Pre-Institution Mediation under Commercial Courts Act, 2015

Pre-institution mediation under the Commercial Courts Act, 2015 requires parties in certain commercial disputes to attempt mediation before filing a suit. Under Section 12A, this requirement applies where the suit does not contemplate urgent interim relief. The process aims to resolve disputes quickly, reduce commercial litigation and save judicial time. Failure to comply with the requirement can result in rejection of the plaint where Section 12A applies.

What is Pre-Institution Mediation?

Pre-institution mediation is a process in which parties to a commercial dispute attempt to resolve their differences through mediation before approaching a Commercial Court.

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Mediation as an Alternative Dispute Resolution Mechanism in India involves the assistance of a neutral third party who facilitates communication between the disputing parties. The mediator does not decide the dispute or impose a settlement. Instead, the mediator helps the parties communicate, identify the real issues and explore possible settlement terms.

In India, pre-institution mediation in commercial disputes is mainly governed by Section 12A of the Commercial Courts Act, 2015 and the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018. The broader legal framework for mediation has also developed significantly with the enactment of the Mediation Act, 2023.

The process is important because it introduces a settlement opportunity before formal litigation begins. If mediation succeeds, the dispute may end without the parties going through lengthy court proceedings. If mediation fails, the eligible party may proceed with the commercial suit.

What is Section 12A of the Commercial Courts Act?

Section 12A of the Commercial Courts Act, 2015 deals specifically with pre-institution mediation.

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It provides that a suit which does not contemplate any urgent interim relief shall not be instituted unless the plaintiff has exhausted the remedy of pre-institution mediation in accordance with the prescribed procedure.

This provision was inserted through the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018.

The purpose behind introducing Section 12A was to encourage early settlement of commercial disputes and reduce unnecessary litigation before Commercial Courts.

In simple terms, Section 12A creates a mandatory pre-litigation step in eligible commercial disputes. This distinction between voluntary and compulsory processes is also important for understanding voluntary and mandatory mediation in Indian law.

When is Pre-Institution Mediation Mandatory?

Pre-institution mediation is mandatory where two conditions are satisfied:

• The dispute must be commercial: The dispute must qualify as a commercial dispute governed by the Commercial Courts Act.
• No urgent interim relief must be contemplated: If immediate interim intervention by the court is not required, the plaintiff must ordinarily exhaust pre-institution mediation before filing the suit.

Where these conditions are satisfied, the plaintiff is ordinarily required to first approach the competent authority for pre-institution mediation before filing the commercial suit.

A plaintiff cannot normally avoid this requirement merely because previous negotiations have failed or because it appears unlikely that the defendant will agree to a settlement.

The statutory process must ordinarily be initiated and exhausted before institution of the suit.

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When is Pre-Institution Mediation Not Required?

The principal exception under Section 12A applies where the suit contemplates urgent interim relief.

This means that where immediate intervention by the court is necessary to prevent serious harm, preserve property, stop infringement or protect legal rights, pre-institution mediation may not be compulsory.

Examples may include cases involving:

• Urgent injunctions: Immediate restraint may be required to prevent an act that could cause serious or irreversible harm.
• Protection of commercial assets: Court intervention may be needed to prevent disposal, transfer or destruction of valuable property.
• Threatened disposal of property: Delay may allow the subject matter of the dispute to be transferred beyond effective recovery.
• Intellectual property infringement: Immediate relief may sometimes be required to prevent continuing infringement.
• Preservation of evidence: Judicial intervention may be necessary where important evidence is at risk of destruction or alteration.
• Irreversible commercial harm: Urgent orders may be needed where waiting for mediation could substantially prejudice legal or commercial rights.

However, merely adding a prayer for interim relief to the plaint does not automatically allow a plaintiff to bypass Section 12A.

The urgency must be genuine.

What Does “Urgent Interim Relief” Mean?

The Commercial Courts Act does not provide an exhaustive definition of the expression “urgent interim relief”.

Therefore, courts examine the facts and circumstances of each case to decide whether genuine urgency exists.

The Supreme Court considered this issue in Yamini Manohar v. T.K.D. Keerthi.

The Court clarified that the requirement of urgent interim relief cannot be treated as a formal device for avoiding mediation. The court may examine the plaint, documents and surrounding circumstances to determine whether immediate judicial intervention is actually required.

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Therefore, the presence of an interim relief prayer is relevant, but it is not conclusive.

The central question is whether the relief is truly urgent and whether waiting for the mediation process would materially prejudice the plaintiff.

Which Authority Conducts Pre-Institution Mediation?

Section 12A permits the Central Government to authorise authorities constituted under the Legal Services Authorities Act, 1987 for conducting pre-institution mediation.

The detailed procedure is contained in the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018.

The authority examines the application, issues notice to the opposite party and facilitates appointment of the mediator if the parties proceed with mediation.

The system is intended to provide an institutional structure for settlement before commercial litigation begins.

How is Pre-Institution Mediation Started?

The party seeking mediation must file an application before the appropriate authority.

Under the 2018 Rules, the application may be submitted in the prescribed manner. The Rules recognise filing by modes such as:

• Online filing: The application may be submitted electronically where the facility is available.
• Filing by post: The prescribed application may be forwarded to the competent authority by post.
• Filing by hand: The applicant may physically submit the application before the appropriate authority.

The application is made in the prescribed form and is accompanied by the required fee.

The applicant must provide relevant details regarding the parties and the nature of the commercial dispute so that the authority can process the request.

The general stages involved in mediation can also be understood through the procedure for conducting mediation, although Section 12A commercial mediation continues to operate within its specific statutory framework.

What Happens After the Application is Filed?

After receiving the application, the authority examines whether the matter falls within its territorial and pecuniary jurisdiction.

If the application is maintainable, notice is issued to the opposite party.

The purpose of the notice is to inform the opposite party that pre-institution mediation has been initiated and to require appearance before the authority.

The Rules contemplate an early response so that the process does not unnecessarily delay a commercial dispute.

Where the opposite party responds positively, the matter moves to mediation.

Where the opposite party does not respond or refuses to participate, the mediation may be treated as a non-starter.

Can the Opposite Party Refuse to Attend Mediation?

Yes. Section 12A makes exhaustion of the mediation process mandatory for the plaintiff in eligible cases, but it does not compel the opposite party to agree to a settlement.

If the opposite party refuses to participate or fails to appear despite notice, the authority may close the process and issue the appropriate report.

This distinction is important.

The Mediation Process is Mandatory

Where Section 12A applies, the plaintiff must ordinarily initiate and exhaust pre-institution mediation before filing the suit.

Settlement is Voluntary

Neither the mediator nor the authority can compel the parties to accept settlement terms.

Therefore, the legal requirement is to undergo the process, not to reach a settlement at any cost.

What is a Non-Starter Report?

A non-starter report is issued where the mediation process cannot meaningfully begin, generally because the opposite party refuses to participate or does not respond to the notices issued by the authority.

The report records that the mediation could not proceed.

Once the statutory process has been exhausted in this manner, the plaintiff may ordinarily proceed to institute the commercial suit, subject to other legal requirements.

A non-starter report is therefore different from a failed mediation after substantive sessions have taken place.

In the former situation, mediation never effectively begins. In the latter, the parties participate but do not reach settlement.

What is the Role of the Mediator?

The mediator acts as a neutral facilitator.

The mediator does not perform the role of a judge, arbitrator or adjudicating authority. The difference between these dispute resolution processes can be better understood through the difference between arbitration, conciliation and mediation.

The mediator may assist the parties in:

• Identifying the disputed issues: The mediator assists in separating the central points of disagreement from peripheral issues.
• Understanding each side’s concerns: Both legal claims and practical commercial interests may be explored.
• Exploring settlement options: Different solutions can be discussed without the mediator imposing any particular outcome.
• Narrowing areas of disagreement: Even where complete settlement is impossible, mediation may reduce the number of disputed issues.
• Improving communication: The mediator may help overcome communication difficulties that have prevented settlement.
• Recording settlement terms: Where agreement is reached, the terms may be formally documented in accordance with law.

The mediator cannot impose a decision. The role and duties of a mediator similarly reflect the broader principles of neutrality, fairness and voluntary settlement that underpin mediation.

Any settlement must remain voluntary and acceptable to all parties concerned.

Can Lawyers Participate in Pre-Institution Mediation?

The mediation framework allows parties to participate personally or through duly authorised representatives or counsel, subject to the applicable rules and requirements.

Legal representation can be useful in commercial disputes because settlement terms may involve contractual obligations, payment schedules, confidentiality provisions, future commercial relations and legal consequences.

However, the process continues to remain conciliatory rather than adversarial.

The aim is not to prove one party right and the other wrong. The aim is to explore whether a mutually acceptable resolution is possible.

What is the Time Limit for Completing Pre-Institution Mediation?

Section 12A provides a definite time framework for the mediation process.

Pre-institution mediation should ordinarily be completed within three months from the date of the application.

The period may be extended by a further two months with the consent of the parties.

This means that the process cannot continue indefinitely.

The time limit serves two purposes:

• Opportunity for settlement: It gives parties sufficient time to discuss the dispute and explore a mutually acceptable resolution.
• Protection against unnecessary delay: It prevents mediation from becoming an obstacle to approaching the Commercial Court.

This balance is particularly important in commercial disputes where delay can affect business operations, cash flow and contractual rights.

Does Mediation Affect the Limitation Period?

Section 12A contains an important safeguard relating to limitation.

The period during which the parties remain engaged in pre-institution mediation is excluded while computing limitation under the Limitation Act, 1963.

This prevents a claimant from being prejudiced merely because time was spent complying with the statutory mediation requirement.

For example, where a commercial claim is close to the end of the prescribed limitation period, the time spent in the Section 12A process is not treated in the same manner as ordinary passage of time for limitation purposes.

This protection supports the effectiveness of the mandatory mediation framework.

What Happens if the Parties Reach a Settlement?

If the parties successfully resolve their commercial dispute, the settlement must be reduced into writing.

Section 12A requires the settlement to be signed by the parties and the mediator.

Such settlement is not treated as a casual or informal arrangement.

Section 12A gives it the same status and effect as an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996. The wider statutory scheme of the Arbitration and Conciliation Act, 1996 provides the legal background to arbitral awards and consensual dispute resolution.

This gives substantial legal strength to settlements reached through pre-institution mediation.

The parties therefore obtain an enforceable resolution without having to proceed through a full commercial trial.

Is a Pre-Institution Mediation Settlement Enforceable?

Yes.

A settlement reached under Section 12A carries legal consequences similar to an arbitral award on agreed terms.

This is one of the strongest features of the statutory framework.

The parties are not merely relying on a private promise to settle. The settlement receives statutory recognition and can be enforced in accordance with law.

What Happens if Mediation Fails?

Mediation may fail even after both parties participate actively.

Failure of mediation simply means that no mutually acceptable settlement could be reached.

The mediator does not decide which party is correct.

Once mediation is concluded unsuccessfully, the plaintiff may institute the commercial suit in accordance with law.

The discussions during mediation are generally intended to remain confidential so that parties can negotiate freely without fear that every proposal will later be used against them in court. Confidentiality in mediation is one of the features that allows parties to participate more openly in settlement discussions.

The failure of mediation therefore does not determine the merits of the commercial dispute.

Is Section 12A Mandatory or Directory?

The Supreme Court conclusively addressed this question in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd.

The Court held that Section 12A is mandatory.

The Court examined the language and object of the provision and concluded that pre-institution mediation was not introduced as a mere procedural option.

It forms an important part of the legislative policy governing commercial disputes.

Where a commercial suit does not contemplate urgent interim relief, the plaintiff must ordinarily comply with Section 12A before filing the suit.

Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd.

The Supreme Court delivered the important judgment in M/s Patil Automation Private Limited and Others v. Rakheja Engineers Private Limited on 17 August 2022.

The major issue was whether failure to comply with Section 12A would affect the maintainability of a commercial suit.

The Court held that the provision is mandatory and that non-compliance has serious procedural consequences.

The judgment strengthened the role of mediation in commercial dispute resolution and confirmed that Section 12A cannot ordinarily be ignored.

What Happens if Section 12A is Not Followed?

Failure to comply with mandatory pre-institution mediation can result in rejection of the plaint.

In Patil Automation, the Supreme Court held that a plaint instituted in violation of Section 12A may be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908.

The Commercial Court may also consider the defect on its own motion.

However, the plaintiff should ordinarily be given an opportunity to be heard before the plaint is rejected.

This consequence makes compliance with Section 12A an important preliminary consideration before instituting a commercial suit.

Does Rejection of the Plaint Decide the Dispute?

No.

Rejection of a plaint for failure to comply with Section 12A does not amount to adjudication of the substantive merits of the commercial dispute.

The court is not deciding whether the underlying contractual or commercial claim is valid.

The rejection occurs because the mandatory statutory procedure has not been followed.

Where legally permissible, the plaintiff may complete the required mediation process and take appropriate further steps in accordance with law.

However, issues such as limitation must always be separately considered.

From When Did the Patil Automation Rule Apply?

The Supreme Court gave prospective effect to its declaration regarding mandatory compliance with Section 12A.

The operative declaration was made effective from 22 August 2022.

This aspect is important while examining commercial suits instituted around or before the period in which the judgment was delivered.

The prospective operation was intended to address the practical consequences of treating the provision as mandatory after different courts had previously adopted varying approaches.

Yamini Manohar v. T.K.D. Keerthi

The Supreme Court further clarified the operation of Section 12A in Yamini Manohar v. T.K.D. Keerthi.

The case dealt with the exception relating to urgent interim relief.

The Court indicated that a plaintiff cannot avoid pre-institution mediation merely by drafting the plaint in a manner that contains a prayer for interim relief.

The Commercial Court must examine whether urgency actually exists.

The court may consider:

• Nature of the dispute: The subject matter and surrounding commercial circumstances may indicate whether immediate intervention is necessary.
• Relief claimed: The court may consider whether the interim relief sought is closely connected with the protection of substantive rights.
• Documents filed: Supporting material may establish whether the claimed urgency is genuine.
• Circumstances showing urgency: Conduct of the parties and timing of the suit may be relevant.
• Effect of delay: The court may consider whether requiring mediation first would defeat or materially weaken the relief sought.

The judgment prevents misuse of the urgent relief exception while preserving immediate access to courts in genuine cases.

Can an Interim Relief Prayer Automatically Bypass Mediation?

No.

The presence of an interim relief prayer does not by itself make Section 12A inapplicable.

The court must determine whether the relief is genuinely urgent.

For example, if the circumstances show that the plaintiff waited for a long period without taking action and then claimed extreme urgency only to avoid mediation, the court may examine the claim closely.

On the other hand, if immediate harm is threatened and waiting could make the final relief meaningless, direct institution of the suit may be justified.

Therefore, the test is based on substance rather than drafting technique.

Why Was Pre-Institution Mediation Introduced?

Commercial disputes often involve businesses that may continue to have contractual or commercial relationships even after a disagreement arises.

Traditional litigation can be expensive, time-consuming and adversarial.

Pre-institution mediation creates an opportunity to resolve the dispute before positions become rigid.

It may help in:

• Reducing commercial litigation: Suitable disputes may be resolved before they enter the court system.
• Achieving quicker settlements: Parties may resolve commercial disagreements without waiting for a complete trial.
• Saving litigation costs: Early settlement may reduce expenditure on prolonged court proceedings.
• Preserving commercial relationships: A cooperative process may cause less damage to continuing business relationships.
• Providing flexible settlement terms: Parties may agree upon solutions that a court may not necessarily impose after adjudication.
• Reducing the burden on courts: Successful settlements prevent disputes from adding to commercial court pendency.

The process also reflects a wider legal policy of promoting Alternative Dispute Resolution in India wherever formal adjudication is not immediately necessary.

Difference Between Pre-Institution Mediation and Litigation

Pre-institution mediation and commercial litigation serve different functions.

In mediation, the parties retain control over the outcome. A settlement arises only when both sides accept the terms.

In litigation, the court examines the facts and law and gives a binding decision.

Mediation is therefore consensual in outcome, while litigation is adjudicatory.

The Section 12A framework combines these approaches by making the attempt at mediation mandatory in eligible cases while keeping the settlement itself voluntary.

Conclusion

Pre-institution mediation under the Commercial Courts Act, 2015 is an important part of India’s commercial dispute resolution framework. Section 12A requires mandatory mediation before institution of commercial suits that do not contemplate urgent interim relief. 

The Supreme Court in Patil Automation confirmed its mandatory character, while Yamini Manohar clarified the urgent relief exception. The system promotes early settlement while preserving access to Commercial Courts when mediation fails or genuine urgency exists.