Supreme Court Calls Pre-Litigation Mediation Plea 'Dilatory Tactic', Restores ₹12.5 Lakh Recovery Suit

Calling the respondents' reliance on mandatory pre-litigation mediation a “dilatory tactic,” the Supreme Court restored a Rs. 12.5 lakh commercial recovery suit filed by Divya A. Nichani against Dipti D. Palchi and others over an unpaid loan.

Invoking its powers under Article 142 of the Constitution, the court held that the requirement of pre-litigation mediation under Section 12A of the Commercial Courts Act “shall be deemed to have failed” in the facts of the case.

A bench of Chief Justice Surya Kant and Justice Joymalya Bagchi set aside the orders of the Commercial Court, Chennai, and the Madras High Court.

Nichani had advanced Rs. 12.5 lakh to the respondents and their company in three transactions of Rs. 6 lakh, Rs. 5 lakh, and Rs. 1.5 lakh. One of the respondents executed promissory notes carrying interest at 2% per month. When repayment did not follow, she issued a legal notice in January 2023.

After learning that the company was allegedly planning to sell its property, she filed a recovery suit along with an application for attachment before judgment under Order 38 Rule 5 CPC.

The Commercial Court returned the plaint for failure to comply with Section 12A and declined ex parte interim relief. The High Court dismissed her revision petition.

Before the Supreme Court, the respondents were duly served but did not enter an appearance. The bench held that a party insisting on Section 12A must exhibit continuous willingness to mediate.

“This inaction on the part of the respondents leads us to draw an inference that the objective of the respondents in raising the plea of non-compliance of Section 12A of the CC Act was only a dilatory tactic to defeat the appellant's claim embodied by the recovery suit. A party that seeks compliance with Section 12A must exhibit its willingness to go for mediation continuously till the mediation process reaches its logical conclusion," the court observed.

The suit has now been restored to the file of the Commercial Court, which has been directed to proceed in accordance with law. The court clarified that post-institution mediation may still be explored if considered appropriate.

For Petitioners: AOR Ashutosh Nagar, Advocates Arvind Srevatsa, S. Santanam Swaminadhan, Abhilasha Shrawat, Kartik Malhotra and AOR Aarthi Rajan

For Respondents: AOR Siddhartha Iyer, Advocates Rakesh Sharma R., and R. Sowmynarayanan.