Institute of Legal and Management Studies

In a significant ruling, the Supreme Court (May 15) reaffirmed that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory, as held in Patil Automation's case (2022), but clarified that this requirement applies prospectively from 20.08.2022 to avoid disrupting pending cases.

In Patil Automation Private Limited v. Rakheja Engineers Private Limited, (2022) 10 SCC 1, it was held that Section 12A is mandatory and non-compliance must result in rejection of the plaint under Order VII Rule 11(d) CPC. However, the decision was given prospective effect from 20.08.2022.

Given that the suit was filed in 2019, i.e., before 20.08.2022 and at a time when mediation infrastructure was lacking, the bench of Justices JB Pardiwala and R Mahadevan held that the law's strict application should be relaxed. It directed that the suit be kept in abeyance for time-bound mediation, and only if mediation fails will the suit proceed.

“In suits instituted without complying with Section 12A of the 2015 Act prior to 20.08.2022 which are pending adjudication before the trial court, the court shall keep the suit in abeyance and refer the parties to time-bound mediation in accordance with Section 12A of the 2015 Act if an objection is raised by the defendant by filing an application under Order VII Rule 11, or in cases where any of the parties expresses an intent to resolve the dispute by mediation.”, the court said.

In a nutshell, the judgment authored by Justice Pardiwala answered the two different scenarios that arise out of a question of whether a suit filed without complying with Section 12A of the 2015 Act must be dismissed or be kept in abeyance with a direction to the parties to explore mediation as follows:

a. If the suit is instituted on or after the date of the decision in Patil Automation (supra), i.e., 20.08.2022, without complying with Section 12A of the 2015 Act, then it must meet with rejection under Order VII Rule 11, either on an application by the defendant or suo motu by the court.

b. If the suit was instituted prior to 20.08.2022 without complying with Section 12A of the 2015 Act, and the same does not fall within one of the exceptional categories as explained in paragraph 47 of this judgment, then it would be open to the court to keep the suit in abeyance and direct the parties to explore the possibility of mediation in accordance with the 2015 Act, the PIMS Rules and the 2020 SOP.

The exceptional categories mentioned in paragraph 47 of the judgment were -" plaints which were rejected, and no steps had been taken within the period of limitation; or such rejection had been acted upon by filing a new suit; or if the plaint violating Section 12A had been filed after the jurisdictional High Court has declared the provision to be mandatory."

In light of the above, the Court dismissed the appeal and upheld the High Court's decision to keep the suit in abeyance and direct the parties to mediation. The mediation must be completed within three months, extendable by two more months, as per the PIMS Rules.

Case Title: M/S DHANBAD FUELS PRIVATE LIMITED VERSUS UNION OF INDIA & ANR.

Citation : 2025 LiveLaw (SC) 579

Click here to read/download the judgment

Appearance:

For Petitioner(s) : Mr. Vikas Singh, Sr. Adv. Mr. Pradip K.tarafder, Sr. Adv. Ms. Deepeika Kalia, Adv. Ms. V. Singh, Adv. Mr. Sudeep Chandra, Adv. Mr. Shambudha Dutta, Adv. Mrs. Anjani Aiyagari, AOR

For Respondent(s) : Mr. Tushar Mehta, Solicitor General (N.P.) Ms. Archana Pathak Dave, A.S.G. Ms. Harshita Choubey, Adv. Mr. Sudarshan Lamba, AOR Mr. Aaditya Dixit, Adv. Ms. Mili Baxi, Adv. Mr. Bhuvan Kapoor, Adv.

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