Full Text
HIGH COURT OF DELHI
JUDGMENT
AAONE DEVELOPERS PVT LTD ......Plaintiff
Through: Mr. Aman Lekhi, Sr. Adv. with Mr. Abhay Gupta and Mr. Ritwiz, Advs.
Through: Mr. Manu Monga and Mr. Shankar Kumar Jha, Advs.
1. The plaintiff had originally filed the suit as ordinary suit praying, inter alia, for specific performance to the effect that the defendants may be directed to specifically perform their part under the contract by releasing outstanding sum of Rs.6,65,53,976/- along with interest at the rate of 24% per annum. Along with the suit, an application under Order XXXIX Rules 1 and 2 of the CPC was also filed by the plaintiff. The suit was registered as CS (OS) No.601/2023.
2. This Court while issuing summons in the suit also directed for issuance of notice in the application [I.A.No.19153/2023] seeking interim relief under Order XXXIX Rules 1 and 2 of the CPC.
3. Later, on an objection being raised by the defendants in the written statement, the suit was converted to a commercial suit vide order dated 22.03.2024 and it was renumbered as CS (COMM) No.286/2024. To be noted, that prior to such conversion, vide order dated 05.10.2023 the parties at their joint request were referred to mediation under the aegis of the Delhi High Court Mediation and Conciliation Centre, which ended as “not settled”.
4. However, vide order dated 22.03.2024 the questions as to whether the mediation that the parties have already undergone, post-institution of the suit, would be the sufficient compliance of Section 12-A of the Commercial Courts Act [in short ‘the Act’] and whether Section 12-A would be applicable when the plaintiff has sought urgent interim relief, were also kept open to be decided before proceeding further in the suit.
5. It is in the above backdrop that the parties have been heard on the question of compliance of Section 12-A of the Act.
6. Mr. Aman Lekhi, learned Senior Counsel appearing on behalf of the plaintiff submits that since the parties have already availed/exhausted the mediation process before the suit was converted into a commercial suit, therefore, the mandatory condition of pre-institution mediation under Section 12-A of the Act ought to be considered as having been complied with.
7. Elaborating further, he submits that an attempt at resolution of the dispute was made in the said mediation to avoid unnecessary litigation which is the objective behind Section 12-A. He further submits that this Court had referred the parties to mediation vide order dated 05.10.2023 only at joint request of the parties, therefore, the defendants are estopped from taking an objection of non-compliance of Section 12-A.
8. Mr. Lekhi also invites attention of the Court to the urgent relief sought in the suit by way of application [I.A.No.19153/2023] filed under Order XXXIX Rules 1 and 2 of the CPC, to contend that when an urgent relief is sought in the commercial suit, there is no need to resort to pre-institution mediation in terms of sub-section (1) of Section 12-A of the Act. He places reliance on the decision of the Hon’ble Supreme Court in Yamini Manohar vs. T.K.D. Keerthi, (2024) 5 SCC 815, to further contend that the very fact that this Court issued notice in the application seeking interim stay by itself indicate that the Court is inclined to entertain the prayer for interim relief. Mere non-grant of interim relief at interim stage will neither justify rejection of the suit under Order VII Rule 11 of the CPC nor suit can be dismissed because interim relief is denied post arguments. He submits that in the said decision it was further held that the commercial court has a limited role to satisfy itself that urgent relief is not a camouflage and guise to bypass the statutory mandate of pre-litigation mediation.
9. He submits that in the instant case, the prayer for interim relief was not a disguise and a mask to get over Section 12-A of the Act. There was good cause and justification in law for the urgent relief.
10. Per contra, Mr. Manu Monga, the learned counsel for the defendants submits that the suit for specific performance is misdirected. Both the agreements were terminated by the defendants on 25.09.2023 and the said termination was never challenged. He submits that the only recourse available to the plaintiff is to seek damages or a money decree and there is no justification for claiming any interim relief. He thus, contends that the application filed under Order XXXIX Rules 1 and 2 CPC along with the Original Suit i.e. CS (OS) 601/2023 is camouflage and guise to by-pass the statutory mandate of the pre-litigation mediation and only that limited aspect has to be considered by the Commercial Courts in view of the law laid down in Yamini Manohar (supra).
11. He submits that this Court vide order dated 22.03.2024 converted the original suit into commercial suit and directed the plaintiff to comply with the requirements outlined in the Commercial Courts Act, however, no steps have been taken by the plaintiff to meet these requirements. He further submits that any mediation between the parties, post institution of the suit is not a sufficient compliance of Section 12A of the Act, which has been held to be mandatory by the Hon’ble Supreme Court in Patil Automation Pvt. Ltd. vs. Rakheja Engineers Pvt. Ltd. (2022) 10 SCC 1. He submits that in the said decision, the Hon’ble Supreme Court has held that any suit instituted violating the mandate of Section 12A must be visited with rejection of the plaint under Order VII Rule 11 CPC.
12. In rejoinder, Mr. Lekhi submits that when the suit was filed, the agreements were still subsisting.
13. Having heard the learned Senior Counsel for the plaintiff, as well as, the learned counsel for the defendants, the short question which falls for consideration of this Court is whether there is non-compliance of Section12A of the Act warranting rejection of plaint.
14. At the outset, it would be apt to reproduce Section 12A of the Act which reads as under: 12A. Pre-Institution Mediation and Settlement.— (1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of preinstitution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government. (2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation. (3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1): Provided that the period of mediation may be extended for a further period of two months with the consent of the parties: Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963). (4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator. (5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).]
15. It has now been settled by the Hon’ble Supreme Court in Patil Automation (supra) that pre-institution mediation as provided in Section 12A is mandatory unless urgent relief is contemplated. In the cases involved in the said decision, the suits did not contemplate urgent relief, therefore, the Hon’ble Supreme Court did not dwell upon the question as to what should happen in the suits which do contemplate urgent relief. The relevant excerpts from the decision reads thus:
16. However, in Yamini Manohar (supra) the Hon’ble Supreme Court held that the words “contemplate any urgent relief” in Section 12A(1) of the Act, with reference to the suit, should be read as conferring power on the Court to be satisfied as to the need for an urgent interim relief which must be borne out from the plaint, documents and facts of the case. It was further observed that the Commercial Courts will undertake a limited exercise to satisfy itself that the urgent interim relief sought is not a camouflage and guise to by-pass the statutory mandate of the pre litigation mediation. The relevant part of the decision reads as under:
prayer for urgent interim relief should not be a disguise or mask to wriggle out of and get over Section 12-A of the CC Act. The facts and circumstances of the case have to be considered holistically from the standpoint of the plaintiff. Non-grant of interim relief at the ad interim stage, when the plaint is taken up for registration/admission and examination, will not justify dismissal of the commercial suit under Order 7 Rule 11 of the Code; at times, interim relief is granted after issuance of notice. Nor can the suit be dismissed under Order 7 Rule 11 of the Code, because the interim relief, post the arguments, is denied on merits and on examination of the three principles, namely: (i) prima facie case, (ii) irreparable harm and injury, and (iii) balance of convenience. The fact that the court issued notice and/or granted interim stay may indicate that the court is inclined to entertain the plaint.
11. Having stated so, it is difficult to agree with the proposition that the plaintiff has the absolute choice and right to paralyse Section 12-A of the CC Act by making a prayer for urgent interim relief. Camouflage and guise to bypass the statutory mandate of pre-litigation mediation should be checked when deception and falsity is apparent or established. The proposition that the commercial courts do have a role, albeit a limited one, should be accepted, otherwise it would be up to the plaintiff alone to decide whether to resort to the procedure under Section 12-A of the CC Act. An “absolute and unfettered right” approach is not justified if the pre-institution mediation under Section 12-A of the CC Act is mandatory, as held by this Court in Patil Automation [Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1: (2023) 1 SCC (Civ) 545].
12. The words “contemplate any urgent interim relief” in Section 12-A(1) of the CC Act, with reference to the suit, should be read as conferring power on the court to be satisfied. They suggest that the suit must “contemplate”, which means the plaint, documents and facts should show and indicate the need for an urgent interim relief. This is the precise and limited exercise that the commercial courts will undertake, the contours of which have been explained in the earlier paragraph(s). This will be sufficient to keep in check and ensure that the legislative object/intent behind the enactment of Section 12-A of the CC Act is not defeated. (Emphasis Supplied)
17. The prayer in the suit is for specific performance, as well as, for the recovery. The caption of the suit makes it further clear that the prayer is for specific performance to the effect that the defendants may be directed to specifically perform their part under the two contracts viz., Construction Agreement dated 19.04.2021 (Civil Construction) and Project Management Contract dated 30.12.2021 by releasing outstanding sum of Rs. 6,65,53,976/along with interest at the rate of 24% per annum.
18. The case as set up in the plaint is that the plaintiff company and the defendants entered into a Construction Agreement dated 19.04.2021 (Civil Construction) of the residence/premises and Project Management Contract (PMC) on 30.12.2021 for procurement of building materials and other materials to be installed at the aforesaid residence/premises. The said work was carried on till 31.07.2022, however due to the scarcity of funds, the defendant no. 2 directed the plaintiff company to stop the construction work. It was then agreed between the parties that the plaintiff company will submit their final bills for the civil works and the bills for interiors for the work done till 31.07.2022. Consequently, the plaintiff company submitted their due bills on 09.09.2022. Defendant no. 2, on multiple occasions, raised objections to the calculation of the bills submitted by the plaintiff company and therefore, kept delaying settlement of accounts. Despite various reminders to the defendants regarding the non-payment of the bills, no payment was ever made after which the plaintiff company resorted to issuance of a legal notice dated 05.05.2023. In the reply dated 18.05.2023 to the said notice, it was contended that Defendants have paid in excess to the amount agreed. Thereafter the defendant entered the premises threatening to vacate and remove the equipments, scaffoldings building material from the construction site on which a written complaint was made to the police station against the defendants for misbehaving, threatening the abusing the employees of the plaintiff company. This led to the filing of suit.
19. As noted above the suit was originally filed as ordinary suit alongwith an application [I.A.No.19153/2023] under Order XXXIX Rules 1 and 2 of the CPC seeking following ad-interim reliefs: “i) Pass an ad-interim ex-parte injunction restraining the defendants, their agents and assigns from inducting any person, encumbering, contractor for completing the work within the suit property. ii) Ad-Interim order in terms of disposal of this application. iii) Ad-Interim Ex-parte Order with regard to No Third-Party Interest in the Suit Property. iv) Cost of Losses Incurred for removing the building material. v) Any other relief/order which this Hon'ble Court deems fit and proper under the facts and circumstances of the case in favour of the plaintiff and against the defendants.”
20. This Court while issuing summons in the suit also directed for issuance of notice in the application [I.A.No.19153/2023]. Further, in view of the urgency articulated by the learned counsel for the defendants, the matter was directed to be listed for hearing on 05.10.2023. The relevant part of the order dated 27.09.2023 reads thus:
their obligations in the aforesaid agreements, the defendants are also in the process of involving certain third parties in the execution of the work. He submits that the same will seriously jeopardise the rights of the plaintiff inasmuch as the work executed by the plaintiff is required to be verified and paid for prior to induction of third parties.
11. In view of the urgency emphasized by learned counsel for the plaintiff, list on 05.10.2023.
12. The director of the plaintiff, as also the defendant no.2, are directed to remain personally present in court on the next date of hearing.
13. Copy of this order be given dasti under the signatures of court master.” (Emphasis supplied)
21. Evidently, in the application seeking interim relief, the plaintiff prayed to restrain the defendants from appointing any person for completing the work in the suit property. When the said application was taken up for consideration on 05.10.2023, this Court on a specific query made to the learned counsel for the defendants noted the submission of the defendants that no other agency apart from the plaintiff has been inducted into the premises to carry out any work which is the subject matter of the agreements entered into between the parties. Further, the Court considering that it is imperative to measure the work performed by the plaintiff in defendants’ property and it will not be possible to do so at a later stage when other agencies are inducted to complete the civil/renovation work, also appointed an Architect as a Local Commissioner to verify the work/services performed by the plaintiff, pursuant to the contracts entered into between the parties. Needless to say that third party’s induction to complete the work in the concerned property prior to measurement of the work executed by the plaintiff could have affected the rights of the plaintiff inasmuch as the computation of payment to the plaintiff for the completed work, if any, would be possible only when the work executed is verified and measured prior to any other agency taking over the execution of the remaining work.
22. The application for interim relief is still pending and the question whether the plaintiff will eventually succeed in the said application when the same is examined by this Court on the touchstone of three principles namely, (i) prima facie case, (ii) irreparable harm and injury, and (iii) the balance of convenience, is not to be gone into at this stage nor the eventual dismissal of the said application can lead to rejection of plaint under Order VII Rule 11 CPC[1]. However, at this stage suffice it to note that this Court was inclined to entertain the application for interim relief as it issued notice in the application and subsequently vide order 27.09.2023 the court fixed the matter at a short date i.e. on 05.10.2023 having regard to the urgency articulated by the learned counsel for the plaintiff.
23. The above aspects of the matter shows that the interim relief sought was justified and not camouflage or guise to bypass the statutory mandate of pre-institution mediation.
24. The question also needs to be examined from another angle. As above noted, at joint request of the parties, they were referred to mediation under the aegis of the Delhi High Court Mediation and Conciliation Centre, vide order dated 05.10.2023 which ended as “not settled” despite endeavour to resolve the dispute in three hearings before the learned Mediator.
25. Thereafter, the defendants filed their written statement, in which a preliminary objection was taken that since the suit arises from a commercial dispute and is beyond the specified value, therefore, the suit ought to have been instituted in terms of the Commercial Courts Act, 2015. Considering
1 See Yamini Manohar vs. T.K.D. Keerthi, (2024) 5 SCC 815 the said objection, this court vide order dated 22.03.2024 converted the suit to a commercial suit, to which the defendants did not raise any objection. Even later on, no challenge was laid to the said order.
26. Notably, when the suit was originally filed as an ordinary suit, there was no occasion for the plaintiff to resort to pre-institution mediation, as Section 12A of the Act is not applicable to the ordinary suits. However, before the conversion of suit to commercial suit on 22.03.2024, the matter was referred to the mediation, therefore, the mandatory requirement of pre-institution mediation stood complied with, since the object of compulsory pre-institution mediation is only to relieve the courts from avoidable litigation in commercial matters and the mediation, as an alternative dispute mechanism, has been identified as a workable solution for the said purpose.[2]
27. Thus, the mediation having been resorted to prior to the conversion of ordinary suit to a commercial suit and that too on a joint request of the parties, which ended in as “not settled”, it does not lie in the mouth of the defendants to seek rejection of plaint and to burden the plaintiff to avail pre-institution mediation all over again and file a fresh suit thereafter.
28. The upshot of above discussion is that since the urgent relief sought is not a ruse or guise to bypass the statutory mandate of pre-institution mediation, therefore, this court is of the view that the suit contemplate an urgent interim relief. Thus, Section 12A of the Act is not mandatory in the present case. Even otherwise, in the facts and circumstances of the present case, the mandatory spirit of Section 12A stood complied with. The questions formulated by this Court vide order dated 22.03.2024 stand
2 See Patil Automation (supra) answered accordingly. Concomitantly, the defendant’s submission seeking rejection of plaint cannot be sustained.
29. In view of the above, list the matter before the Roster Bench for further proceedings on 14.01.2025.
VIKAS MAHAJAN, J. JANUARY 8, 2025 N.S. ASWAL/aj/dss