Unravelling Section 12 A of the Commercial Courts Act, 2015

By: Purbasha Panda 


The Supreme Court has recently set up a committee to draft a piece of legislation on dispute settlement through mediation. The CJI has time and again reiterated that commercial disputes should compulsorily go through pre-institution mediation. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Bill, 2018, which was introduced in the Lok Sabha on 23 July 2018 and has been made retrospectively applicable from 3 May 2018, amends the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (hereinafter ‘the Act’), and replaces the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018. It introduced several changes like a reduction in the value of disputes under the purview of the Act from one crore to three lakhs, the establishment of commercial courts at district judge level and the much-discussed pre-institution mediation.

In India, mediation is still not very popular and people often prefer the adversarial process to mediation. Before the introduction of these amendments, we have had only a basic framework of mediation. The Indian mediation framework can be divided into two forms; one being statutory mediation. For example, Section 4(1) Industrial Disputes Act 1947 provides for mediation settlement of industrial disputes. The other form of mediation is mediation by court order.  In light of the Supreme Court judgment in the case of Salem Bar Association v Union of India, a committee was formed to draft the Civil Alternative Dispute Resolution Rules, 2003 with reference to which several High Courts framed rules for court-annexed mediation. The rulemaking power provided under Part-X of the Code of Civil Procedure read with clause (d) of sub-section (2) of section 89 allows various High courts to frame rules for conducting mediation in their respective jurisdiction. 

EFFICACY OF SECTION 12A OF COMMERCIAL COURTS ACT 2015

Scope and extent 

Section 12 A of the Act provides that the remedy of pre-institution mediation has to be exhausted before a plaintiff files a suit that does not contemplate any urgent interim relief. Such pre-institution mediation has to be conducted by the authority constituted under the Legal Services Authorities Act, 1987. This process of pre-institution mediation will have to be in conformity with the rules notified by the Central Government. The Ministry of Law and Justice via the Commercial Courts (Pre institution Mediation and Settlement) Rules, 2018 (hereinafter ‘PIMS Rules’) under Section 21A read with Section 12A of the Act has provided a time period of 3 months from the date of filing of the application by the plaintiff under Section 12A (3) of the Act to complete the proceedings related to pre-institution mediation. This period can be extended for a further period of two months with the consent of the parties. A settlement so arrived under this process will have the status of an arbitral award under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996. It must also be reduced to writing and must be signed by the parties to the dispute. 

A bare reading of these provisions raises some important issues as to when pre-institution mediation can be dispensed with. The provision provides that in cases where a suit contemplates an urgent interim relief, one is not required to compulsorily go through pre-institution mediation. Another question concerning the kind of suits that fall under the purview of suits contemplating relief was answered by the Telangana High Court in the case of M/s M.K. Food Products v M/s S.H. Food Products, where a civil petition was filed against an order of the Commercial Court. The Commercial Court had returned the plaint and instructed the parties to go for pre-institution mediation on the ground that the suit didn’t contemplate any urgent interim relief. The suit was concerned with an injunction on copyright infringement. The Telangana High Court held that a suit of such a nature would fall under the category of suit contemplating urgent interim relief and the plaint should not have been rejected on the ground of non-exhaustion of pre-institution mediation. Similarly, in the case of GSD Constructions Pvt. Ltd v Balaji Febtech Engineering, the plaintiff had suffered because of a delay in the delivery of goods who thereby refused to take the delivery of the goods. The plaintiff then filed for an injunction to prevent the defendant from claiming any further amount with respect to the delivery. The court held that the plaintiff was running against time and seeking urgent interim relief hence, he doesn’t need to exhaust the option of pre-institution mediation.  Thus, the courts have dispensed with pre-institution mediation in such cases where making the party go through mediation would result in an irreparable loss; irreparable loss being one of the essential elements for the grant of an injunction.

If a court is sufficiently convinced that the relief sought by a plaintiff is not of urgent nature and the plaintiff must go for pre-institution mediation, it can refuse to issue summons and also reject the plaint as being barred under Order VII Rule 11(d) CPC.

Confidentiality  

Mediation is about effective communication and it is an indisputable fact that effective communication facilitates mediation. However, boundaries must be drawn with respect to communication between the parties as well as the mediator especially when mediation proceedings involve high-value commercial disputes. The government has notified the PIMS Rules by exercising its rulemaking power under section 21A read with sub-section (1) of Section 12A which provides for the process of conducting this pre-institution mediation. One of the significant aspects of these rules is that they provide a very robust framework of confidentiality on mediation proceedings. Rule 9 of the PIMS Rules provides that the mediator, parties or their authorised representatives or counsel shall maintain confidentiality about mediation and the mediator shall not allow stenographic or audio or video recording of mediation sittings. This is in the nature of external confidentiality. However, if we take a look at Rule 7 (1) (vi) of the PIMS Rules, it mandates that the mediator shall maintain the confidentiality of discussions made in separate sittings with each party and only such facts which a party permits can be shared with the other party.  Here, the obligation of confidentiality on the mediator is internal in nature. Rule 12 which provides for ‘Ethics to be followed by a mediator’ casts a duty upon the mediator to uphold the principles of trust and confidentiality.  If we look at the internal dimension of mediation, the internal dimension of mediation regulates the flow of information within mediation. An example of the internal dimension of confidentiality could be point 4 of the European Code of Conduct of Mediators that provides that “[..] Any information disclosed in confidence of mediators by one of the parties must not be disclosed to other parties without permission unless compelled by law”.

If we look at the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements resulting from mediation, 2018, it provides for both ‘internal’ and ‘external’ mediation. Article 9 specifically deals with the ‘disclosure of information’ and covers confidentiality of internal mediation. This article provides that if a party gives any information to the mediator, subject to the specific condition, that it be kept confidential, the mediator is duty-bound to not disclose such information to the other party. Article 10 provides that all information relating to mediation must be kept confidential, however, an exception to this rule can be allowed when disclosure is required under law or when it is required for enforcement of a settlement agreement.

CONCLUSION

The government introduced these amendments with an objective to facilitate faster resolution of matters relating to commercial disputes, attracting foreign investments and a possible improvement in the ‘ease of doing business’ index. This index considers dispute resolution environments in the country as a yardstick of a good regulatory framework leading to improvements in the ease of doing business. Though the amendments made and the rules framed provide a strong framework for pre-institution mediation, the attitude towards mediation is a roadblock. The framework provided is fairly robust, however, what needs to be seen is how institutional challenges like competency of mediators, accreditation of mediators are taken care of when cases are referred for pre-institution mediation.


(Purbasha is currently a law undergraduate at National University of Study and Research in Law, Ranchi. She may be contacted at purbasha.nusrl.13@gmail.com.)

Cite as: Purbasha Panda, ‘Unravelling Section 12 A of the Commercial Courts Act, 2015’ (The RMLNLU Law Review Blog, 16 February 2020) <https://rmlnlulawreview.com/2020/02/16/unravelling-section-12-a-of-the-commercial-courts-act-2015&gt; date of access.

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