Best Mandatory Pre-Litigation Mediation Before a Commercial Suit Lawyer

If you plan to file a commercial suit, for example to recover unpaid invoices or claim damages for breach of a business contract, Section 12A of the Commercial Courts Act says you must first try mediation. This is called pre-institution mediation. You apply to the Legal Services Authority, the other side is called, and a trained mediator tries to help you settle. Only if that fails can you file the suit, unless your case genuinely needs urgent interim relief.

This page is for businesses about to sue over commercial disputes of ₹3 lakh or more, where the contract has no arbitration clause. It also helps defendants who have received a notice of pre-institution mediation. In short: the process takes up to three months, extendable by two months if both sides agree. The time spent does not count against your limitation period. A settlement reached has the force of an arbitral award. If the other side does not turn up, you get a "non-starter" report and can file the suit.

Since the Supreme Court's 2022 decision in Patil Automation v Rakheja Engineers, skipping this step without a genuine need for urgent relief can lead to the plaint being rejected.

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Pre-institution mediation in brief

When mediation is compulsory, and the urgent relief exception

Section 12A was added in 2018. For some years, courts disagreed on whether it was compulsory. In August 2022, in Patil Automation v Rakheja Engineers, the Supreme Court held that it is mandatory, and that a suit filed without first going through pre-institution mediation must be rejected under Order 7 Rule 11 of the Code of Civil Procedure. To avoid unfairness, the Court applied this to suits filed from 20 August 2022 onwards.

The only exception is a suit that "contemplates urgent interim relief". In Yamini Manohar v T.K.D. Keerthi (2023), the Supreme Court explained that the court will look at the plaint, documents and facts to see whether the request for urgent relief is genuine, or whether it has been added only to avoid mediation. A plaintiff cannot simply ask for an injunction it does not need. If the court finds the urgency is a pretext, the plaint can still be rejected.

Typical cases that genuinely contemplate urgent relief include trademark infringement where goods are being sold, attempts to sell property in dispute, imminent encashment of a bank guarantee, and diversion of goods. A simple claim for unpaid invoices, with no risk of assets being moved, usually does not.

Note that Section 12A applies to suits in commercial courts. It does not apply to arbitration, to summary suits in some views, or to proceedings that are not suits. Courts have taken differing views on whether summary suits under Order 37 need pre-institution mediation; the safer course is to mediate first unless there is real urgency. See summary suit.

How the process works

Time and typical cost range

The fee under the 2018 Rules is modest. Our fees are agreed in writing at the start and are not linked to the outcome.

Documents needed

Where to go

Making mediation work for you

Many businesses treat pre-institution mediation as a box to tick before filing. That is a missed opportunity. A well-prepared mediation, with a clear account of the claim and a realistic view of the other side's position, often produces settlement in a fraction of the time a suit would take.

Go in with documents that show the debt clearly: invoices, delivery proof, acknowledgements, ledger confirmations. Know your bottom line: what you would accept now, compared with the likely result of a suit after three years, minus costs and the risk of non-recovery. Consider structured payments, secured by post-dated cheques or a guarantee, rather than insisting on a lump sum. The mediator cannot force a settlement, but can help both sides see the risks they face.

If you are the defendant, mediation is a chance to raise genuine defences, such as quality problems, short supplies or set-offs, and to negotiate a reduced amount or more time without the cost of defending a suit. Ignoring the notice simply leads to a suit, and possibly a summary suit where defending is harder.

The settlement and how it is enforced

Under Section 12A(5), a settlement arrived at in pre-institution mediation has the same status and effect as an arbitral award on agreed terms under Section 30(4) of the Arbitration Act. That means it can be enforced as if it were a decree, without filing a suit. If the other side defaults, you can file for execution in the court where its assets are.

Draft the settlement carefully. State the amount, the instalments and dates, what happens on default (such as the whole balance becoming due with interest), who bears costs, and that the settlement is in full and final settlement of the specified claims. Vague settlements cause new disputes.

The Mediation Act, 2023 creates a general framework for mediation in India and provides for amendments to the Commercial Courts Act. Several of its provisions are being brought into force in stages. Until the relevant amendments are notified, Section 12A continues to operate through the Legal Services Authorities as described here.

Laws that apply

How we work

We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:

• Proper preparation: applications that set out the claim clearly, with documents.
• Real negotiation: we treat mediation as a chance to settle, not a formality.
• Enforceable settlements: drafted so that default can be executed directly.
• Ready for suit: if mediation fails, the suit is ready to file.
• Written fee terms: agreed stage by stage, never linked to the outcome.

Mistakes with Section 12A

For defendants: receiving a mediation notice

If you have received a notice from a Legal Services Authority inviting you to pre-institution mediation, you are not being sued yet. You have a choice. You can attend, take part and try to settle; you can attend and explain why you dispute the claim; or you can ignore it. Ignoring it leads to a non-starter report, and the claimant can then file the suit.

Attending is usually wise. It costs little, gives you an early look at the claimant's documents and position, and lets you raise defences such as defective goods, short deliveries, set-off for amounts the claimant owes you, or the claim being out of time. Mediation is confidential, so what you say cannot generally be used against you in a later suit. If a settlement is possible, it will almost always be cheaper than defending a commercial suit, where costs can be awarded against the losing side and the timelines for filing a written statement are strict.

If you do attend, bring someone with authority to settle, and your own statement of account. A mediation where one side has to "check with management" for every proposal rarely succeeds.

How Section 12A sits with other routes

Section 12A is one of several possible first steps in a business payment dispute, and it is not always the right one.

If your contract has an arbitration clause, Section 12A does not apply; you start with an arbitration notice. If you are a registered micro or small enterprise, the MSME Facilitation Council offers conciliation and arbitration with statutory interest, and may be better than a suit. If the debtor is a company owing ₹1 crore or more with no genuine dispute, an IBC demand notice may produce faster payment. If you hold a dishonoured cheque, a cheque bounce complaint can run alongside.

For a plain commercial debt with no arbitration clause, the typical sequence is a legal notice for payment, then pre-institution mediation, then a commercial or summary suit. Each step gives the debtor a chance to pay, and many do.

A note on specified value and commercial disputes

Section 12A applies only to "commercial disputes" of a "specified value" of ₹3 lakh or more, as defined in the Commercial Courts Act. Commercial disputes include disputes arising from ordinary transactions of merchants and traders, export and import, construction and infrastructure contracts, distribution and franchise agreements, partnership agreements, shareholders' agreements, technology and IP agreements, and agreements for sale of goods and services, among others listed in Section 2(1)(c).

If your claim is below ₹3 lakh, or not a commercial dispute, it goes to the ordinary civil court, and Section 12A does not apply. If you are unsure whether your dispute is commercial, see what is a commercial dispute. For a detailed look at commercial court procedure, our network site commercialcourtlawyer.com covers suits, written statements and appeals in depth.