Since August 2022, a business that wants to sue on a commercial contract in Mumbai cannot simply file. Unless the suit needs urgent interim relief, the plaintiff must first take the dispute through pre-institution mediation under Section 12A of the Commercial Courts Act, 2015, and a plaint filed without it is liable to be rejected. This article explains which disputes the requirement covers, how the process runs before the Legal Services Authority in Mumbai, what the urgent-relief exception means, what a settlement is worth, and how the requirement sits alongside the Mediation Act, 2023, the MSME Facilitation Council and arbitration.
What counts as a commercial dispute, and the specified value
The Act applies only to a "commercial dispute" of a "specified value", and both conditions must be met before Section 12A is engaged.
Section 2(1)(c) lists the disputes that qualify: ordinary transactions of merchants, bankers, financiers and traders; export and import; carriage of goods; construction and infrastructure contracts, including tenders; agreements relating to immovable property used exclusively in trade or commerce; franchising, distribution, licensing, management and consultancy agreements; joint venture, partnership and shareholders' agreements; technology development agreements; intellectual property; sale of goods and provision of services; insurance; and agency. A dispute does not cease to be commercial because it also seeks recovery of immovable property or realisation of a mortgage, or because one party is the State. The categories are applied according to their terms: in Ambalal Sarabhai Enterprises v. K.S. Infraspace (2019) the Hon'ble Supreme Court held that property "used exclusively in trade or commerce" must actually be in such use, not merely intended for it. A claim outside the list is an ordinary civil suit, and Section 12A does not touch it.
The "specified value" under Section 2(1)(i) is not less than Rs 3 lakh, reduced from Rs 1 crore by the 2018 amendment. Under Section 12 a money claim is valued at the amount claimed with interest to the date of filing, property and rights in it at market value, other intangible rights at the plaintiff's estimate, and a counterclaim counts as well. Because most business-to-business claims in Mumbai exceed Rs 3 lakh, nearly every commercial suit now passes through Section 12A.
Section 12A and why it is now mandatory
Section 12A was inserted by the Commercial Courts (Amendment) Act, 2018 with effect from 3 May 2018. Sub-section (1) provides that a suit which does not contemplate any urgent interim relief shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in the manner prescribed by the Central Government's rules. Sub-section (2) allows the Authorities under the Legal Services Authorities Act, 1987 to be authorised to conduct it, which they have been. Sub-section (3) requires the process to be completed within three months of the application, extendable by two months with the parties' consent, and excludes the period spent in mediation when computing limitation.
For four years the courts were divided on whether the provision was mandatory. In Mumbai, a Single Judge of the Hon'ble Bombay High Court in Ganga Taro Vazirani v. Deepak Raheja (2021) held that it was procedural; a Division Bench reversed that view later the same year. The Hon'ble Supreme Court settled the question in Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022): Section 12A is mandatory, a suit filed in breach of it that does not contemplate urgent interim relief must be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908, and the court may do so on its own motion. The declaration took effect from 20 August 2022, and in Dhanbad Fuels Pvt. Ltd. v. Union of India (2025) the Court added that suits filed before that date should be kept in abeyance and the parties referred to mediation rather than the plaint rejected.
Filing without mediating is not fatal, but it is costly. A rejected plaint can be presented again after mediation, and the time spent in mediation is excluded for limitation; whether Section 14 of the Limitation Act, 1963 saves the time spent on the rejected suit is uncertain, so a claim near the end of its limitation period can be lost. The safe course is to start the Section 12A application as soon as the demand letter goes unanswered.
The urgent interim relief exception
The obligation applies only to a suit that "does not contemplate any urgent interim relief". A suit to restrain the encashment of a bank guarantee that falls due next week, or to stop a former distributor selling counterfeit stock, may be filed without mediation. The exception is where most of the argument now happens.
In Yamini Manohar v. T.K.D. Keerthi (2023) the Hon'ble Supreme Court explained how it is applied. The plaintiff's label is not decisive: the court examines the nature and subject matter of the suit, the cause of action and the prayer for interim relief, and asks whether the relief contemplated is genuinely urgent. A prayer added as camouflage to escape Section 12A will not do, and the plaint is liable to be rejected. The court does not, however, decide the question by whether it ultimately grants the interim relief; a plaintiff who sought urgent relief in good faith is not sent back to mediation because the application failed. The Commercial Division of the Hon'ble Bombay High Court applies this approach at the first hearing, so the plaint should plead the facts that make the relief urgent, with dates. Where the substantive claim is for money, some judges decide the interim application and then refer the parties to mediation before the suit proceeds. And where the contract contains an arbitration clause, a suit is not the right vehicle at all: interim measures come from the court under Section 9 of the Arbitration and Conciliation Act, 1996, to which Section 12A does not apply.
How the process runs before the Legal Services Authority
The Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 govern the procedure. In Mumbai the Authority is the District Legal Services Authority for Mumbai City or Mumbai Suburban, or the Maharashtra State Legal Services Authority at the Hon'ble Bombay High Court, depending on which court would hear the suit; the allocation has changed more than once and should be confirmed with the registry before filing.
| Stage | What happens | Time |
|---|---|---|
| 1. Application | The plaintiff files Form 1 with the Authority, online, by post or by hand, with the prescribed fee, setting out the parties, the dispute and the relief sought. | Day 0; the three-month clock starts. |
| 2. Notice | The Authority issues a notice in Form 2 to the opposite party by post and e-mail, calling on it to appear and give consent. | Appearance within 10 days. |
| 3. Final notice | If there is no response or appearance, a final notice follows in the same manner. | A further 10 days. |
| 4. Non-starter report | If the final notice is unacknowledged, refused or ignored, the Authority records the mediation as a non-starter in Form 3 and sends the report to both parties. The suit may then be filed. | Commonly 4 to 6 weeks from the application. |
| 5. Mediation | If both parties consent, a mediator is assigned. Parties attend personally or through an authorised representative or counsel; sessions may be joint or separate; the proceedings are confidential and may not be recorded. | Within 3 months of the application, extendable by 2 months with consent. |
| 6. Outcome | A settlement is reduced to writing and signed by the parties and the mediator. If there is none, the mediator reports the failure and the Authority issues the report on which the suit is filed. | On conclusion; the report is annexed to the plaint. |
The opposite party cannot be compelled to mediate; its refusal produces a non-starter report, which satisfies Section 12A, so a plaintiff who expects refusal should still apply promptly, because the report takes weeks to obtain. A one-time mediation fee, on a slab tied to the value of the claim, is shared equally by the parties who take part. The report or the settlement is the document the commercial court will look for in the plaint.
What a settlement is worth, and the Mediation Act, 2023
Section 12A(4) requires a settlement to be reduced to writing and signed by the parties and the mediator, and Section 12A(5) gives it the same status and effect as an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996. That is a considerable advantage over an ordinary compromise: the settlement is enforceable as a decree under Section 36 of the 1996 Act, without a suit on the agreement, and can be challenged only on the narrow grounds and within the short time that Section 34 allows. A party that agrees to pay in instalments and defaults faces execution rather than a fresh trial.
The Mediation Act, 2023, in force in stages since it received assent on 15 September 2023, creates a general framework for mediation. Its Section 5 makes pre-litigation mediation voluntary for civil and commercial disputes generally, but the proviso to Section 5(1) preserves Section 12A for commercial disputes of specified value. The 2023 Act also carries amendments to Section 12A intended to align the commercial-court procedure with the new Act; whether, and from when, those amendments and any replacement rules operate depended on notifications that had not settled the position as on 8 August 2026. In practice the Legal Services Authorities continue to run Section 12A mediation under the 2018 Rules, and a party should confirm the current position when it applies. A settlement reached in a private mediation outside the statutory process is not a Section 12A settlement; it may be a mediated settlement agreement under the 2023 Act if that Act's requirements are met, and is otherwise an ordinary contract.
The section does not ask the parties to settle. It asks them to sit in the same room, once, before the court's time is taken. Many do settle, and the ones who do not lose about six weeks.
Where the suit is filed in Mumbai
Mumbai is one of the few cities where the Hon'ble High Court exercises ordinary original civil jurisdiction, and the Act accommodates that. Under Section 4 the Hon'ble Bombay High Court has a Commercial Division, constituted from its Original Side; under Section 3 the State Government has constituted commercial courts at the level of the district judge within the City Civil Court, Bombay, for disputes below the Hon'ble High Court's pecuniary floor. That floor is the pecuniary jurisdiction of the City Civil Court, which has been Rs 10 crore since the Bombay City Civil Court (Amendment) Act, 2023 took effect on 28 January 2024. A commercial dispute valued above Rs 10 crore is filed on the Original Side of the Hon'ble High Court and assigned to the Commercial Division; one valued between Rs 3 lakh and Rs 10 crore goes to the commercial court at the City Civil Court. Appeals lie to the Commercial Appellate Division under Section 13 within sixty days, and most interlocutory orders are not appealable. In both forums the amended Code applies: a statement of truth with the plaint, disclosure of all documents in the plaintiff's possession under Order XI, a written statement within 120 days at the outside, case management hearings and summary judgment under Order XIII-A. Outside Greater Mumbai, the suit goes to the commercial court of the district where the cause of action arose or the defendant carries on business, and the mediation application to that district's Legal Services Authority.
Parallel routes: the MSME Council and arbitration
Section 12A is a condition for a suit. Two other routes bypass the suit altogether.
MSME suppliers
A micro or small enterprise registered on the Udyam portal that has supplied goods or services can refer the buyer's failure to pay to the Micro and Small Enterprises Facilitation Council under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006. Section 15 requires payment within the agreed period, capped at forty-five days from acceptance, and Section 16 imposes compound interest at three times the bank rate on delayed payment. The Council first conducts conciliation and, if that fails, arbitrates the dispute under the 1996 Act; a challenge to the award requires a deposit of seventy-five per cent of the amount awarded under Section 19. The Hon'ble Supreme Court has held that the MSMED procedure overrides an arbitration clause (Gujarat State Civil Supplies Corporation v. Mahakali Foods, 2022), and that the supplier must have been registered when the supply was made (Silpi Industries v. Kerala State Road Transport Corporation, 2021). References are filed through the MSME Samadhaan portal; Maharashtra has a Council at Mumbai. The route is open only to micro and small enterprises, and only to suppliers; Section 12A does not apply to it.
Arbitration
Where the contract contains an arbitration clause, the claim goes to arbitration, and a suit filed in disregard of the clause will be referred under Section 8 of the 1996 Act. Section 12A does not apply, and interim protection before the tribunal is constituted comes from the court under Section 9. In Mumbai, Section 9 and Section 34 applications in commercial disputes of specified value go to the Commercial Division of the Hon'ble Bombay High Court, which is the court under Section 2(1)(e) of the 1996 Act for Greater Mumbai. A settlement reached during the arbitration can be recorded as an award on agreed terms under Section 30.
Documents checklist
For the mediation application, and for the suit that may follow it:
- The contract, purchase orders, work orders or invoices on which the claim rests, with the dispute resolution clause checked for an arbitration or negotiation requirement.
- A statement of account showing the principal, the interest claimed and the computation of specified value under Section 12.
- The correspondence: demand letters, replies and acknowledgements, with any without-prejudice offers kept separate.
- The opposite party's registered office, e-mail address and GST or CIN particulars, so that the Authority's notice is served at an address that counts.
- A board resolution or authority letter for the representative who will attend.
- A note of the limitation position: the date the cause of action arose and the dates of the mediation application and report.
- In an MSME matter, the Udyam certificate as it stood on the date of supply.
- For the suit: the non-starter or failure report, or the facts supporting urgent interim relief; the statement of truth; and the Order XI disclosure.
The firm's commercial disputes and arbitration practice handles Section 12A applications, suits in both Mumbai forums, MSME Council references and arbitrations. You can contact us to discuss a particular claim.
Key takeaways
- Section 12A applies to every commercial dispute, as listed in Section 2(1)(c), of a specified value of Rs 3 lakh or more; below that, or outside the list, it is an ordinary civil suit.
- Since Patil Automation (2022) the requirement is mandatory: a suit filed without mediation, and without genuinely urgent interim relief, is rejected under Order VII Rule 11, on the court's own motion if need be.
- The urgent-relief exception is judged on the substance of the suit (Yamini Manohar, 2023); plead the urgency with dates, and expect to be sent to mediation if it is not made out.
- The process before the Legal Services Authority takes about six weeks if the opposite party refuses and up to five months if it engages; time spent is excluded for limitation, and a settlement is enforced as an arbitral award on agreed terms.
- Above Rs 10 crore the suit goes to the Commercial Division of the Hon'ble Bombay High Court, below it to the commercial court at the City Civil Court; an MSME supplier may prefer the Facilitation Council, and an arbitration clause takes the dispute out of Section 12A altogether.
Frequently asked questions
Does Section 12A apply if my claim is below Rs 3 lakh?
No. The Commercial Courts Act, 2015 applies only to a commercial dispute of the specified value, which is not less than Rs 3 lakh computed under Section 12, and Section 12A is part of that Act. A smaller claim is an ordinary civil suit in the City Civil Court, or in the Court of Small Causes for the matters within its jurisdiction, and mediation before filing is voluntary under Section 5 of the Mediation Act, 2023. A micro or small enterprise with an unpaid supply can still use the MSME Facilitation Council whatever the amount.
The other side ignored the mediation notice. Can I file the suit?
Yes, once the Legal Services Authority has issued its non-starter report. Under Rule 3 of the 2018 Rules the Authority issues a notice calling on the opposite party to appear within ten days, then a final notice; if that is unacknowledged, refused or ignored, the Authority records the mediation as a non-starter in Form 3 and sends the report to both parties. The report is annexed to the plaint, and the time between the application and the report is excluded in computing limitation under the second proviso to Section 12A(3).
Can I skip mediation by asking for an interim injunction in the plaint?
Only if the interim relief is genuinely urgent. In Yamini Manohar v. T.K.D. Keerthi (2023) the Hon'ble Supreme Court held that the court looks past the label to the nature of the suit, the cause of action and the prayer, and asks whether the relief contemplated is urgent; a prayer added as camouflage does not take the suit outside Section 12A, and the plaint is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure. The court does not, however, decide the question by whether it ultimately grants the interim relief.
Is a Section 12A settlement binding if the other side does not pay?
Yes. Section 12A(5) gives a settlement signed by the parties and the mediator the same status and effect as an arbitral award on agreed terms under Section 30(4) of the Arbitration and Conciliation Act, 1996. It is enforced as a decree of the court under Section 36 of that Act, without a suit on the agreement, and can be challenged only on the narrow grounds and within the time that Section 34 allows. A default on an instalment therefore leads to execution, not a fresh trial.
We have an arbitration clause. Do we still need to mediate under Section 12A?
No. Section 12A is a condition for instituting a suit, and a dispute covered by an arbitration clause goes to arbitration; a suit filed in disregard of the clause will be referred under Section 8 of the Arbitration and Conciliation Act, 1996. Interim protection before the tribunal is constituted comes from the court under Section 9, which in Mumbai means the Commercial Division of the Hon'ble Bombay High Court for a dispute of specified value, and no mediation is required for that petition. The contract itself may require negotiation or mediation before arbitration is invoked, and that is a matter of the clause's terms.
This article is general information on Indian law, not legal advice. How the law applies depends on your facts; please consult an advocate before acting on it.
