Pre-institution mediation must for counter-claims in commercial cases: HC

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.