Bombay High Court
Phoenix Arc Private Limited vs Future Brands Limited on 15 April, 2026
2026:BHC-OS:9375
1-ial-20363-2025-coms-124-2025.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
varsha
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL SUIT NO. 124 OF 2025
WITH
INTERIM APPLICATION (L) NO. 20363 OF 2025
1. Phoenix ARC Private Limited }
A private company incorporated }
under the Companies Act, 1956 and }
registered as an Asset Reconstruction }
Company with the Reserve Bank of India}
and having its registered office at }
5 Floor, Dani Corporate Park 158, }
CST Road, Kalina, }
Digitally
signed by
VARSHA
Santacruz East, Mumbai - 400 098. } ...Applicant
VARSHA VIJAY
VIJAY RAJGURU
RAJGURU Date:
2026.04.15
19:06:38
+0530
Versus
1. Future Brands Limited }
A public company incorporated }
under the Companies Act, 1956 }
and having its registered office at }
Knowledge House, Shyam Nagar, }
Jogeshwari Vikhroli Link Road, }
Jogeshwari(E), Mumbai - 400 060. }
2. Future Entertainment Private Limited }
A private limited company incorporated }
under the Companies Act, 1956 }
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and having its registered office at }
5th Floor, Sobo Central ,28, P.T. Madan }
Mohan Malviya Road, }
Haji Ali, Tardeo, Mumbai - 400 034. } Respondents
Mr. Shyam Kapadia a/w. Mr. Ranjit Shetty a/w. Mr. Rahul Dev
a/w. Ms. Monika Vyas i/b. Argus Partners for the
Applicant/Plaintiff.
Mr. Ashish Kamat, Senior Counsel a/w. Mr. Harsh Moorjani, Ms.
Petrushka Dasgupta, Ms. Krishna Baruah and Mr. Altamash
Qureshi i/b. Link Legal for Defendants.
CORAM : GAURI GODSE J
RESERVED ON : 1st DECEMBER 2025
PRONOUNCED ON : 15th APRIL 2026
JUDGMENT:
BASIC FACTS:
1. This suit is filed for a mandatory injunction directing
defendant no.1, to infuse equity of Rs. 250,00,00,000/- into
defendant no. 2 in the manner acceptable to the plaintiff and
restraining defendant no.1, from selling, transferring, assigning,
licensing or otherwise creating third party rights or dealing with
the Brands, till the infusion of equity is made by the defendant
no. 1. The plaintiff also prays for damages against the
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1-ial-20363-2025-coms-124-2025.docdefendants for more than Rs. 500 crores. The interim
application is filed for a temporary injunction restraining
defendant no. 1 from creating third-party rights or dealing with
the Brands. The plaintiff also prays for an interim relief of a
mandatory injunction directing defendant no. 1 to deposit Rs.
50,00,00,000/-, i.e. 20% of the equity infusion of Rs.
2,50,00,00,000/- on account of the admission of defendant no. 1
of its liability for the entire capital infusion recorded in the
Guarantee Letter.
2. The plaintiff has pleaded that it is involved in the business
of asset reconstruction and is registered with the Reserve Bank
of India. Defendant no. 1 is a business solutions provider that
provides consulting, advertising, management, and creation
services to its clients. Defendant no. 1 is a company within the
same group of companies as defendant no.2. Defendant no. 1
owns the brands Spunk’, Buffalo’, ‘RIG, and ‘AFL’ (“the
Brands”). According to the plaintiff defendant no. 1 had agreed
to infuse equity to the extent of Rs. 2,50,00,00,000/- into
defendant no.2, on the basis of which the plaintiff had agreed to
restructure the loan facilities availed by defendant no.2.
Defendant no.2 is described as the borrower under a Loan
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Against Securities (LAS) Facility and a Corporate Loan(CL)
facility, originally availed from the original lender, which
subsequently stood assigned to the plaintiff since June 2022.
PRELIMINARY OBJECTIONS:
3. When the interim application came up for hearing, a
preliminary objection was raised by the defendants that the
plaint deserves to be rejected at the threshold under Order VII
Rule 11 of the Civil Procedure Code (“CPC“) on the ground of
non-compliance with the mandatory provision under Section 12-
A of the Commercial Courts Act 2015 (“said Act”). It is also
argued that the suit is vitiated by material suppressions,
including suppression of the plaintiff’s own failure to participate
in the statutory mediation process, which goes to the very root
of maintainability of the suit.
SUBMISSIONS ON BEHALF OF THE DEFENDANTS:
4. The suit is filed on 4 th July 2025 without disclosing the
stage, status or outcome of the pre-institution mediation under
Section 12-A of the said Act. Having approached this Court with
unclean hands, the plaintiff is disentitled to any relief. The
plaintiff stated in the plaint that the Section 12-A mediation
application was filed on 21st March 2025. However, although the
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application bears the date 21st March 2025, it was in fact
submitted to the Maharashtra State Legal Services Authority
only on 4th April 2025, as is seen from the Reply. The
defendants received the mediation notice on 9 th May 2025,
intimating the initiation of pre-institution mediation and directing
appearance on 11th June 2025 to convey consent. On that date,
the defendants’ counsel duly appeared, consented to mediation,
and subsequently paid the mediation fee on 8 th July 2025. The
plaintiff, however, never paid the mediation fee, which directly
led to the issuance of a non-starter report dated 20 th August
2025, generated after the suit was filed. Neither the non-
payment of fees by the plaintiff is disclosed in the plaint, nor the
fact that the mediation failed solely due to the plaintiff’s default.
The plaint is, therefore, vitiated by material suppression,
including suppression of the plaintiff’s own failure to participate
in the statutory mediation process, which goes to the very root
of maintainability of the suit.
5. The plaintiff was at all material times, by virtue of
communications dated 18th March 2021 and 4th June 2021,
aware that no immediate urgent interim relief was warranted.
Hence, the plaintiff invoked the pre-institution mediation under
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Section 12-A; however, unilaterally abandoned the mediation
and, on 4th July 2025, filed the present suit and Interim
Application based on a cause of action of 19 th August 2023,
alleging an artificial and illusory urgency arising from
receivables under brand-licensing agreements that had already
lapsed on 30th June 2025 and 1st July 2025. To support his
submissions, learned senior counsel for the defendants relied
upon the Apex Court’s decision in ITC Limited v. Debts
Recovery Appellate Tribunal and Ors1.
6. The plaintiff claims “exhaustion” of the Section 12-A
process and, simultaneously, seeks exemption under Section
12-A as a prayer in the plaint and the Interim Application.
Therefore, the plaintiff’s action of initiating pre-institution
mediation shows that there was never any urgent interim relief
contemplated. The plaintiff’s abandonment of the pre-institution
mediation process disentitles the plaintiff from seeking an
exemption from the mandatory pre-institution mediation
requirement to maintain the suit. Thus, the plaint deserves
rejection for non-compliance with the mandatory requirement
under Section 12-A.
1 (1990) 2 SCC 70
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7. To support the submissions for rejection of the plaint at
the threshold, learned senior counsel for the defendants relied
upon the decisions in Dhanbad Fuels Pvt. Ltd. vs. Union of
India and Another2, Patil Automation Private Limited and others
vs. Rakheja Engineers Private Limited 3, Yamini Manohar v. T.
K. D. Keerthi4, Shraddha Shelters Private Limited vs. Ekta
Housing Private Limited5, Image Developer Vs Kamla Landmarc
Real Estate Holding Pvt Ltd.6, IIFL Finances Limited Vs
Gundecha Estates Pvt. Ltd.7, ITC Ltd Vs DRAT8, Asma Lateef
Vs Shabbir Ahmed9, Nagina Choube Vs Ajay Mohan10 and
Dahiben v. Arvindbhai Kalyanji Bhanusali 11
SUBMISSIONS ON BEHALF OF THE PLAINTIFF:
8. The plaintiff is the assignee of the loan granted by L & T
Finance Limited to defendant no. 2 under an Assignment
Agreement dated 29th June 2022. Defendant no. 1 is a company
providing consulting, advertising, managing and creation
services to its clients and is the owner of brands “Spunk”,
2 (2025) SCC OnLine SC 1129
3 (2022) 10 SCC 1
4 (2024) 5 SCC 815
5 2024 SCC OnLine Bom 3538
6 2025: BHC-OS: 15574
7 2025 : BHC-OS: 11844
8 (1998) 2 SCC 70
9 2024 SCC Online SC 42
10 2025:BHC-OS-10176
11 (2020) 7 SCC 366
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“Buffalo”, “Rig” and “AFL” (“Brands”). By a trademark license
agreement, defendant no. 1 granted an exclusive license to use
the brands/trademarks to defendant no. 2. The royalty income
receivable by defendant no. 2 under the trademark agreement
was charged in favour of the original lender. Sometime around
March 2020, defendant no. 2 defaulted on its obligation to
repay. As a key condition for considering the requests made by
defendant no. 2 under the One Time Restructuring Framework
dated 6th August 2020 (“OTR”), the term of the trademark
agreement was extended till 1st July 2025 to align with the
repayment schedule under the OTR. The extension letter
indicates that defendant no.1 had agreed to extend the
trademark agreement to ensure timely inflows of royalty
payments to defendant no. 2.
9. Defendant no. 1 also agreed to infuse an amount of Rs.
250,00,00,000/- as equity infusion in defendant no. 2, as and
when requested to do so by defendant no. 2, by executing a
Guarantee Letter dated 4th June 2021. This Guarantee Letter
was an essential precondition for favourably considering the
OTR proposal. Thereafter, a Master Restructuring Agreement
dated 14th June 2021 (“MRA”) was executed inter alia between
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the original lender, defendant do. 2, and Catalyst Trusteeship,
under which the original lender restructured the entire loan
facilities for an amount of Rs. 392,19,09,825/-.
10. Under the MRA, Trademark Agreements, the borrower
shall not, without prior written consent of the Security Trustee,
allow the Trademark Agreements to be revised, repudiated,
lapse, or become vulnerable to termination and shall not
transfer, assign, encumber, or otherwise dispose of or create
any further charge or encumbrance upon the whole or any part
of the receivables. On the date of filing of the suit, an amount of
Rs. 514,91,42,038.08/- was due and payable by defendant no.
2 to the plaintiff. Defendant no. 2 defaulted on its obligations
under the MRA and related financing agreements in repayment
of outstanding debt to the plaintiff. The royalty income
receivable by defendant no. 2 under the agreements is charged
in favour of the plaintiff as security for repayment of the
restructured facilities, and the term of the Trademark License
Agreement and Trademark Assignment Agreement was up to
1st July 2025, extendable by 5 years. Therefore, if the
Trademark License Agreements and Trademark Assignment
Agreement were revised, repudiated or lapsed, the plaintiff
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would have been left without any substantial security interest for
the outstanding amount of more than Rs. 500 Crores. Hence,
the suit was filed on 4th July 2025.
11. The plaintiff, in a bonafide manner, had filed the pre-
institution mediation application under Section 12-A of the said
Act on the genuine belief that the disputes between the parties
could be amicably resolved prior to the said expiry date, i.e. 1 st
July 2025. The fact that the plaintiff invoked the pre-institution
mediation mechanism on 21st March 2025 due to the imminent
expiry of the assignment of the receivables from the Brands’
license is specifically pleaded by the plaintiff in paragraph 39 of
the Interim Application and paragraph 81 of the plaint. The Non-
Starter Report dated 20th August 2025 is annexed to the
plaintiff’s Affidavit-in-Rejoinder filed in the Interim Application. In
view of the foundational pleading that the mediation application
was filed on 21st March 2025, the Non-Starter Report can be
considered while deciding the objection of non-compliance with
Section 12-A. The Non-Starter Report was made available only
on 20th August 2025, and therefore, it was impossible for the
plaintiff to annex it in the Interim Application or the plaint.
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12. The plaintiff has pleaded that notices were issued to the
defendants for the mediation; however, they failed to participate
in the pre-institution mediation till 11th June 2025. It is submitted
that in accordance with Section 12-A read with Rule 3(8) of the
Commercial Courts (Pre-Institution Mediation and Settlement)
Rules, 2018 (“Mediation Rules”), the mediation process was
mandatorily required to be completed within three months from
the date of receipt of the application for pre-institution mediation
by the mediation centre. The prescribed mandatory period of
three months expired on 20th June 2025. The plaintiff duly
complied with the mandatory requirement under Section 12-A
and filed the suit only on 4th July 2025, after the completion of
the mandatory three-month period under the Mediation Rules.
There is no provision in law requiring a party to persist with the
mediation process until a resolution is achieved,
notwithstanding the commercial reality of the matter, as this
would be counterproductive to the intention of the legislature in
introducing Section 12-A.
13. The plaintiff’s averment that the pre-institution mediation
be “exempted’ or “waived’ cannot mean that there was a non-
compliance of Section 12-A, and the said averment cannot be
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used to defeat the legal position and factual reality of the
matter. The requirement under Section 12-A has already been
exhausted, and accordingly, no exemption under the law is
necessary. The plaintiff had no option but to file the suit and
Interim Application to safeguard its rights and seek the urgent
interim relief.
14. Without prejudice to the argument that there has been full
compliance with Section 12-A, it is submitted that in view of the
grave urgency as on 1st July 2025, the suit contemplated urgent
interim relief as pleaded in the interim application and plaint in
view of imminent expiry of Trademark Agreements under which
defendant no. 2 was to receive royalty income from the use of
the Brands. Such royalty income is one of the prime security
interests granted in favour of the plaintiff for securing facilities
granted in favour of defendant no. 2, and therefore, if the
Trademark License Agreement and Trademark Assignment
Agreement are allowed to lapse, irreparable harm and injury
would be caused to the plaintiff. In such circumstances, even
assuming and not admitting that Section 12-A was not fully
complied with, from the standpoint of the plaintiff, there was a
clear urgency which necessitated the filing of the suit and
interim application. In view of the expiry of the Trademark
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License Agreement on 1st July 2025, there was a consequent
threat of losing the security interest for an outstanding amount
of approximately Rs. 500 crores, thereby causing substantial
loss and irreparable harm. Hence, the plaint cannot be rejected
at the threshold.
15. The plaintiff disclosed the filing of the application under
Section 12-A to exhaust the remedy of pre-institution mediation
and settlement. Considering the urgency to seek interim relief
from the court, the suit is filed after the expiry of the initial three-
month period under sub-rule (8) of Rule 3 of the said Mediation
Rules, to complete the mediation process. The non-starter
report was issued after the suit was filed. The cause of action to
seek urgent interim relief arose after the expiry of the initial
three-month period. Hence, there is no suppression of any
material fact that would warrant dismissal of the suit at the
preliminary stage. The preliminary objections raised by the
defendants are therefore without any substance.
CONSIDERATION OF SUBMISSIONS:
16. To consider the rival submissions, I have carefully
examined the pleadings in the plaint. The pleadings in the plaint
reveal the following facts relevant to the preliminary objections:
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a) The plaintiff is the assignee of the loan granted by L & T
Finance Limited to defendant no. 2. Under a trademark
license agreement with defendant no. 1, the royalty
income receivable by defendant no. 2 was charged in
favour of the original lender. Defendant no. 2 defaulted on
its obligation to repay. As per the One Time Restructuring
Framework, the term of the trademark agreement was
extended till 1st July 2025, to ensure the timely inflow of
royalty payments to defendant no. 2.
b) Defendant No. 1 also agreed to infuse an amount of Rs.
250,00,00,000/- as equity infusion in defendant no. 2. A
Master Restructuring Agreement was executed between
the original lender, defendant do. 2 and Catalyst
Trusteeship. Under the agreements between the parties,
without the prior written consent of the Security Trustee,
the Trademark Agreements could not be revised or
repudiated, and no transfer, assignment, encumbrance, or
other disposition of, or creation of any further charge or
encumbrance upon the whole or any part of the
receivables was permitted.
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c) On 21st March 2025, the plaintiff filed the pre-institution
mediation application before the mediation centre. Notices
were issued to the defendants for the mediation.
d) As the term of the Trademark License Agreement and
Trademark Assignment Agreement was up to 1 st July
2025, extendable by five years, the suit was filed on 4 th
July 2025, as on the date of filing of the suit, an amount of
Rs. 514,91,42,038.08/- was due and payable by
defendant no. 2 to the plaintiff. Hence, to protect the
plaintiff’s security interest for the outstanding amount of
more than Rs. 500 Crores, the suit was filed on 4th July
2025, as there was a necessity to seek urgent interim
relief.
17. The defendants have prayed for the rejection of the plaint
on the ground of non-compliance with Section 12-A of the said
Act. There is no dispute that the plaintiff had initiated the pre-
institution mediation process by filing the application as
contemplated under the said Mediation Rules. The mediation
was not concluded; however, a non-starter report was not
issued on the date when the suit was filed. The defendants
submitted that, even according to the plaintiff, no urgent interim
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relief was contemplated; therefore, the pre-institution mediation
was initiated. Hence, according to the defendants, there would
not be any question of exemption from compliance with the
mandatory requirement under Section 12-A of the said Act.
Thus, according to the defendants, since the pre-institution
mediation process was not completed as required under the
said Mediation Rules before the suit was filed, it cannot be said
that the requirement under Section 12-A was complied with.
Hence, the plaint deserves to be rejected at the threshold in
view of the bar under Section 12-A.
18. For deciding whether a suit deserves rejection of the
plaint at the threshold under Order VII Rule 11 of the CPC, only
the averments in the plaint and its supporting documents can be
seen. Pleadings by the defendants in any form, including the
affidavit-in-reply to the plaintiff’s application for interim relief,
cannot be considered for rejection of the plaint at the threshold
under Order VII Rule 11 of the CPC. However, the learned
senior counsel for the defendants argued extensively on the
suppression of facts, relying on the contents of the defendants’
affidavit-in-reply to the plaintiff’s application for interim relief.
Dismissal of a suit on the ground of suppression of material
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facts is different from the rejection of the plaint at the threshold
under Order VII Rule 11 of the CPC. However, since both
parties referred to the defendants’ affidavit-in-reply and the
plaintiff’s rejoinder affidavit, I have considered them to examine
the allegation of suppression of material facts, warranting the
dismissal of the suit at the preliminary stage.
POINTS FOR CONSIDERATION:
19. Therefore, in the present case, the points to be
considered are (i) whether the initiation of the pre-institution
mediation process can be termed as due compliance with the
mandatory requirement under Section 12-A?, (ii) when the
application under sub-section (1) of Section 12-A is filed,
whether the bar under Section 12-A would apply to a suit filed
before the issuance of a non-starter report?, (iii) whether there
is any suppression of material facts, and (iv) whether the suit
can be dismissed at a preliminary stage on the allegation of
suppression of material facts?
ANALYSIS:
20. Learned counsel for the plaintiff contended that after the
application under Section 12-A was filed, the Mediation Centre
issued a notice to the defendants to appear on 24 th April 2025;
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however, the defendants did not appear. It is contended by
defendant no. 1 that the notice was not received. Thereafter,
the mediation centre issued a notice to the defendants to
appear on 8th May 2025. According to the defendants, a copy of
the application was not enclosed. However, after the final notice
to the defendants, they appeared on 11 th June 2025 and
consented to mediation. Accordingly, the defendants also paid
the mediation fees on 8th July 2025. It is therefore submitted on
behalf of the defendants that the plaintiff suppressed the
material facts that they abandoned the mediation and did not
pay their share of the mediation fees; hence, a non-starter
report was issued. To support the submissions for dismissal of
the suit on the ground of suppression, learned senior counsel
relied upon the decision of this Court in Nagina Ramsagar
Choube. He submitted that this court dismissed the suit at the
preliminary stage on the ground of suppression of material
facts. Hence, by applying the same principles, even this suit
must be dismissed on the ground of suppression of material
facts.
21. In the present case, from the pleadings, it is apparent that
the non-starter report was issued after the suit was filed. The
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non-starter report states that the date of application for pre-
institution mediation is 21st March 2025. The non-starter report
dated 20th August 2025 records that on 5 th August 2025, the
plaintiff requested that the matter be closed, that is, after the
suit was filed. According to the plaintiff, after the expiry of the
initial three-month period for completion of the mediation
process, the plaintiff filed the suit due to the imminent urgency
to seek interim relief. It is nobody’s case that the initial three-
month period was extended by consent as required under the
first proviso to sub-section (3) of Section 12-A read with sub-
rule (8) of Rule 3 of the Mediation Rules. Therefore, there was
nothing for the plaintiff to disclose in the plaint at the time of
filing the suit, except the filing of the application under sub-
section (1) of Section 12-A and issuance of the notice by the
Authority. The plaintiff has therefore disclosed that the
application was filed and notice was issued to the defendants.
Therefore, there is no suppression of facts. There is no
substance in the defendants’ argument that, because they
deposited the mediation fees and the plaintiff refused to deposit
the fees, the plaintiff abandoned the mediation. Deposit of the
fees by the defendants, after the expiry of the initial three-month
period and in the absence of any extension of the time by
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consent of the parties, as provided under sub-rule (8) of Rule 3
of the said Mediation Rules, cannot be termed as any
abandonment of the mediation process by the plaintiff only
because the plaintiff did not deposit the mediation fees. It is
important to note that, in the meantime, the plaintiff filed the suit
seeking urgent interim relief on the cause of action that arose
during the pendency of the mediation process, i.e. expiry of the
term of the trademark agreements. The plaintiff’s intimation to
close the mediation is after filing the suit. Thus, there is neither
any abandonment of the mediation process on the part of the
plaintiff, nor is there any suppression of fact. Hence, there is no
merit in the allegation made by the defendants regarding the
suppression of facts. The decision in Nagina Ramsagar Choube
would not be of any assistance to the defendants. Hence, in the
facts of the present case, it is not necessary to discuss the point
as to whether the suit can be dismissed at a preliminary stage
on the allegation of suppression of material facts.
22. The law on the mandatory requirement under Section 12-
A of the said Act and grounds available for the rejection of the
plaint at the threshold for non-compliance with the said
provision is no longer res integra.
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Legal Position:
23. The Apex Court in Dhanbad Fuels Pvt. Ltd. observed that
the aim and object of Section 12-A is to ensure that, before a
commercial dispute is filed in court, alternative means of
resolution are adopted, so that only genuine cases come before
the courts. The said procedure has been introduced to
decongest the regular courts. The Apex Court held that the
settlement arrived at in the pre-institution mediation and
settlement process under Section 12-A shall have the same
status and effect as if it was an arbitral award on agreed terms
under Section 30(4) of the Arbitration and Conciliation Act, 1996
by deeming the mediated settlement on a par with an arbitral
award, providing strong legal backing to the mediation process
and ensures that the enforceability of the same is met with
fewer hurdles, thereby increasing the attractiveness of
mediation as an alternative to litigation.
24. The Apex Court referred to the legal principles settled in
Patil Automation and also discussed the power of the Court to
reject the plaint, which is held to be a drastic measure, as it
terminates a civil action at the threshold, and therefore must be
exercised strictly in accordance with the conditions enumerated
under Order VII Rule 11 of the CPC. The Apex Court held that
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the use of the word “shall” in Order VII Rule 11 of the CPC
denotes that the courts are under an obligation to reject the
plaint if the conditions specified therein are satisfied. It is
observed that the word “contemplate” connotes to deliberate
and consider. Further, the legal position that the plaint can be
rejected and not entertained reflects the application of mind by
the court as regards the requirement of “urgent interim relief”.
The Apex Court further observed that the prayer of urgent
interim relief should not act as a disguise to get over the bar
contemplated under Section 12-A. However, at the same time,
the mere non-grant of the interim relief, when the plaint is taken
up for admission and examination, would not justify the rejection
of the plaint under Order VII Rule 11 of CPC. Further, even if
after the conclusion of arguments on the aspect of interim relief,
the same is denied on merits, that would not by itself justify the
rejection of the plaint under Order VII Rule 11. The Hon’ble
Apex Court, in Yamini Manohar and Dhanbad Fuels Private
Limited, held that the facts and circumstances should be
considered holistically from the standpoint of the plaintiff.
25. In Novenco Building and Industry A/S. vs. Xero Energy
Engineering Solutions Pvt. Ltd. and Another 12, the Apex Court
12 2025 SCC Online SC 2278
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held that a plaintiff can be exempted from the requirement of
Section 12-A only when the plaint and the documents attached
to it clearly show a real need for urgent interim intervention and
on a wholesome reading of the plaint and the material annexed
to the plaint ought to disclose the need for urgent relief. It is
held that the court must look at the plaint, pleadings and
supporting documents to decide whether urgent interim relief is
genuinely contemplated, and the court may also look for
immediacy of the peril, irreparable harm, risk of losing
rights/assets, statutory timelines, perishable subject-matter, or
where delay would render eventual relief ineffective.
26. In Novenco Building and Industry, the prayer for injunction
was made in a suit alleging continuing infringement of patent
and design rights. The Apex Court held that a prayer for an
injunction cannot be characterised as mere camouflage to
evade mediation when it was a real grievance founded on the
continuing nature of infringement and irreparable prejudice
likely to be caused. It was held that the court must look beyond
the time lag and evaluate the substance of the plea for interim
protection. The Apex Court held in paragraph 24 that “…..The
insistence of pre-institution mediation in a situation of ongoing
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infringement, in effect, would render the plaintiff remediless
allowing the infringer to continue to profit under the protection of
procedural formality. Section 12A of the Act was not intended
to achieve such kind of anomalous result.”
27. The legal principles for rejection of the plaint under Order
VII Rule 11 of the CPC are settled by the Hon’ble Apex Court in
the decision of Dahiben. The Apex Court held that the power
conferred on the court to terminate a civil action is a drastic one,
and the conditions enumerated in Order VII Rule 11 are
required to be strictly adhered to.
CONCLUSIONS:
28. n view of the well-settled legal principles in the decisions
of the Apex Court, as discussed in the above paragraphs, a
discussion of the other decisions of this court relied upon by the
learned senior counsel for the defendants is not necessary. The
decision of the Apex Court in Asma Lateef concerned a
challenge to orders arising out of an execution application under
Section 47 of the CPC and thus would not be relevant to the
controversy to be decided in the present suit. After a meaningful
reading of the plaint as a whole, each suit has to be examined
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in the facts and circumstances of that case for ascertaining
whether the bar under Section 12-A applies.
29. The mandatory requirement under Section 12-A of the
said Act prohibits the filing of a suit without exhausting the
remedy of pre-institution mediation in accordance with the
manner and procedure prescribed by the Mediation Rules made
by the Central Government. It is a well-settled legal principle
that when urgent interim relief is contemplated from the
plaintiff’s standpoint, a suit can be filed without exhausting the
remedy of pre-institution mediation. Thus, when an urgent
interim relief is not contemplated, it is mandatory upon the
plaintiff to first exhaust the remedy of pre-institution mediation in
the manner prescribed under the rules. Therefore, instituting a
suit under the said Act in the context of Section 12-A of the said
Act would mean filing the suit after exhausting the remedy of
pre-institution mediation and settlement, unless an urgent
interim relief is contemplated.
30. When a plaintiff claims that the bar under Section 12-A
will not apply as the plaintiff has exhausted the remedy under
the said provision, the Court must ascertain whether the remedy
is exhausted in accordance with the prescribed rules. Hence, it
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is necessary to understand the purpose and effect of the
remedy provided for mediation and settlement under Section
12-A. The object of providing the remedy of pre-institution
mediation under Section 12-A is to enable the parties to arrive
at a settlement which can be reduced into writing. As per sub-
section (5) of Section 12-A of the said Act, such a settlement in
writing shall be dealt with in accordance with the provisions of
Sections 27 and 28 of the Mediation Act 2023. Subject to the
provisions of Section 28 of the Mediation Act to challenge the
mediated settlement, a mediated settlement can be enforced as
provided under Section 27, in accordance with the provisions of
the CPC in the same manner as if it were a judgment or decree
passed by a court. The Apex Court in Dhanbad Fuels held that
a mediation settlement under Section 12-A of the said Act has
been given the same status and effect as if it were an arbitral
award on agreed terms under sub-section (4) of Section 30 of
the Arbitration Act. Thus, if the parties sign a settlement in the
mediation process under Section 12-A, the settlement, reduced
into writing, would be enforceable as provided under Section 27
of the Mediation Act, subject to challenge under Section 28 of
the Mediation Act. Therefore, the parties can enforce the
mediated settlement, thereby avoiding lengthy litigation and
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enabling the commercial dispute to be resolved in an
expeditious manner.
31. To achieve the object of speedy disposal of a commercial
dispute, sub-section (3) of Section 12-A provides that,
notwithstanding anything contained in the Legal Services
Authorities Act 1987, the authority under the said Mediation
Rules shall complete the process of mediation within a period of
120 days (four months) from the date of application made by
the plaintiff under sub-section (1). The first proviso to sub-
section (3) permits extension for a further period of 60 days (two
months), with the consent of the parties, to complete the
process. Thus, keeping in mind the object of the said Act for
speedy disposal of commercial suits, a time limit is provided for
the Authority authorised under the said Mediation Rules to
complete the process within a period of four months from the
date of application made by the plaintiff, with an option of a
further two-month extension with the consent of the parties. In
view of the first proviso to sub-section (3), the initial period can
be extended with the consent of the parties.
32. A reading of the provision of Section 12-A as a whole
indicates that the process for exhausting the remedy of pre-
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institution mediation and settlement under Section 12-A is
divided into three parts. Firstly, the obligation is on the plaintiff
to file an application as contemplated under sub-section (1),
secondly, a time limit is provided for the Authority under the said
Mediation Rules to complete the process of mediation within a
period of four months from the date of application made by the
plaintiff under sub-section (1), and thirdly, the time of four
months provided under sub-section (3) can be extended for a
further period of two months with the consent of the parties.
Thus, the maximum time limit provided under Section 12-A of
the said Act to complete the process of exhausting the remedy,
of pre-institution mediation and settlement, is six months from
the date of application made by the plaintiff under sub-section
(1). The extension of two months under the first proviso to sub-
section (3) involves the participation of the defendant. Thus, the
question of a two-month extension would arise only if the
defendant appears in the mediation process and consents to it.
33. As per the second proviso to sub-section (3) of Section
12-A of the said Act, the period during which the parties remain
occupied with the pre-institution mediation is excluded for the
computation of the period of limitation under the Limitation Act.
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Thus, the whole idea of exhausting the remedy of pre-institution
mediation and settlement provided under Section 12-A is to
enable the parties to arrive at an amicable settlement that can
be enforced, thereby ending the commercial dispute speedily
and preventing the parties from going through the lengthy
process of a suit. However, filing an application under sub-
section (1) of Section 12-A would not take away the plaintiff’s
right to file a suit in the event a situation arises where the
plaintiff is required to seek any urgent interim relief from the
court. Only because the plaintiff applied for exhausting the
remedy under Section 12-A, because, as on that date, the
urgent interim relief was not contemplated, would not preclude
the plaintiff from filing a suit at a later stage, if, according to the
plaintiff, a situation has arisen to seek urgent interim relief from
the Court. If a plaintiff is prohibited from filing a suit for seeking
urgent interim relief only on the ground that an application to
exhaust the remedy of mediation and settlement is filed and the
process is not completed as provided under the said Mediation
Rules, it would be contrary to the well-established legal principle
that if urgent interim relief is contemplated in the suit from the
standpoint of the plaintiff, the bar under Section 12-A would not
apply.
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34. The mandatory requirement under Section 12-A of the
said Act is a remedy for mediation and settlement. Such a
mandatory requirement that provides a ” remedy” that may result
in a settlement in writing, having the force of a decree that can
be enforced/executed, cannot be interpreted to the extent of
taking away a substantial civil right of a party to seek urgent
interim relief from the court, which is also provided under sub-
section (1) of Section 12-A of the said Act.
35. In the exercise of the powers conferred by sub-section (2)
of Section 21-A read with sub-section (1) of Section 12-A of the
said Act, the Central Government has notified the said
Mediation Rules. Rule 3 of the said Mediation Rules requires a
party to a commercial dispute to make an application to the
Authority in the prescribed form for initiating the mediation
process. Thereafter, the Authority has to issue notice in the
prescribed form to the opposite party in the manner provided
under the said Mediation Rules. If there is no response, the
Authority shall issue a final notice, and when the notice remains
unacknowledged or if the opposite party refuses to participate in
the mediation process, the Authority shall treat the mediation
process as a non-starter and make a report as per the
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prescribed form and endorse the same to the applicant and the
opposite party. If the opposite party appears and both parties
consent to participate in the mediation process, the Authority
shall assign the commercial dispute to a mediator. Sub-rule (8)
of Rule 3 provides that the Authority shall complete the process
within three months, subject to a two-month extension with the
consent of the parties.
36. Thus, after the application, under sub-rule (1) of Rule (3)
of the said Mediation Rules is filed by the plaintiff, the further
process depends upon the service of notice upon the opposite
party and the consent, if any, given by the parties after the
opposite party appears. If, for any reason, the service of notice
and issuance of a non-starter report remains incomplete, it
would not take away the plaintiff’s right to file a suit if, for the
reasons pleaded by the plaintiff, an urgent interim relief is
contemplated on the date of filing of the suit. The only criterion
to be examined would be, that despite filing of the application
for exhausting the remedy of pre-institution, mediation and
settlement, whether on the date of filing of the suit an urgent,
interim relief is contemplated from the plaintiff’s standpoint,
even if a non-starter report is not made and endorsed by the
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Authority under sub-rule (6) of Rule 3 of the said Mediation
Rules.
37. In the present case, the plaintiff pleaded that, as of the
date of filing the suit, the amount was overdue by more than Rs.
500 crores. The cause of action arose when defendant no.1
failed to infuse equity by 3rd September 2023, as per the notice
dated 19th August 2023. The cause of action arose again on 29 th
December 2023, when defendant no.1 was once again called
upon to infuse equity. Then the cause of action arose again on
5th January 2023, when defendant no.1 failed to infuse equity as
per the notice dated 29th December 2023. The plaintiff thus
pleaded that the suit is within the limitation. The suit is filed on
2nd July 2025.
38. The plaintiff filed this suit after initiating the mandatory
pre-institution mediation process prescribed under the said
Mediation Rules, but did not annex a non-starter report under
the Rules. It is pleaded that the application under Section 12-A
was filed on 21st March 2025, and notices were issued to the
defendants. So the three-month period under sub-rule (8) of
Rule 3 of the said Mediation Rules expired on 20 th June 2025,
which could have been extended upto 20 th August 2025 by
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consent of the parties. However, according to the plaintiff, the
term of the agreements expired on 30 th June 2025; hence, the
urgency to seek interim relief arose.
39. On reading the plaint as a whole, when looked from the
standpoint of the plaintiff, the urgency for an interim relief is
seen on account of the expiry of the agreements which formed
the basis of the security interest created in favour of the plaintiff.
According to the plaintiff, defendant no. 1 has fraudulently and
dishonestly made a promise of equity infusion without the
intention of performing it. It is also pleaded that defendant no. 2
colluded with defendant no.1 in order to obtain the Restructured
Facilities to cause the original lender to believe that it was going
to receive equity infusion from defendant no.1. After the pre-
institution mediation and settlement application was filed and
processed, during the pendency of completion period under the
said Mediation Rules, the term of the agreements, was expiring.
Hence, the plaintiff filed the suit with an application to secure
the plaintiff’s interest. Considering the due payment of more
than Rs. 500 crores, the plaintiff’s rights and interests needed to
be protected by urgent interim reliefs directing the defendants to
provide adequate security and restraining them from creating
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third-party interest or encumbering their assets. Therefore, the
aforesaid facts and circumstances show that from the plaintiff’s
standpoint, an urgent interim relief is contemplated on the date
of filing the suit. Therefore, it cannot be said that an illusory
cause of action is pleaded as a result of clever drafting. Hence,
the legal principles settled by the Apex Court in ITC Ltd. would
not be of any assistance to the objections raised by the
defendants.
40. Sub-section (3) of Section 12-A of the said Act provides
for a period of 120 days from the date of application under sub-
section (1) of Section 12-A of the said Act to the Authority under
the said Mediation Rules to complete the process of mediation,
with a proviso to sub-section (3) for extension of the said period
for further 60 days with consent of the parties. However, under
sub-rule (8) of Rule 3 of the said Mediation Rules, the Authority
is duty-bound to ensure that the mediation process is completed
within three months, subject to a two-month extension with the
consent of the parties. The non-starter report can be issued as
provided under sub-rules (4) or (6) of Rule 3 of the Mediation
Rules in the event the opponent fails to appear or refuses to
participate in the mediation process. The non-starter report
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annexed to the rejoinder affidavit shows that the application for
pre-institution mediation was filed on 21 st March 2025, that the
applicant did not pay the mediation fees, and that, on 5 th August
2025, the applicant requested that the matter be closed. The
notice to pay the mediation fee annexed to the rejoinder
affidavit is dated 20th June 2025. Thus, the Authority issues the
notice to pay the mediation fee on the last day of the initial
three-month period provided under sub-rule (8) of Rule 3 of the
said Mediation Rules. It is nobody’s case that the period was
extended by consent, as contemplated under the Mediation
Rules. Hence, after the expiry of the initial three-month period,
the plaintiff filed the suit on 2 nd July 2025, along with an
application for interim relief.
41. While deciding the preliminary objection for rejection of
the plaint at the threshold under Order VII Rule 11 of the CPC, if
the pleadings beyond the plaint, that is, the pleadings and
documents in the affidavit-in-reply and the rejoinder affidavit
filed in the application for interim relief, are ignored, the plain
reading of the plaint can be considered. As per the pleadings in
the plaint, the application under Section 12-A was filed on 21 st
March 2025. The initial three-month period provided under the
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said Mediation Rules expired on 20th June 2025. According to
the plaintiff, the suit contemplated urgent interim relief to protect
the plaintiff’s interest as the trademark agreements expired on
1st July 2025. Thus, even as per the pleadings in the plaint, the
suit is filed after expiry of the initial three-month period for
completing the pre-institution mediation process as
contemplated under the said Mediation Rules. Thus, mere non-
issuance of a non-starter report by the Authority would not
preclude the plaintiff from filing the suit on the ground that the
plaintiff has exhausted the remedy under section 12-A of the
said Act for pre-institution mediation and settlement. Even
otherwise, according to the plaintiff, on the date of filing of the
suit, urgent interim relief was contemplated. Hence, in view of
the well-settled legal principles, the bar under Section 12-A
would not apply, as the plaintiff’s pleadings show that from the
plaintiff’s standpoint, urgent interim relief is contemplated.
35. In the present case, based on the averments in the plaint
and the supporting documents, the cause of action is pleaded
for securing the plaintiff’s interest in recovering amounts due
and safeguarding the plaintiff’s rights. Therefore, the need to
seek urgent interim relief is established in view of the facts and
circumstances discussed in detail in the above paragraphs. The
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legal principles settled by the apex court in Novenco Building
and Industry squarely apply to the facts of the present case.
Despite a valid basis to seek urgent interim relief from the
Court, insistence on waiting for a non-starter report can render
a plaintiff remediless, thereby permitting a defaulting party to
profit from procedural technicalities. Such an insistence would
defeat the right given under Section 12-A to file a suit seeking
urgent interim relief without exhausting the remedy of pre-
institution, mediation, and settlement. Such attempts by a
defendant to raise objections to apply the bar under Section 12-
A of the said Act, with no substance on any of the grounds for
rejection of the plaint at the threshold, defeat the very object of
the Commercial Courts Act, namely, the speedy disposal of
suits. There is no ground to reject the plaint at the threshold
under Order VII Rule 11 of the CPC. The bar under Section 12-
A of the said Act shall not apply to the present suit.
42. For the reasons recorded above, the preliminary
objections raised by the defendants are rejected.
(GAURI GODSE J)
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