M/s. Patil Automation Pvt. Ltd. & Ors. v. Rakheja Engineers Pvt. Ltd.

INTRODUCTION

With the burgeoning market in India along with growing economy, the Legislature felt a need to
formulate a new act which could settle commercial disputes and reduce the burden of the normal court.
Thus, came the Commercial Courts Act, 2015 (Act of 2015). However, with time a need to amend the Act
of 2015 was felt for speedy settlement of commercial disputes and facilitate the ease of doing business.
Hence, the Act of 2015 was amended by the Commercial Courts, Commercial Division and Commercial
Appellate Division of High Courts (Amendment) Act, 2018 (2018 Act). This amendment reduced the
specific value from 1Cr to 3Lakhs and 12A was inserted.

12A of the 2018 Act mandates pre-institution of mediation unless any urgent interim relief is to be
claimed/ sought. This has been facilitated by Commercial Courts Act, 2015 (Pre-Institution Mediation
and Settlement) Rules, 2018 (2018 Rules). Under Rule 3 of the 2018 Rules, rules have been provided to
facilitate the parties to engage in the Mediation mechanism. Hence, unless the plaintiff exhausts the
remedy of pre-institution mediation in accordance with the manner and procedure that may be
specified by rules set by the Central Government, no suit that does not contemplate any urgent interim
relief under the Commercial Courts Act may be brought. Such mediation must be conducted before the
Central Government-approved authority. The law offers the authorities a three-month window to wrap
up mediation; this window may be extended by an additional two months with the parties' agreement.
For the purposes of the Limitation Act's time limitations, the mediation period will not be taken into
account.

ISSUES

1. Whether the provision laid down u/s 12A of 2018 Act mandatory in nature?
2. Whether a suit instituted violating the mandatory condition u/s 12A of 2018 Act is to be rejected
on a plaint being filed under Order VII Rule 11 of the Civil Procedure Code (CPC)?

LEGAL ANALYSIS

The bugging question in the present matter is whether 12A is directory or mandatory in its application
and operation. The usage of ‘shall’ in the provision of 12A of the 2018 Act and usage of word ‘may’ in
Rule 3 of the 2018 Rule creates an ambiguity whether it is on the discretion of the parties to choose
mediation as a mechanism. It is pertinent to note that any word of any provision cannot be interpreted
individually but has to be read with the entire provision along with keeping the aim and objective of the
act and intent of the legislature while passing any act. A legislature must benefit and interest both; the
public as well the parties. Bank v. Turner held that no universal rule can be put to determine the
mandatory nature of any provision if no sanction has been laid down in case of non-compliance to the
provision. Further, Rules of 2018 have been devised to facilitate the parties to take aid while discharging
the mandate of 12A. However, there have been different views on the same by different courts.

The purpose of Section 12A is to make sure that actual matters are brought before the court before a
commercial dispute is filed by adopting alternate methods of resolution. The court also believes that the
pre-institution of mediation was put in place to free up space in the regular courts and utilize resources
more efficiently. Mediation being economically viable and party friendly was thought of as a logical
solution. The Bench observed that, “Any other interpretation would not only be in the teeth of the
express language used but, more importantly, result in frustration of the object of the Act and the Rules."

Sr. Court Case Name Conclusion

No.
1. Bombay Ganga Taro Vazirani v. Held that provision laid down u/s 12A of 2018
HC Deepak Raheja Act is a procedural provision. In case of an
(Single urgent relief, the procedure laid u/s 12A need
Bench) not be undergone. In some cases, the rights of
one of the parties would stand waived. In case
of an attempt made for settling dispute, failing
to which the party is free to approach the court.
2. Bombay In an appeal Held that provision u/s 12A is mandatory. Since
HC the objective is for the interest in rem, it cannot
(Division be waived.
Bench)
3. Calcutta Laxmi Polyfab Pvt. Ltyd v. Held that section 12A is mandatory.
HC Eden Realty Ventures Pvt.
Ltd. And Anr
4. Madhya Curewin Pharmaceuticals Held that a suit which does not require an
Pradesh Pvt. Ltd. V. Curewin Hylico interim relief, no suit can be instituted till the
HC Pharma Pvt. Ltd. option of pre-institution of mediation has been
exhausted.

Any settlement arrived by pre-institution of mediation is treated as an award u/s 30(4) of the Arbitration
& Conciliation Act thus, as observed in Afcons Infrastructure Limited and Anr v. Cherian Varkey
Construction Company Pvt. Ltd. & Ors., the pre-institution of mediation u/s 12A is compulsory and the
same can be construed as intention of the Legislature.

Order VII Rule 11 provides for grounds for rejection of plaint. There is a difference between rejection of
plaint and dismissal of suit. Presently, rejection of suit is in question. In cases of rejection of plaint, if the
necessary changes that caused rejection are made, the plaint can be instituted. However, if the mandate
of any provision here, it being 12A is not met, the plaint shall be rejected.
CONCLUSION

The Court stated that it is obvious from the design and purpose of the 2018 amendment to the Act
which included Section 12A that the Parliament intended to make it mandatory in its applicability and
operation. Furthermore, the Court ruled that Section 12A's requirements must be met in order for a
plaintiff who does not anticipate urgent interim relief in a commercial case to have the right to file a suit.

It is evidently necessary that the suit cannot be filed until pre-instituted mediation, which is a remedy
recognized under the Act and the Rules, has been attempted and exhausted. According to the Court,
Section 12A is mandatory in nature. The Court further held that the plaint should be rejected out rightly
in cases where it is determined that based on allegations in the suit the suit is barred by any law, as
would be the case in suits brought under the Act where the plaintiff fails to comply with the
requirements of Section 12A.

Thus, the Court held that, “section 12A of the 2018 Act is mandatory and hold that any suit instituted
violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule
11.”