Counter-Claims Must Ordinarily Comply With Section 12A Pre-Institution Mediation: Delhi High Court

On 1 July, the Delhi High Court held that a defendant filing a counter-claim in a commercial suit must ordinarily comply with the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act, unless the disputes forming part of the counter-claim had already undergone mediation.

A Bench of Justices Anil Kshetarpal and Amit Mahajan dismissed Vijay's appeal against the order rejecting his counter-claim under Order VII Rule 11 of the Civil Procedure Code for non-compliance with Section 12A of the Commercial Courts Act. The judges held:

“…acceptance of the proposition canvassed by the Appellant would effectively amount to judicially creating an unqualified exemption in favour of all Counter-claims, irrespective of whether the underlying disputes had already formed part of, or were capable of being addressed during, the mediation process”

Havells India Limited and others filed a commercial suit against Vijay. During the proceedings, a Local Commissioner carried out inspections, after which Vijay filed a counter-claim alleging that the respondents acted beyond the scope of an earlier court order. He did not undertake pre-institution mediation under Section 12A before filing the counter-claim.

The respondents sought rejection of the counter-claim on that ground. The Commercial Court accepted the objection and held that a counter-claim required independent compliance with Section 12A.

Before the High Court, Vijay argued that a counter-claim forms part of the same suit and therefore does not require separate pre-institution mediation. The respondents submitted that a counter-claim operates as a cross-action and therefore independently attracts Section 12A.

The Bench examined Section 12A and held that the provision requires parties to receive a meaningful opportunity to resolve disputes through mediation before they proceed to adversarial litigation. It observed:

“The provision does not merely require parties to participate in mediation as a matter of procedural formality. Rather, it seeks to afford the parties a meaningful opportunity to amicably resolve their disputes before being subjected to adversarial litigation.”

It further held that the key issue turns on whether the disputes raised in the counter-claim had already formed part of mediation proceedings. It noted:

“Where the parties had already been afforded an opportunity to engage with and attempt settlement of such disputes, the legislative object underlying Section 12A may reasonably be said to stand fulfilled. Conversely, where the proposed Counter-claim was never disclosed during mediation proceedings, the statutory requirement cannot be treated as satisfied.”

Further, the Court observed that compliance with Section 12A remains mandatory where no mediation takes place or where the counter-claim disputes are not raised during mediation. It also noted that the original suit proceeded under the urgent interim relief exception, and therefore no pre-institution mediation took place. Additionally, it found that the disputes raised in the counter-claim were never placed before mediation.

Accordingly, the High Court dismissed the appeal, finding no infirmity in the Commercial Court's decision.

For Appellant: Advocates Abhijit Mishra, Payal Bahl, Himanshu Tomar, Vikhyat Gupta, Prashant Jaiswal and Ram Parvesh Kumar

For Respondents: Advocates Divyansh Jain and Vidhan Jain