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Introduction
In a significant judgment for commercial litigation in India, the Delhi High Court has ruled that pre-litigation mediation is mandatory under Section 12-A of the Commercial Courts Act, 2015 (the Act). This case, titled M/s Sabsons Agencies Private Limited Vs M/s Harihar Polymers & Anr., highlights the importance of attempting mediation before filing a commercial lawsuit.
UNDERSTANDING SECTION 12-A
Section 12-A mandates pre-institution mediation for commercial disputes before a suit is filed in a Commercial Court. The Act empowers the Central Government to authorize Legal Services Authorities to conduct such mediations. These mediations have a time limit of three months, extendable by another two months with the parties’ consent. Significantly, settlements reached through pre-litigation mediation are accorded the same status as arbitral awards under the Arbitration and Conciliation Act, 1996, making them enforceable.
THE CASE BACKGROUND
In this case, the Plaintiff approached the Delhi High Court seeking exemption from pre-litigation mediation mandated by Section 12-A. The Plaintiff had filed a suit for recovery of over Rs. 6 crores from the Defendant.
The Plaintiff argued that a prior mediation attempt, albeit not conducted strictly under Section 12-A, had already taken place during proceedings under Section 138 of the Negotiable Instruments Act, 1881. They contended that this earlier attempt should suffice and preclude the need for fresh mediation.
THE COURT’S OBSERVATION AND RULLING
The High Court, however, distinguished this case from the precedent set in Amit Walia v. Shweta Sharma. In that case, mediation conducted under the Delhi High Court Mediation and Conciliation Centre was deemed sufficient compliance with Section 12-A, even though it did not involve the District Legal Services Authority as mandated by the Act.
The Court emphasized the critical role of pre-litigation mediation in resolving commercial disputes amicably. It highlighted the following key points:
- The mandatory language of Section 12-A.
- The detailed procedural framework outlined in the Rules framed under the Act.
- The potential benefits of mediation in achieving faster and more cost-effective resolutions compared to litigation.
- The legislative intent to balance the defendant’s right to choose mediation with the plaintiff’s obligation to attempt it before filing suit.
- The elevated status of settlements reached through mediation, making them enforceable like arbitral awards under Section 30(4) of the Arbitration Act.
- The exclusion of the mediation period from the limitation period for filing lawsuits.
Consequently, the Delhi High Court held that pre-litigation mediation was mandatory in this case. As the Plaintiff had not complied with Section 12-A, the Court dismissed their application for exemption. Furthermore, the Court rejected the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908, leading to the dismissal of the entire suit.
IMPACT
The Delhi High Court’s judgment clarifies the mandatory nature of pre-litigation mediation in commercial disputes under the Commercial Courts Act. This reinforces a trend towards promoting alternative dispute resolution (ADR) mechanisms in India. ADR mechanisms like mediation can potentially lead to faster, more economical, and amicable resolutions for commercial parties compared to traditional litigation.
CONCLUSION
The Court’s decision underscores the importance of attempting mediation before resorting to litigation in commercial disputes. By mandating pre-litigation mediation, the Act aims to streamline the commercial dispute resolution process and encourage parties to explore settlement options before engaging in potentially lengthy and expensive court proceedings.
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