Pre-institution Mediation Applies Equally to Counter-Claims in Commercial Disputes
The Delhi High Court recently ruled that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 is a mandatory requirement for counter-claims in commercial suits, provided no urgent interim relief is sought. The judgment was passed in the case of *Aditya Birla Fashion And Retail Limited v. Mrs. Saroj Tandon*.
Section 12A mandates that a commercial suit not contemplating urgent interim relief cannot be initiated unless pre-institution mediation is exhausted. Justice Manoj Jain, who presided over the case, affirmed that counter-claims, like the original commercial suit, must comply with the same legal requirements. He emphasized that both plaint and counter-claims are subject to equal procedural rigor, stating:
“The Commercial Courts Act 2015 and Civil Procedure Code (CPC) do not contain any provision providing for different treatment for any such counter-claim… During the trial and till its eventual disposal, the rules for the game have to remain the same for any plaint and, yes, for the counterclaim as well.”
The case involved a lease dispute. The petitioner, *Aditya Birla Fashion and Retail Limited*, had leased a shop from the respondent. Due to the COVID-19 pandemic, the petitioner terminated the lease and sought a refund of the security deposit, which the respondent did not return. As required in commercial cases, the petitioner initiated a mediation process under Section 12A at the Saket District Court. However, the respondent failed to appear, prompting the petitioner to file a recovery suit in the Delhi High Court.
Subsequently, the respondent filed a counter-claim in the same suit without first participating in pre-institution mediation, a step the petitioner had already undergone. The petitioner moved to reject the counter-claim, but the trial court dismissed their application. This led the petitioner to approach the High Court.
The primary question before the Court was whether Section 12A applied to counter-claims in commercial disputes that did not seek urgent relief. The High Court rejected the trial court’s conclusion that pre-institution mediation was not mandatory for counter-claims. The Court clarified that pre-institution mediation is an essential legal right of the opposing party in a counter-claim and must be undertaken before filing a counter-claim in court.
The Court stated:
“Merely because such an option was availed/attempted to be availed in the initial stage and proved to be unsuccessful… does not mean that a counter-claimant can bypass pre-institution mediation.”
The judgment also pointed out that pre-institution mediation is mandated by the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018. The Court further highlighted that during the original mediation process, the counter-claimant had been given two opportunities to participate but chose not to. The same party then attempted to avoid the mediation requirement for their own counter-claim.
In conclusion, the Court ruled that pre-institution mediation must be pursued for every commercial suit, including counter-claims, unless urgent relief is sought. The judgment serves as a reminder that all parties involved in commercial disputes must adhere to the mandatory pre-institution mediation process, regardless of whether it is a counter-claim or an original suit.
The appellants were represented by advocates Varun Sharma, Akhil B Kukreja, and Sanchita Chamoli, while the respondents were represented by advocates Aastha Dhawan, Shalini Bhardwaj, and Aditya Sharma.
(With inputs from agency)
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