Case title:
Patil Automation Pvt Ltd Vs Rakhija Engineers
Date of Order:
17th August 2022
Bench:
Justice KM Joseph and Justice Hrishikesh Roy
Parties:
Appellants- Patil Automation Pvt Ltd
Respondents- Rakhija Engineers
SUBJECT
The Supreme Court of India ruled in a significant decision that pre-institution mediation under Section 12A of the Commercial Courts Act 2015 is mandatory in nature, and suits that do not follow it will be rejected under Order VII Rule 11 of the Code of Civil Procedure.
The pivotal issue, in this case, was whether the statutory pre-litigation mediation contemplated by Section 12A of the Commercial Courts Act, 2015 is mandatory.
A bench of Justices KM Joseph and Hrishikesh Roy ruled that the Court's refusal to give Section 12A a mandatory interpretation would defeat the object and intention of the legislature.
IMPORTANT PROVISIONS
Section 12A of the Commercial Courts Act 2015- Section 12A states that any suit that does not seek urgent interim relief under the Commercial Courts Act shall not be initiated unless the plaintiff exhausts the remedy of pre-institution mediation in the direction and procedure prescribed by rules made by the Central Government. Such mediation must take place before Central Government-authorized authorities.
Order VII Rule 11 of the Code of Civil Procedure- Order VII Rule 11 states that the plaint can be dismissed on six grounds. These include the failure to disclose the cause of action and where the suit appears to be barred based on the statement in the plaint.
OVERVIEW
- The respondent filed a commercial suit before the Additional District Judge under Order XXXVII of the CPC, seeking recovery of Rs. 1,00,40,291/ along with 12% interest on a particular sum.
- The defendant in the aforementioned suit is the appellant. They filed an application under Order VII Rules 10 and 11 read with Sections 9 and 20 of the CPC, claiming, among other things, that the suit was filed in violation of Section 12A of the Act.
- The respondent argued that the suit was not barred because of noncompliance with Section 12A of the Act. The trial Court rejected the appellant's argument.
- The appellant petitioned for a Civil Revision. The High Court of Punjab and Haryana, on the other hand, upheld the finding and stated that the Courts are intended to deliver substantial justice.
- In the other appeal, the High Court of Madras issued the impugned Order, rejecting an equivalent application filed by the appellant-defendant in a commercial suit initiated without resorting to pre-litigation mediation under Section 12A of the Act.
ISSUES RAISED
Whether the statutory pre-litigation mediation contemplated by Section 12A of the Commercial Courts Act, 2015 is mandatory?
Whether the lower courts erred in refusing to accept the plaints filed under Order VII Rule 11 of the Code of Civil Procedure, 1908, to reject the appeals filed by the respondents without following the procedure under Section 12A of the Act?
ARGUMENTS ADVANCED BY THE APPELLANT
- The counsel for the appellant submitted that the High Court clearly erred in its decision. It was argued that the legislation was enacted with the specific goal of improving the ease of doing business in India and de-clogging Commercial Courts, which were tasked with the important task of quickly resolving commercial matters.
- It was submitted that if the application under Order VII Rule 11 is granted and the plaint is rejected for non-compliance with Section 12A, in view of Order VII Rule 13 of the CPC, there is no prejudice because the plaintiff can file a new suit on the same cause of action after complying with the mandate of Section 12A of the Act.
- It was argued that in Section 12A, the lawmaker used the word 'shall.' The word 'shall' in the context of the legislation's object must be interpreted as mandatory. It only refers to the plaintiff's discretion in selecting the particular mode contemplated therein.
- It was submitted that the trial Court incorrectly interpreted post-institution mediation as compliance with the pre-litigation mediation contemplated by Section 12A.
ARGUMENTS ADVANCED BY THE RESPONDENT
- The counsel for the respondent argued that Section 12A should be interpreted as a guideline. It was submitted that one of the cardinal tests used by the Courts to determine whether the word 'shall' in a statutory provision is mandatory is to ask whether the provision anticipated penal consequences for disobeying the provision. Section 12A contains no penalties for filing a lawsuit without first complying with Section 12A. Initiating a suit without complying with the provisions of Section 12A has no effect on the defendant's legal rights. It is simply a procedure designed to bring the parties to an agreement.
- It was submitted that the appellant, who swears by mediation, had rendered it moot by refusing to participate in the mediation procedure.
- Furthermore, in light of the intent of Section 12A, it was argued that the interests of justice would be served if the Court's procedure in his case is accepted. If the Court immediately refers the parties to mediation following the institution of the suit, the appellants may not be supported in insisting on pre-institution mediation.
- It was submitted that the pre-litigation mediation contemplated in Section 12A has no bearing on a Court's inherent jurisdiction.
- It was further argued that the plaintiff is required by law to pay the entire court fee. When a plaint is rejected under Order VII Rule 11, the plaintiff loses the entire court fee.
- It was also stated that there was a possible outcome of a limitation plea overwhelming the plaintiff's new suit after the first suit is rejected.
JUDGEMENT ANALYSIS
- The Supreme Court stated in its decision that Section 12A is not merely a procedural law.
- The bench opined that exercising the plaintiff's right to pre-institution mediation, with all of the advantages that may accrue to the parties and, more pertinently, the justice delivery system as a whole, would enhance Section 12A beyond a mere procedural provision.
- It was stated that the design and scope of the Act, as amended in 2018 with the addition of Section 12A, would indicate that Parliament intended to give it a mandatory feel.
- It was noted by the court that Section 12A of the Act provides for pre-institution mediation only in suits that do not seek urgent interim relief. As a result, pre-institution mediation has been mandated only in a subset of cases.
- The court opined that the Law-giver has carefully safeguarded immediate access to justice as contemplated ordinarily through the courts in suits involving urgent interim relief. The creation of a class of suits and their selection for mandatory mediation is consistent with the achievement of the law's goal. The Judges' workload has been reduced. They can focus on matters requiring immediate interim relief as well as those that already clog their dockets. They stated that in the age of docket explosion, mediation is a "meaningful choice,".
- It was stated that the fact that mediation may fail cannot be used to argue that the provision is not mandatory. If plaints have already been rejected and no steps have been taken within the time limit, the matter cannot be reinstated on the basis of this declaration.
- The Court further stated that if the order of rejection of the plaint was followed by the filing of a new suit, "the declaration of prospective effect will not be of assistance to the plaintiff."
CONCLUSION
It was declared that Section 12A of the Act is mandatory and held that any suit brought in violation of Section 12A's mandate must be dismissed under Order VII Rule 11. The court may exercise this authority even on its own initiative suo moto.
However, the Court reasoned that this ruling will take effect on August 20, 2022, to ensure that all concerned stakeholders are adequately informed.
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