Pre-institution mediation under Section 12A is mandatory for counter-claims where no prior mediation has occurred.

The Respondents instituted a commercial suit against the Appellant and obtained an order for inspection, which was conducted on June 1, 2024, and June 17, 2024.

The original suit was filed without pre-institution mediation as the Respondents sought urgent interim relief.

Subsequently, the Appellant filed a counter-claim based on the commercial relationship and the conduct of the inspections, but did not independently initiate pre-institution mediation under Section 12A of the Commercial Courts Act (CC Act).

The Respondents filed an application under Order VII Rule 11 of the CPC seeking rejection of the counter-claim for non-compliance with the CC Act.

The District Judge, relying on Aditya Birla Fashion and Retail Limited v. Mrs Saroj Tandon, allowed the application and rejected the counter-claim.

The Appellant challenged this rejection via the present appeal.

1. Whether a defendant instituting a counter-claim in a pending commercial suit is mandatorily required to independently comply with the pre-institution mediation condition under Section 12A of the CC Act and, if not, in what circumstances is the requirement satisfied?

The Court applied Section 12A of the Commercial Courts Act, 2015, which mandates pre-institution mediation for suits not contemplating urgent interim relief.

It relied on the Supreme Court’s ruling in Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., which established that Section 12A is mandatory and its non-compliance leads to the rejection of the plaint.

The Court also considered Order VIII Rules 6A-6C of the CPC, which treat a counter-claim as a cross-suit governing it by rules applicable to plaints.

The precedent in Sanjana Agarwal v. Namoshivai Apparels Private Limited, noting that a second round of mediation is unnecessary if the subject matter was already covered in a prior mediation.

The Court reasoned that "suit" under Section 12A includes counter-claims because the CPC treats them as cross-actions.

However, it rejected a rigid, formalistic interpretation in favor of a purposive approach centered on whether the parties had a "meaningful opportunity" to settle the specific disputes.

If a defendant disclosed their claims during a prior mediation that resulted in a non-settlement report, a separate mediation for the counter-claim would be a redundant exercise.

In the present case, since the original suit was filed bypassing mediation due to "urgency," the parties never engaged in the Section 12A process.

Consequently, the claims in the counter-claim were never subjected to any mediation attempt, and the statutory objective of pre-litigation settlement was entirely unfulfilled.

The Court also dismissed the Appellant's concern regarding limitation periods, noting that Section 12A(3) provides for the exclusion of time spent in mediation.

Since no mediation took place in the main suit, the Appellant was required to comply with Section 12A before filing the counter-claim.

The Court upheld the rejection of the counter-claim under Order VII Rule 11 CPC and dismissed the appeal.