Pre litigation mediation mandatory to file counter claim in commercial disputes: Delhi High Court

New Delhi: The Delhi High Court has held that the requirement of pre-litigation mediation under the Commercial Courts Act is mandatory in nature prior to the filing of counterclaims in commercial disputes.

The court said the process of pre-institution mediation is mandatory for every suit involving a commercial dispute and no distinction can be drawn when it comes to a counter-claim involving a commercial dispute and not contemplating any urgent relief.

"The objective behind pre-institution mediation is a benevolent one. It does not frustrate speedy trial at all. On the contrary, it aims and visualises a situation where there may not be institution of any fresh case, once the matter is settled through such pre-institution mediation. Thus, it cannot be labelled as a futile exercise," Justice Manoj Jain said.

The court, which at the outset mentioned that the plea poses an "interesting proposition", said there is no point in construing a mandatory provision liberally as this would rather contradict and undermine the legislative mandate as such (mis)interpretation would transform its nature from 'mandatory' to 'optional'.

"In view of the above-said discussion, it clearly emerges that 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. As per the mandate, any such suit, which has been filed without taking recourse of Section 12-A of Commercial Courts Act, needs to be rejected under Order VII Rule 11 CPC," the court said.

Section 12-A of the Act outlines the mandatory requirement for pre-institution mediation before filing a suit, provided urgent interim relief is not sought.

The court's judgment came while deciding the issue 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.

The matter relates to Aditya Birla Fashion and Retail Limited, represented through advocate Varun Sharma, which had leased a shop from the respondent in 2013.

The plea said due to the adverse impact of the Covid-19 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 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.

However, when the respondent did not appear for the mediation, the process was declared a 'non-starter' and a suit was filed by the petitioner.

Subsequently, the respondent filed a counter-claim seeking rental payments without invoking pre-institution mediation, which led the petitioner to file an application seeking rejection of the counter-claim due to non-compliance with the mandatory mediation process.

The trial court dismissed this application, prompting the petitioner to approach the high court.

The high court, which held that the trial court's order to this extent cannot be sustained, said any counter-claim pertaining to a commercial dispute has to, mandatorily, follow the rules and procedures prescribed for a commercial suit.

"Merely because it is a counter-claim, it cannot be assumed that it is relieved of adhering to any such legal obligation. Like any other commercial suit, it has also to go through all the stipulated rigours scrupulously, as may be prescribed for any general commercial suit," it said.