'Pre-litigation mediation must in commercial disputes': Delhi HC upholds Rs 1 lakh costs on MCD

New Delhi, Jun 3 (PTI) The Delhi High Court has upheld the imposition of Rs 1 lakh costs on the MCD for not participating in a pre-litigation mediation mandatory in commercial disputes.

A bench of Justices Navin Chawla and Renu Bhatnagar said the Municipal Corporation of Delhi (MCD) being a public authority -- having an even higher responsibility to ensure the object of the Commercial Courts Act was achieved and the burden on courts was reduced -- couldn't act as an ordinary litigant.

"The appellant being a public authority constituted under the Delhi Municipal Corporation Act, 1957, cannot act as an ordinary litigant and defeat the object of the Act. In fact, it is charged with an even higher responsibility to ensure that the object of the Act is achieved; the burden on the courts is reduced; and unnecessary litigation is scuttled at the initial stage itself," the court said.

The May 13 order added, "By not even responding to the notices for pre-institution mediation, the appellant clearly defeats the object of the Act and acts contrary to its public function and duties." The MCD in the high court challenged a December 10, 2024 judgment of a commercial court on the issue of pre-litigation mediation between parties.

The trial court said despite the statutory promulgation and strict interpretation of the same by the Supreme Court it was "surprising" to observe that the MCD and its officials had scant regard for the law as promulgated by Parliament or the top court verdict which is law under Article 141 of the Constitution.

"No cogent reason is stated as to why the MCD or its officials did not participate in the Pre-Institution Mediation," the bench said.

Section 12-A of the Act outlines the mandatory requirement for pre-institution mediation before filing a suit, provided urgent interim relief is not sought.

The matter stemmed from a money suit filed by an empanelled MCD contractor. As mandated under the law the contractor approached the District Legal Services Authority in Tis Hazari Courts for pre-institution mediation. Even though the notice was admittedly served upon the MCD, its officials did not participate in the mediation which led to failure of the process and the contractor was constrained to file a commercial suit.

While dealing with the appeal, the high court said there was no merit in the challenge of the MCD to the cost of Rs 1 lakh imposed on it by the trial court, to be deposited with the Advocates’ Welfare Fund, Delhi Bar Association.

The trial court, the bench noted, was lenient by offering that in case the MCD commissioner issued necessary directions to its officers to participate in the mediation processes, the costs could be waived off.

"The appellant cannot take a regressive approach and insist on continuing to defeat the object of the Act. We cannot countenance such an approach on the part of the appellant," the bench said.

The high court, however, stayed the operation of the decree of over Rs 35 lakh granted in the suit in favour of the contractor till further orders.

The cost imposed on the MCD for not participating in the pre-institution mediation process must be deposited by it within two weeks from the date of the order, it said.

"We also expect the appellant to ensure that necessary instructions are issued in terms of what has been observed by the trial court in the impugned order with respect to pre-institution mediation," the bench said.

The MCD counsel, on the other hand, argued that participating in pre-suit mediation was not mandatory and, therefore, merely for a party’s failure to participate in the same couldn't attract costs.

The high court, however, said Section 12A was inserted in the Commercial Courts Act with a specific object and intent of expediting the process of resolution of commercial disputes. PTI SKV SKV AMK AMK