Pre-institution mediation under Section 12A of the Commercial Courts Act

A commercial suit in India no longer begins at the filing counter. Section 12A of the Commercial Courts Act, 2015 requires a plaintiff whose suit does not contemplate any urgent interim relief to first exhaust pre-institution mediation before instituting the suit. The Supreme Court has held the requirement to be mandatory, with plaints filed in breach liable to rejection. Understanding how the process works — and when the exception genuinely applies — is now essential to commercial litigation strategy.

Which disputes the Commercial Courts Act governs

The Commercial Courts Act, 2015 creates a dedicated track for "commercial disputes" of a "specified value", which, after the 2018 amendment, is a value of not less than three lakh rupees. The definition of a commercial dispute is wide. It takes in disputes arising out of ordinary transactions of merchants and bankers, agreements for the sale of goods or provision of services, construction and infrastructure contracts, intellectual property rights, franchising, distribution and licensing agreements, joint ventures, shareholders agreements, and several other commercial relationships. The list is longer, but the theme is consistent: disputes that arise from trade and commerce, valued at or above the statutory threshold, are routed to commercial courts and to the special procedure the Act prescribes.

The Section 12A mandate

Section 12A(1) provides that a suit which does not contemplate any urgent interim relief shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation. The mediation is conducted through the Authorities constituted under the Legal Services Authorities Act, 1987, as notified by the Central Government. The provision is thus not an invitation to negotiate; it is a statutory precondition to the institution of the suit itself.

Any doubt about the character of the provision was settled by the Supreme Court in Patil Automation Private Limited v. Rakheja Engineers Private Limited, decided on 17 August 2022. The Court held that pre-institution mediation under Section 12A is mandatory for suits which do not contemplate any urgent interim relief, and that plaints instituted in violation of the requirement are liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure. The declaration was made to operate prospectively from 20 August 2022. The consequence is severe: a suit filed without exhausting mediation, where no urgent interim relief is contemplated, can be rejected at the threshold without ever reaching the merits.

Timelines, limitation and the status of a settlement

The statute keeps the process compact. Under Section 12A(3), the mediation is to be completed within a period of three months from the date of the application, extendable by a further two months with the consent of the parties. The plaintiff is not prejudiced on limitation for having attempted mediation: the period during which the parties remained occupied with the pre-institution mediation is excluded in computing the period of limitation under the Limitation Act, 1963.

If the mediation succeeds, the outcome is far from a mere contract. Under Section 12A(5), a settlement arrived at through this process has the same status and effect as an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996 — which means it is enforceable in the same manner as if it were a decree of a court. A well-drafted settlement in mediation can therefore end the dispute with an instrument of real enforceability, without a suit ever being filed.

The urgent interim relief exception

Section 12A yields only where the suit contemplates urgent interim relief — for instance, where an injunction is needed to restrain an imminent invasion of rights or to preserve the subject matter. The exception rewards genuine urgency, not clever drafting. A prayer for interim relief added as camouflage, with no real foundation in the pleaded facts, invites close scrutiny from the commercial court. If the urgency appears contrived — the cause of action is stale, the apprehended injury is speculative, or the interim prayer sits awkwardly with the main relief — the plaintiff risks a finding that the suit did not truly contemplate urgent interim relief, with the plaint then exposed to rejection. The safer course is to plead urgency only where the record supports it, and otherwise to treat mediation as the first step it is meant to be.

How the process works in Delhi

In Delhi, the process runs through the Legal Services Authorities. The intending plaintiff applies to the District Legal Services Authority or the State Legal Services Authority, as applicable, setting out the dispute in brief. The Authority then issues notice to the opposite party calling upon it to appear and consent to participate. If the opposite party does not appear or declines, the Authority treats the mediation as a non-starter and issues a report, after which the suit may be instituted. If both sides appear, a trained mediator conducts the sessions.

A party attending should come prepared: the underlying contract and correspondence, invoices or running accounts, a computation of the claim, and a realistic sense of the range within which it can settle. The proceedings are confidential, and what is said in the mediation cannot be carried into the later suit as an admission. That confidentiality is what allows candid conversation about settlement without prejudicing the litigation that may follow.

Strategy for plaintiffs and defendants

For a plaintiff, the mediation stage is best treated not as an obstacle but as a genuine filter on costs and time. Commercial suits, even on the fast track, consume months of case management, disclosure and trial. A settlement at the pre-institution stage carries the enforceability of an award on agreed terms, which is often a better commercial outcome than a decree obtained years later. The stage also tests the opposite party's stance early, sharpening the pleadings if a suit must follow.

For a defendant, appearing in the mediation costs little and protects much. Attendance forecloses any later narrative that the defendant stonewalled a statutory process, and it opens a channel for negotiation without any admission of liability, since nothing said in the mediation can be used against the party later. Even where settlement is unlikely, the stage previews the claim and buys time to organise the defence.

A closing word

Section 12A has changed the opening move of commercial litigation in India. A plaintiff who ignores it risks rejection of the plaint; a plaintiff who uses it well may resolve the dispute before a court fee is ever paid. Both sides are well served by treating the mediation as a substantive opportunity rather than a procedural hurdle, and by taking considered advice on whether the urgency exception genuinely applies to their case.