Introduction
The case of Exclusive Capital Ltd. v. Silver and C.Z. International is a significant commercial dispute adjudicated by the High Court of Delhi, addressing the mandatory requirement of pre-institution mediation under Section 12A of the Commercial Courts Act, 2015. The appellant, Exclusive Capital Ltd., challenged the dismissal of its suit by the Commercial Court for failing to comply with the pre-litigation mediation mandate, alongside its application for waiver of this requirement. The suit sought recovery of an outstanding loan amount from the respondent, Silver and C.Z. International, under a loan agreement. The High Court’s judgment, delivered on May 2, 2025, by Justices Navin Chawla and Renu Bhatnagar, upheld the Commercial Court’s decision, reinforcing the mandatory nature of Section 12A and clarifying the limited scope for bypassing mediation through claims of urgent interim relief. This case underscores the judiciary’s commitment to promoting alternative dispute resolution in commercial matters and sets a precedent for evaluating the genuineness of urgent relief claims to avoid circumventing statutory mandates.
Detailed Factual Background
Exclusive Capital Ltd., the appellant, extended a loan facility of ₹2 crore to the respondent, Silver and C.Z. International, under a Term Loan Facility Agreement dated April 29, 2022. The loan, spanning four years from April 2022 to May 2026, required repayment in equal monthly installments of ₹5,07,252. The agreement stipulated an interest rate of 10% per annum, with a default interest of 2% per month and an additional penal charge of 2% per month in case of non-payment. The respondent provided an undertaking on the same date, acknowledging compliance with the loan terms. The appellant alleged that the respondent defaulted on multiple installments from July 1, 2022, to January 22, 2023, breaching the agreement. The respondent made partial payments of ₹1 crore on January 23 and 24, 2023, but failed to clear the outstanding balance, including principal, interest, default interest, and penal charges. Citing a long-standing relationship, the appellant granted additional time for repayment, but the respondent did not comply. On June 1, 2024, the appellant issued a demand notice for ₹17,22,372, claimed due as of March 31, 2024. By January 31, 2025, the appellant claimed an outstanding amount of ₹42,00,434.09, including penal charges, as of December 31, 2022.
Detailed Procedural Background
The appellant filed a suit, CS (COMM) No. 113/2025, before the District Judge (Commercial-01), South District, New Delhi, seeking a decree for ₹42,00,434.09 and pendente lite and future interest at 10% per annum, plus default interest and penal charges from February 1, 2025, until realization. Alongside the suit, the appellant filed two applications: one under Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (CPC), seeking the respondent’s deposit of the claimed amount as security and an injunction against alienating assets, and another under Section 12A of the Commercial Courts Act, requesting exemption from pre-institution mediation. The Commercial Court, in its judgment dated March 5, 2025, dismissed the Section 12A application, finding no genuine urgency for interim relief, and consequently rejected the plaint under Order VII Rule 11 CPC for non-compliance with the mandatory mediation requirement. Aggrieved, the appellant filed an appeal, RFA (COMM) 257/2025, before the Delhi High Court, represented by Senior Advocate Siddharth Yadav and others. The respondent did not appear, and the High Court heard the appeal ex parte, delivering its judgment on May 2, 2025.
Issues Involved in the Case
The primary issue was whether the Commercial Court erred in dismissing the appellant’s suit for non-compliance with Section 12A’s pre-institution mediation requirement, given the appellant’s claim for urgent interim relief. Subsidiary issues included whether the Commercial Court could reject the plaint outright rather than directing mediation, whether the appellant’s application for interim relief under Order XXXVIII Rule 5 CPC genuinely contemplated urgent relief to bypass mediation, and whether external factors, such as the suspension of the appellant’s board, justified non-compliance with Section 12A?
Detailed Submission of Parties
The appellantargued that the Commercial Court’s rejection of the plaint was legally flawed. They contended that even if the court found no maintainable urgent relief, it should have dismissed the Section 12A application and referred the matter for mediation, not rejected the plaint. The appellant relied on Chandra Kishore Chaurasia v. R.A. Perfumery Works Pvt. Ltd., 2022 SCC OnLine Del 3529, where the Delhi High Court held that the plaintiff’s desire for urgent relief determines the need for mediation, and the court’s refusal to grant such relief does not warrant plaint rejection. They also cited Kaulchand H. Jogani v. Shree Vardhan Investment & Ors., 2022 SCC OnLine Bom 4752, from the Bombay High Court, and Yamini Manohar v. T.K.D. Keerthi, (2024) 5 SCC 815, to argue that plaint rejection was disproportionate. The appellant further submitted that the delay in filing the suit was due to the suspension of its board by the National Company Law Tribunal, lifted by the Supreme Court on February 24, 2025, justifying the urgency claimed.
The respondent, Silver and C.Z. International, did not appear or file submissions, leaving the appellant’s claims and evidence uncontested. The High Court noted the respondent’s absence, proceeding ex parte.
Detailed Discussion on Judgments Cited by Parties
The appellant relied on three judgments to support its case. In Chandra Kishore Chaurasia v. R.A. Perfumery Works Pvt. Ltd., 2022 SCC OnLine Del 3529, the Delhi High Court held that the plaintiff’s decision to seek urgent interim relief determines whether pre-institution mediation under Section 12A is required. The court ruled that the plaintiff’s choice to include such a prayer exempts the suit from mediation, and the court’s decision on the interim relief’s merits is irrelevant to this determination. The appellant used this to argue that its application for urgent relief under Order XXXVIII Rule 5 CPC should have exempted it from mediation, and the plaint’s rejection was erroneous.
In Kaulchand H. Jogani v. Shree Vardhan Investment & Ors., 2022 SCC OnLine Bom 4752, the Bombay High Court addressed a similar issue, emphasizing that non-compliance with Section 12A should not automatically lead to plaint rejection. The court suggested that the Commercial Court could direct mediation instead, preserving the suit. The appellant cited this to challenge the Commercial Court’s outright dismissal.
The Supreme Court’s judgment in Yamini Manohar v. T.K.D. Keerthi, (2024) 5 SCC 815, was pivotal. The Court partially approved Chandra Kishore Chaurasia, agreeing that non-grant of interim relief does not justify plaint rejection under Order VII Rule 11 CPC. However, it rejected the notion that plaintiffs have an absolute right to bypass Section 12A by merely praying for urgent relief. The Court held that such prayers must genuinely contemplate urgency, and courts must scrutinize them to prevent camouflage or guise to evade mediation. The appellant relied on this to argue that the Commercial Court should have evaluated the suit’s merits rather than rejecting it, but the High Court interpreted it to emphasize the need for genuine urgency.
The High Court also referenced Patil Automation (P) Ltd. & Ors. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1, where the Supreme Court declared Section 12A mandatory, holding that non-compliance warrants plaint rejection under Order VII Rule 11 CPC. The Court highlighted mediation’s role in reducing court backlogs and promoting expeditious dispute resolution, emphasizing that the provision applies unless urgent interim relief is genuinely contemplated. This precedent guided the High Court’s analysis of the appellant’s claims.
Detailed Reasoning and Analysis of Judge
Court meticulously analyzed the appellant’s claims, affirming the Commercial Court’s decision. The court began by outlining Section 12A’s purpose, as elucidated in Patil Automation, which mandates pre-institution mediation for suits not contemplating urgent interim relief to promote amicable and expeditious dispute resolution. The court noted that Patil Automation explicitly authorizes plaint rejection for non-compliance, exercisable even suo motu, effective from August 20, 2022.
Addressing the appellant’s reliance on Chandra Kishore Chaurasia, the court acknowledged its partial approval in Yamini Manohar. However, it emphasized Yamini Manohar’s clarification that plaintiffs cannot bypass Section 12A through disguised or mala fide claims for urgent relief. The court must examine the suit’s nature, cause of action, and interim relief prayer to ensure genuineness, preventing deception that defeats Section 12A’s legislative intent. The court rejected the appellant’s argument that the Commercial Court should have referred the matter for mediation, citing Patil Automation’s mandate for plaint rejection in cases of non-compliance.
Evaluating the appellant’s interim relief application under Order XXXVIII Rule 5 CPC, the court found it lacked specificity. The appellant’s vague assertions of “credible information” and “reasonable apprehension” that the respondent might dispose of assets were unsupported by evidence. The claimed amount of ₹42,00,434.09, including penal charges, and the suit’s filing nearly two years after the alleged default (July 2022 to January 2023) undermined the urgency claim. The court concluded that the interim application was a camouflage to bypass Section 12A, aligning with Yamini Manohar’s caution against such tactics.
The court also dismissed the appellant’s explanation for the delay, citing the National Company Law Tribunal’s suspension of its board. The Supreme Court’s stay on February 24, 2025, did not justify bypassing mediation, as the default predated this period, and no immediate threat to asset dissipation was substantiated. The court found the Commercial Court’s assessment—that no interim relief was contemplated—correct, as the suit’s facts belied urgency.
Final Decision
The High Court dismissed the appeal and the accompanying application, upholding the Commercial Court’s judgment dated March 5, 2025. The appellant was ordered to pay costs of ₹25,000 to the Delhi High Court Clerk’s Association within two weeks. The court found no merit in the appellant’s challenge, affirming the mandatory nature of Section 12A and the propriety of plaint rejection for non-compliance.
Law Settled in This Case
The judgment reinforces the mandatory nature of pre-institution mediation under Section 12A of the Commercial Courts Act, as established in Patil Automation. It clarifies that non-compliance warrants plaint rejection under Order VII Rule 11 CPC, even suo motu, unless the suit genuinely contemplates urgent interim relief. Courts must scrutinize interim relief prayers to prevent camouflage or guise to bypass mediation, ensuring alignment with the legislative intent of expeditious dispute resolution. Vague or unsubstantiated claims of urgency do not exempt plaintiffs from Section 12A, and external delays, such as corporate governance issues, do not justify non-compliance absent immediate threats.
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Written By: Advocate Ajay Amitabh Suman, IP Adjutor [Patent and Trademark Attorney], High Court of Delhi
