Supreme Court clarifies mandatory nature of pre-institution mediation under Commercial Courts Act: Dhanbad Fuels vs. Union of India (2025) INSC 696 (15 May 2025)

Introduction

Date of the Judgment: 15 May 2025
Citation: 2025 INSC 696
Judges: J.B. Pardiwala, J., R. Mahadevan, J. (Majority opinion by J.B. Pardiwala, J.)

Is pre-institution mediation mandatory for commercial suits? The Supreme Court of India addressed this critical question in M/S Dhanbad Fuels Private Limited vs. Union of India & Anr., clarifying the scope and applicability of Section 12A of the Commercial Courts Act, 2015. This judgment settles the debate on whether pre-institution mediation is a mandatory requirement before filing a commercial suit, especially concerning the rejection of plaints for non-compliance.

The Supreme Court, in this civil appeal, examined whether the High Court of Calcutta erred in directing that a suit be kept in abeyance to allow for mediation, rather than rejecting it outright for non-compliance with Section 12A of the Commercial Courts Act, 2015. The bench, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, delivered a unanimous decision, providing much-needed clarity on the procedural aspects of commercial dispute resolution.

Case Background

The dispute arose from a money suit filed by the Union of India against M/S Dhanbad Fuels Private Limited for the recovery of ₹8,73,36,976 towards differential freight and penalty. The suit was filed in the Commercial Court, Alipore. M/S Dhanbad Fuels raised a preliminary objection, contending that the suit was not maintainable due to the Union of India’s failure to pursue pre-institution mediation as required under Section 12A of the Commercial Courts Act, 2015, and the Pre-Institution Mediation and Settlement Rules, 2018.

M/S Dhanbad Fuels subsequently filed an application under Order VII Rule 11(d) of the Civil Procedure Code, 1908, seeking rejection of the plaint. The Commercial Court rejected this application, leading to a revision application before the High Court of Calcutta. The High Court disposed of the revision application by directing that the suit be kept in abeyance for seven months to allow for mediation, prompting M/S Dhanbad Fuels to appeal to the Supreme Court.

Timeline

Arguments

Submissions on Behalf of the Appellant (M/S Dhanbad Fuels Private Limited)

• Mandatory Nature of Section 12A: The appellant argued that the High Court erred in not rejecting the plaint, given the mandatory nature of Section 12A of the Commercial Courts Act, 2015. They relied on the Supreme Court’s decision in Patil Automation Private Limited and Others v. Rakheja Engineers Private Limited, which stated that any suit instituted violating Section 12A should result in the rejection of the plaint under Order VII Rule 11 of the Civil Procedure Code.
• Initial Stage of the Suit: The appellant contended that since the suit was at an initial stage, having not progressed beyond the filing of the written statement, it should be subject to the full force of Section 12A, requiring rejection of the plaint.
• Prospective Overruling: The appellant argued that the principle of prospective overruling, as applied in Patil Automation, should not prevent the application of the law in this case, as the suit’s lack of progress meant it was akin to a fresh suit.
• Limitation: The appellant asserted that withdrawing the suit and refiling it after pre-institution mediation would not raise limitation issues, as the Central Government has a 30-year limitation period under Article 112 of the Limitation Act, 1963.

Submissions on Behalf of the Respondent (Union of India)

• No Error by High Court: The respondent argued that the High Court did not err in its order, emphasizing that the suit should not fail due to non-compliance with Section 12A, especially since the mediation infrastructure was not fully in place when the suit was filed.
• Prospective Application: The respondent contended that the law laid down in Patil Automation should be applied prospectively from August 20, 2022, as specified in the decision itself.
• Infrastructural Challenges: The respondent highlighted that the statutory framework and rules for pre-suit mediation were progressively implemented after the establishment of the Commercial Court in Alipore. The money suit, instituted in 2019, could not have been referred to pre-suit mediation due to the lack of necessary authorities, mediators, and procedural frameworks.
• Equitable Maxim: The respondent invoked the equitable maxim lex non cogit ad impossibilia (the law does not compel an impossible performance), arguing that compliance with Section 12A was impossible when the suit was filed due to the absence of requisite infrastructure.
• Public Funds: The respondent argued that dismissing the suit would unduly impede the recovery process of public funds, defeating the legislative intent of the Commercial Courts Act, 2015, which aims for expeditious resolution of commercial disputes.
• Opportunity to File Another Suit: The respondent noted that dismissing the suit would allow them to file another suit on the same cause of action under Order VII Rule 13 of the CPC, but this would lead to unnecessary delays and costs.

Submissions Table

Issues Framed by the Supreme Court

1. Whether the High Court committed any error in passing the impugned order.
2. Whether, due to non-compliance with Section 12A of the Commercial Courts Act, 2015, a suit should be dismissed under Order VII Rule 11 of the Code of Civil Procedure, 1908, or whether it should be kept in abeyance, directing the parties to first explore the possibility of settlement by instituting mediation?

Treatment of the Issue by the Court

Authorities

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Patil Automation Private Limited and Others v. Rakheja Engineers Private Limited [CITATION]: The Court heavily relied on this case, affirming its declaration that Section 12A is mandatory but also emphasizing its prospective application.
• I.C. Golak Nath and others v. State of Panjab and others [CITATION]: The Court used this case to explain the doctrine of prospective overruling, clarifying that the law is considered to have always been the same, even with changes.
• Raj Kumar Dey v. Tarapada Dey [CITATION]: The Court invoked the equitable maxim lex non cogit ad impossibilia, reinforcing that the law does not compel an impossible performance, which was relevant given the infrastructural challenges.
• Section 12A, Commercial Courts Act, 2015: The Court thoroughly analyzed this provision, focusing on its mandatory nature, exceptions, and the implications of non-compliance.
• Order VII Rule 11, Civil Procedure Code, 1908: The Court examined this rule in the context of rejecting plaints, particularly in cases of non-compliance with mandatory legal requirements.

What weighed in the mind of the Court?

The Supreme Court’s decision in Dhanbad Fuels vs. Union of India was influenced by a combination of legal principles, practical considerations, and equitable factors. The Court emphasized the mandatory nature of Section 12A of the Commercial Courts Act, 2015, as established in Patil Automation, but also recognized the importance of its prospective application to avoid unsettling settled cases and imposing undue burdens on litigants.

The Court considered the infrastructural challenges that existed at the time the suit was filed, acknowledging that compliance with Section 12A was practically impossible due to the lack of necessary authorities and procedural frameworks. The equitable maxim lex non cogit ad impossibilia played a significant role in the Court’s reasoning, as it underscored the principle that the law should not compel an impossible performance.

The Court also took into account the potential impact on public funds, recognizing that dismissing the suit would impede the recovery process and defeat the legislative intent of the Commercial Courts Act, which aims for expeditious resolution of commercial disputes. The decision to keep the suit in abeyance and direct the parties to explore mediation struck a balance between the mandatory nature of Section 12A and the practical realities of its implementation.

Fact:Law Ratio: The sentiment analysis of the Supreme Court’s decision shows a balanced consideration of both factual and legal aspects. The Court’s reasoning was influenced by the specific facts of the case, including the infrastructural challenges and the timing of the suit, as well as the legal principles and precedents governing the interpretation and application of Section 12A.

Logical Reasoning

Issue: Whether a suit filed without complying with Section 12A should be dismissed or kept in abeyance?

Key Takeaways

• Mandatory Pre-Institution Mediation: Section 12A of the Commercial Courts Act, 2015, mandates pre-institution mediation for commercial suits where no urgent interim relief is sought.
• Prospective Application: The requirement for mandatory rejection of plaints for non-compliance with Section 12A applies prospectively from August 20, 2022.
• Suits Instituted Before August 20, 2022: For suits instituted before this date, courts have the discretion to keep the suit in abeyance and direct parties to explore mediation.
• Test for Urgent Interim Relief: Courts must examine the nature and subject-matter of the suit to determine if urgent interim relief is genuinely contemplated, ensuring that this provision is not misused to bypass Section 12A.

Development of Law

The ratio decidendi of this case is that while Section 12A of the Commercial Courts Act, 2015, is mandatory, the consequence of rejecting a plaint for non-compliance applies prospectively from August 20, 2022. For suits filed before this date, courts have the discretion to direct parties to mediation while keeping the suit in abeyance. This decision clarifies the procedural requirements for commercial dispute resolution and balances the need for mandatory mediation with practical considerations.

Conclusion

In M/S Dhanbad Fuels Private Limited vs. Union of India & Anr., the Supreme Court clarified the application of Section 12A of the Commercial Courts Act, 2015, affirming its mandatory nature but ruling that the consequence of rejecting plaints for non-compliance applies prospectively from August 20, 2022. The Court upheld the High Court’s decision to keep the suit in abeyance and direct the parties to explore mediation, balancing the legislative intent with practical realities and equitable considerations.