Mediation and Misinterpretation of Section 12A of Commercial Courts Act

Rushab Aggarwal

Chapter IIIA titled Pre-Institution Mediation and Settlement was introduced in 2018 by way of Amendment to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (‘the Act’) and was made retrospectively applicable from 03.05.2018. Chapter IIIA introduces Section 12A in the Act, which envisages a mandatory reference to mediation to attempt to resolve differences out of court, before a suit can be instituted.

Section 12A of the Act reads as follows:

“12A. Pre-Institution Mediation and Settlement. (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, for the purposes of pre-institution mediation.

(3) Notwithstanding anything contained in the Legal Services Authorities Act, 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.

(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.”.

However, as per sub-section (1) of Section 12A, the mandatory reference to mediation can be circumvented if, along with the plaint, an application for ‘urgent interim relief’ is preferred, in which eventuality, the reference to mediation can be given a go-by and the suit may be instituted.

It is perhaps one of the greatest misfortunes of our times, that, despite its remarkable rate of settlement in the recent past, the vast majority of lawyers view mediation with a lens of suspicion. Nobody seems to approach mediation with the sense of alacrity, which an effective dispute resolution mechanism deserves. And this is attributable to those minority of litigants (and lawyers), who use mediation as a delaying tactic, trying to wear out the other side by prolonging mediation without even attempting meaningful resolution, and consequently postponing adjudication of claims.

While admitting the employment of these tactics to be a downside to mediation, does it rise to the level of attributing distrust to the institution of mediation itself? I think not.

The consequence of this distrust in mediation, is that frivolous applications seeking ‘urgent’ interim relief are now filed alongside Commercial Suits, even when the facts of the case do not so warrant.

It is to be noted that Section 12A does not presuppose only interim relief, but ‘urgent’ interim relief. The expression ‘interim relief’ has been qualified. It is trite that where the contents of a statute are unambiguous, the literal rule of construction shall apply as that alone can truly represent the will of the legislature. Lord Granworth in Grundy v. Pinniger[1], very succinctly articulated that “…to adhere as closely as possible to the literal meaning of the words used, is a cardinal rule from which if we depart we launch into a sea of difficulties which it is not easy to fathom.”

It is equally trite that the legislature does not waste words, and therefore any attempt to argue that the expression ‘urgent’ is surplusage would, in my opinion, be futile.

The intention of the legislature in coinage of the expression ‘urgent interim relief’ is best reflected from the debate on the Amendment to the Act itself, which was passed by the Lok Sabha on 1^st August, 2018. On this day, the Hon. Minister for Law and Justice, made the following statement on the floor of the house:

“The most important thing I would like to share with this House is that we must promote pre-mediation resolution of disputes. Suppose, two partners have fallen out. If, by the intervention of mediators, the disputes can be resolved, we must give a chance for pre-mediation resolution of disputes.

Sir, one thing I would like to share with this House is that this is the most important commercial law initiative perhaps in the entire world where premediation initiative has been given a very important focus. Suppose one partner has run away with all the profits. Then we need interim protection from the court. Therefore, the law says, ‘except in the case of urgent interim relief, every commercial dispute must go to the mediation first’. Three months’ period has been prescribed. First, you should use it. If you are not able to resolve, then come to the court. Therefore, pre-mediation litigation resolution is an important milestone.”

Therefore, only when the interim relief sought for, has an urgency fastened to it, can the obligatory reference to mediation be dodged. And therefore, this urgency for interim relief must be pleaded, exhibited and justified to the court in the first instance when the plaint is taken up.

And in cases, where the court comes to an opinion that either the plaintiff has not been able to demonstrate that the interim relief sought by it is of an ‘urgent’ nature, or the grounds for urgent interim relief are not made out, the court, in my opinion, shall abstain from issuing summons in the suit and would reject the plaint as being barred under Order VII Rule 11(d) of the CPC (due to the bar of Section 12A), while relegating the parties to settlement by recourse to mediation. Thereafter, if in such a case if the matter is not settled in mediation, the bar under Section 12A would stand lifted and the plaintiff would then be at liberty to institute the suit afresh.

Further, in appropriate cases, where it becomes clear to the court that an application seeking such urgent interim relief was not made bonafide and is only a frivolous attempt to evade the mandate of Section 12A, the court may also go on to consider admonishing the plaintiff along with levy of costs.

This proposition ought to be visited from another aspect. The ‘Doctrine of Exhaustion of Remedies’, has been the subject matter of a spectrum of judgments decided by the Supreme Court of India and as such now stands embedded in the core of our jurisprudence. It settles that a court would not exercise its powers of judicial review if the one who petitions the court has not exhausted his otherwise prescribed statutory remedies.

Section 12A(1) uses the expression ‘…unless the plaintiff exhausts the remedy of pre-institution mediation…’. This doctrine, therefore, squarely applies here as well. Therefore, mediation ought to be resorted to, to make an endeavor to resolve all commercial disputes before resorting to adversarial litigation. The legislature, as it is demonstrated from the Parliamentary debate, also intended for mediation to be a remedy of first instance which had to be exhausted before moving the court.

As mentioned above, we need to disabuse ourselves of the notion that mediation is used as a strategy to prolong the process. We must appreciate that the Legislature has attempted to address exactly this problem, and capped the period of mediation to be completed within three months from the plaintiff making an application. The time is extendable thereafter, only at the option of both parties. Therefore, it is not an indefinite process. Procedural safeguards, to avoid misuse, have been set in place by the Act itself.

Joseph Grynbaum, a renowned mediator, said that ‘An ounce of mediation is equal to a pound of arbitration and a ton of litigation’. And while this is proving to be true, with the massive docket explosion that we witness in our courts today, with no reduction of backlogs in sight, we need to make sure that we avoid the failure of mediation as an institution and implement, in letter and spirit, the legislative intent behind the Commercial Courts Act.

Rushab Aggarwal is an advocate at the Supreme Court of India.