The
Delhi High Court has held that mandatory pre-institution mediation is a
requirement under civil law and it applies equally to counter-claims in
commercial disputes, irrespective of whether the original suit underwent such
mediation.
The
court clarified that the statutory mandate of mediation must be followed for
all suits, including counter-claims, unless they seek urgent interim relief.
The
court allowed the petition filed by Aditya Birla Fashion and Retail Limited,
setting aside the trial court’s dismissal of the application under Civil
Procedure Code. The court directed that any counter-claim filed without
complying with Section 12-A of the Commercial Courts Act(CCA) should be
rejected.
“The
process of pre-institution mediation is mandatory for every suit involving a
commercial suit and no distinction can be drawn when it comes to a
counter-claim involving a commercial dispute and not contemplating any urgent
relief,” Justice Manoj Jain said in the judgment,
This
judgment has significant implications for future counter-claims in commercial
disputes as it establishes that counter-claims must adhere to the same
procedural requirements as original suits, including the mandatory
pre-institution mediation under Section 12-A of the CCA.
This
ruling ensures uniform application of the law and prevents parties from
bypassing statutory obligations by filing counter-claims without undergoing
mediation.
The
judgment clarifies the prospective nature of this mandate. The court
highlighted that the enforcement of mandatory pre-institution mediation under
Section 12-A is prospective, effective from August 20, 2022, as stated in the
Supreme Court’s decision in Patil Automation (Supra).
This
means that counter-claims filed before this date are not subject to rejection
for non-compliance with Section 12-A, thereby allowing a transition period for
stakeholders to adjust to the new legal requirement.
In
the present case, the petitioner had leased a shop from the respondent on March
15, 2013. Due to the adverse impact of the Covid pandemic, the petitioner
decided to close its business operations at the leased premises and issued a
notice to terminate the lease, demanding a refund of the security deposit. The
respondent failed to return the security deposit, prompting the petitioner to
initiate a commercial suit for recovery of the said amount.
Before
filing the suit, the petitioner complied with Section 12-A of the CCA, by
applying for pre-institution mediation with the South District Legal Services
Authority (SDLSA) at Saket. Despite proper service of notices, the respondent
did not appear for the mediation, leading to the process being declared a
“non-starter.”
Subsequently,
the respondent filed a counter-claim seeking rental payments without invoking
pre-institution mediation, which led the petitioner to file an application
under Order 7 Rule 11 of CPC seeking the rejection of the counter-claim due to
non-compliance with the mandatory mediation process.
The
trial court dismissed this application, resulting in the petitioner approaching
the High Court under Article 227 of the Constitution of India.
The
core issue in the case was whether the mandatory pre-institution mediation
requirement under Section 12-A of the CCA, applies to counter-claims in
commercial disputes that do not contemplate any urgent relief.