A) ABSTRACT / HEADNOTE

The Supreme Court in M/s Dhanbad Fuels Private Limited v. Union of India & Anr. addressed the interplay between Section 12A of the Commercial Courts Act, 2015 and Order VII Rule 11 of the Code of Civil Procedure, 1908. The primary issue was whether a commercial suit filed without pre-institution mediation, as mandated under Section 12A, must be dismissed outright or whether courts can instead hold such proceedings in abeyance and direct parties to mediation.

The Court traced the legislative intent behind Section 12A, introduced in 2018 to promote mediation as a compulsory step prior to litigation unless urgent interim relief is sought. It emphasized that Section 12A is mandatory in nature, as previously settled in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022) 10 SCC 1. However, the Court reiterated that the consequence of rejection for non-compliance applies only prospectively to suits filed on or after 20 August 2022. Since the Union of India had instituted the money suit in August 2019, prior to the Patil Automation ruling, the plaint could not be rejected.

The Court upheld the High Court’s direction to keep the suit in abeyance and refer parties to time-bound mediation under the Pre-Institution Mediation and Settlement Rules, 2018 (PIMS Rules). It clarified that the doctrine lex non cogit ad impossibilia applied, as mediation infrastructure was not fully functional at the time of filing. Importantly, the Court defined the contours of “urgent interim relief” and cautioned against its misuse as a mere pretext to bypass Section 12A.

This decision harmonises procedural law with substantive justice, balancing strict compliance with legislative mandate and pragmatic flexibility in cases predating Patil Automation.

Keywords: Pre-institution mediation, Commercial Courts Act, Section 12A, Order VII Rule 11 CPC, Prospective overruling, Lex non cogit ad impossibilia, Urgent interim relief, Money suit, Patil Automation, Mediation infrastructure.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The judgment marks a significant step in the jurisprudence of commercial dispute resolution in India, particularly in the enforcement of pre-institution mediation as a statutory prerequisite. Section 12A of the Commercial Courts Act, 2015, inserted by the 2018 Amendment, requires plaintiffs to mandatorily undergo mediation before instituting a suit, provided no urgent interim relief is claimed. The legislative intent behind this provision was to reduce pendency, promote the culture of negotiated settlements, and align India’s dispute resolution mechanisms with international standards of ease of doing business.

The provision, however, faced interpretative challenges across High Courts. Some benches considered it mandatory, warranting rejection of plaints for non-compliance, while others treated it directory, allowing flexibility. The Supreme Court resolved this conflict in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022), declaring Section 12A mandatory but making the consequence of rejection apply prospectively from 20 August 2022. This decision balanced legislative intent with fairness, recognizing that infrastructural deficiencies had previously hindered compliance.

In the instant case, the Union of India filed a money suit in 2019 seeking recovery of over Rs. 8.7 crores from M/s Dhanbad Fuels Pvt. Ltd., without initiating pre-institution mediation. The appellant sought rejection of the plaint under Order VII Rule 11(d) CPC. The Commercial Court refused, instead directing post-institution mediation. On revision, the Calcutta High Court held that keeping the suit in abeyance was a better approach, as outright rejection would merely lead to refiling, causing delay and defeating the object of expeditious resolution.

The appeal before the Supreme Court raised critical questions: whether non-compliance with Section 12A prior to 20 August 2022 justified rejection of plaint, and how courts should deal with such cases.

D) FACTS OF THE CASE

The Union of India instituted Money Suit No. 28 of 2019 before the Commercial Court at Alipore, seeking recovery of Rs. 8,73,36,976/- towards differential freight and penalty allegedly owed by the appellant, M/s Dhanbad Fuels Pvt. Ltd. Notably, the plaint did not seek any urgent interim relief.

The appellant-defendant raised a preliminary objection regarding maintainability under Section 12A, pointing out that pre-institution mediation was mandatory. On 30 September 2020, the appellant filed an application under Order VII Rule 11(d) CPC, seeking rejection of the plaint for non-compliance. The Commercial Court dismissed the application on 21 December 2020, reasoning that infrastructure for mediation was not fully operational in 2019, and instead referred the matter for post-institution mediation.

The appellant challenged this order before the Calcutta High Court. On 22 February 2021, the High Court upheld the trial court’s view, holding that rejecting the plaint would merely compel the Union of India to refile the suit after mediation, causing unnecessary delay. Instead, it directed the suit to be kept in abeyance for seven months, mandating the Union to approach the District Legal Services Authority under the PIMS Rules.

Aggrieved, the appellant approached the Supreme Court, arguing that Patil Automation had settled Section 12A as mandatory, and thus, non-compliance should lead to rejection. The Union of India countered that the suit was filed when mediation infrastructure was not in place, invoking the equitable maxim lex non cogit ad impossibilia.

E) LEGAL ISSUES RAISED

i. Whether Section 12A of the Commercial Courts Act, 2015 is mandatory, and if so, what are the consequences of non-compliance in suits instituted prior to 20 August 2022?

ii. Whether the plaint in Money Suit No. 28 of 2019 ought to be rejected under Order VII Rule 11 CPC for failure to exhaust pre-institution mediation?

iii. Whether the High Court was correct in directing that the suit be kept in abeyance and parties referred to mediation instead of rejecting the plaint?

iv. How should the expression “urgent interim relief” under Section 12A be construed, and what safeguards exist against its misuse?

v. Whether infrastructural deficiencies in implementing mediation justify exemption from Section 12A under the principle of lex non cogit ad impossibilia?

F) PETITIONER / APPELLANT’S ARGUMENTS

The appellant contended that Section 12A is unambiguously mandatory, as affirmed in Patil Automation. Any suit instituted in violation must be rejected under Order VII Rule 11(d) CPC. It relied heavily on paragraphs 103–114 of Patil Automation, asserting that since the present suit had not progressed beyond the filing of written statement, it was akin to a fresh suit and hence should meet rejection.

The appellant invoked I.C. Golaknath v. State of Punjab (AIR 1967 SC 1643), arguing that prospective overruling does not alter the correctness of law as it always existed; it merely postpones its applicability. Therefore, Section 12A was always mandatory, and only its enforcement was delayed.

Further, reliance was placed on Spectrum Plus Ltd., In re (2005) 3 WLR 58, where the House of Lords held that prospective overruling can take different forms but does not change the law itself. The appellant argued that since limitation for Union suits under Article 112 of the Limitation Act, 1963 is 30 years, no prejudice would be caused if the plaint was rejected and refiled after mediation.

Thus, the appellant urged that the plaint be rejected and fresh proceedings instituted in compliance with Section 12A.

G) RESPONDENT’S ARGUMENTS

The Union of India argued that while Section 12A is mandatory, the decision in Patil Automation explicitly applied the rejection consequence only prospectively from 20 August 2022. Since the present suit was filed in 2019, it was protected.

It highlighted that mediation infrastructure in West Bengal was incomplete at the time of filing. The panel of trained mediators was notified only in January 2020, and the SOP for mediation was approved in December 2020. Thus, compliance was impossible, invoking the principle lex non cogit ad impossibilia (Raj Kumar Dey v. Tarapada Dey (1987) 4 SCC 398).

The respondent emphasized that outright rejection would lead to unnecessary delay, as the suit would be refiled under Order VII Rule 13 CPC. Given that the case involved recovery of public funds exceeding Rs. 8 crores, rejection would harm the public exchequer.

Accordingly, it supported the High Court’s approach of keeping the suit in abeyance while directing mediation.

H) RELATED LEGAL PROVISIONS

i. Section 12A, Commercial Courts Act, 2015 – Mandates pre-institution mediation for all suits not involving urgent interim relief.

ii. Order VII Rule 11(d), CPC – Provides for rejection of plaint if barred by law.

iii. Order VII Rule 13, CPC – Allows fresh plaint to be filed despite rejection.

iv. Pre-Institution Mediation and Settlement Rules, 2018 – Governs mediation process, timelines, and mediator appointment.

v. Article 112, Limitation Act, 1963 – Grants Union of India 30 years to institute suits.

vi. Section 30(4), Arbitration and Conciliation Act, 1996 – Equates mediated settlement with arbitral award.

I) JUDGMENT

The Supreme Court upheld the High Court’s approach. It reaffirmed that Section 12A is mandatory in nature but clarified that rejection under Order VII Rule 11 CPC applies only prospectively to suits filed on or after 20 August 2022, the date of Patil Automation.

It held that in pre-2022 suits, courts must balance statutory mandate with fairness by keeping proceedings in abeyance and directing mediation. The Court emphasized that law cannot compel compliance where infrastructure was absent (lex non cogit ad impossibilia).

The Court also elaborated on “urgent interim relief”, holding that courts must examine the plaint objectively to prevent abuse. A mere claim of interim relief cannot be used to circumvent mediation.

Accordingly, the appeal was dismissed, and mediation was directed to be completed within statutory timelines.

a. RATIO DECIDENDI

The ratio decidendi is that Section 12A of the Commercial Courts Act, 2015 is mandatory, but the consequence of rejection under Order VII Rule 11 CPC for non-compliance applies prospectively from 20 August 2022. Suits instituted prior thereto, like the present one, cannot be rejected but must be held in abeyance with mediation directed.

This reasoning harmonises legislative intent with fairness, acknowledging infrastructural gaps and divergent judicial interpretations prior to Patil Automation.

b. OBITER DICTA

The Court’s observations on “urgent interim relief” constitute obiter dicta. It clarified that while suits claiming such relief are exempt from Section 12A, courts must ensure the claim is genuine and not a mere device to bypass mediation.

It also observed that mediation, once concluded successfully, results in a settlement equivalent to an arbitral award under Section 30(4), Arbitration Act, thereby granting enforceability and legitimacy to the process.

c. GUIDELINES

The Court laid down the following guidelines:

i. Section 12A is mandatory, but rejection for non-compliance applies prospectively to suits filed on or after 20 August 2022.

ii. Suits filed before this date without mediation must be kept in abeyance, with parties referred to mediation under the PIMS Rules.

iii. Mediation must be completed within statutory timelines of three months, extendable by two months.

iv. Infrastructural deficiencies may justify exemption, consistent with lex non cogit ad impossibilia.

v. Courts must scrutinize claims of urgent interim relief to ensure they are not misused to evade mediation.

J) CONCLUSION & COMMENTS

The judgment reflects a pragmatic blend of strict statutory compliance and equitable flexibility. By holding Section 12A mandatory yet applying its enforcement prospectively, the Supreme Court safeguarded legislative intent while preventing undue hardship in pending cases.

The emphasis on mediation as a central pillar of commercial dispute resolution aligns with global ADR trends and India’s commitment to improving ease of doing business. The clarification on “urgent interim relief” prevents potential abuse while maintaining access to immediate remedies in genuine cases.

At the same time, the Court’s reliance on lex non cogit ad impossibilia demonstrates judicial sensitivity to administrative realities. Infrastructure for mediation was only fully functional post-2020, making compliance impossible in earlier suits. The decision thus strikes a balance between procedural law and substantive justice.

Going forward, this precedent will ensure uniformity in how courts treat pre-2022 suits under Section 12A, while reinforcing mediation’s role in commercial litigation. It also sets the stage for greater institutional investment in mediation frameworks to ensure their efficacy.

K) REFERENCES

Important Cases Referred:

• Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd., (2022) 10 SCC 1

• I.C. Golaknath v. State of Punjab, AIR 1967 SC 1643

• Raj Kumar Dey v. Tarapada Dey, (1987) 4 SCC 398

• Madanuri Sri Rama Chandra Murthy v. Syed Jalal, (2017) 13 SCC 174

• Popat and Kotecha Property v. SBI Staff Assn., (2005) 7 SCC 510

• Yamini Manohar v. T.K.D. Keerthi, (2024) 5 SCC 815

• Spectrum Plus Ltd., In re, (2005) 3 WLR 58

Important Statutes Referred:

• Commercial Courts Act, 2015 (as amended in 2018)

• Code of Civil Procedure, 1908 – Order VII Rules 11 & 13

• Pre-Institution Mediation and Settlement Rules, 2018

• Limitation Act, 1963 – Article 112

• Arbitration and Conciliation Act, 1996 – Section 30(4)