May 1st, 2021

INTRODUCTION

The issue discussed in the present article would excite all; practitioners, academicians and students. It would excite both categories of practitioners, those having a knack for the traditional practice of civil law in the courts and those leaning in favour of adopting alternate methods of resolving disputes outside of the Court. At first glance, it involves a simple-looking question but, upon further scrutiny, it is not so straight forward when encountered in practice. As the title suggests, the question is “How to bring into effect the real intention of the legislature while introducing Pre-institution Mediation for commercial suits so as to fulfil its ultimate object”. It is not a matter unknown that alternate procedures such as mediation tend to lose flair when the litigants fail to yield outcome and / or when such an exercise only piles up to their existing woes of financial constraints and delay in justice. This article attempts to shield the new mechanism of ‘pre-institution mediation’ for commercial suits by providing a fresh interpretation to the provisions and rules. The article begins with highlighting the mandatory provision for pre-institution mediation and objective of legislature in incorporating such an amendment for commercial suits. It goes on to explain the lacunas, challenges and judicial strives to bridge the same and give the law its real and purposeful identity.

CONCEPT OF ‘PRE-INSTITUTION MEDIATION’

While the term ‘pre-institution mediation’ may be new to some, it is no doubt true that the idea of ‘mediation’ is not unheard of. Thus, it is not beneficial to burden the article with the task of defining and emphasising upon the need and advantages of this process of settling disputes. The concept of pre-institution mediation finds its roots in the Commercial Courts Act, 2015 (hereinafter, “the Act”). It was brought into effect on 20.08.2018, applicable retrospectively from 03.05.2018. It was realised over a period of time that commercial disputes involve intricate questions of facts and law. Adjudication of the lis in such cases take an unusually long time, results in huge litigation expenses and, consequently, creates a lose-lose situation for all the parties sometimes. To obviate this situation and repose the faith of businesses and investors in the legal system, thereby, strengthening the ease of doing business in the country, the legislature contemplated incorporation of Section 12A in the Act^[1] [applicable to commercial disputes as defined under Section 2 (1)(c) of the Act], whereby, it is mandatory for the claimant / applicant (plaintiff in suits) to apply for mediation with the other party (defendant) prior to filing of the suit before the Court of appropriate jurisdiction.

At this juncture, it is imperative to reproduce the relevant sub-sections of Section 12A and the rules framed thereunder, which would constitute the subject matter of discussion in the succeeding portion of this article.

“12-A. Pre-Institution Mediation and Settlement.—(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.

(2)…………

(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):

Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:

Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963).

(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.

(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of Section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).”

The relevant sub-rules of Rule 3 read as follows:

“3. Initiation of mediation process.—“(1) A party to a commercial dispute may make an application to the Authority as per Form 1 specified in Schedule I, either online or by post or by hand, for initiation of mediation process……………….”

(2)……………

(3)  Where no response is received from the opposite party either by post or by e-mail, the Authority shall issue a final notice to it in the manner as specified in sub-rule (2).

(4) Where the notice issued under sub-rule (3) remains unacknowledged or where the opposite party refuses to participate in the mediation process, the Authority shall treat the mediation process to be a non-starter and make a report as per Form 3 specified in the Schedule I and endorse the same to the applicant and the opposite party.”

THE EXISTING GAPS

Upon careful examination of the afore-mentioned provisions of law, it is apparent that it is not the bounden duty of the opposite party (defendants) to appear before the authority / mediator, however, it is an indispensable duty for the applicant (plaintiff) to take recourse to Section 12A before instituting the plaint, thus diluting the very objective of the whole process. This brings us to an interesting question that what would be the consequence if the party institutes the suit without opting for the said process under Section 12A of the Act. Whether the other party is entitled to take a preliminary objection in their written statement regarding the same? In practice, defendants have been taking such an objection regarding non-compliance of Section 12A by the plaintiff. The judicial opinions stand divided in so far as repercussion of this situation is concerned. One simple modus operndi of the courts is to dismiss the suit with liberty to the plaintiff to institute the suit again in accordance with Order VII Rule 13 of the CPC on the same cause of action. However, this is not a cost effective and time saving method to deal with such a circumstance. Recently, the High Court of Calcutta^[2] has very rightly opined that in case of non-compliance of Section 12A by the plaintiff, it is in the interests of justice and in consonance with the objective of whole Act that the plaint is kept at abeyance till the time the plaintiff exhausts the remedy under Section 12A of the Act and an order is passed in accordance with the outcome of the mediation process. This is seemingly a better method of dealing with such plaints as it saves time, efforts and money of the litigants. More so, the reading of orders from different jurisdictions dismissing the plaint for non-compliance seldom clarify / answer as to whether upon raising preliminary objection to reject / dismiss the suit, does it become mandatory for the defendant to participate in the mediation proceedings?^[3] In absence of this, it is safe to say that the suit should be kept at abeyance till the time the plaintiff exhausts the ‘pre-institution mediation’ or the plaintiff must be allowed to amend the suit appropriately if the mediation process fails or is a non-starter.

Coming to the question concerning the mandatory nature of Section 12A of the Act, i.e., whether the said provision is indispensable for the institution of suit in every circumstance. A bare perusal of sub-section (1) of Section 12A stated above clarifies that the procedure of ‘pre-institution mediation’ can be skipped if and only if the plaintiff requires “urgent interim relief” from the Court. It is relevant to bear in mind that the word ‘urgent’ qualifying the term ‘interim relief’ shows that unless and until the interim reliefs sought are of an urgent nature, so much so, that non-seeking of which would very likely prejudice the plaintiff. The High Court of Delhi in a suit instituted before it without complying with Section 12A of the Act by stating that urgent interim reliefs have been sought by the plaintiff under Order XXXIX Rule 10 and Order XXXVIII Rule 5. The Court observed that, “[M]ere bald averment in the application that the defendant No. 1 does not have any intention to satisfy the decree for the reason that the defendant No. 1 is in the process to dispose of the said property, does not satisfy the test of urgency”.^[4] Another question emanating from this issue is that whether the mandatory requirement under Section 12A of the Act can be dispensed with on any other ground (not embodied in provision). In the interests of justice and to achieve the ultimate object of Section 12A, the High Court of Bombay^[5] has very recently answered this issue by carving out an exception to the effect that where an attempt has been made by serving notice under any statute (in this case Section 138 of the NI Act, 1881), then in that event, compelling the plaintiff to first exhaust the remedy of amicably settling the matter by initiating ‘pre-institution mediation’ under Section 12A of the Act will be nothing but mere surplusage. This interpretation by the Court is truly serving the intention of the legislature and must be followed as a guiding precedent in the coming days. Other provisions akin to Section 138 of the NI Act include Section 106 of the Transfer of Property Act, 1882 and Section 80 of the CPC upon which such an interpretation ought to be suitably applied.

CONCULSION

Although, the issues discussed hereinabove in this article are preliminary, having no fatal consequences but are of such nature that have potential to render the very idea of ‘pre-institution mediation’ nugatory and would further delay the disposal of commercial suits (which is inconsistent with the scheme of the Act). In these circumstances, it becomes essential for the legislature and / or judiciary to address these issues so as to save the law and provide meaning to the same.