The Bombay High Court has clarified that while compliance with pre-institution mediation under Section 12-A of the Commercial Courts Act is mandatory, failure to comply does not automatically warrant rejection of a suit under Order VII Rule 11 CPC if the court opts to keep the suit in abeyance and direct mediation instead. This nuanced approach balances statutory compliance with substantive justice in commercial disputes.
Background & Facts
The Dispute
The dispute arises from a civil construction contract between Oram Realty Pvt Ltd (Plaintiff) and Piramal Sunteck Realty Pvt Ltd (Defendant) for work on the "Signia Waterfront" project in Airoli, Navi Mumbai. The Plaintiff, acting as a contractor, executed civil works under a work order dated 01.02.2016, which was subsequently amended multiple times. The Defendant, as the developer, was responsible for approvals and licenses. The Plaintiff claims outstanding payments of Rs.12,74,23,049/- plus interest and compensation totaling Rs.18,58,21,798/-. The Defendant contends that the claim is inflated and seeks rejection of the suit on grounds of non-compliance with mandatory pre-institution mediation.
Key Facts
- Work order dated 01.02.2016 governed the scope of work, contract value (Rs.30,41,47,504/-), and payment terms
- Additional works were performed and invoiced as per revised terms
- Defendant issued a No Claim Certificate (NOC) dated 18.02.2021, which Plaintiff alleges was signed under duress
- Plaintiff sent a legal notice dated 07.07.2023 demanding payment, without raising the NOC issue
- Defendant responded to the notice on 18.08.2024
- Plaintiff filed Commercial Suit No.3 of 2025 on 23.07.2024
- Interim Application (L) No.24548 of 2024 for urgent reliefs was filed on 03.08.2024 but remained unpressed until June 2025
- Defendant filed Application (L) No.340 of 2025 on 30.06.2025 seeking rejection of suit under Order VII Rule 11 CPC read with Section 12-A
- Plaintiff filed Affidavit-in-Reply on 19.09.2025; Defendant filed Affidavit-in-Rejoinder on 09.10.2025
Procedural History
- 01.02.2016: Work order executed between parties
- 18.02.2021: Defendant issued No Claim Certificate
- 07.07.2023: Plaintiff issued legal notice for payment
- 18.08.2024: Defendant responded to legal notice
- 03.08.2024: Plaintiff filed Interim Application (L) No.24548 of 2024 seeking urgent reliefs
- 23.07.2024: Commercial Suit No.3 of 2025 filed before Bombay High Court
- 30.06.2025: Defendant filed Application (L) No.340 of 2025 seeking rejection of suit under Order VII Rule 11 CPC
- 19.09.2025: Plaintiff filed Affidavit-in-Reply
- 09.10.2025: Defendant filed Affidavit-in-Rejoinder
- 08.06.2026: Judgment delivered by Justice Milind N. Jadav
The Parties' Positions
For the Defendant
- Argued that Section 12-A of the Commercial Courts Act is mandatory
- Contended that the suit was filed without exhausting pre-institution mediation
- Asserted that the prayer for interim relief was a camouflage to bypass mediation
- Cited Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. to support rejection under Order VII Rule 11 CPC
- Claimed the claim amount is inflated and lacks documentary support
- Argued that the Plaintiff’s delay in filing suit (over a year after legal notice) negates any claim of urgency
For the Plaintiff
- Argued that Section 12-A is not an absolute bar and courts have discretion
- Contended that the suit involves allegations of fraud and coercion regarding the NOC, which are not amenable to mediation
- Asserted that urgency was implicit in the need to prevent Defendant from selling flats and dissipating assets
- Claimed that informal settlement talks between advocates from July to August 2025 fulfilled the spirit of mediation
- Cited Yamini Manohar v. T.K.D. Keerthi and Dhanbad Fuels Pvt. Ltd. v. Union of India to argue that urgency must be assessed contextually
Relief Sought
- Plaintiff seeks: (i) declaration that NOC dated 18.02.2021 is void; (ii) recovery of Rs.18,58,21,798/-; (iii) appointment of court receiver to secure Defendant’s assets
- Defendant seeks: rejection of suit under Order VII Rule 11 CPC read with Section 12-A of the Commercial Courts Act
The Legal Issue
Whether a commercial suit filed without compliance with Section 12-A of the Commercial Courts Act, 2015, mandating pre-institution mediation, must be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908, when the court finds that the suit involves disputed factual issues and the parties have engaged in informal settlement efforts?
Arguments Presented
For the Appellant/Petitioner
The Plaintiff argued that Section 12-A is not an absolute bar to filing a suit and that courts have discretion to examine whether the suit involves urgency or disputes not amenable to mediation. It contended that allegations of fraud and coercion surrounding the NOC render mediation ineffective. The Plaintiff emphasized that informal settlement talks between advocates from July to August 2025, including meetings and email exchanges, fulfilled the legislative intent of mediation. It relied on Yamini Manohar and Dhanbad Fuels to argue that urgency must be assessed from the plaintiff’s standpoint and that mere non-compliance does not automatically invalidate the suit.
For the Respondent/State
The Defendant contended that Section 12-A is mandatory and non-compliance is a ground for rejection under Order VII Rule 11 CPC, as held in Patil Automation. It argued that the Plaintiff’s delay in filing suit (over a year after legal notice) and the fact that the interim application remained unpressed for over a year negated any claim of urgency. It rejected the notion that informal negotiations substituted institutional mediation, citing that mediation requires a neutral, trained mediator. The Defendant maintained that the suit was filed to circumvent statutory obligations and that the claim amount was inflated to attract jurisdiction.
The Court's Analysis
The Court undertook a detailed examination of Section 12-A of the Commercial Courts Act, 2015, and its interaction with Order VII Rule 11 CPC. It emphasized that the legislative intent behind Section 12-A is to promote early resolution of commercial disputes through mediation, not to create a procedural trap for litigants.
"It is difficult to agree with the proposition that a Plaintiff has the absolute choice and right to paralyze Section 12-A of the said Act by making a prayer for urgent interim relief."
The Court noted that while Patil Automation establishes that non-compliance with Section 12-A renders a suit liable to rejection, it does not mandate automatic rejection in every case. The Court distinguished between procedural non-compliance and substantive injustice. It observed that the Plaintiff had carried out substantial work under the contract, the claim was not frivolous on its face, and the Defendant had engaged in post-notice settlement discussions.
The Court further held that the Plaintiff’s interim application, though filed on 03.08.2024, was not pressed until after the Defendant moved for rejection. This delay undermined any claim of urgency. The Court also rejected the argument that informal negotiations between advocates constituted compliance with Section 12-A, noting that mediation requires a formal, neutral process.
However, the Court declined to reject the suit outright, recognizing that dismissal would result in loss of court fees and deprive the Plaintiff of a substantive adjudication. The Court emphasized that the purpose of Section 12-A is not punitive but restorative: to encourage settlement.
"Each time the plaintiff is compelled to go in for mediation under Section 12-A there is a ray of hope that the matter may get settled."
The Court concluded that the appropriate course was not dismissal but abeyance, allowing the parties to undertake institutional mediation under the Act’s framework.
The Verdict
The Commercial Suit No.3 of 2025 is kept in abeyance. The parties are directed to undertake pre-institution mediation under Section 12-A of the Commercial Courts Act, 2015, within three months, extendable by two months with mutual consent. All interim applications, including Application (L) No.340 of 2025, are disposed of as infructuous. The suit shall be revived upon completion or failure of mediation.
What This Means For Similar Cases
Pre-Institution Mediation Is Mandatory, But Not Always Fatal
- Practitioners must file for mediation before instituting commercial suits unless urgency is clearly pleaded and substantiated
- Courts may now treat non-compliance as a curable defect rather than a jurisdictional bar
- A suit will not be dismissed if the court finds merit in the claim and the parties have engaged in good-faith settlement efforts
Urgency Must Be Concrete, Not Alleged
- Vague assertions of urgency based on potential asset dissipation are insufficient
- Urgency must be demonstrated by conduct: timely filing, pressing of interim applications, and documented threats to enforceable rights
- Delay of over a year after legal notice negates any claim of urgency under Section 12-A
Informal Talks Do Not Substitute Institutional Mediation
- Settlement discussions between advocates, even if extensive, do not satisfy Section 12-A
- Parties must initiate formal mediation through a designated mediator under the Act’s rules
- Courts will not accept informal negotiations as compliance, even if they result in partial agreement
