On 17th August 2022, Hon’ble Supreme Court delivered one judgement in the case of M/S. PATIL AUTOMATION PRIVATE LIMITED AND ORS. – APPELLANT(S) VERSUS RAKHEJA ENGINEERS PRIVATE LIMITED – RESPONDENT(S) wherein the issue is in respect of section 12A of commercial courts act 2015(Hereinafter referred as the Act). Whether statutory pre-litigation mediation as mentioned in that section is mandatory and whether the courts below have erred in not allowing the applications filed under order 7 rule 11 of CPC to reject the plaints.
Factual Matrix:
The factual matrix in a nutshell is that a commercial suit under order 37 of CPC was filed for recovery of more than one crore rupees along with 12% interest before District Court, faridabad. A written statement was subsequently filed by the defendant therein. The defendant also filed an application under Order 7 Rule 11 of CPC taking stand of the provisions of section 12A of the commercial courts act.
In the commercial suit filed before the District Court, Hon’ble District Court relying upon one judgement of Hon’ble Bombay High Court in the case of Gange Taro Vazirani vs. Deepak Raheja(2021) SCC online Bombay 195 while adjudicating an application filed by the defendant under order 7 rule 11 and observed that the aim and object of section 12A of the Act is to ensure that before a commercial dispute is filed before the court, the alternative means of dissolution are adapted so that genuine cases come before the court, the District Court further observed that though the provisions of section 12A is mandatory in nature, if the suit of the plaintiff is rejected it’d have catastrophe effect and that was not the intention of legislature and thereby the District Court have rejected an application under order 7 rule 11 filed by the defendant i.e. appellant before Hon’ble Supreme Court. However, it is pertaining to note that the division bench of Bombay High Court in the case of Deepak Raheja vs. Ganga Taro Vazirani reported in(2021) SCC online Bom HC 3124 has reversed the order passed by the single judge in the said case.
The defendant has filed a revision application before the Hon’ble High Court. The Hon’ble High Court has confirmed the order passed by the trial court and further held that “the purpose of referring the dispute to the mediation centre is to explore settlement. If the suit is filed without taking recourse to the procedure, it should not entail rejection of the plaint as this could not have been the intention of the legislature. It is further observed that an enactment is to be interpreted in a manner that it doesn’t result in delivery of ‘perverse justice’. Further the trial court has directed the parties to appear before secretary of district legal services authority for the purposes of mediation and meanwhile the civil suit shall be kept in abeyance”. The Order of HC has been challenged before Hon’ble SC, hence this judgement.
Therefore it is a need of hour to mention here the provisions of section 12A of the commercial courts Act. Section 12A was inserted on 3rd May 2018 in the Commercial Courts Act. Section 12A is embodied under chapter 3A under title pre-institution mediation and settlement which is as under.
“(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) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.
(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).”
Having read the above mentioned section more specifically 12A(1) it establishes that a suit having commercial nature cannot be instituted unless the plaintiff seeks the remedy of pre-institution mediation as per the manner and procedure. This section has one condition precedent i.e., “which does not contemplate any urgent interim relief under this Act.” This establishes that if there is any urgent interim relief under the Act, the provision of section 12A(1) is not applicable.
Having analysed and observed the statement of objects and reasons of the Act, and referring to various judgements of Hon’ble SC, in para 53 Hon’ble SC observed that section 12A of the Act is mandatory in nature. Hon’ble Supreme Court further observed that mere use of the word ‘shall’ not be the reason for their opinion for section 12A. It was further observed that the object of section 12A is to conduct the mediation between the parties without any involvement of the court prior to the institution of the suit.
In para 54 of the judgement, it was observed that section 12 is the fastest route without for a moment taking the precious time of a court. It was further observed that section 12A of the Act is applicable only to the suit which does not contemplate any urgent interim relief. It was the observation of the court that in a suit where the urgent relief is short, the legislature has carefully vouch-safed immediate access to justice as contemplated ordinarily through the courts.
In para no. 63 while comparing with the provisions of section 80(1) of CPC it was observed that in section 12A of the Act also the bar of institution of the suit is applicable only in a case in which the plaintiff does not contemplate urgent interim relief.
The second issue is with regard to rejection of plaint:
Q. Whether the court can reject the plaint without the application U/O 7 rule 11 of CPC being filed?
OR
Q. Whether it is mandatory to file an application U/O 7 rule 11 for rejection of a plaint?
Para 68 :- (C) of the judgement.
The answer of this question is given in para 68(C) of the judgement relying on the judgement of SC in the case of Madirajn Venkata Ramana Raju, Hon’ble SC held that in a clear case, where on allegations in the suit, it is found that the suit is barred by any law, as would be the case , where the plaintiff in a suit under the Act does not plead circumstances to take his case out of the requirement of section 12A, the plaint should be rejected without issuing summons. Undoubtedly, on issuing summons it will be always open to the defendant to make an application as well under order 7 rule 11. In other words the power under O.7.R.11 is available to the court to be exercised suo moto.
Mediation:
Para no. 74: mediation is recommended by Hon’ble SC:
Para no. 74 emphasises on the carving need of mediation in commercial disputes and the availability of highly skilled and trained mediators with respective issues in mediation. Hon’ble SC in the same paragraph further observes that there must be trained mediators and training program by experts should be held in state judicial academy in this regard, High Court may also undertake periodic exercise to establish a panel of trained mediators in District and Taluka levels as per need.
Para no.84 Section 12A of the Act is mandatory in nature:
In para 84 Hon’ble SC declares that “section 12A of the act is mandatory and holds that any suit instituted violating the mandate of section 12A must be visited with rejection of plaint under order 7 rule 11. This power can be exercised even suo moto by the court as explained earlier in the judgement.” It is further clarified that section 12A of the Act becomes mandatory with the effect from 20-8-2022 so that concerned stakeholders become sufficiently involved. It is further directed by the SC that, “In case the plaints have already been rejected and no steps have been taken within the period of limitation, the matter can’t be reopened on the basis of this declaration.” Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration of prospective effect will not avail the plaintiff. Finally, if the plaint is filed violating Section 12A after the jurisdictional High Court has declared section 12A mandatory also, the plaintiff will not be entitled to the relief. Thus, it is clarified in this paragraph by Hon’ble SC that no retrospective effect of the declaration of section 12A of the Act being mandatory is applicable to any case prior to the date of 20-8-2022.
Appeal filed by appellant defendant was allowed by Hon’ble SC rejecting the plaint filed under order 37 of CPC.
Author’s Opinion:
In this judgement Hon’ble SC has majorly cleared three issues:
(i) Section 12A of the commercial courts act is mandatory in nature.
(ii) Courts have power to reject the plaint under order 7 rule 11 of CPC suo moto, application under order 7 rule 11 of CPC is not required.
(iii) The applicability of provisions of Act is to the suits only wherein urgent interim relief is not sought.
Whether this judgement is boon or curse?
(A) Boon
To answer this,
1. The objects and reasons of the commercial courts Act are required to be considered and looked into.
2. The purpose of the commercial courts Act being enacted is only to develop and encourage commercialization and industrialization in the country with the faster and competent legal support in the era of technology and science.
3. The effect of this judgement may be at Global commercial level so that more and more Global investors come to India for commercial purposes.
4. This judgement of SC is a renaissance not only to the Indian judiciary but also to the business world in India as well as the foreign countries.
5. To encourage commercial mediation in the country as per para 74 of the judgement, such is a welcoming step towards making commercial utopian and peace fraternity and harmony. I think this is the original nature of our country.
6. To encourage mediators having sound knowledge of the particular subjects or issues involved between the parties to the mediation.
7. Period of mediation 3 months plus extention upto 2 months: Five months: This period even excluded from limitation period.
8. To restrain false and bogus litigation.
9. To lessen the burden of courts from annoying suits and arguments and to increase the productivity of the courts in respect of genuine creative and productive works.
(B) Curse
1. The issue involved in this judgement is with regard to order 37 of CPC.
2. In section 2(i)(c) i.e. definition of the commercial dispute, there are 22 matters apart from money disputes i.e. order 37 of CPC summary suit. For example, disputes related to IPR, in the case of IPR, urgent relief is must otherwise the whole suit becomes infructuous.
3. This judgement of Hon’ble SC becomes land of law U/A 141 of constitution of India, and it is binding to all courts of India under such circumstances, whether District Courts where the IPR suit can be filed i.e.(original jurisdiction for filing suits related to IPR) can be considered that there is urgent relief in IPR case, hence this judgement is not applicable.
4. Issue involved in this judgement is related to O.37 of CPC and is not related to the issue of IPR.
5. Can this judgement become a boon for the commercial courts to issue urgent notice to the other side and to avoid ex parte injunction in the cases of IPR? However in my opinion it can not be as Section 12A excludes urgent relief or it is not applicable to urgent relief. It is pertinent to note that there is no specific definition of “URGENT RELIEF” and it can’t be, hence it may vary case to case basis.
6. Having read section 12A of the commercial courts Act, it is clear that a suit which contemplates any urgent interim relief under this Act(Commercial Courts Act), this provision is not applicable, however the term urgent interim relief under this act means an urgent interim
relief under the commercials courts act. In that case urgent interim relief by way of order 39 R. 1 & 2 of CPC can be considered as under relief under commercial courts act, 2015? Answering this question, I rely on section 2 of the commercials Courts Act, which says that, “The words and expression used and not defined in this Act, but defined in the code of Civil Procedure, 1908(5 of 1908) and the Indian Evidence Act, 1872(1 of 1872) shall have the same meanings respectively assigned to them in that code and the Act.”
Considering the above mentioned discussion, it can be said that the judgement passed by Hon’ble SC will be a boon in the coming days and it can not be a curse, if it is interpreted in its real sense and just and proper manner.
Author
Chirag Bhatt
Advocate.
CBhattLawOffice
Gujarat
