 12A of the 2015 Act, seeking rejection of the plaint. The application was dismissed by the Commercial Court on 21.12.2020, holding that although Section 12A was mandatory, its enforcement in the given facts would delay justice and the suit was already in its early stages. The Commercial Court observed that due to the absence of an effective infrastructure for commercial mediation and lack of a notified standard operating procedure at the time of suit filing, strict enforcement of Section 12A would be inequitable. However, the court ordered the parties to proceed with post-institution mediation and appointed a mediator.
The appellant challenged this order before the Calcutta High Court. The High Court upheld the Commercial Court’s decision with slight modifications, including directing the parties to approach the District Legal Services Authority (DLSA) as per the SOP notified on 11.12.2020. The High Court directed that the suit be kept in abeyance for a period of seven months or until the receipt of the mediation report.
Aggrieved, the appellant preferred a civil appeal before the Hon’ble Supreme Court of India, challenging the legality of the High Court’s order, reiterating that the non-compliance with Section 12A of the Act should have resulted in outright rejection of the plaint.
Issues Involved in the Case: The principal issues that arose in this case were whether the suit filed by the Union of India was liable to be rejected under Order VII Rule 11(d) of the CPC for non-compliance with Section 12A of the Commercial Courts Act, 2015, and whether the prospective declaration of the mandatory nature of Section 12A in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. [(2022) 10 SCC 1] applied to suits instituted prior to 20.08.2022.
Detailed Submissions of Parties: The appellant contended that the decision in Patil Automation conclusively declared Section 12A mandatory and that any suit instituted without prior mediation, where no urgent interim relief is sought, must be rejected under Order VII Rule 11(d) CPC. He argued that the legislative intent was clear and emphasized that the stage of litigation or infrastructural constraints could not override the statutory mandate. He further contended that even under the doctrine of prospective overruling, the declaration of law relates back to the date of the enactment. Hence, the suit being in a nascent stage should not be distinguished from a newly filed one and must be dismissed.
The Union of India contended that no error had been committed by the lower courts. She acknowledged the mandatory nature of Section 12A but emphasized that the doctrine of impossibility applied due to the absence of a mediation framework at the time of suit filing. She submitted that SOPs were notified only on 11.12.2020, long after the suit was instituted. Thus, the Union could not be expected to comply with mediation requirements in an environment devoid of supporting infrastructure. She invoked the equitable maxim lex non cogit ad impossibilia, supported by the Supreme Court decision in Raj Kumar Dey v. Tarapada Dey, (1987) 4 SCC 398.
Detailed Discussion on Judgments Cited by Parties and Their Context:
The pivotal judgment cited was Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd., (2022) 10 SCC 1, wherein the Supreme Court held that Section 12A is mandatory in nature and suits instituted without adhering to it must be rejected under Order VII Rule 11. However, the Court also granted prospective effect to this declaration from 20.08.2022 to safeguard pending matters and avoid unjust consequences. The Court clarified that rejection would not apply to suits instituted prior to the said date unless they met specific exceptions.
The appellant also cited I.C. Golaknath v. State of Punjab, AIR 1967 SC 1643, to argue that the court's declaration of law must be understood as discovering the correct law, hence retroactive in nature. The principle from Spectrum Plus Ltd., In re: (2005) 3 WLR 58 (House of Lords) was invoked to explain forms of prospective overruling and the implications of judicial declarations affecting past transactions.
The respondent relied on Raj Kumar Dey v. Tarapada Dey (1987) 4 SCC 398, to support the maxim lex non cogit ad impossibilia, asserting that law cannot compel performance where performance is not feasible due to infrastructural limitations.
Detailed Reasoning and Analysis of Judge:
The court reiterated that Section 12A is mandatory as per Patil Automation but emphasized that the declaration of mandatory compliance was given prospective effect. The Court emphasized that at the time the Union of India filed the suit in 2019, the required mediation infrastructure, including trained mediators and SOPs, was not in place in West Bengal. Hence, expecting compliance with Section 12A in such circumstances would amount to imposing an impossible requirement, violating equitable principles.
The Court rejected the appellant’s reliance on the retrospective application of judicial declarations, noting that Patil Automation clearly limited its applicability to post-20.08.2022 suits. The court distinguished between declaration of law and operational consequences, thereby reinforcing the importance of judicial discretion in applying procedural norms.
Justice Pardiwala also clarified the scope and intent of Section 12A, observing that it seeks to reduce the burden on courts and promote mediation as an efficient dispute resolution method. However, the Court affirmed that procedural mandates cannot override substantive justice, especially when external circumstances render compliance impracticable.
Final Decision: The Supreme Court dismissed the appeal filed by Dhanbad Fuels Pvt. Ltd. and upheld the High Court’s order to keep the suit in abeyance and proceed with pre-institution mediation through the DLSA. It confirmed that the plaint should not be rejected under Order VII Rule 11(d) as the institution of the suit predated the declaration in Patil Automation and fell outside its purview.
Law Settled in this Case:The Supreme Court reaffirmed that Section 12A of the Commercial Courts Act, 2015 is mandatory. However, it also established that its strict enforcement through rejection of plaints under Order VII Rule 11(d) CPC shall apply only prospectively from 20.08.2022, as held in Patil Automation. Additionally, where infrastructural mechanisms for pre-institution mediation were absent, courts must apply equitable considerations before penalizing litigants for non-compliance. The decision further reinforced that courts possess discretion to avoid procedural rigidity when it contradicts the principles of substantive justice.
Case Title: Dhanbad Fuels Private Limited Vs. Union of India
Date of Order: 15.05.2025
Case No.: Civil Appeal No. 6846 of 2025
Neutral Citation: 2025 INSC 696
Court: Supreme Court of India
Judge: Hon’ble Mr. Justice J.B. Pardiwala
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Written By: Advocate Ajay Amitabh Suman, IP Adjutor [Patent and Trademark Attorney], High Court of Delhi
