PRE-LITIGATION MEDIATION IN COMMERCIAL DISPUTES

Litigation in India is often slow, expensive, and adversarial. Recognising this, Parliament introduced a mandatory pre-litigation mediation mechanism for commercial disputes through the Commercial Courts Act, 2015. This blog explains what pre-litigation (pre-institution) mediation is, its benefits and consequences, the procedure to be followed, and the court fee position if a suit is eventually filed.

What Is Pre-Litigation Mediation?

Pre-litigation mediation (also called “pre-institution mediation”) is a mandatory attempt at settling a dispute through a neutral mediator before a party can approach a court. It was introduced by the 2018 amendment to the Commercial Courts Act, 2015, which inserted Chapter IIIA and Section 12A into the Act, along with the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (“PIMS Rules”).

Section 12A(1) states, in effect, that a commercial suit which does not contemplate any urgent interim relief cannot be instituted unless the plaintiff has first exhausted the remedy of pre-institution mediation.

The Supreme Court, in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022), settled the debate on whether this requirement was mandatory or merely directory — it held that Section 12A is mandatory, and a suit filed in violation of it is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC), i.e., treated as barred by law. The Delhi High Court has since applied and extended this position in several rulings, including holding that pre-institution mediation is required even for counterclaims filed in a pending commercial suit, since a counterclaim is treated as an independent suit.

Applicability: This mandatory pre-suit mediation applies specifically to commercial disputes of “specified value” under the Commercial Courts Act (broadly, commercial disputes above a threshold value, which for Delhi is currently ₹3 lakh). It does not apply to non-commercial civil suits, though voluntary mediation is always open to any party in any type of dispute, and courts frequently refer pending civil, matrimonial, and other suits to mediation under Section 89 CPC as well.

Benefits of Pre-Litigation Mediation

• Faster resolution – Mediation under the PIMS Rules is meant to be completed within a fixed timeframe (originally 3 months, extendable by 2 months with mutual consent), far quicker than years of court proceedings.
• Lower cost – No court fees are payable for initiating the mediation process itself, and legal costs are minimal compared to a full trial.
• Confidentiality – Mediation proceedings are private, unlike open court hearings, protecting business reputation and sensitive commercial information.
• Preserves business relationships – Being a collaborative rather than adversarial process, it helps parties continue commercial relationships post-settlement.
• Binding and enforceable outcome – Under Section 12A(5), a settlement reached has the same status and effect as an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996, and can be enforced like a decree.
• Reduces court backlog – By diverting disputes away from overburdened commercial courts, it supports the larger goal of judicial efficiency.

Consequences of Non-Compliance

• Rejection of the plaint – Filing a commercial suit without attempting pre-institution mediation (where no urgent interim relief is genuinely sought) makes the suit liable to be rejected under Order VII Rule 11 CPC.
• No second chance in the same suit – The plaintiff would need to withdraw/have the suit rejected and file afresh only after properly completing mediation, causing delay and additional cost.
• Scrutiny of “urgent relief” claims – Courts have cautioned that plaintiffs cannot bypass Section 12A by artificially pleading urgency; where the claim of urgency is found to be a device to escape mediation, the suit can still be dismissed.
• Applies to counterclaims too – A defendant wishing to file a counterclaim in a commercial suit must also comply with Section 12A for that counterclaim, independently of the main suit.
• Non-cooperation by the other side – If one party initiates mediation in good faith and the other party refuses to participate, courts have held that this refusal does not defeat the plaintiff’s compliance with Section 12A — the plaintiff can proceed to file suit since the remedy was “exhausted” by the attempt itself.

Procedure for Pre-Institution Mediation

• Filing the application – The prospective plaintiff files an application (Form-1 under the PIMS Rules) before the Íauthority constituted under the Legal Services Authorities Act, 1987 — in Delhi, this is generally the Delhi State Legal Services Authority (DSLSA)* or the Delhi High Court Mediation and Conciliation Centre (Samadhan), depending on where the suit would be filed.
• Issuance of notice – The authority issues notice to the opposite party, who must respond within a stipulated period.
• Appointment of mediator – A trained mediator is appointed to conduct the sessions.
• Mediation sessions – Both parties, with or without advocates, participate in confidential sessions to explore settlement.

Outcome:

• If parties settle, a written settlement agreement is drawn up, signed by both parties and the mediator — this has the force of an arbitral award/decree.
• If mediation fails or is not attended by the other side, a “Non-Starter” or failure report/certificate is issued.
• Filing the suit – The plaintiff can now file the commercial suit before the appropriate court, annexing the mediation failure certificate as proof of compliance with Section 12A.

Time limit – The process should ordinarily conclude within 3 months (extendable by up to 2 months with the parties’ consent); the period spent in mediation is excluded while computing limitation for filing the suit.

Court Fees if the Suit Is Later Filed Before the Delhi High Court

A few points are important here:

• No fee for the mediation application itself – Filing the Section 12A pre-institution mediation application before DSLSA/the mediation centre does not attract court fees; it is treated as a free, statutory pre-suit step.
• Court fee arises only once the suit is instituted – If mediation fails and the plaintiff proceeds to file the commercial suit in the Delhi High Court, ad valorem court fee becomes payable under the Court Fees Act, 1870, as applicable to Delhi, read with the Delhi High Court (Original Side) Rules and the Delhi High Court Rules for commercial suits.
• Basis of calculation – Court fee in a money/recovery suit is generally calculated as a percentage of the amount claimed (the “specified value” of the commercial dispute), on a graded/slab basis — the percentage typically reduces as the claim value increases, subject to a prescribed ceiling. For suits seeking non-monetary reliefs (declaration, injunction, specific performance, etc.), fee is computed differently — sometimes as a fixed fee or ad valorem on the value the plaintiff himself places on the relief, per the relevant provisions of the Act and the Suits Valuation Act, 1887.
• Commercial suits generally require e-filing on the Delhi High Court’s official e-filing/CIS portal, with court fee paid electronically (through e-stamping/e-court fee) along with the requisite process fee and, where applicable, mediation compliance documents.
• Because exact slab rates and thresholds are technical, subject to periodic notification, and depend on the precise nature of relief claimed, it is advisable to verify the current applicable rate either on the Delhi High Court’s official website/e-filing portal or through a practising advocate before filing, and to have the court fee calculated by the Registry or an advocate at the time of filing.

Conclusion

Pre-litigation mediation under Section 12A of the Commercial Courts Act has fundamentally changed how commercial disputes are approached in India — making an attempt at amicable settlement a mandatory first step before knocking on the doors of the court. While it offers real benefits in terms of speed, cost, and confidentiality, non-compliance carries the serious consequence of outright rejection of the suit. For anyone considering commercial litigation before the Delhi High Court, understanding this procedure — and budgeting for the ad valorem court fee that follows if mediation fails — is an essential part of case planning.