October 11, 2022
The Commercial Courts Act 2015 (Act) accelerated the adjudication of commercial disputes over INR 10 million (US$125,500) in value. In 2018, the value of commercial disputes to which the law applied was reduced to INR 300,000. Section 12A was added to reduce the list of cases before commercial courts and to encourage mediation as an alternative to adversarial litigation. This section requires arbitration prior to the filing of a claim unless the claimant is seeking urgent injunctive relief. However, because the wording of Section 12A was ambiguous, the Supreme Courts took different views as to whether pre-institutional mediation is mandatory.
The Supreme Court, in Patil Automation Private Limited and Ors. v Rakheja Engineers Private Limited, recently ruled that pre-institutional mediation is mandatory under Section 12A of the Act. The court took a pro-mediation approach, noting that Section 12A is not just a procedural rule and treating it as such would defeat the intent behind its introduction. The court drew a parallel with Section 80 of the 1908 Code of Civil Procedure, which requires that prior to the commencement of any action against a government agency, notice must be given to the agencies concerned.
The ruling is one in a series in which the court has emphasized strict adherence to time limits and affirmed the purpose of the law. The ruling, effective August 20, 2022, clarifies that statute-barred claims will not be reinstated. If a supreme court has already made pre-institutional mediation mandatory, any case brought without prior participation in mediation must be dismissed, either at the request or objection of the respondent or the court.
The ruling is a step in the right direction given the country’s huge case backlog and India’s efforts to improve its position in the Ease of Doing Business Index. However, implementation will be difficult, which the court acknowledged. Following the lowering of the commercial dispute threshold, cases were often brought before district courts, which may not have access to qualified mediators experienced in complex commercial disputes. The Court’s mediation-friendly approach requires a significant strengthening of infrastructure to help mediators quickly deal with the complexity and scale of commercial disputes that may now be presented to them. The law stipulates a period of five months for the mediation process to be carried out.
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