Is pre-institution mediation mandatory before filing a commercial suit?

Is Pre-Institution Mediation Mandatory Before Filing a Commercial Suit? – A Detailed Explanation

Yes, pre-institution mediation is mandatory before filing a commercial suit under the Commercial Courts Act, 2015, if the plaintiff is not seeking any urgent interim relief. This requirement was introduced through the Commercial Courts (Amendment) Act, 2018, with the objective of promoting early dispute resolution, decongesting courts, and reducing litigation costs.

Let us explore this provision in detail, including its legal basis, procedure, exemptions, and practical implications.

Legal Basis: Section 12A of the Commercial Courts Act, 2015

The provision that makes pre-institution mediation mandatory is Section 12A of the Act:

“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.”

This means that pre-institution mediation is a condition precedent to filing a commercial suit where no urgent interim relief is sought.

Direct Answer:

Yes, pre-institution mediation is mandatory under Section 12A of the Commercial Courts Act, 2015, if the plaintiff does not seek any urgent interim relief.

When is Pre-Institution Mediation Mandatory?

Condition	Is Pre-Institution Mediation Mandatory?
Plaintiff seeks urgent interim relief (e.g., injunction, stay)	❌ No
Plaintiff does not seek urgent interim relief	✅ Yes
The dispute is of a commercial nature and value ≥ ₹3 lakhs	✅ Yes

How Does the Pre-Institution Mediation Process Work?

1. Application to Legal Services Authority (LSA)

The plaintiff must file an application for mediation before the State Legal Services Authority (SLSA) or District Legal Services Authority (DLSA), as applicable.

2. Issuance of Notice to Opposite Party

The LSA sends a notice to the opposite party within 10 days.
If the opposite party appears and agrees, mediation proceedings begin.

3. Timeline for Completion

Mediation must be completed within 3 months, which is extendable by 2 months with the consent of both parties.

4. Settlement Agreement

If parties reach a settlement, it is reduced into writing and signed by both parties.
The settlement has the same legal status as an arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996, and is enforceable as a decree of court.

5. Failure to Settle

If mediation fails, the plaintiff gets a report from the LSA and can proceed to file the commercial suit in the competent court.

Exemption: When is Pre-Institution Mediation Not Required?

You do not have to undergo pre-institution mediation in the following cases:

If the plaintiff is seeking urgent interim relief, such as:
- Temporary injunction
- Stay of termination of contract
- Freezing of bank account
- Attachment of property

In such cases, the plaintiff may directly file the commercial suit and seek interim relief from the court.

Key Features of Pre-Institution Mediation

Feature	Description
Mandatory?	Yes, if no interim relief is sought
Conducted by	Legal Services Authorities (SLSA/DLSA)
Mediator	Empanelled and trained mediators
Cost	Nominal or free, depending on authority
Duration	3 months (extendable by 2 months)
Outcome	Binding settlement or failure report
Enforcement	Settlement is enforceable like an arbitral award

Legal and Judicial Recognition

SC Ruling in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022)

The Supreme Court held that Section 12A is mandatory, and non-compliance with it before filing a commercial suit renders the plaint liable to be rejected under Order VII Rule 11 of CPC.
The Court clarified that pre-institution mediation is not a mere formality, but a substantive step aimed at resolving disputes amicably.

Further Clarification

Courts have clarified that the mediation process under Section 12A is not optional, unless urgent relief is sought.
Mediation can also be conducted through hybrid or virtual means in some jurisdictions.

Benefits of Pre-Institution Mediation

Time-saving: Early resolution avoids lengthy litigation.
Cost-effective: Nominal fee and reduced legal expenses.
Confidential: Mediation is private and non-adversarial.
Preserves business relationships: Cooperative approach helps in maintaining business goodwill.
Enforceable outcome: Settlement has legal backing and enforceability.

FAQs on Pre-Institution Mediation

Q1. Can I file a suit if mediation fails?
Yes, if mediation does not result in settlement, the plaintiff receives a failure report from the Legal Services Authority and can file the suit.

Q2. Can I skip mediation and file suit directly?
No, unless you’re seeking urgent interim relief, skipping mediation is not permitted.

Q3. Who conducts the mediation process?
Trained mediators appointed by the State or District Legal Services Authority (SLSA/DLSA).

Q4. Is the mediation process confidential?
Yes, all mediation proceedings are strictly confidential and non-binding unless an agreement is reached.

Q5. What if the defendant does not appear for mediation?
The LSA will issue a non-settlement report, allowing the plaintiff to proceed with the suit.

Q6. Can a mediation settlement be enforced like a court decree?
Yes, it is enforceable like an arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996.

Conclusion

Pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory in all commercial disputes valued at ₹3 lakhs or more, unless the plaintiff seeks urgent interim relief. This mechanism encourages parties to resolve disputes amicably before burdening the courts. Failure to comply with Section 12A can lead to the rejection of the plaint, making it a critical step in the commercial litigation process.

Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.

Advocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)

Contact: 88271 22304