Is Mediation Compulsory Before a Commercial Suit?

The short answer: yes, unless the urgency is real

Pre-institution mediation is compulsory for commercial suits of specified value. In plain terms, that's any claim of Rs 3 lakh or more arising out of a commercial dispute. Section 12A of the Commercial Courts Act, 2015 puts it bluntly. Unless your suit seeks urgent interim relief, you can't file it until you've been through pre-institution mediation to the end. The Supreme Court took the word 'shall' at face value in Patil Automation Private Limited v. Rakheja Engineers Private Limited (2022). It's compulsory. Not a formality.

For most business owners, then, it works like this. Before you sue a customer, a distributor or a contractor, you apply to the Legal Services Authority. The other side gets a notice. A mediator tries to settle it. You file only if that fails or the other side doesn't show up, and the authority's report goes into court with your suit.

There's one genuine exception. If your suit asks for urgent interim relief, you can file at once. Say a former distributor is still using your trademark, or the goods in dispute are about to be sold off. That can't wait. Courts check whether the urgency is real, though. You can't open that door just by tacking an injunction prayer onto a money claim.

What the law actually says

Patil Automation: what the Supreme Court settled

Until August 2022, High Courts couldn't agree. Some treated Section 12A as directory, so a plaint filed without mediation could be kept alive and the parties packed off to mediation halfway through. Others rejected those plaints outright. In Patil Automation v. Rakheja Engineers, the Supreme Court ended the argument. The provision is mandatory. A suit filed in breach of it is to be rejected under Order VII Rule 11.

The court also looked after people who'd relied on the earlier confusion. It made the ruling prospective, from 20 August 2022. Suits filed before that date without mediation weren't to be thrown out on this ground alone. Suits filed on or after it get no such protection, and that's still where things stand as of October 2026, whatever you may hear in the corridors at Tis Hazari.

Why does the reasoning matter? Because it shapes how you plan. The court looked at what the amendment was for. Commercial courts were buried under cases that could have settled, and Parliament wanted a cheap, time-bound try at settlement before any judge's time got used. Read that way, mediation isn't an obstacle in the creditor's path. It's the first stage of the case.

The urgent relief exception, and how judges test it

The exact words in Section 12A are 'a suit which does not contemplate any urgent interim relief'. If your suit genuinely contemplates that kind of relief, you can file without mediating. Typical cases are infringing goods already on shelves in a trademark or copyright matter, a counterparty about to sell or move goods in dispute, a debtor whose assets need attaching before judgment under Order XXXVIII Rule 5, or a termination that would sink the business before the case is decided.

In Yamini Manohar v. T.K.D. Keerthi (2023), the Supreme Court told courts to test the claim against the plaint, the papers filed with it and the facts, and ask whether the urgency is real or a cover story to get past mediation. Urgency is judged from the plaint as filed. But a bare prayer doesn't bind the court. Suppose a business has known about an infringement for two years and sat on it. A sudden discovery of urgency won't impress anyone.

Clients often ask Advocate B.K. Singh whether their recovery suit can skip mediation. His first question back is simple: what exactly is at risk this month? A customer who owes money but runs a working factory with assets rarely creates urgency. One that's shutting down, moving stock out of a godown, or selling its only property might. If documents show that, the exception can apply. If they don't, mediate. A rejected plaint costs you far more time than three months at the authority.

Where Section 12A applies and where it doesn't

• Applies: money recovery suits. Unpaid invoices, the price of goods, service fees, business loans, security deposits. If it's Rs 3 lakh or more, you mediate first. The full route is on our money recovery suit page.
• Applies: summary suits. Choosing Order XXXVII CPC for a commercial claim doesn't change what it is. The faster procedure doesn't buy an exemption from mediation, unless urgent interim relief is sought. What comes after, the leave to defend stage, is on our summary suit page.
• Applies: damages for breach. Compensation claims under Sections 73 and 74 of the Indian Contract Act, 1872 hardly ever involve urgency. So mediation comes first.
• Often exempt: injunction suits. IP infringement, someone misusing your confidential information, a sale or termination you need stopped. These often contemplate urgent interim relief and can be filed directly, subject to the court checking that the urgency is genuine.
• Doesn't apply: claims below Rs 3 lakh. They're ordinary civil suits, not commercial suits of specified value, so Section 12A doesn't come in. Our guide to the Rs 3 lakh rule shows how value is worked out.
• Doesn't apply: proceedings that aren't suits. Execution petitions, appeals, and court petitions under the Arbitration and Conciliation Act, 1996 aren't suits. Pre-institution mediation never arises.
• A different road entirely: contracts with an arbitration clause. A valid arbitration clause normally sends the dispute to arbitration, not to a commercial suit. Court petitions for interim protection or to appoint an arbitrator are dealt with on arbitrationlawyer.in.

What happens if you file without mediating

Your plaint can be rejected at the very first hearing. The defendant will usually raise it in an Order VII Rule 11 application, and many commercial courts now check compliance on day one even without one. At Saket or Tis Hazari, the filing counter commonly looks for the non-starter or failure report among the documents filed with the plaint. The NCR courts do much the same.

Rejection isn't a decision on the merits. Order VII Rule 13 lets you file a fresh plaint on the same cause of action. The problem is time. You lose the months the first suit spent on the board. You'll usually pay court fee again on the fresh plaint. And if limitation ran out in the meantime, the new suit may be dead on arrival. That's the real danger, and it's why shortcuts here turn out so expensive.

Some plaintiffs try to patch things up by applying for mediation after filing and asking the court to keep the suit pending. After Patil Automation, that generally won't work for suits filed after 20 August 2022. Mediation comes first. Full stop.

Complying with Section 12A, step by step

The 2018 Rules set out the process. Below is how it usually runs in Delhi, Ghaziabad, Noida, Gurugram and Faridabad. Local forms and portals vary a little, so ask the authority's office for the current format.

1. Make sure Section 12A applies

   Check that the dispute is commercial, the value is Rs 3 lakh or more, there's no arbitration clause, and you aren't seeking urgent interim relief. Look at limitation while you're at it. If only a few weeks remain, apply for mediation straight away, because time is excluded only from the date you apply.

2. Send a legal notice first

   Section 12A doesn't require one. It still helps. A notice fixes the amount and invites payment, and the reply often shows you the other side's defence. The mediator also gets something concrete to work with. What the notice should say is on our recovery legal notice page.

3. File the Form 1 application

   The application goes to the Legal Services Authority covering the court you'll eventually sue in. Give both parties' details, a short statement of the claim and the amount, and pay the application fee. Many authorities take applications online or by email. Some still want you at their office in the court complex, papers in hand.

4. The authority sends notice

   Next, the authority posts and emails a notice in Form 2. It asks the other party to come in and agree to mediation, usually on a date no more than ten days away. No response means a final notice. If the other party asks for more time, a fresh date can be fixed.

5. Mediation sessions

   If both sides join, the authority assigns a mediator from its panel. Sessions are private and confidential, held at the authority's premises or online where that's allowed. The mediator may meet each side separately. Nothing said in mediation can be used later in the suit.

6. Settlement or failure report

   If you settle, the terms go into a settlement agreement signed by the parties and the mediator. It binds like an arbitral award. If you don't settle within the time allowed, the mediator records a failure report.

7. Non-starter report when the other side stays away

   Maybe the opposite party ignores both notices, or refuses outright, or just doesn't come on the date. Any of those gets you a non-starter report in Form 3. That's your compliance done. You don't have to sit out the three months.

8. File the suit

   Annex the non-starter or failure report to the plaint, along with every document Order XI requires, the statement of truth and the court fee. Our page on drafting a commercial suit covers what the plaint has to carry.

Time and costs, roughly

Where to apply, and where the suit goes afterwards

You apply to the authority attached to the court where the suit will be filed. So pick the court first, and that turns on territory and value. For territory, Section 20 of the Code of Civil Procedure is the guide. You can sue where the defendant lives or runs its business, or where any part of the cause of action arose, unless a valid clause in the contract confines disputes to one court. Value fixes the level of court.

Inside Delhi, a commercial suit worth up to Rs 2 crore is heard by the District Judge (Commercial Court) at one of the district complexes: Saket, Patiala House, Tis Hazari, Karkardooma, Rohini or Dwarka. Anything above Rs 2 crore goes to the Commercial Division of the Delhi High Court. There's been a proposal since late 2025 to raise that district court ceiling. Check where it stands. Your mediation application goes to the District Legal Services Authority for the district concerned. For suits headed to the High Court, the High Court's own legal services committee has been handling pre-institution mediation. Confirm the current practice before applying.

Outside Delhi, in Uttar Pradesh and Haryana, each district has a designated Commercial Court (Ghaziabad, Gautam Buddh Nagar, Gurugram, Faridabad and so on), and you apply to the Legal Services Authority of that same district. If you're unsure which court will hear your claim, our page on which commercial court hears your case works through value and territory.

What to have ready for the mediation application

• Names, addresses, emails and phone numbers for your business and the other party, plus GST number or CIN if you have them
• A one-page note of the dispute and the amount claimed, with interest worked out to today
• The contract, purchase orders or work orders, or the email chain that makes up the agreement
• Invoices, delivery challans, e-way bills, completion certificates, anything that proves you did your part
• Your ledger extract, and any balance confirmation the other side signed
• The legal notice, postal and email proof that it was served, and whatever reply came back
• If a company or LLP is applying through an officer, a board resolution or letter of authority
• A note on limitation: when the money fell due, and any later acknowledgment or part payment

What if the other side just doesn't turn up?

This is the worry we hear most. The answer is reassuring. The rules don't let a defaulting party stall you. Ignore the notice and the final notice, or announce it won't take part, and the authority simply marks the mediation a non-starter and hands you a report. With that report in hand, you file. In plenty of recovery matters that's exactly how it goes. The debtor has no real defence and no appetite for sitting across a table, so the whole thing is over within weeks.

The non-starter report helps later as well. It shows the court you tried to settle and the defendant wouldn't engage. Courts can weigh conduct when deciding costs in commercial suits. And it knocks out any later complaint from the defendant that you rushed to court without talking first.

Sometimes the defendant does turn up but drags its feet. The three-month clock still runs from your application. The two-month extension needs both sides to agree. Don't consent, and the mediation closes at three months with a failure report.

Mediation and the limitation clock

Section 12A(3) says time spent in pre-institution mediation isn't counted when working out limitation. Most money claims get three years under the Limitation Act, 1963, counted from when payment fell due. A claim that's a year old has plenty of room. It's the older claims where the exclusion really counts.

The exclusion starts from the date you apply. Not the date of your legal notice. If your claim is two years and eleven months old, don't spend weeks polishing a notice. Apply for mediation first. And once the report is issued, the remaining limitation starts running again, so file without delay. Acknowledgments and part payments can also stretch time, as our guide on the time limit for recovering unpaid dues explains.

There's one mistake Advocate B.K. Singh sees again and again in recovery files. Someone counts three years from the invoice date even though the contract allowed 60 or 90 days' credit. Or they make the opposite mistake. The due date decides. Get it right before you plan anything around mediation.

Getting ready for the session

Go in with numbers, not just grievances. A clean statement of account, every invoice, every payment, every credit note, is the most useful single document in a recovery mediation. Mediators do their best work when they can see exactly where the two sides part ways. Often it's a handful of disputed invoices. Rarely the whole claim.

Decide your settlement range before you walk in, and send someone with authority to agree to it. Think about what a court would realistically award, how long that would take, and what the debtor can actually pay. A smaller sum in three months often beats a bigger decree you'll be chasing through execution for years. We'd take that trade more often than not.

Whatever's said in mediation stays confidential and can't be used as evidence later. So it's safe to talk about a discount without weakening your suit. But don't plan on hiding documents. If the case reaches court, Order XI makes you disclose every relevant document anyway. Better to know your weak spots now.

If you settle, how binding is it?

A settlement reached in pre-institution mediation is put in writing and signed by the parties and the mediator. Section 12A(5) puts it on the same footing as an arbitral award on agreed terms under the Arbitration and Conciliation Act, 1996. In practice, if the other side breaks it, you don't file a new suit. You apply to execute it as if it were a decree.

That gives a mediated deal real teeth, so draft it carefully. Fix the amount, the instalment dates and how payment will be made. Spell out what one missed payment triggers (normally, everything outstanding becomes payable immediately) and whether late instalments carry interest. Post-dated cheques for each instalment add a second layer of pressure. A bounced one can be pursued under Section 138 of the Negotiable Instruments Act, 1881.

Be clear about what the deal covers, too. If you've got three disputes with the same distributor and this settlement deals with one, write that down. Loose words like 'full and final' can be used later to argue you gave up every claim you had.

Got a Section 12A notice? What the other side should do

If you're the one being called to mediation, don't bin the notice. Ignoring it won't stop the claimant. It just hands them a non-starter report and lets them tell the court you refused to talk. Turning up costs little and commits you to nothing. You also get an early look at how the claimant frames its case and which documents it's holding.

Use the session to test the claim. If the figure is inflated, bring your payment records and debit notes. If you've got a counter-claim, for defective goods or delay perhaps, raise it, because a settlement can net off both sides. And if nothing settles, at least you'll know the case you're facing. That matters. Once you're served in a commercial suit, you get 30 days for the written statement. The court can stretch that, but never past 120 days, and after that you can't file one at all. Our page on defending a commercial suit deals with that stage.

Section 12A mistakes we keep seeing

• Bolting on an injunction prayer to skip mediation. Courts check whether it's genuine. A recovery suit with a token injunction prayer can still be rejected.
• Going to the wrong authority. Apply to the authority that matches the court, both place and level, where you'll actually sue. A report from the wrong forum just invites an argument.
• Waiting till the last week of limitation. The exclusion only helps once you've applied. Apply late and you can still lose the claim.
• Treating mediation as a box to tick. Some businesses send a junior who can't agree to anything. If the other side is willing to deal, an owner who turns up prepared, figures in hand, often recovers more and sooner than a decree would.
• Overstating the claim. Inflated figures make settling harder, and they follow you into the suit's value and court fee. Claim what your documents back up.
• Forgetting to annex the report. The plaint has to show compliance. Attach the non-starter or failure report and say in the plaint when mediation was tried.
• Signing a loose settlement. Without default clauses, all you've got is a vague promise. Read the draft as though the other side fully intends to break it.

How it works out for different businesses

Suppliers and traders chasing unpaid invoices file most Section 12A applications. For them the process is mostly a structured final demand. A buyer's quality complaint is worth testing there. The mediator can push both sides towards a number without anyone conceding anything on paper.

Micro and small enterprises registered under the MSMED Act, 2006 have another door. Under Section 18 of that Act they can refer the dispute to the MSME Facilitation Council, which tries conciliation first and arbitrates if that fails. On top of that, Sections 15 to 17 add interest at three times the RBI bank rate when payment is late. Plenty of registered suppliers take that route instead of a commercial suit. Our guide on interest on unpaid dues compares the two.

Lenders and investors who gave inter-corporate loans or advances have to mediate before suing too, unless the borrower is moving assets and they need urgent attachment. Service firms and startups often find mediation genuinely useful, because their disputes turn on scope and quality as much as money. Large companies sometimes see it as a delay. But a mediated settlement with a firm default clause can be enforced at once. A decree after years of trial can't.

Delhi, Uttar Pradesh and Haryana all follow the same Central rules. What changes is each authority's practice: how fast notices go out, whether online sessions are on offer, how stretched the mediator panels are. Ask at the authority's office when you file.

Does the Mediation Act, 2023 change any of this?

The Mediation Act, 2023 sets up a general framework for mediation in India, and it carries amendments that touch the Commercial Courts Act. Some parts have been notified. Others are still pending. For now, legal services authorities in Delhi and NCR keep running Section 12A mediation under the 2018 Rules. Check the current status before you apply, because forms, fees and timelines could shift as more provisions come into force.

Whatever happens to the mechanics, the principle isn't going anywhere. Mediation before a commercial suit is now part of how commercial litigation works in India. Judges expect you to have tried it.

What to do this week

Work out three things. What's owed, with interest to today. When it fell due. And where the other side does business. Between them, those tell you if Section 12A applies, how much time you have, and which authority to approach. Where the claim is clean and time is short, get the notice and the mediation application out the same week. Don't wait out the notice period.

If you believe the case is urgent, put the reasons on paper, with dates and documents, before deciding to bypass mediation. Then set it against the procedure on our pre-institution mediation page. And if you want your contract, invoices and correspondence looked at before you pick a route, share them with Advocate B.K. Singh's team through the contact page.