Delhi High Court: Pre-Institution Mediation Must Be Initiated Against All Defendants Before Instituting a Commercial Suit

Summary:

The Delhi High Court held that pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, is mandatory and must be undertaken against all defendants from whom relief is sought in a commercial suit. The Court held that initiating mediation against an Indian subsidiary does not satisfy the statutory requirement in respect of its foreign parent company, as the two are separate legal entities. Accordingly, the Court rejected the plaint under Order VII Rule 11(d) of the Code of Civil Procedure, 1908 (CPC), while granting liberty to the plaintiff to institute a fresh suit after complying with Section 12A.

Facts:

• The Plaintiff, an IT services company, participated in a tender floated by IIIT Delhi for the supply and installation of Next Generation Firewall equipment, pursuant to an OEM Authorization Letter issued by Defendant No. 1, Check Point Software Technologies Ltd., Israel. The Plaintiff was awarded the tender and subsequently procured the equipment through Defendant No. 3, an authorised distributor.
• Following deployment in April 2022, the Plaintiff encountered technical issues with the firewall, particularly concerning the SSL VPN functionality for Linux machines and Border Gateway Protocol (BGP). Despite repeated troubleshooting efforts and technical support from Check Point, the issues allegedly remained unresolved.
• On account of the continuing technical problems, IIIT Delhi cancelled the Plaintiff’s purchase order on August 31, 2022, returned the equipment, forfeited the Plaintiff’s Performance Bank Guarantee and restricted the Plaintiff from participating in the subsequent tender for the relevant firewall product.
• The Plaintiff alleged that the Defendants failed to provide an effective resolution or satisfactory explanation for the technical failures. It consequently sought a refund of the amount paid for the equipment and compensation for the financial, professional and reputational losses allegedly suffered.
• After the dispute remained unresolved despite the exchange of legal notices, the Plaintiff initiated pre-institution mediation under Section 12A of the Commercial Courts Act before the South District Legal Services Authority, Saket, on May 2, 2025. However, mediation did not commence, and a non-starter report was issued on July 16, 2025.
• The Plaintiff thereafter instituted a commercial suit seeking recovery of ₹2,29,52,581/- along with pendente lite and future interest against the Defendants, including Defendant No. 1, the foreign parent company, and Defendant No. 2, its Indian subsidiary.
• Defendant No. 1 filed an application under Order VII Rule 11 CPC seeking rejection of the plaint on the ground that it had not been impleaded in the pre-institution mediation proceedings. It contended that mediation initiated against Defendant No. 2 and other entities could not constitute compliance with Section 12A in respect of Defendant No. 1.
• The Plaintiff opposed the application, contending that Defendant No. 2 was the Indian subsidiary and operational arm of Defendant No. 1, that both entities had common legal representation and had issued a joint reply to the Plaintiff’s legal notice, and that the mediation proceedings constituted substantial compliance with Section 12A.

Issues:

• Whether pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, must be initiated against every defendant from whom relief is sought in a commercial suit.
• Whether mediation initiated against an Indian subsidiary constitutes sufficient compliance with Section 12A in respect of its foreign parent company, where both are separate legal entities.
• Whether non-compliance with Section 12A warrants rejection of the plaint under Order VII Rule 11(d) CPC.

Judgement:

• Mandatory Nature of Section 12A: The Court reiterated that pre-institution mediation is a mandatory statutory requirement for commercial suits that do not contemplate urgent interim relief. Relying upon the Supreme Court’s decision in Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd., (2022) 10 SCC 1, the Court emphasised that the provision is intended to facilitate amicable resolution of commercial disputes before parties invoke the jurisdiction of courts.
• Mediation Must Extend to All Defendants: The Court held that compliance with Section 12A must be assessed with reference to the parties against whom the suit is actually instituted. Since Defendant No. 1 was a distinct legal entity and relief was sought against it, it was required to be given an opportunity to participate in pre-institution mediation before the institution of the suit.
• Separate Legal Personality of the Parent and Subsidiary: The Court observed that the fact that Defendant No. 2 was the Indian subsidiary of Defendant No. 1, or that both entities had common legal representation, could not dispense with the statutory requirement of mediation. The Plaintiff could not rely upon mediation initiated against Defendant No. 2 to establish compliance in respect of Defendant No. 1.
• Rejection of the Plaint under Order VII Rule 11(d) CPC: The Court rejected the Plaintiff’s contention that the plaint could not be rejected because mediation had been undertaken against one of the defendants. It held that the Plaintiff, having chosen to seek relief against Defendant No. 1 as well, was required to initiate mediation against all defendants rather than selectively undertaking the process against some of them. The suit was consequently held to have been instituted without compliance with the mandatory requirement of Section 12A.

Analysis:

This judgment highlights the strict application of the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act, 2015. It clarifies that mediation must be initiated against every defendant from whom relief is sought, and that the corporate relationship between two entities, including a parent-subsidiary relationship or common legal representation, does not dispense with this statutory obligation. The ruling highlights the importance of identifying all proposed defendants and ensuring that each is included in the pre-institution mediation process before instituting a commercial suit. At the same time, the Court’s grant of liberty to institute fresh proceedings and its direction for refund of court fees clarify the procedural consequences where a plaint is rejected for non-compliance without any determination of the underlying merits.

Last Updated on 28 October, 2026