Novenco Building & Industry A/S vs Xero Energy Engineering Solutions Private Limited & anr

Tarlok Singh Chauhan, ACJ

Aggrieved by the rejection of the plaint, the appellant/plaintiff has filed the instant appeal.

The parties shall be referred to as they were before the learned Single Judge.

The plaintiff sought permanent injunction restraining infringement of Indian Patents Nos. 400863 and 312464 and Design No.246293 (hereinafter referred to as the ‘IN ‘863’ patent, ‘IN ‘464 patent’ and ‘IN ‘293 design’ respectively and collectively referred as ‘Plaintiff’s patents and design’), delivery up, damages, rendition of accounts etc.

Alongwith the plaint, the plaintiff filed an interlocutory application being OMP No. 418 of 2024 under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908 (hereinafter referred to as the ’CPC’) seeking interim injunction against the defendants.

The plaintiff also filed an application seeking exemption from pre-suit mediation under Section 12-A of the Commercial Courts Act, 2015 (hereinafter referred to as the ‘CC Act’) on the ground that urgent reliefs have been prayed for in the suit.

Notices  and  summons  were  issued  to  the defendants   in   the   suit   on   18.06.2024.The defendants/respondents herein after being served, filed an application being OMP No. 540 of 2024, under Order VII Rule 11 of CPC for rejection of the plaint. It was averred therein that since the plaintiff had failed to comply with the requirements of pre-suit mediation which is mandatory under Section 12-A of the CC Act, therefore, the plaint be rejected.

As observed above, the aforesaid application came to be allowed by the learned Single Judge constraining the plaintiff to file the instant appeal.

It is vehemently argued by Mr. Peeyush Korla, Advocate, assisted by Ms. Shradha Karol, Advocate that learned Single Judge erred in passing the impugned order without taking into consideration that in cases of intellectual property right suits involving infringement of passing off, such suit can ordinarily be instituted without exhausting pre-litigation mediation requirement under Section 12-A of the CC Act. He has further argued that the Courts will not place its findings on the parameters of interval of time between date of infringement and date of filing of suit and it is more than settled that in case of infringement, either of ‘trade mark’ or of a ‘copy right’, normally an injunction must follow. Mere delay in bringing action is not sufficient to defeat grant of injunction in such cases. Refusal to grant injunction when a case is made out for such grant would occasion a failure of justice and such injury to the plaintiff would not be capable of being undone at the later stage.

In sum and substance, the argument of the learned counsel for the plaintiff/appellant is that the Court must be conscious and circumspect in intellectual property suits in rejecting the plaint under Order VII Rule 11 of the CPC read with Section 12-A of the CC Act. According to him, in intellectual property right matters, it is not only the plaintiff’s economic interest but it is the public interest i.e. involved, as they need to be safeguarded but also public interest where the members of the public need to be safeguarded from deception and confusion of the product.

On the other hand, Mr. Shadan Farasat, learned Senior Advocate, assisted by Mr. Kush Sharma, Advocate, would argue that the provisions of Section 12-A of the Act are mandatory and mere filing of an application for interim injunction would not lead to a conclusion that there is urgency in the matter.

Section 12-A of the CC Act, explicitly emphasizes that a mere cessation of apprehension is insufficient to bypass mandatory pre-institution mediation. As a matter of fact, the suit is demonstrably barred by delay and laches, as the plaintiff came to know of the alleged infringement in 2022, but chose to initiate the suit only in 2024, without any plausible explanation for the delay. The appellant/plaintiff belatedly attempted to seek urgent relief after considerable period of inaction, which undermines the credibility of its claim. Therefore, the learned Single Judge, in rejecting the plaintiff’s plaint, is absolutely legal, sound and justified in the facts and circumstances of the case.

We have heard learned counsel for the parties and have gone through the plaint, applications and the documents placed by the plaintiff on record.

Section 12-A of the CC Act, 2015 reads as under:-

“12A. Pre-Institution Mediation and Settlement.--

(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.

(2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.

(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):

Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:

Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963).

(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.

(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).]”

Rule 3 of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (for short ‘the Rules’) reads as under:-

“3. Initiation of mediation process,- ( I ) A party to a commercial dispute may make an application to the Authority as per Form-I specified in Schedule-I, either online or by Post or by hand. for initiation of mediation process under the Act along with a fee of one thousand rupees payable to the Authority either by way of demand draft or through online;

(2) The Authority shall, having regard to the territorial and pecuniary jurisdiction and the nature of commercial dispute, issue a notice, as per Form-2 specified in Schedule-l through a registered or speed post and electronic means including e-mail and the like to the opposite party to appear and give consent to participate in the mediation process on such date not beyond a period of ten days from the date of issue of the said notice.

(3) Where no response is received from lhe opposite party either by post or by, e-mail, the Authority shall issue a final notice to it in the manner as specified in sub-rule (2).

(4) Where the notice issued under sub-rule (3) remains unacknowledged or where the opposite party refuses to participate in the mediation process, the Authority shall treat the mediation process to be a non-starter and make a report as per Form 3 specified in the Schedule-I and endorse the same to the applicant and the opposite party.

(5) Where the opposite party. after receiving the notice under sub-rule (2) or (3) seeks further time for his appearance. the Authority may. if it thinks fit, fix an alternate date not later than ten days from the date of receipt of such request from the opposite party.

(6) Where the opposite party fails to appear on the date fixed under sub-rule (5). the Authority shall treat the mediation process to be a non-starter and make a report in this behalf as per Form 3 specified in Schedule-I and endorse the same to the applicant and the opposite party.

(7) Where both the parties to the commercial dispute appear before the Authority and give consent to participate in the mediation process. the Authority shall assign the commercial dispute to a Mediator and fix a date for their appearance before the said Mediator.

(8) The Authority shall ensure that the mediation process is completed within a period of three months with the date of receipt of application for pre-institution mediation unless the period is extended for further two months with the consent of the applicant and thd opposite party.”

Definition of “opposite party” mentioned in Rule 2(g) of the Rules, means a party against whom relief is sought in a commercial dispute.

Palpably, the scheme of the Rules and the intent of the legislature was never to oust the requirement of pre-institution mediation and settlement for any party and wherever there is a commercial dispute, the concerned applicant must initiate mediation process against “Opposite Party” as per definition Rule 2(g) in the procedure laid down in Rule 3 of the Rules.

The   Hon’ble   Supreme   Court   in   Patil Automation Private Limited Vs. Rakheja Engineers Private Limited, 2022 (10) SCC 1 has in no uncertain words laid down that the process is mandatory and its wrong compliance would entail rejection of the plaint, relevant paras of the judgment reads as under:-

“48. In contrast, Section 12A cannot be described as a mere procedural law. Exhausting pre-institution mediation by the plaintiff, with all the benefits that may accrue to the parties and, more importantly, the justice delivery system as a whole, would make Section 12-A not a mere procedural provision. The design and scope of the Act, as amended in 2018, by which Section 12-A was inserted, would make it clear that Parliament intended to give it a mandatory flavour. Any other interpretation would not only be in the teeth of the express language used but, more importantly, result in frustration of the object of the Act and the Rules.

It does not require much debate to conclude that there is a direct relationship between ease of doing business and an early and expeditious termination of disputes, which may arise in commercial matters. The speed with which the justice delivery system in any country responds to the problem of docket explosion, particularly in the realm of commercial disputes can be regarded as a very safe index of the ease of doing business in that country. The Act, therefore, is, in the said sense, a unique experiment to push the pace of disposal of commercial disputes. It is in this background that the Court must approach the issue of whether Section 12-A has been perceived as being a mandatory provision. We say this for the reason that the decisive element in the search for the answer, in the interpretation of such a Statute, must be to ascertain the intention of the Legislature. The first principle, of course, must be the golden rule of interpretation, which means, the interpretation in conformity with the plain language, which is used. There cannot even be a shadow of a doubt that the language used in Section 12-A is plainly imperative in nature. However, we will not be led by the mere use of the word ‘shall’.

72 Even going by the sublime object of the Act, as we have unravelled, we are fully reinforced in our opinion that the pre-institution mediation is intended to produce results, which has a direct bearing on the fulfilment of the noble goals of the Law-giver. It is apparent that the Legislature has manifested a value judgement. We are not called upon to decide the constitutionality of the provision. Parliament is presumed to be aware of the felt necessities of the times. It best knows the manner in which the problems on the ground are redressed. Section 89 of the CPC, does contemplate mediation ordered by a Court. However, it must be noticed that Section 12A contemplates mediation without any involvement of the Court as it is done prior to the institution of the suit.

It is noteworthy that Section 12-A provides for a bypass and a fast-track route without for a moment taking the precious time of a court. At this juncture, it must be immediately noticed that the Law-giver has, in Section 12-A, provided for pre- institution mediation only in suits, which do not contemplate any urgent interim relief. Therefore, pre- institution mediation has been mandated only in a class of suits. We say this for the reason that in suits which contemplate urgent interim relief, the Law-giver has carefully vouch-safed immediate access to justice as contemplated ordinarily through the courts. The carving out of a class of suits and selecting them for compulsory mediation, harmonises with the attainment of the object of the law.

The load on the Judges is lightened. They can concentrate on matters where urgent interim relief is contemplated and, on other matters, which already crowd their dockets.

We may proceed on the basis that if the suit is brought without complying with Section 12-A, where no urgent interim relief is sought, may not in one sense, affect the legal right of the defendant. But this argument overlooks the larger picture which is the real object of the law. This object is not to be viewed narrowly with reference to the impact on the parties alone. This is apart from also remembering that if the parties were to exhaust mediation under Section 12-A, the opposite side may be, if mediation is successful, saved from the ordeal of a proceeding in court, which, undoubtedly, would entail costs, whereas, the mediation costs, as we have noticed, is minimal, and what is more, a one-time affair, and still further, to be shared equally between the parties. Each time the plaintiff is compelled to go in for mediation under Section 12A there is a ray of hope that the matter may get settled. The chief advantage and highlight of mediation is that it is a win-win for all sides, if the mediation is successful. Therefore, it cannot, in one sense, be argued that no legal right of the defendant is infracted. Further, on the same logic, Section 80(1) of the CPC and Section 69 of the Indian Partnership Act would not be mandatory. This is however not the case.

One of the arguments of Shri Saket Sikri is that, if a plaint is rejected under Order VII Rule 11, the plaintiff would be saddled with the deprivation of the court fee paid. He would contend that this aspect may be considered, when the Court decides the question as to whether the provision is mandatory or not. Whenever a plaint is rejected on the ground that the suit is barred under any law, this consequence is inevitable. [We may only, in this context, observe, that under Section 4A of the Kerala Court Fee and Suit Valuation Act, 1959, the plaintiff needs to pay only one-tenth of the total court fee at the time of institution of the suit. The balance is to be paid not later than fifteen days from the date of framing of issues, inter alia. Section 4A further provides that if the parties further settle the dispute within the period specified or extended by the Court for payment of the balance court fee, the plaintiff shall not be called upon to pay the balance court fee.] If a plaint is rejected for failure to give a notice, as contemplated in Section 80 of the CPC, the court fee paid, may be lost. Equally, for violation of Section 69 of the Indian Partnership Act, if the plaint is rejected, the plaintiff loses the court fee. While it may appear to be hard on the plaintiff, the effect of the provision contained in Order VII Rule 11, cannot be diluted. Therefore, we are not impressed by the argument, subject to what we will hold later on.”

Thus, what can be evidently gathered from the above judgment is that recourse to Section 12-A of the CC Act is mandatory in nature.

Our aforesaid observation is further strengthened, when we refer to the Statement of Objects and Reasons of the Amending Act which brought into existence Section 12-A of the CC Act, 2015. The same is extracted as under:-

"Statement of Objects and Reasons. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 was enacted for the constitution of Commercial Courts, Commercial Division and Commercial Appellate Division in the High Courts for adjudicating commercial disputes of specified value and for matters connected therewith or incidental thereto.

The global economic environment has since become increasingly competitive and to attract business at international level, India needs to further improve its ranking in the World Bank "Doing Business Report" which, inter alia, considers the dispute resolution environment in the country as one of the parameters for doing business. Further, the tremendous economic development has ushered in enormous commercial activities in the country including foreign direct investments, public private partnership, etc. which has prompted initiating legislative measures for speedy settlement of commercial disputes, widen the scope of the courts to deal with commercial disputes and facilitate ease of doing business. Needless to say that early resolution of commercial disputes of even lesser value creates a positive image amongst the investors about the strong and responsive Indian legal system. It is, therefore, proposed to amend the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.

As Parliament was not in session and immediate action was required to be taken to make necessary amendments in the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, to further improve India's ranking in the "Doing Business Report", the President promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018 on 3-5-2018.

It is proposed to introduce the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Bill, 2018 to replace the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018, which inter alia, provides for the following namely--

(i) to reduce the specified value of commercial disputes from the existing one crore rupees to three lakh rupees, and to enable the parties to approach the lowest level of subordinate courts for speedy resolution of commercial disputes;

(ii) to enable the State Governments, with respect to the High Courts having ordinary original civil jurisdiction, to constitute commercial courts at District Judge level and to specify such pecuniary value of commercial disputes which shall not be less than three lakh rupees and not more than the pecuniary jurisdiction of the district courts;

(iii) to enable the State Governments, except the territories over which the High Courts have ordinary original civil jurisdiction, to designate such number of Commercial Appellate Courts at district judge level to exercise the appellate jurisdiction over the commercial courts below the district judge level;

(iv) to enable the State Governments to specify such pecuniary value of a commercial dispute which shall not be less than three lakh rupees or such higher value, for the whole or part of the State; and

(v) to provide for compulsory mediation before institution of a suit, where no urgent interim relief is contemplated and for this purpose, to introduce the pre-institution mediation and settlement mechanism and to enable the Central Government to authorise the authorities constituted under the Legal Services Authorities Act, 1987 for this purpose.

The Bill seeks to achieve the above objectives." (emphasis supplied)”

Having perused the objects and reasons, we have no hesitation to conclude that the objective behind pre-institution mediation is a benevolent one and it does not in any way frustrate the speedy trial, rather on the contrary, it aims and visualizes a situation where there may not be institution of any fresh case, once the matter stands settled through such pre-institution mediation. Thus, it is not empty formality or a futile exercise.

We may at this stage refer to a subsequent judgment of the Hon’ble Supreme Court in Yamini Manohar Vs. T.K.D Keerthi 2024 (5) SCC 815, wherein the Hon’ble Supreme Court observed that when a plaint is filed under the CC Act, with a prayer for an urgent interim relief, the commercial court should examine the nature of the subject-matter of the suit, the cause of action and the prayer for interim relief. The prayer for urgent interim relief should not be a disguise or mask to wriggle out of and get over Section 12-A of the CC Act. The facts and circumstances of the case have to be considered holistically from the standpoint of the plaintiff. Non-grant of interim relief at the ad interim stage, when the plaint is taken up for its registration/admission and examination, will not justify dismissal of the commercial suit under Order VII Rule 11 of the Act; at times, interim relief is granted after issuance of notice. Nor can the suit be dismissed under Order VII Rule 11 of the Act, because the interim relief, post the arguments, is denied on merits and on examination of the three principles, namely; (i) prima-facie case, (ii) irreparable harm and injury, and (iii) balance of convenience.

It was thereafter, observed by the Hon’ble Supreme Court in Yamini Manohar’s case (supra) as under:-

“11. Having stated so, it is difficult to agree with the proposition that the plaintiff has the absolute choice and right to paralyse Section 121A of the CC Act by making a prayer for urgent interim relief. Camouflage and guise to bypass the statutory mandate of pre-litigation mediation should be checked when deception and falsity is apparent or established. The proposition that the commercial courts do have a role, albeit a limited one, should be accepted, otherwise it would be up to the plaintiff alone to decide whether to resort to the procedure under Section 12-A of the CC Act. An ‘absolute and unfettered right’ approach is not justified if the pre-institution mediation under Section 12-A of the CC Act is mandatory, as held by this Court in Patil Automation Private Limited (supra).

The words ‘contemplate any urgent interim relief’ in Section 12-A(1) of the CC Act, with reference to the suit, should be read as conferring power on the court to be satisfied. They suggest that the suit must “contemplate”, which means the plaint, documents and facts should show and indicate the need for an urgent interim relief. This is the precise and limited exercise that the commercial courts will undertake, the contours of which have been explained in the earlier paragraph(s). This will be sufficient to keep in check and ensure that the legislative object/intent behind the enactment of section 12-A of the CC Act is not defeated.”

Judged in light of the aforesaid exposition of law, it needs to be noticed that the plaintiff in Para No. 60 onwards of the suit pleaded the cause of action, which according to it, accrued in its favour on or about the month of July/August, 2022, when it received information about the infringement of its patents and designs. The cause of action thereafter arose on 14.10.2022, when the plaintiff terminated Distributor Agreement and informed defendant No.1 about its subsisting patent rights. The cause of action was renewed when the plaintiff issued cease–and-desist notice on 23.12.2022 to defendant No. 2, calling upon it to cease all further activities with respect to the plaintiff’s patents and design rights and it again arose and continued when despite knowledge of the patents and design rights and grant thereof in favour of the plaintiff, the defendants continued to make, use, offer for sale and sell at various physical and online portals including, but not limited to www.indiamart.com without plaintiff’s consent the axial fans, which was in violation of the patents and design rights of the plaintiff. In Paragraph Nos. 61 and 62 of the plaint, it has been pleaded that the cause of action again arose to the plaintiff in December, 2023, when a technical expert Mr. Peter Holt, after conducting visual inspection, evaluation and analysis, confirmed that the impugned fans infringe the plaintiff’s patents and design. It is lastly pleaded that the cause of action of the plaintiff was continuing and it arises each time when the defendants make, use, offer for sell the impugned fans, through online presence, both direct and via e-commercial website and such cause of action was continuing as the defendants were regularly carrying on business and soliciting business and deriving revenue from goods and services provided to individuals within the territorial jurisdiction of the State.

On an pointed query to the learned counsel for the plaintiff/appellant as to why the suit was not and could not be filed in July/August 2022, when the cause of action firstly is alleged to have accrued to the plaintiff. It is submitted by the learned counsel for plaintiff that it is only for want of technical report that the suit could not be filed. However, it is the pleaded case of the plaintiff itself that the expert Peter Holt after conducting visual inspection, evaluation and analysis confirmed that the impugned fans infringed the plaintiff’s patents and designs in the Month of December, 2023, yet the plaintiff took no steps to file the suit, which has eventually been filed in this Court on 04.06.2024.

As rightly observed by the Learned Single Judge that there is no mention in the plaint as to why the plaintiff waited from December, 2023 upto June, 2024, during which period it could not have resorted to the pre-institution mediation & settlement, as is emphasized in Section 12-A of the CC Act and now what urgency has necessitated the dispensing with the mandatory statutory provision.

On another pointed query to the learned counsel for the plaintiff as to whether issuance of legal notice/prior notice in the instant case was mandatory, he replied in the negative. In such circumstances, we fail to understand as to how the plaintiff can plead urgency when admittedly instead of filing a suit, the plaintiff chose to issue a cease-and-desist notice dated 23.12.2022. If there had been an urgency, as claimed by the plaintiff, then we fail to understand why it did not choose to file a suit and waited for a period of one and half year to file the instant suit.

The CC Act does not draw a distinction or provide for a different procedure relating to infringment of “trade mark” or “copy right” cases. The cases have to be decided accordingly to their individual facts and circumstances and no straight jacket formula can be laid for the same.

In view of the aforesaid discussion, we are of the considered view that the plaint involved in the instant appeal does not contemplate any urgent interim relief and, therefore, mere filing of an application of injunction cannot be regarded as dispensation of the rigor of Section 12-A of the CC Act and was, therefore, not maintainable. Since this Court has held the provisions contained in Section 12-A of the CC Act to be mandatory, then in absence of any urgent interim relief, the suit which was instituted is liable to fail and the course to be adopted on the basis of the decision rendered by the Hon’ble Supreme Court in Patil Automation Private Limited’s case (supra). Therefore, there was no option with the learned Single Judge but to have rejected the plaint and this is precisely what the learned Single Judge has ordered vide impugned order dated 28.8.2024. However, we may clarify that the order of rejection of the plaint would not come in the way of the plaintiff in case it chooses to exhaust the remedy provided under Section 12-A of the CC Act and after the outcome of the same, if the cause of action still survives, it may institute a suit and in such event, if any ad interim relief is sought for, the same shall be decided on merits without being influenced by the observations made in this order or in the order passed by the learned Single Judge.

In view of the aforesaid discussion and for the reasons stated above, we find no merit in this appeal and the same is accordingly dismissed, leaving the parties to bear their own costs.

Pending application(s), if any, shall also stand disposed of.