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M/S Patil Automation Private Limited & Ors. vs Rakheja Engineers Private Limited

Civil Appeal · 2022 INSC 841Decided 17 Aug 2022
Civil Appeal No. 5333 of 2022
K.M. Joseph · Hrishikesh Roy

Background

Section 12A of the Commercial Courts Act, 2015 (inserted by a 2018 amendment) requires parties to attempt pre-litigation mediation before filing certain commercial suits, unless urgent interim relief is needed. In the lead case, a company sued for recovery of about Rs. 1 crore without first attempting such mediation; the defendant sought rejection of the plaint for this non-compliance, but both the trial court and the Punjab and Haryana High Court refused, treating Section 12A as merely directory (not mandatory) and instead just referring the parties to mediation while keeping the suit pending. Different High Courts across India had taken conflicting views on whether skipping Section 12A mediation was fatal to a suit, creating the need for the Supreme Court to settle the question.

Decision Breakdown

The Supreme Court held that Section 12A is mandatory, not merely directory: a commercial suit filed without first attempting the required pre-institution mediation must be rejected under Order VII Rule 11 of the Code of Civil Procedure, and courts can even raise this defect on their own. However, recognizing that this was a new, unsettled area of law with a genuine "cleavage of opinion" among High Courts, the Court applied the doctrine of prospective overruling: the mandatory-rejection rule would take effect only from 20 August 2022 onward, so suits already filed (or plaints already rejected and not revived) before that date would not be reopened or invalidated retroactively. In the lead case itself, the Court declined to interfere with the practical outcome, instead directing that the defendant's written statement be treated as its application for leave to defend.

Lesson Learnt

Before filing a commercial suit in India (above the specified value threshold), a business must first attempt statutory pre-litigation mediation under Section 12A of the Commercial Courts Act, skipping this step will now result in the plaint being rejected outright, so mediation is a mandatory first step, not an optional formality.

Official source (sci.gov.in)View Judgment (PDF)

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