Non-Compliance with Pre-Litigation Mediation Mandate Under Commercial Courts Act Applies Prospectively: SC

The Supreme Court has held that the mandatory requirement of pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, applies prospectively to suits instituted on or after August 20, 2022, the date of its decision in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd.

A bench of Justices J.B. Pardiwala and R. Mahadevan clarified that suits filed before this date without compliance with Section 12A cannot be outrightly rejected under Order VII Rule 11 of the CPC, unless they fall within specific exceptions laid out in Patil Automation.

Reiterating the mandatory nature of Section 12A, the Court upheld the rejection of an appeal by M/s Dhanbad Fuels Pvt. Ltd., which challenged the refusal of the Commercial Court and the High Court to dismiss a 2019 money suit filed by the Union of India for recovery of ₹8.73 crore. The appellant had raised a preliminary objection to the maintainability of the suit for lack of pre-institution mediation.

While affirming the High Court’s decision to keep the suit in abeyance and direct time-bound mediation, the bench held:

“The High Court's approach strikes a balance between the mandatory nature of Section 12A and the prospective application of the law declared in Patil Automation.”

The Court also clarified that suits seeking urgent interim relief may be instituted without prior mediation, provided the claim is bona fide. Courts must remain cautious that such claims are not used as a pretext to circumvent the statutory requirement.

Addressing concerns about procedural gaps in implementation, the Court noted that the lack of a functional mediation infrastructure until late 2020 in several jurisdictions made compliance with Section 12A effectively impossible in many cases.

“Law does not compel an impossible performance,” the Court observed, emphasizing the judiciary’s power to mould relief to prevent chaos and uphold fairness.

Finally, the bench rejected arguments that Patil Automation’s ruling should apply retrospectively, affirming that courts may declare a position of law to operate only prospectively in order to safeguard ongoing proceedings and prevent disruption.

Case Title: M/s Dhanbad Fuels Pvt. Ltd. v. Union of India & Anr.