Failed Mediation In Civil Court Amounts To 'Substantial Compliance' With S.12A Of Commercial Courts Act: Karnataka High Court - 2025-07-01

Prior Mediation Efforts in Civil Court Fulfill Commercial Court Act's Mandate, Rules Karnataka High Court

Bengaluru: The Karnataka High Court, in a significant ruling, has held that if settlement talks or mediation efforts have already failed in a civil court, it constitutes "substantial compliance" with the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act, 2015. The court clarified that a commercial suit, transferred from a civil court under such circumstances, need not be rejected or sent back for mediation all over again.

Justice M. Nagaprasanna dismissed a petition filed by a tenant challenging a Commercial Court's order that had refused to reject a suit for non-compliance with Section 12A. The court observed that forcing parties into another round of mediation after extensive settlement talks had already failed would be a "travesty."

Case Background

The dispute originated as a regular civil suit (O.S.No.245 of 2023) filed by a landlord, Mrs. Jayashri R. Kamath , against her tenant, Mr. P. Vasudeva Kamath , seeking eviction and clearance of rent arrears. The case record revealed that the matter was repeatedly adjourned for nearly four months, from January to April 2024, specifically for the parties to arrive at a settlement.

When the settlement talks ultimately failed, and the matter was posted for evidence, the tenant filed an application arguing that the suit, concerning property used for trade and commerce, fell under the jurisdiction of a Commercial Court. The civil court agreed and returned the plaint to be filed before the appropriate Commercial Court.

Once the suit was refiled as Commercial O.S.No.302 of 2024, the tenant filed another application, this time under Order VII Rule 11 of the CPC, seeking its rejection. The ground cited was that the landlord had not complied with the mandatory pre-institution mediation prescribed under Section 12A of the Commercial Courts Act. The Commercial Court dismissed this application, prompting the tenant to approach the High Court.

Arguments of the Parties

For the Petitioner (Tenant): Senior Counsel Sri Vigneshwar S. Shastri argued that Section 12A is a mandatory provision and that a commercial suit cannot be instituted without first exhausting the remedy of pre-institution mediation. He contended that the settlement talks in the previous civil suit were irrelevant, and the plaint should be rejected for non-compliance.

For the Respondent (Landlord): Senior Counsel Sri Dhananjay V. Joshi countered that the spirit and purpose of Section 12A had already been met. He argued that extensive settlement efforts had been made before the civil court, and sending the matter back for mediation would be a redundant exercise and a "travesty."

Court's Analysis and Precedents

Justice M. Nagaprasanna , in his detailed order, focused on the substance over procedural technicality. The court acknowledged the mandatory nature of Section 12A as established by the Supreme Court in Patil Automation Private Limited v. Rakheja Engineers Private Limited . However, it distinguished the present case based on its unique facts.

The High Court drew support from a recent Supreme Court order in Sabita Jha v. Aaone Developers Private Limited , which upheld a Delhi High Court decision on a similar issue. In that case, the Apex Court had observed:

"The facts as stated above, clearly reveal that there was substantial compliance of Section 12A as the matter was referred to mediation before the registration of the commercial suit."

Applying this principle, the Karnataka High Court noted that the core purpose of Section 12A is to provide an opportunity for settlement to avoid litigation. This purpose had been served in the original suit. The court highlighted the order sheet entries which explicitly stated the case was adjourned multiple times for settlement.

The Court reasoned:

"...when commercial O.S. is for the first time instituted before the Court, Section 12A becomes mandatory... In the event suit is presented before the competent civil Court and the competent civil Court has initiated efforts for mediation and those have failed, after such failure... the rigour of Section 12A need not all over again be followed by the commercial Court before entertaining the plaint, as there would have been substantial compliance of Section 12A..."

Final Decision

Concluding that the tenant's application was an attempt to buy time despite the failure of settlement talks, the court found no fault in the Commercial Court's order. It held that since the objective of Section 12A—attempting a settlement—had already been fulfilled, there was no ground to reject the plaint.

The petition was dismissed, affirming that a pragmatic approach should be taken when a suit is transferred from a civil to a commercial court after mediation efforts have already been exhausted.