Pre-Institution Mediation in Commercial Disputes: Section 12A

Section 12A of the Commercial Courts Act, 2015, inserted by the amendment of 2018, requires a plaintiff who does not contemplate any urgent interim relief to exhaust the remedy of pre-institution mediation before instituting a commercial suit. It is the only compulsory mediation in Indian law: the Mediation Act, 2023 made pre-litigation mediation voluntary under its Section 5, leaving Section 12A as the single gateway that a litigant must pass through. Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1 settled that the provision is mandatory and that a plaint filed in breach of it is liable to be rejected.

1. The Provision

Section 12A, Commercial Courts Act, 2015

(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) Where an Authority so authorised is satisfied that there exist elements of a settlement which may be acceptable to the parties, it shall complete the process of mediation within a period of three months from the date of application made by the plaintiff, extendable by a further period of two months with the consent of the parties. The Explanation provides that the period during which the parties remained occupied with the pre-institution mediation shall not be computed for the purpose of limitation under the Limitation Act, 1963.

(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.

2. When the Section Applies

A commercial dispute of a specified value. The Act applies to commercial disputes as defined in Section 2(1)(c) where the value is not less than the specified value, currently three lakh rupees.
A suit. The section governs the institution of a suit, not an application, an arbitration or a proceeding under another statute. A party with an arbitration clause proceeds directly to the reference.
No urgent interim relief contemplated. This is the exception, and it is examined below.
Conducted by an authorised Authority. The mediation is conducted by the legal services authorities notified for the purpose, under the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, which govern the application, the notice to the opposite party, the appointment of the mediator and the report.

The gateway, the two routes through it, and the consequence of ignoring it

3. The Urgent Interim Relief Exception

The words which does not contemplate any urgent interim relief are the escape from the section, and they were being used as a formula: a prayer for an injunction was added to the plaint so that mediation could be avoided. The courts have therefore looked at the substance.

📖 Yamini Manohar v. T.K.D. Keerthi, decided on 24 October 2023

Held: The question whether a suit contemplates urgent interim relief is not answered by the mere form of the plaint. The court examines the nature and the subject matter of the suit, the cause of action, the prayer for interim relief and the particulars pleaded, to see whether the prayer is genuine or a disguise to bypass Section 12A. A plaintiff who includes a formal prayer for urgent relief without any real basis does not take the suit out of the section, and the plaint is liable to be rejected. At the same time the court does not conduct a mini trial, and the plaintiff's assessment of urgency is examined only to see that it is not a camouflage.

Significance: This is the decision that controls the exception, and it should be read with Patil Automation, which controls the consequence of not complying at all.

4. The Consequence of Non-Compliance

📖 Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1

Held: Section 12A is mandatory and not directory. The object of the Act, the language of the section and the Rules of 2018 all point to a compulsory pre-institution requirement, and a plaint filed in breach of it is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908, which the court may do of its own motion. The declaration was given prospective effect from 20 August 2022, so that suits already filed and pending were not thrown out, and courts were directed to give the parties in such pending matters an opportunity to mediate.

Significance: The decision converted Section 12A from a provision widely ignored into a condition precedent, and it is the single most important authority on the section.

⚠ Rejection is not dismissal on the merits

A plaint rejected under Order VII Rule 11 for breach of Section 12A does not decide anything between the parties. The plaintiff may complete the pre-institution mediation and file afresh, and the Explanation to Section 12A(3) excludes the period spent in mediation from the computation of limitation. The practical loss is the court fee and the time, not the claim.

5. Limitation and Settlement

Limitation. The Explanation to Section 12A(3) excludes the period during which the parties remained occupied with the pre-institution mediation. A plaintiff close to the end of the limitation period therefore loses nothing by complying, which is what makes a compulsory requirement workable.
Settlement. Section 12A(5) gives the settlement the status and effect of an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996. It is therefore enforceable under Section 36 of that Act as a decree, without any suit and without any further proceeding, which is a stronger instrument than an ordinary compromise.
Failure. Where no settlement is reached, or where the opposite party does not appear, the Authority issues a non-starter or failure report under the Rules of 2018, and the plaintiff files the suit with that report annexed.

6. Section 12A and the Mediation Act, 2023

Basis	Section 12A, Commercial Courts Act, 2015	Section 5, Mediation Act, 2023
Character	Compulsory; a condition precedent to instituting the suit	Voluntary; parties may take steps to settle before filing, with mutual consent
Scope	Commercial disputes of the specified value, where no urgent interim relief is contemplated	Any civil or commercial dispute
Who conducts it	Authorities under the Legal Services Authorities Act, 1987, notified for the purpose	A mediator appointed by agreement or by a mediation service provider
Time	Three months, extendable by two months with consent	120 days from the first appearance, extendable by 60 with consent
Limitation	The period is excluded by the Explanation to Section 12A(3)	The period is excluded by Section 29
The settlement	The status and effect of an arbitral award on agreed terms; enforced under Section 36 of the Act of 1996	A mediated settlement agreement; enforced under Section 27
Consequence of not doing it	The plaint is liable to be rejected under Order VII Rule 11	None; the process is optional

The two provisions coexist. The Mediation Act, 2023 supplies the general law of mediation and makes consequential amendments to the Commercial Courts Act, 2015 through its Schedules, so that the conduct of a pre-institution mediation is regulated by the mediation statute. What it did not do is make pre-litigation mediation compulsory generally: the Bill as introduced would have done so, and the Parliamentary Standing Committee recommended that it be made voluntary. The result is that Section 12A remains the only provision in Indian law that requires a litigant to attempt mediation before suing.

7. Assessment

The case for Section 12A is that a commercial dispute is often settled once each side sees the other's position, and that requiring the attempt costs little when limitation is protected and the settlement is enforceable as an award. The case against it has two limbs. The requirement is easily evaded by a prayer for urgent interim relief, which is why Yamini Manohar was needed, and rejection of a plaint for non-compliance visits a procedural default with a disproportionate consequence, even though the claim survives. A third criticism is practical: the mediation is conducted by legal services authorities whose capacity varies, and in many districts the process concludes with a non-starter report because the opposite party simply does not appear.

8. Related Topics and Provisions

Topic or provision	Connection
Mediation	The process and its statutory framework
The Mediation Act, 2023	Section 5 and the amendments made to other statutes
Section 89 CPC: Settlement of Disputes Outside Court	Reference after a suit is filed, as against this gateway before it
ADR in Commercial and Corporate Disputes	The setting in which this provision operates
Section 30(4) and Section 36, A&C Act, 1996	The status of the settlement and its enforcement
Order VII Rule 11, Code of Civil Procedure, 1908	Rejection of a plaint for non-compliance