Pre-Institution Mediation as per Section 12-A of the Commercial Courts Act, 2015: Mandatory for Counter-Claims in Commercial Disputes
Introduction:
The Commercial Courts Act, 2015 was enacted with the primary objective of ensuring the speedy resolution of high-value commercial disputes. Section 12-A of the Act, introduced in 2018, mandates pre-institution mediation for parties intending to file commercial suits, barring certain exceptional cases. The legislative intent behind this provision is to encourage amicable settlements before resorting to litigation. However, questions arise regarding its applicability to counter-claims. In the case of Aditya Birla Fashion and Retail Limited vs. Mrs. Saroj Tandon, the court addressed the crucial issue of whether pre-institution mediation under Section 12-A is mandatory for counter-claims filed in response to commercial suits.
Background of the Case: The Dispute:
Aditya Birla Fashion and Retail Limited (the petitioner) entered into a lease agreement with Mrs. Saroj Tandon (the respondent) for a commercial property. Due to the unforeseen circumstances caused by the COVID-19 pandemic, the petitioner had to close down its leased shop and sought the return of its security deposit from the respondent. The petitioner initiated pre-institution mediation, as required under Section 12-A of the Commercial Courts Act, 2015, before filing the suit. However, the respondent failed to appear for the mediation proceedings, leading the process to be declared a "non-starter."
Filing of Suit and Counter-Claim:
Subsequently, the petitioner filed a commercial suit before the High Court of Delhi for the recovery of its security deposit. The respondent, in turn, filed a counter-claim for the unpaid rental amounts, which was registered as a commercial suit. The crux of the issue arose when the petitioner argued that the respondent’s counter-claim was invalid due to the absence of pre-institution mediation, as mandated by Section 12-A.
Legal Framework: Section 12-A of the Commercial Courts Act, 2015:
Section 12-A of the Commercial Courts Act was introduced to ensure that parties attempt to settle their disputes amicably before burdening the courts with litigation. The provision mandates that no suit concerning a commercial dispute can be instituted unless the plaintiff exhausts the remedy of pre-institution mediation.
Key Provisions of Section 12-A:
Mandatory Mediation: Parties must attempt pre-institution mediation before filing a suit, unless urgent interim relief is sought.
Objective: The provision aims to reduce the burden on commercial courts by encouraging parties to resolve disputes outside the courtroom.
Exception: The requirement for pre-institution mediation is waived in cases where urgent interim relief is necessary.
Issue Raised:
The core issue in this case is whether the mandatory pre-institution mediation requirement applies to counter-claims in commercial disputes. While the statute clearly mandates mediation for initiating a suit, its applicability to counter-claims remains ambiguous.
Petitioner’s Argument: The petitioner contended that the respondent's counter-claim was not maintainable, as it did not comply with the mandatory pre-institution mediation requirement. Since the Commercial Courts Act explicitly requires mediation before the filing of a suit, the same principle, they argued, should apply to counter-claims.
Respondent’s Argument: The respondent, however, argued that pre-institution mediation was not required for the counter-claim because the parties had already engaged in mediation for the original suit, which was declared a non-starter due to their non-participation. Additionally, the respondent contended that requiring mediation for the counter-claim would defeat the purpose of a speedy trial and unnecessarily delay proceedings.
Legal Question Before the Court:
The court was called upon to decide whether Section 12-A’s pre-institution mediation requirement extends to counter-claims. The question was novel, as the law explicitly refers to the initiation of suits but does not directly address counter-claims.
Contentions of the Parties: Petitioner’s Contentions:
Non-Compliance with Section 12-A: The petitioner argued that the respondent’s counter-claim should be rejected on the ground that it was not preceded by pre-institution mediation, as required by Section 12-A. Legislative Intent: The petitioner further contended that the legislative intent behind Section 12-A was to promote early settlement of disputes, reduce the burden on courts, and ensure efficient resolution of commercial disputes. Allowing counter-claims to bypass this process, they argued, would undermine the purpose of the statute.
Respondent’s Contentions:Prior Mediation Attempt:
The respondent countered that pre-institution mediation had already been attempted in the original suit and had failed, as the mediation was declared a non-starter. Requiring a separate mediation for the counter-claim would be futile and redundant. Objective of Speedy Trial: The respondent also emphasized that subjecting counter-claims to mandatory mediation would delay proceedings, contrary to the objective of ensuring a speedy trial in commercial disputes.
Issues Dealt with by the Court:The court had to consider several key issues:
Applicability of Section 12-A to Counter-Claims: The court examined whether the mandatory pre-institution mediation under Section 12-A applies equally to counter-claims as it does to original suits.
Legislative Intent and Purpose: The court analyzed the broader legislative intent behind Section 12-A, particularly its role in promoting a favorable dispute resolution environment and enhancing India’s ranking in the World Bank's Doing Business Report by improving the efficiency of commercial dispute resolution.
Practical Considerations: The court also weighed the practical considerations surrounding mediation, such as its cost-effectiveness, the potential for an amicable settlement, and the possible delays caused by requiring mediation for counter-claims.
Court’s Reasoning and Final Decision: Reasoning:
The court reasoned that the intent of Section 12-A is clear: it seeks to promote mediation as an alternative dispute resolution mechanism for commercial disputes, including counter-claims. This ensures that disputes are resolved efficiently, without overburdening the judicial system. The court observed that counter-claims are integral to the overall dispute between the parties, and requiring mediation for counter-claims serves the same purpose as mediation for original suits.
However, the court also recognized that there were practical challenges in enforcing pre-institution mediation for counter-claims. In this case, the respondent’s counter-claim was filed before the mandatory nature of Section 12-A was explicitly clarified by the Supreme Court. Hence, the court was of the view that it would be unfair to penalize the respondent for not undergoing mediation.
Final Decision:
The court concluded that while pre-institution mediation under Section 12-A is mandatory for counter-claims, it would not reject the respondent’s counter-claim in this particular case, as the counter-claim was filed before the mandatory nature of Section 12-A had been explicitly enforced. The court further held that moving forward, all counter-claims in commercial disputes would be subject to the same pre-institution mediation requirement as original suits, unless the counter-claim seeks urgent interim relief.
Conclusion:
This judgment clarifies the scope of Section 12-A of the Commercial Courts Act, 2015, by confirming that pre-institution mediation is mandatory for counter-claims in commercial disputes. The court's decision underscores the importance of mediation in reducing litigation costs, promoting early settlements, and ensuring efficient resolution of disputes. However, the court also recognized the practical challenges in retroactively applying this requirement, thereby protecting the respondent’s counter-claim in the present case. This case serves as a significant precedent for future commercial disputes, emphasizing that pre-institution mediation is not merely procedural but a substantive step in the dispute resolution process.
Case Citation: Aditya Birla Fashion Vs Mrs Saroj Tandon; 2024:DHC:6693 02.09.2024: CM(M) 459/2023:2024:DHC:7486:Delhi High Court: Manoj Jain, H.J.
Written by: Advocate Ajay Amitabh Suman
IP Adjutor [Patent and Trademark Attorney] United & United
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