Delhi High Court: In a petition filed under Article 227 of the Constitution by Aditya Birla Fashion and Retail Ltd. (‘Aditya Birla Fashion’) (plaintiff) to seek recovery of its security money from the owner of the shop that was leased out to it, a Single Judge Bench of Manoj Jain, J. opined that the process of pre-institution mediation was mandatory for every commercial suit while salvaging the counter-claim and held that the same could not be rejected.
Background
The respondent in the present matter owned one shop which was leased out to Aditya Birla Fashion on 15-03-2013. Due to the pandemic, Aditya Birla Fashion had to close its business operations from the leased shop. It issued a notice of termination of the lease and demanded a refund of its security. The respondent did not return the security and Aditya Birla Fashion filed a commercial suit against her.
Before the institution of the suit, Aditya Birla Fashion had filed an application under Section 12-A of the Commercial Courts Act, 2015 (‘CCA Act’) before the South District Legal Services Authority (‘SDLSA’), Saket Courts on 07-04-2021. Despite the service of summons, the respondent failed to appear before the said authority and the process of mediation was declared a ‘non-starter’.
After the institution of the suit, the respondent filed a counter-claim on 21-02-2022 to seek rentals. However, since she had not invoked pre-institution mediation, Aditya Birla Fashion filed an application under Order VII Rule 11, Civil Procedure Code, 1908 (‘CPC’) to seek rejection of such counter-claim. This application was dismissed which compelled Aditya Birla Fashion to file the present petition.
The Trial Court said that even though the above-mentioned process as contended by Aditya Birla Fashion was mandatory for a suit, the same was not necessary for a counter-claim.
Analysis and Decision
The Court analyzed Order VIII Rule 6A as well as Order IV Rules 1 and 2 of the CPC and stated that it was very apparent that a counter-claim is also a suit in its individual and distinct capacity, though it needs to be within the confines of Order VIII Rule 6A of CPC.
The Court stated that once a counter-claim is lodged, it has to be treated as a regular suit for all practical and procedural purposes.
Further, the Court said that any such counter-claim related to a commercial dispute has to mandatorily follow the rules and procedures prescribed for a commercial suit. It was said that just because it is a counter-claim, it cannot be assumed that such a claim is relieved from adhering to any legal obligation and that it has to go through all the stipulated rigors as may be prescribed for any general commercial suit.
The Court stated that the CCA Act and CPC do not contain any provision providing for different treatment of any such counter-claim.
To answer whether there was no pre-requisite to abide by the mandatory provision of Section 12-A of the CCA Act before the filing of the counter-claim, the Court said ‘no’. The Court mentioned the definition of ‘opposite party’ as mentioned in Rule 2(g) of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (‘2018 Rules’), and stated that the intent of the Legislature was never to oust the requirement of pre-institution mediation and settlement for any party. It was said that whenever there is a commercial dispute, the applicant concerned must initiate a mediation process against the ‘opposite party’ as per the procedure laid down in Rule 3 of the 2018 Rules.
The Court referred to Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd., 2022 SCC OnLine SC 1028 wherein the Supreme Court laid down that the process was mandatory and its non-compliance would entail rejection of the plaint. Thus, the Court said that recourse to Section 12-A of the CCA Act was mandatory.
The Court stated that before the filing of any commercial suit which does not deal with any urgent relief, the plaintiff concerned has to mandatorily go through the process of pre-institution mediation during which the opposite side may or may not appear. The eventual outcome of such a process may either be ‘non-starter’, ‘not settled’, or ‘settled’.
The Court said that in the present matter, the respondent did not choose to appear during the process of mediation, as a result of which, it was returned a ‘non-starter’. The Court noted that the respondent was avoiding the obligatory requirement on the pretext that such remedy had been exhausted and further said that the indispensable provision could not be kept aside on the respondent’s whims and fancies.
The Court said that merely because the respondent, in the earlier round, did not show any interest in settling the matter, it would neither mean that the respondent is relived of availing such mandate of law nor that it would be an illusory exercise on the assumption that its adversary may also adopt similar approach or tactic by not participating in such process. It was said that the state of mind of any party could not be decoded mechanically.
The Court stated that even though the same parties had already participated in the pre-institution mediation, it would not render the provision of Section 12-A nugatory in the context of any such counter-claim.
It was mentioned that it may also happen that the main suit might contemplate some urgent relief whereas the counter-claim, emanating from such suit, may not. In such a situation, it would become obligatory for the counter-claimant to exhaust the process first and then file.
The Court took note of the Statement of Object and Reasons for the amending act which brought Section 12-A into existence and stated that the objective behind pre-institution mediation was a benevolent one which does not frustrate speedy trial. On the contrary, the Court analyzed that the provision aimed and visualized a situation where there may not be an institution of any fresh case once the matter is settled through such pre-institution mediation.
The Court said that it emerged that the process of pre-institution mediation was mandatory for every suit involving a commercial suit and no distinction could be drawn in a counter-claim involving a commercial dispute. It was also said that as per the mandate of Patil Automation Pvt. Ltd. (supra), any suit that had been filed without taking recourse of Section 12-A needed to be rejected under Order VII Rule 11, CPC. Thus, the Court stated that the observations made by the Trial Court could not be sustained.
Therefore, the Court said that it would be fit if the prospective date i.e. 20-08-2022 was declared in Patil Automation Pvt. Ltd. (supra) is held as a cut-off date in the present matter as well.
Lastly, while disposing of the petition, the Court held that the counter-claim stood salvaged and could not be visited with an order of rejection.
[Aditya Birla Fashion and Retail Ltd. v. Saroj Tandon, 2024 SCC OnLine Del 6099, Decided on 02-09-2024]
Advocates who appeared in this case :
For Petitioner — Advocate Varun Sharma, Advocate Akhil B. Kukreja, Advocate Sanchita Chamoli
For Respondent — Advocate Aastha Dhawan, Advocate Shalini Bhardwaj, Advocate Aditya Sharma
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