In a case (Aditya Birla Ltd v. Saroj Tandon; 2024 SCC OnLine Del 6099) wherein a petition was preferred before a Single Judge Bench of the Delhi High Court by means of Article 227 of the Constitution of India. The petitioner herein was originally the respondent in an impugned order of the Trial Court. The Trial Court dismissed the respondents’ counterclaim, which was registered as a commercial suit, for it was merely seeking recovery of money and not contemplating urgent relief.
Background
The Respondent had leased a shop to the petitioner, which eventually had to be vacated due to the COVID-19 pandemic. Subsequently, a notice of termination of the lease was issued, demanding the refund of the security deposit. Upon failing to refund the security deposit, the petitioner filed a commercial suit seeking recovery. Additionally, the petitioner filed an application under Section 12A of the Commercial Courts Act 2015, (‘Commercial Court Act’) to initiate pre-institution mediation. However, the respondent failed to appear before the said authority, and the process of mediation was declared non-starter.
Facts of the Case
Upon the mediation failing, the plaintiff filed a suit, after which a written statement was also filed. The defendant also lodged a counterclaim seeking rentals. The counterclaim involved the recovery of money but did not contemplate any urgent relief.
Before lodging the counterclaim, the defendant had not invoked pre-institution meditation. Therefore, the petitioner filed an application under Order 7 Rule 11 of the Code of Civil Procedure 1908 (‘CPC’) seeking rejection of such counterclaim.
Per the Trial Court, the process mandatory for a suit may not necessarily be so for a counterclaim. The dismissal of the application led the plaintiff, in this case, to file an instant petition before the High Court of Delhi.
Issues for consideration and analysis
- Whether recourse under section 12-A of the Commercial Courts Act for pre-institution mediation is obligatory or should be treated as optional
The Court took note of the relevant provisions under CPC, namely Order VIII Rule 6A and Order IV Rule 1 and 2. It was made apparent that the counterclaim is also a suit in its individual and distinct capacity, within the meaning of Order VIII Rule 6A CPC. Once logged, it shall be treated as a regular suit for all practical and procedural purposes.
The Court iterated that a counterclaim cannot be assumed to be relieved of adhering to due legal obligation. Like any other commercial suit, it has to undergo all the stipulated rigours scrupulously, as may be prescribed for any general commercial suit. Moreover, neither the Commercial Courts Act nor CPC contains any provision providing for different treatment for any such counterclaim.
- Whether the recourse under section 12-A of the Commercial Courts Act is also applicable to such counter-claim
The issue up for consideration was whether to abide by the mandatory provision of Section 12A of the Commercial Courts Act prior to filing the counterclaim. For this, the Court again referred to the legislative texts, namely, Section 12A Pre-institution mediation and Settlement, Rule Commercial Court Rules 2018 Institution of the mediation process, and the definition of ‘opposite party’ under the Rules.
The Court inferred that the intent of the legislature was never to oust the requirement of pre-institution mediation for any party wherever there is a commercial dispute. Therefore, the opposite party gets an ‘indefeasible legal right to participate in the mediation’ before the counterclaim. The Court applied the precedent laid down in Patil Automation Private Limited v. Rakheja Engineers Private Limited (2022 SCC OnLine SC 1028), which stated that the recourse to section 12A, Commercial Courts Act, is mandatory and its non-compliance would entail rejection of the plaint.
The Court reiterated that merely because such an option, to go for pre-institution mediation was attempted to be availed at the initial stages and proved to be a non-starter, would not suggest that any counter-claimant can straightaway file a commercial suit, not contemplating any urgent relief.
Judgement
The Court was of the view that the process of pre-institution mediation is mandatory for every suit involving a commercial suit, and no distinction can be drawn when it comes to a counterclaim involving a commercial dispute and not contemplating any urgent relief. As per the mandate of Patil Automation Private Limited v. Rakheja Engineers Private Limited (supra), any suit filed without recourse to Section 12 A needs to be rejected under Order VII Rule 11 CPC.
It was opined that observations made by the Trail Court could not be sustained. Moreover, the Court also referred Harey Krishna Corporation Versus Servotech Power Systems Ltd. and Anr. (2024 SCC OnLine Del 3526), wherein a division bench of the Court laid down the mandatory provisions of section 12A.
While disposing off the petition, the Court finally held that the counterclaim in question is salvaged and cannot be visited with an order of rejection.