Glossary

What is pre-institution mediation under Section 12A of the Commercial Courts Act?

Section 12A of the Commercial Courts Act requires a supplier to try mediation before filing a commercial suit, unless urgent interim relief is needed. The Supreme Court has confirmed it is mandatory, and it has become a genuine settlement forum for trade dues.

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Short answer

Pre-institution mediation and settlement (PIMS) under Section 12A of the Commercial Courts Act, 2015 requires that a suit which does not contemplate urgent interim relief be filed only after the plaintiff has exhausted mediation conducted by the authorities notified under the Legal Services Authorities Act. The process must be completed within three months, extendable by two months with consent, and the time spent is excluded from limitation. A settlement reached has the status of an arbitral award on agreed terms.

How pre-institution mediation works in India

  1. Plaintiff files Form 1 with the Legal Services Authority, with the prescribed fee and a brief of the claim.
  2. The Authority issues notice to the opposite party to appear and give consent within 10 days.
  3. If the opposite party does not appear or refuses, a non-starter report is issued and the plaintiff can sue.
  4. If both consent, a mediator is appointed; sessions are confidential; the process runs up to 3 months (plus 2 by consent).
  5. Outcome: a signed settlement (enforceable as an award) or a non-settlement report that is annexed to the plaint.

Why it matters for getting paid

Buyers who ignore notices often turn up when a Legal Services Authority summons them, and the mediator's neutral framing produces payment plans that direct negotiation did not. A settlement here is enforceable without a trial. If the buyer stays away, the non-starter report arrives quickly and the suit proceeds with the buyer's refusal on record. A suit filed without this step, where no urgent relief is sought, is liable to be rejected. See mediation and the Commercial Courts Act.

How FundRaksha uses it

FundRaksha's advocates treat Section 12A as the second settlement window after the legal notice. They file promptly, attend with a clear statement of account and interest computation, and convert any agreement into a signed settlement with post-dated cheques. Where urgent attachment is warranted, they seek interim relief instead and file directly. The company's 60% pre-court settlement rate includes outcomes at this stage. Fee: 30% of recovery.

Worked example (hypothetical)

A Surat embroidery unit (not Udyam-registered) is owed ₹9,00,000, due 1 February 2024. It applies for pre-institution mediation on 1 December 2026, two months before limitation expires on 1 February 2027. The buyer consents; sessions run until 20 February 2027, when a non-settlement report is issued. The 81 days of mediation are excluded, so the limitation deadline moves to about 23 April 2027 and the suit filed on 1 March 2027 is in time. Had the buyer agreed to pay ₹9,00,000 in four instalments, the signed settlement would have been enforceable as an arbitral award on agreed terms.

Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.

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  • A review of your invoices, purchase orders, delivery proof and the buyer’s replies
  • An honest assessment of recovery chances and the right route: reminders, legal notice, MSME Samadhaan, Section 138 or a civil suit
  • A realistic timeline and the exact cost: nothing upfront, a success fee only on recovery
  • A dedicated advocate assigned within 24 hours if you decide to proceed
Keep these ready
  • The unpaid invoice(s) and payment terms
  • Purchase order, delivery challan, e-way bill or proof of service
  • Messages, emails or letters about the payment
  • For a bounced cheque: the cheque and the bank return memo

No recovery, no fee. Court fees, if any, are borne by the client and told upfront.

FAQ

Questions, answered

A genuine need for an immediate court order, such as attachment before judgment where the buyer is removing assets. Courts examine whether the urgency is real.

This page is general information for Indian businesses, not legal advice for your specific case. Laws, rates and procedures change; speak to an advocate before acting. FundRaksha LegalTech Pvt Ltd is a technology company; legal work is carried out by enrolled advocates.