Pre-Institution Mediation Not Mandatory If Suit Seeks Urgent Interim Relief: Bombay High Court
The Bombay High Court has recently reiterated that a commercial suit cannot be rejected merely for non-compliance with the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act if the plaint demonstrates that the suit contemplates urgent interim relief.
A single bench of Justice Gauri Godse delivered the ruling in an interim application filed by Warana Sugar Ltd, its director Vinay Kore, and its corporate guarantor Tatyasaheb Kore Warana Sahakari Sakhar Karkhana Ltd, seeking rejection of a commercial summary suit for recovery instituted by IL & FS Financial Services Ltd.
“The well-settled legal principles as discussed in the above paragraphs and the averments in the plaint support the plaintiff's contention in the present case that the suit contemplates urgent interim relief. Hence, in the present case, non-compliance with the mandatory requirement under Section 12-A of the said Act would not warrant rejection of the plaint at the threshold.”, the court observed.
The company and its representatives argued that the suit was barred because the plaintiff had failed to comply with the mandatory requirement of pre-institution mediation under Section 12A before filing the commercial suit.
The suit was filed by IL&FS seeking recovery of approximately Rs. 123.5 crore allegedly due as of September 30, 2022. According to the plaint, Warana Sugar had availed a loan facility and defaulted in repayment. The plaintiff also relied on personal and corporate guarantees executed by the other defendants to secure repayment of the loan. Despite demand notices and settlement discussions, the dues remained unpaid, prompting the filing of a commercial summary suit.
Along with the suit, IL&FS also filed an application seeking interim relief, including directions for the defendants to deposit the claimed amount, furnish security for the claim, disclose assets, and restrain them from creating third-party rights over their assets. The plaintiff argued that such relief was necessary because the defendants were likely to dispose of assets in order to defeat the claim.
The court held that the plaintiff had sufficiently pleaded apprehension that the defendants might create third-party rights over their assets, which could defeat recovery of the dues. In such circumstances, the court said, the suit could legitimately claim exemption from the pre-institution mediation requirement.
Accordingly, the court dismissed the defendants' application seeking rejection of the plaint and allowed the commercial recovery suit to proceed.
For Plaintiff: Senior Advocate Zal Andhyarujina with Advocates Ishani Khanwilkar, Sachin Chandarana, Jaiveer Dharan i/b. Manilal Kher Ambalal & Co
For Defendants: Advocates Phiroze Colabawalla, Niharika Jalan, Indrajeet Hingane