Is Mediation Compulsory Before Filing a Commercial Suit in India?

Before you file a commercial suit for money, damages or most other relief, the law usually requires you to try mediation first. Section 12A of the Commercial Courts Act says that a suit which does not contemplate any urgent interim relief shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation. The Supreme Court in Patil Automation v Rakheja Engineers (2022) held that this is mandatory, and that suits filed in breach of it, from 20 August 2022, are liable to be rejected.

This guide is for businesses about to file a commercial suit, and defendants who have been sued without mediation. In short: for a commercial dispute of ₹3 lakh or more where you do not genuinely need urgent interim relief, you must apply for pre-institution mediation before filing the suit; the mediation is conducted through the Legal Services Authority under the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, and must ordinarily be completed within three months, extendable by two; if the other side does not participate, a non-starter report is issued and you can file; the time spent in mediation does not count for limitation; and a suit that seeks urgent relief can be filed directly, but the court will examine whether the urgency is real (Yamini Manohar v TKD Keerthi, 2023).

Skipping mediation without real urgency is a mistake that can cost a plaintiff months.

The short answer

If your dispute is a commercial dispute of specified value, ₹3 lakh or more, and you are filing a suit that does not seek urgent interim relief, you must first apply for pre-institution mediation to the Legal Services Authority designated for the purpose, usually the District Legal Services Authority or the High Court Legal Services Committee. Only after the mediation fails, or the other side does not participate and a non-starter report is issued, can you file the suit, attaching the report. If you genuinely need urgent interim relief, such as an injunction to stop an imminent harm, you can file the suit directly with an application for that relief.

Section 12A at a glance

Patil Automation (2022)

In Patil Automation Pvt Ltd v Rakheja Engineers Pvt Ltd (2022), the Supreme Court held that Section 12A is mandatory. The words "shall not be instituted" left no room for doubt, and the purpose of the provision, to reduce the burden on commercial courts by encouraging settlement, would be defeated if it were treated as optional. A suit filed without complying with Section 12A is liable to be rejected under Order VII Rule 11 of the CPC, and the court can do so on its own.

The Court gave the declaration prospective effect from 20 August 2022, so suits filed before that date without mediation were not affected, and also protected suits where High Courts had already declared the provision directory. For suits filed after 20 August 2022, the rule applies fully.

Situations we see often

The urgent relief exception

Section 12A applies to suits that do not "contemplate any urgent interim relief". Some plaintiffs tried to avoid mediation by adding an application for an injunction to every suit. In Yamini Manohar v TKD Keerthi (2023), the Supreme Court held that the commercial court must examine the nature and subject matter of the suit, the cause of action and the prayer for interim relief, and decide whether the suit genuinely contemplates urgent interim relief. A prayer for interim relief that is a disguise or mask to avoid mediation will not do. But the test is not whether the court will grant the relief, only whether the plaintiff genuinely contemplated it.

In practice, courts look at whether there is real urgency: an ongoing infringement, an imminent sale of property, a threat to encash a guarantee, or a risk of assets being removed. A suit for recovery of a debt, filed months after it fell due, with a general prayer to restrain the defendant from alienating its assets and no evidence of any such risk, is likely to be treated as one that does not contemplate urgent relief.

How pre-institution mediation works

Limitation and the time spent

The proviso to Section 12A(3) provides that the period during which the parties remained occupied with pre-institution mediation shall not be computed for the purpose of limitation under the Limitation Act. So a plaintiff whose claim is close to the end of its limitation period can apply for mediation and, if it fails, file the suit within the remaining period after excluding the mediation time. The exclusion runs from the date of the application to the date of the report.

But the application must be made before limitation expires. A claim that is already time-barred when the mediation application is filed is not revived. Plaintiffs near the deadline should apply immediately and keep proof of the date of application.

Why mediation is worth taking seriously

Many plaintiffs treat pre-institution mediation as a box to tick before filing. But a fair number of commercial disputes do settle at this stage, especially money claims where the defendant does not seriously dispute the amount but has cash flow problems, or where both sides want to preserve a business relationship. Mediation is confidential, quick and inexpensive, and a settlement reached in it has the effect of an arbitral award on agreed terms under Section 12A(5), so it can be enforced like a decree if the other side defaults.

A plaintiff who approaches mediation with a clear statement of the claim, supporting documents and a realistic settlement range is more likely to come away with a result. A defendant who attends with a genuine proposal, such as instalments, may avoid a suit, its costs, and interest at commercial rates. See mediation services and pre-institution mediation.

Defendants: should you attend?

A defendant who receives a notice of pre-institution mediation is not obliged to attend, and if it does not, a non-starter report is issued and the plaintiff files the suit. But there are reasons to attend: to hear the claim and assess its strength, to propose a settlement on favourable terms, and to avoid the impression of being uncooperative, which may influence costs later under the amended Section 35. Attending does not mean admitting liability; discussions in mediation are confidential and cannot be used in the suit.

Defendants should send someone with authority to settle, together with their documents. If the claim is weak, the defendant can say so and the mediation will end; if it has merit, a settlement may cost less than litigation.

The Mediation Act, 2023

The Mediation Act, 2023 creates a general framework for mediation in India, including pre-litigation mediation, and contains amendments to the Commercial Courts Act. Its provisions are being brought into force in stages. Until the relevant amendments to Section 12A are notified, pre-institution mediation for commercial suits continues to be conducted through the Legal Services Authorities under the 2018 Rules, as described in this guide. Parties should check the current position before filing, because the procedure may change when the remaining provisions come into force.

Section 12A and other proceedings

Section 12A applies to suits. It does not apply to arbitration proceedings, to applications under the Arbitration Act such as Section 9 petitions or Section 34 challenges, to insolvency applications under the IBC, to cheque bounce complaints under the Negotiable Instruments Act, or to proceedings before the MSME Facilitation Council, which has its own conciliation stage. It also does not apply to commercial disputes below the ₹3 lakh specified value, which go to ordinary civil courts. If your contract has an arbitration clause, the right route is usually arbitration, and Section 12A is not a step you need to take.

Mistakes to avoid

Filing a money suit with a token injunction prayer to avoid mediation. Applying for mediation after limitation has already expired. Failing to attach the failure or non-starter report to the plaint. Sending a representative to mediation without authority to settle. Assuming the mediation period automatically extends other deadlines in a pending case. And refiling a rejected plaint without first completing mediation. Each of these can lead to rejection, delay or wasted costs.

What to include in the mediation application

The application to the Legal Services Authority is a short form, but it is worth filling it carefully. State the full names and current addresses, emails and phone numbers of the opposite parties, because notice will be sent to them and a non-starter report depends on proper service. Describe the dispute and the amount claimed clearly, with interest. Attach copies of the key documents: the contract, invoices, ledger statements and the demand notice. A clear application gives the mediator something to work with and makes it harder for the other side to say later that it did not understand the claim.

After a failed mediation

When mediation fails or the other side does not participate, the Authority issues a report, signed by the mediator or the Authority. The plaint should state that pre-institution mediation was attempted and failed, attach the report, and compute limitation excluding the mediation period. If the claim or the parties in the suit differ from those in the mediation, the defendant may argue that the mediation did not cover the suit, so keep them consistent. A suit filed promptly after the report also shows the court that the plaintiff did not use mediation as a delaying tactic.

If you have been sued without mediation

A defendant served with a commercial suit that was filed without pre-institution mediation, and that does not genuinely seek urgent relief, can apply under Order VII Rule 11 to reject the plaint, relying on Patil Automation. The application should be filed early, before or with the written statement, and should explain why the urgent relief prayer is not genuine, if one has been made. The defendant should still keep its written statement deadline in mind, because the court may decide the application after the deadline and the 120-day outer limit does not stop running. Where the defendant would prefer to settle, it can also propose mediation, which courts can encourage under Section 89 of the CPC.

Related guides

See what counts as a commercial dispute to check whether Section 12A applies, and summary suit vs regular suit for the fastest route once mediation has failed.