Suit Contemplating 'Urgent Relief' Can't Be Rejected For Bypassing Mandatory Mediation Under S.12A Commercial Courts Act, Even if Relief is Denied: Karnataka High Court - 2025-09-25

Urgent Relief Plea Allows Bypassing Mandatory Mediation in Commercial Suits, Even if Relief is Denied: Karnataka HC

High Court clarifies that the test for urgency is from the plaintiff's standpoint, not the final outcome of the interim application.

BENGALURU: The Karnataka High Court, in a significant ruling, has held that a commercial suit cannot be rejected for non-compliance with the mandatory pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, if the plaintiff genuinely "contemplates" an urgent interim relief. The court clarified that the rejection of the plaintiff's application for interim relief on merits does not retroactively invalidate the suit's institution.

A division bench comprising Chief Justice Vibhu Bakhru and Justice C M Joshi set aside a Commercial Court's order that had rejected a plaint filed by Mrs. Bhagyashree Jain against M/s. Vyshnavi Visions, a real estate firm. The lower court had dismissed the suit because the plaintiff did not exhaust the mandatory mediation process, reasoning that her apprehension for seeking urgent relief was "unreasonable."

Case Background

The dispute arose from a ₹10 crore payment made by the plaintiff, Mrs. Bhagyashree Jain, to M/s. Vyshnavi Visions. The plaintiff claimed this was an investment to be inducted as a partner in the firm, with the funds earmarked for purchasing a specific property. When the defendants allegedly used the funds to buy the property but excluded her from the partnership, she filed a commercial suit for recovery of the amount, along with damages.

Fearing that the defendants might sell the property to third parties, the plaintiff sought an "urgent interim relief" by filing an application for 'attachment before judgment' under Order XXXVIII Rule 5 of the CPC. Simultaneously, she filed another application seeking exemption from the mandatory pre-institution mediation required under Section 12A of the Commercial Courts Act.

The Commercial Court, while agreeing that the matter was a 'commercial dispute', rejected the plaint. It held that since the defendants admitted to receiving ₹10 crore and promised repayment, the plaintiff's fear was unfounded, and thus, no urgent relief was contemplated. This failure to undergo mediation, the court ruled, was fatal to the suit.

Arguments Before the High Court

The plaintiff argued that the determination of whether a suit "contemplates urgent interim relief" must be made from her perspective at the time of filing. The mere act of seeking such relief is sufficient to bypass the mediation requirement, and the court's subsequent decision on the merits of that relief is irrelevant.

The defendants contended that the plaintiff's plea for urgent relief was merely a "ruse or a subterfuge" to avoid the mandatory mediation process. They argued that the dispute was not commercial in nature and that the lower court was correct in rejecting the plaint for non-compliance with Section 12A.

High Court's Analysis and Ruling

The High Court extensively analyzed the scope of Section 12A, referring to landmark Supreme Court judgments in Patil Automation Private Limited and Yamini Manohar . The bench affirmed that while pre-institution mediation is mandatory, an exception is carved out for suits that contemplate urgent interim relief.

The court made a crucial distinction between the plaintiff's contemplation of urgent relief and the court's eventual grant of it. The bench stated:

"The question whether the suit involves urgent relief is required to be considered from the standpoint of the plaintiff and not on the basis whether the Court accedes to granting any urgent interim relief... Rejection of any application for interim relief does not necessarily lead to the conclusion that the case set up by the plaintiff does not involve any urgent interim relief."

The judgment emphasized that a plaint can be rejected for bypassing mediation only if the court finds that the plea for urgency was made with mala fide intent or was a clear subterfuge. In the present case, the High Court found the plaintiff's apprehension to be genuine. The defendants had admitted liability for ₹10 crores but gave no timeline for repayment and were allegedly trying to alienate the very property purchased with the plaintiff's funds.

The Court observed:

"Clearly from the standpoint of the plaintiff, she would be justified in seeking the urgent relief to protect the assets which were purchased from her funds to ensure that she does not suffer any loss."

On the defendants' cross-appeal, the court upheld the lower court's finding that the dispute was indeed "commercial." It noted that even by the defendants' own admission in their legal notice, the ₹10 crore was accepted as "financial assistance" for their real estate business purposes.

Final Decision

The High Court allowed the plaintiff's appeal, setting aside the Commercial Court's order of rejection. The suit (Com O.S No.1692/2024) has been restored to the file of the Commercial Court for further proceedings. The defendants' cross-appeal was dismissed. This judgment serves as a vital guide for commercial courts in balancing the mandatory nature of pre-litigation mediation with the plaintiff's right to seek immediate judicial protection in urgent matters.