Patil Automation v. Rakheja Engineers: An End to Pre-Institution Mediation Conundrum
[Deborshi and Tarun are students at Symbiosis Law School, Noida.]
The jurisdiction of commercial courts in India as postulated under Section 6 of the Commercial Courts Act 2015 (Act), extends to any and all commercial disputes arising out of states in India to which the territorial jurisdiction of the commercial courts extend. The specified value of such courts has been enumerated under Section 12 and the subject matter jurisdiction has been discussed in Section 2(1)(c). In order to minimize the burden of the existing commercial courts, the legislature by virtue of the 2018 amendment, enacted section 12A. Section 12A of the Act mandates mediation for any commercial dispute arising under the Act, barring the institution of a suit for the same unless an urgent interim relief is claimed. The conundrum existed around interpreting the mandatory nature of the provision which previously had been declared directory in a number of rulings by various High Courts. Recently, the Apex Court in M/s Patil Automation Private Limited and Others v. Rakheja Industries Private Limited has put an end to this conundrum by upholding the mandatory nature of mediation and thereby obliging parties to firstly restore to the an alternate form of dispute resolution before directly approaching the courts. The author through this article aims at analyzing some of the pertinent questions of law attached with mediation as a compulsory form of dispute resolution.
Previous High Court Rulings
In Deepak Raheja v. Ganga Taro Vairani [2021 SCC OnLine Bom 3124], the division bench of the Bombay High Court observed Section 12A of the Act to be mandatory in cases where no urgent relief is pursued. Further, the court construed the provision to be in furtherance of speedy disposal of commercial cases and recanted any liberal interpretation of the same in order to declare mediation directory. The Hon’ble Calcutta High Court in Laxmi Polyfab Private Limited v. Eden Reality Ventures Private Limited and Another [AIR 2021 Calcutta 190] discussed Section 12A of the Act and held that section 12A is mandatary in nature. The very same learned single judge in Dredging and Desiltation Company Private Limited v. Mackintosh Burn and Northern Consortium and Others [2021 SCC Online Calcutta 1458] also upheld the mandatory nature of the provision and stated that Section 12A is absolute. However, notwithstanding the above-mentioned judgment(s), a contrary view was taken by the Hon’ble Madras High Court in Shahi Exports Private Limited v. Goldstar Line Limited and Others. The court in this case explored the constitutional aspect and stated that mandating mediation would deprive the parties of their right to approach courts thereby violating their constitutional right of access to justice. After harmoniously construing Section 12A along with Rule 3(1) of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules 2018 (Commercial Courts Rules), the High Court stated that parties could not be deprived of their right to approach courts directly.
Determining the Mandatary Nature of Section 12A
Although a strict interpretation of the term ‘shall’ was adequate for the determination of a mandate, the Apex Court decided to emphasize on the sublime objective of the 2018 amendment in order to interpret the use of ‘shall’ (paragraph 53). The Apex Court observed that legislature had brought this amendment to majorly decongest and de-clog the commercial courts which was imperative to enhance the ease of doing business in India. By attending the cases which required urgent interim relief, the provision acts as a successful deterrent towards docket explosion of commercial cases in India. The same purpose has been fulfilled by bringing down the specified value of commercial suits from one crore to three lakhs. Drawing inference from Sharif-ud-Din v. Abdul Gani Lone [(1980) 1 SCC 403], the Apex Court asserted that as non-compliance with Section 12A would result in defeating the object, the same has to be construed to be mandatory (paragraph 43). The court refrained from construing Section 12A as a mere procedural law as the same would be in blatant contravention to the mandatory flavor the parliament wanted to implement.
Impediment to Access to Justice
It has been vehemently argued that mandating mediation would result in a blatant infringement to the parties’ right to approach courts and would thereby infringe one’s constitutional right of access to justice. Nonetheless, the Apex Court has now clarified that parties do not have a fundamental right to file of a civil suit (paragraph 55). The rationale for the same distinctly finds its roots in the Code of Civil Procedure 1908 (CPC). By virtue of Section 9 of CPC, the cognizance of civil suits can by express or necessary implications be barred. Further, Order VII, Rule 11(d) of CPC, gives courts the suo moto powers to reject a plaint where a statement in the same is barred by any law similar to a bar under Section 12A; thereby, every plaint does not necessarily result in an instituted suit. The very presence of these provision is indicative of the principle that there is no constitutional right to file a civil suit. The Apex Court pointed out that the legislature has carefully vouch-safed immediate access to courts for parties in a suit for urgent interim relief. The same has also been weaved in the text of Section 12A (paragraph 54). Carving out a class of suit and allowing them to obtain immediate relief forms a rational nexus with the objective of speedy justice the provision wanted to uphold. It is due time now that mandatory mediation is perceived to be in furtherance of access to justice. The intention behind the provision is to facilitate speedy disposal of cases. It can be construed as a respite given to parties to escape the clutches of adversarial litigation and achieve an amicable settlement.
Right of Suo-Moto Rejection of Plaints
Drawing inference from the judgment of the Hon’ble High Court of Madras in Olympic Cards Limited v. Standard Chartered Bank [(2013) 1 CTC 38], the Apex Court drew an analogy between presentation of a plaint and institution of a suit. The Hon’ble High Court in this case asserted that mere presentation of suit does not in itself result in institution of the same (paragraph 71). Once a plaint is introduced, the same is given a diary number, registered and then entered into the suit register. It is only after the entry into the suit register can a plaint be considered to have been validly instituted. All steps prior to this registration are preliminary in nature. Once a suit has been registered the same is presumed to be in conformity with Order IV Rule 1 of CPC or that the same is in compliance with Order VI and VII CPC. Further, Order VII Rule 13(d) of CPC postulates the rejection of a plaint if the same is barred by any law. A summon to the defendant can only be issued post the valid institution of suit (paragraph 70). The Apex Court drew this analogy with the sole purpose of pointing out the fact that rejecting a plaint prior to institution of the same would procedurally save courts a lot of time as there would not be a requirement to look into whether the suit complies all due requirements for institution. Further, institution of a suit opens up the scope for adjournment, objections and hearings. Suo moto rejection of the plaint for compliance with Section 12A would actually uphold the objecting of the legislature. Further, the Apex Court also pointed out that post institution of a suit, the same may still be rejected by an application being filed by the defendant under Order VII Rule 11 of CPC (paragraph 67). The same has been upheld by the Apex Court in Patasibai and Others v. Ratanlal [(1990) 2 SCC 42], where it was held that, “the mere issuance of summons by the trial court does not require that the trial should proceed even when no triable issue is shown to arise.” Therefore, any possibility of a temporary suspension of a suit subsequent to the issuance of summons under Order V, Rule 1 of CPC, for subsequent compliance of mediation proceedings has been ruled out.
Harmonious Interpretation with Rule 3 of the Commercial Courts Rules
Rule 3 of the Commercial Courts Rules gives a directory flavor to mediation on account of the defendant’s lack of consent to mediate. Rule 3 postulates the filing of an application by the plaintiff for the initiation of mediation and forwarding notice of the same to the defendant. Further, it postulates the delivery of a final notice if the defendant is irresponsive of the notices. However, the issue arises with the declaration of the mediation as “non-starter” by the concerned authority if the aforementioned notices go answered. Declaring a mediation as a “non-starter” would effectively give leeway to the defendant to escape the procedure of mediation. Not-withstanding such a partisan provision, the Apex Court to a great extent insistently went on to uphold that there must be harmonious interpretation between Section 12A and Rule 3. The court rationalized that the use of ‘may’ in the rule did not detract with the mandatory flavor of Section 12A and only provided three different ways for an application to institute mediation. The Apex Court in upholding the mandate in Section 12A has read down Rule 3 and stated that the rule is merely indicative of a modicum of voluntariness given to the defendant and that a “non-starter” would not affect the mandatory nature of Section 12A (paragraph 72). The ruling of the Apex Court is actually indicative of a scenario where if upon non-compliance of mediation proceedings by the defendant, the plaintiff approaches courts for appropriate relief, the same would be rejected for no-exhaustion of the mandate to firstly mediate. Such an anomaly is also in contravention with the procedure for pre-institution mediation and settlement of the Delhi State Legal Services Authority. The SOP of the same states that upon the marking of a matter as “non-starter”, the plaintiff is at liberty to approach the courts for appropriate remedy.
With the Mediation Bill 2021 awaiting approval, potential that underlies mediation as a dispute resolution mechanism largely remains untapped under Section 89 of CPC. Section 89 postulates court ordered mediation, but Section 12A temporarily suspends the interference of courts which initially was the legislative intent behind the 2018 amendment. Owing to the above discussion, it is evidently safe to assert that the ruling will result in substantial reduction in the burden of commercial courts and uphold the larger objective of promoting India as one of the major commercial hubs in the world. It is imperative to construe Section 12A in a mandatory nature in order to prevent institution of suits which do not urge urgent relief, thereby reducing the burden of commercial courts.