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Indian Business Law Journal: Mandatory mediation hoped to unclog commercial lists

Indian Business Law Journal: Mandatory mediation hoped to unclog commercial lists

The Commercial Courts Act, 2015 (act) expedited the delivery of justice in commercial disputes involving over INR10 million (USD125,500). In 2018, the value of commercial disputes to which the act applied was reduced to INR300,000. Section 12A was added to shorten the list of cases before commercial courts and to promote mediation as an alternative to adversarial litigation. This section mandates mediation prior to the filing of a suit unless the plaintiff is seeking urgent interim relief. However, as the language of section 12A was ambiguous, high courts took differing views on whether pre-institution mediation was mandatory.

The Supreme Court, in Patil Automation Private Limited and Ors. v Rakheja Engineers Private Limited, recently held that pre-institution mediation under section 12A of the act is mandatory. The court took a mediation-friendly approach, holding that section 12A is not merely a procedural provision and that treating it as such would frustrate the intent behind its introduction. The court drew a parallel between section 80 of the Code of Civil Procedure, 1908, which makes it mandatory to issue a notice to the concerned authorities prior to the institution of a suit against any government authority.

The judgment is one in a series in which the court has emphasized strict adherence to timelines and upheld the purpose of the act. The judgment, effective from 20 August 2022, clarifies that it will not revive time-barred claims. Where a high court has already held pre-institution mediation to be mandatory, any case filed without first participating in mediation will be liable to be rejected, either on application or objection being taken by the defendant or by the court.

Considering the huge backlog of cases in the country and India’s endeavor to improve its position in the Ease of Doing Business index, the judgment is a step in the right direction. However, putting it into effect will be challenging, a fact the court acknowledged. Following the reduction of the threshold for commercial disputes, cases have often been filed in district courts that may not have access to qualified mediators experienced in complex commercial disputes. The mediation-friendly approach of the court requires considerable infrastructure strengthening to help mediators deal expeditiously with the complexity and volume of commercial disputes that may now be referred to them. The act prescribes a limit of five months for the completion of mediation proceedings.

Read the complete article here.

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