Commercial Courts and Pre-Institution Mediation

Short answer: The Commercial Courts Act, 2015, establishes specialized courts to accelerate the resolution of high-value business disputes. For most commercial disputes valued at ₹3 lakh or more, Section 12A of the Act makes it mandatory to first attempt settlement through pre-institution mediation. This step must be completed before a lawsuit can be filed, aiming to provide a faster and more cost-effective resolution than traditional litigation.

What is a “commercial dispute” under the Act?

A dispute must fall under the specific definition in Section 2(1)(c) of the Commercial Courts Act to be tried by a Commercial Court. This covers a wide range of business-related conflicts, including those arising out of:

• Ordinary transactions of merchants, bankers, financiers, and traders, such as contracts for goods and services.
• Export or import of merchandise or services.
• Issues relating to admiralty and maritime law.
• Transactions involving aircraft, their financing, and development.
• Carriage of goods.
• Construction and infrastructure contracts.
• Agreements related to immovable property used exclusively in trade or commerce.
• Franchising, distribution, and licensing agreements.
• Management and consultancy agreements.
• Joint venture and partnership agreements.
• Shareholders' agreements.
• Subscription and investment agreements.
• Mercantile agency and contracts.
• Intellectual property rights (trademarks, copyright, patents, etc.).
• Insurance and re-insurance.

If your dispute does not fit into these categories, it will be handled by a regular civil court.

What is the jurisdiction of a Commercial Court?

Commercial Courts have jurisdiction over commercial disputes where the 'specified value' is not less than ₹3 lakh. The specified value is the monetary value of the subject matter of the lawsuit. This threshold was significantly reduced from the initial ₹1 crore, bringing a much larger number of small and medium-sized business disputes under the purview of these specialized, fast-track courts.

Is pre-institution mediation always mandatory?

Yes, for the vast majority of cases, pre-institution mediation is a compulsory first step. Section 12A of the Act states that a suit cannot be instituted unless the plaintiff has exhausted the remedy of pre-institution mediation. The only exception is when the plaintiff is seeking urgent interim relief, such as an injunction to prevent the other party from selling assets or using confidential information. In such urgent cases, you can approach the court directly, which may later refer the parties to mediation if it deems fit.

How does the pre-institution mediation process work?

The process is streamlined and time-bound.

1. Application: The party wishing to initiate the process (the applicant) files an application with a mediation authority established under the Legal Services Authorities Act, 1987 (such as the Karnataka State Legal Services Authority).
2. Notice: The authority issues a notice to the opposing party to appear for mediation.
3. Mediation: A trained, neutral mediator facilitates discussions to help parties reach a mutually acceptable settlement.
4. Timeline: The entire process must be completed within three months from the date of application, with a possible extension of two months with the consent of both parties.
5. Report: If a settlement is reached, it is recorded and signed, and it carries the same legal weight as an arbitral award. If no settlement is reached, the mediator submits a "non-starter" or "failure" report, which is required to file a suit in the Commercial Court.

What are the benefits of filing in a Commercial Court?

Commercial Courts are designed for speed and efficiency, offering significant advantages over the traditional civil court system.

Feature	Commercial Court Suit	Regular Civil Suit
Pre-filing Step	Mandatory pre-institution mediation	Not required
Pleadings	Written statement must be filed within 30 days (max 120 days with costs)	Timelines are more flexible and often extended
Case Management	A formal "Case Management Hearing" is held to set strict timelines for trial	No formal case management hearing; process is less structured
Evidence	Strict rules for disclosure and discovery of documents	More lenient and prolonged discovery process
Overall Timeline	Designed for disposal within 1-2 years	Can take several years, often more than a decade

Worked example

Scenario: CodeCrafters Pvt. Ltd., a Bengaluru-based software firm, was hired by Urban Weaves, a retail chain, to develop an e-commerce platform for a total fee of ₹40 lakh. Urban Weaves paid an advance of ₹15 lakh but, upon delivery, is refusing to pay the balance ₹25 lakh, claiming the platform is not as per their expectations.

1. Legal Notice: CodeCrafters first sends a legal notice demanding payment of the outstanding ₹25 lakh. There is no response.

2. Initiating Mediation: As the dispute value is over ₹3 lakh and qualifies as a commercial dispute (contract for services), CodeCrafters files an application for pre-institution mediation under Section 12A at the Bengaluru Mediation Centre.

3. Mediation Proceedings: The Centre issues a notice. Urban Weaves agrees to participate. Over two sessions, the mediator helps both parties identify the core issues. It becomes clear that the disagreement is over three specific features. They agree that CodeCrafters will implement these features within 30 days, and Urban Weaves will release the final payment upon successful implementation.

4. Settlement Agreement: A settlement agreement is drafted by the mediator and signed by both parties. This agreement is now legally binding and enforceable in court, just like an arbitral award. The dispute is resolved in under 45 days without going to court.

5. Alternative (Mediation Failure): If Urban Weaves had refused to cooperate or if no agreement was reached, the mediator would have issued a "Failure of Mediation" report. CodeCrafters could then have used this report to file a commercial suit in the Commercial Court in Bengaluru to recover the ₹25 lakh plus interest and legal costs.

Common mistakes

1. Filing a suit directly: Filing a commercial suit without first completing the mandatory pre-institution mediation process under Section 12A. The court will reject such a suit for non-compliance.
2. Incorrectly valuing the suit: Either undervaluing a claim to avoid court fees or overvaluing it, leading to jurisdictional challenges.
3. Not seeking urgent relief when needed: In situations where the other party might be transferring assets or destroying evidence, failing to file for an urgent interim injunction and instead getting stuck in the mediation process can be a critical error.
4. Poor documentation: Not maintaining clear contracts, invoices, email correspondence, and delivery challans. In a commercial suit, the burden of proof is high, and success depends on strong documentary evidence.
5. Ignoring a mediation notice: If you are the respondent and you ignore the notice for pre-institution mediation, the authority will issue a "non-starter" report, allowing the other party to immediately file a case against you in the Commercial Court.

How SP & SC helps

Navigating business disputes requires both legal and strategic acumen. SP & SC Legal provides end-to-end assistance for commercial disputes. We begin by analysing your contracts and correspondence to build a strong case. Our services include drafting and responding to legal notices, representing you effectively during the crucial pre-institution mediation process to seek a favourable settlement, and, if necessary, filing or defending your case before the Commercial Courts. We manage the entire litigation process, ensuring strict adherence to the procedural timelines of the Act. For expert handling of your business disputes, explore our corporate disputes resolution services.

Frequently asked questions

What is the fee for pre-institution mediation?

The fee is a nominal, fixed amount prescribed by the respective State Legal Services Authority. It is not a percentage of the claim value and is designed to be affordable.

What happens if the other party ignores the mediation notice?

If the opposing party fails to appear despite receiving the notice, the mediation authority will issue a "non-starter report." This report fulfills your obligation under Section 12A, and you can proceed to file a suit in the Commercial Court.

How long does a case take in a Commercial Court?

While there is no guaranteed timeline, the Act's structure with its strict deadlines for pleadings, discovery, and case management hearings is designed to resolve cases much faster than regular civil suits, often within one to two years.

Can I appeal a decision of the Commercial Court?

Yes, an appeal against an order or judgment of a Commercial Court lies before the Commercial Appellate Division of the concerned High Court. The timeline for filing such an appeal is 60 days.

Is a settlement reached in mediation legally binding?

Yes. A settlement agreement signed by both parties during pre-institution mediation is treated as an arbitral award under the Arbitration and Conciliation Act, 1996, making it final and binding.

Get a fixed-fee quote

Facing a business dispute can be disruptive. Let us help you resolve it efficiently. Share your documents with us, and we will provide a clear, written fixed-fee quote for handling the entire process, from mediation to litigation if required. Contact SP & SC or message us on WhatsApp at +91 90356 74566 to get started.