Understanding “Substantial Compliance” in light of Sabita Jha v. Aaone Developers

Introduction

The Government of India has always been a strong proponent of resolving commercial disputes through alternative dispute resolution (ADR) mechanisms, especially mediation and arbitration. While mediation is deeply rooted in the ancient value system of India, it has only received its due and proper statutory recognition in 2023 with the coming of the Mediation Act¹. Better late than never, the Government is now pushing and promoting mediation as the alter ego of arbitration; a mechanism which is slowly losing its status of the preferred go to method for dispute resolution.² Recently, the Government of India organised the first ever National Mediation Conference in May 2025 to bolster mediation as a tool in resolving disputes.³ One of the conference’s key milestones was the establishment of the Mediation Association of India, canvassing it as a platform to unify stakeholders, promote best practices, and raise standards to meet international benchmarks. Justice B.R. Gavai remarked that such an initiative would help to address the specific domestic commercial issues while aligning Indian mediation with global protocols.⁴ Solicitor General Tushar Mehta emphasised on mediation’s efficiency, particularly in resolving disputes involving labour, tenancy, and employment, which should ideally be diverted away from formal courts.⁵

But amidst this push for encouraging mediation as the new and the preferred mode of dispute resolution, the Supreme Court recently in Sabita Jha v. Aaone Developers (P) Ltd.⁶ (Sabita Jha) dealt with a peculiar situation, where it had to interpret as to whether an attempt to resolve disputes through mediation between the parties, before filing the commercial suit under the Commercial Courts Act, 2015⁷ (the Act) fulfils the mandate of Section 12-A⁸ or not. Unfortunately, the matter did not receive much attention, however, a short and a crisp order passed by the Justices Mr Pankaj Mithal and Mr S.V.N. Bhatti has laid down a new facet of law regarding “substantial compliance” of Section 12-A in minimum words, which now has a far-reaching impact for future commercial suits which will be instituted in India under the Act.

Factual matrix in brief

To understand the Supreme Court’s latest decision in Sabita Jha⁹, it is important that we lay down some crucial facts that led to a short, yet path-breaking order passed by the Supreme Court.

The dispute arose between Aaone Developers Private Limited (plaintiff) and Ms Sabita Jha (defendant). A contract for civil works was executed between the parties, wherein the defendants agreed to pay the plaintiff a sum of Rs 1.30 crores for carrying out construction in the suit property. The plaintiff commenced construction work and soon thereafter the defendants entered into a second agreement for Project Management Consultancy (PMC) for a period of 10 months. Post this period, a monthly retainership fee of Rs 2 lakhs were agreed. Though contractors and vendors were hired through the plaintiff, their payments were directly made by the defendants. Pursuant to completion of civil works and continuation of interior works, the defendants directed the plaintiff to raise final bills for civil works. Accordingly, the plaintiff submitted final bills based on drawings and bills of quantity prepared by an appointed architect. As per the first agreement, the defendants were obligated to make payment within seven days of receipt of the final bills. It was alleged by the plaintiff that despite repeated meetings and follow-ups, the outstanding payments remained unpaid. When payments were still not made, the plaintiff served a legal-cum-demand notice. The defendants, through their counsel, replied by denying the claims and stating that excess payments had been made.

The plaintiff finally filed an ordinary suit¹⁰ before the Delhi High Court along with an injunction application praying for urgent direction upon the defendant and preventing them from creating third-party interests in the suit property and ensuring that the building and construction material is not harmed or destroyed. As per the plaint of the suit, the plaintiff’s total claim was of approximately Rs 6.50 crores, excluding interest and late payment charges.

When the matter was taken up, notice was issued on the injunction application along with the commercial suit. However, while issuing notice,¹¹ the parties consented to making an attempt to resolve their differences through mediation. Therefore, the parties were referred to the Delhi High Court Mediation Centre. The mediation ultimately failed and the file was returned to the High Court.

When the matter was again heard, the High Court determined the nature of the dispute as commercial in nature and directed the plaintiff to take steps in amending the nature of the suit from an original suit to that of a commercial suit under the Act.¹² When the matter was finally taken up, the defendant filed her written synopsis by way of objections and a counter-affidavit wherein she stated that before a commercial suit is intended to be instituted, the dispute has to be referred to institutional pre-litigation mediation, specifically under Section 12-A of the Act. Since no such efforts were made, the commercial suit should be treated as non est.

The impugned order of the Delhi High Court

The High Court in its judgment and order dated 8-1-2025¹³, firstly took note of the fact that it had issued notice on the injunction application and it was pending for adjudication.¹⁴ Thereafter, the Court went into the interpretation of Section 12-A of the Act and held that if a strong prima facie case is made out for urgent interim orders, then the statutory requirement for a pre-litigation mediation can be done away with.

The High Court then went ahead and observed that when the suit was originally filed as an ordinary suit, there was no occasion for the plaintiff to resort to pre-institution mediation, as Section 12-A of the Act is not applicable to ordinary suits. However, prior to the conversion of the suit into a commercial suit, the matter was referred to mediation. Therefore, the mandatory requirement of pre-institution mediation under Section 12-A stood satisfied.¹⁵ This is because the underlying objective of compulsory pre-institution mediation is to reduce the burden of avoidable litigation in commercial matters, and mediation, as an alternative dispute resolution mechanism, has been recognised as an effective tool for achieving this purpose.¹⁶

Therefore, the High Court held that since the injunction application was pending adjudication and that the parties had already attempted mediation once, therefore, the argument of the defendant that the mandate of Section 12-A was not fulfilled, was ultimately rejected and directions were issued to list the matter for final hearing.

Analysis of the order of the Supreme Court in Sabita Jha¹⁷

The judgment and order of the High Court was challenged by the defendant before the Supreme Court of India in a special leave petition (SLP). The same argument was raised i.e. non-compliance with pre-litigation mediation under Section 12-A makes a commercial suit non est.

When the SLP was heard on 24-3-2025¹⁸, it was dismissed at the admission stage. One of the most interesting facets of the order of dismissal passed by the Supreme Court is that it is not a very short detailed order. The operative portion¹⁹ of the order held that the effort for mediation entered into between the parties before the institution of the commercial suit was enough and construed as “substantial compliance” of the mandate of Section 12-A.²⁰ Therefore, the order of the High Court under challenge was affirmed and the SLP was dismissed.

However, the dismissal of the SLP opened the sluice gate for exploring the meaning of “substantial compliance”, when Section 12-A has been held to be a mandatory provision in Patil Automation v. Rakheja Engineers (P) Ltd.²¹

Understanding Supreme Court’s satisfaction of “substantial compliance” of Section 12-A

The Supreme Court’s declaration in Sabita Jha²² that a mediation entered into by the parties before the institution of a commercial suit is a good enough compliance of the mandatory pre-litigation mediation. But this is not the first time that an ancillary act of a party is held to be sufficient and a substantial compliance of a statutory requirement qua ADR and mediation jurisprudence. “Substantial compliance”, in simple terms, refers to a pragmatic approach whereby courts, in exceptional circumstances, recognise a party’s partial or non-strict adherence to statutory procedural requirements, provided the basic legislative intent is fulfilled.

The Act, especially through its 2018 Amendment²³ introducing Section 12-A, mandates pre-institution mediation for commercial disputes, except cases where urgent interim relief is sought. Within this framework, the doctrine of substantial compliance plays a pivotal role. The authors firmly believe that the courts should accept bona fide actions of the parties to comply with statutory mediation requirements even if there are minor procedural deviations. For instance, in cases where a party has made a genuine attempt to initiate mediation, and comply with basic necessities like submitting relevant application before the appropriate authority, issuing notices to the opposite party, or participating in mediation sessions, even if all statutory requirements under the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018²⁴ are not strictly adhered to, courts may, depending on the facts and circumstances of the case, treat such efforts of the said party as constituting substantial compliance.

However, the High Courts in India have time and again tried to interpret the legality and veracity of substantial compliance of partaking pre-litigation mediation.

The Bombay High Court in Ganga Taro Vazirani v. Deepak Raheja²⁵, emphasised that Section 12-A is aimed towards encouraging pre-institution mediation, but does not impose a strict and absolute bar on instituting a suit without exhausting this remedy.²⁶ The Court noted that the provision must be interpreted with a focus on substantial compliance, meaning that if parties have demonstrably attempted to resolve their disputes amicably — whether before or after filing the suit — the objective of Section 12-A is fulfilled. Such a rigid application of Section 12-A would undermine the very objective of the Act, which aims to expedite the resolution of commercial disputes.²⁷

In Laxmi Polyfab (P) Ltd. v. Eden Realty Ventures (P) Ltd.²⁸, the Calcutta High Court examined whether Section 12-A, mandating pre-institution mediation for commercial disputes, allows substantial compliance or not. In this case, the plaintiff filed suit without exhausting the remedy of mediation, and argued that Section 12-A is procedural, not requiring strict adherence, and that substantial compliance suffices. The Court held that Section 12-A is mandatory and dismissed the argument in support of substantial compliance, emphasising strict adherence to mediation processes to reduce court backlogs.²⁹ This observation by the Calcutta High Court contrasted with Ganga Taro Vazirani³⁰, which permitted substantial compliance for procedural provisions. However, this stance was later reinforced by the Supreme Court in Patil Automation³¹, which clarified Section 12-A’s mandatory status. The stance taken in Laxmi Polyfab³² was again reiterated in Dredging and Desiltation Co. (P) Ltd. v. Mackintosh Burn and Northern Consortium³³, wherein it was emphasised that the primary objective of the Act is to expedite the resolution of commercial disputes.³⁴ The Court opined that this goal is best achieved by enforcing mandatory pre-institution mediation under Section 12-A. The Court highlighted that the stipulated time-frame for mediation provides an effective opportunity for parties to amicably settle disputes, a process deemed more efficient than court adjudication within the same period.³⁵ The Court concluded that mandatory compliance with Section 12-A is essential to fulfil the Act’s purpose.³⁶

However, the Madras High Court in Shahi Exports (P) Ltd. v. Gold Star Line Ltd.³⁷ held that Section 12-A of the Commercial Courts Act, 2015, which mandates pre-institution mediation, is not an absolute procedural bar. The Court noted though the provision uses the term “shall”, its application is effectively contingent on the willingness of both parties and the absence of urgency for interim relief. The Court further observed that Section 12-A cannot be treated as an absolute precondition for instituting a suit, and denying access to courts merely because a party has not pursued mediation first, would violate the constitutional right to access to justice. The Court clarified that courts are not subordinate to alternative dispute resolution mechanisms, and there is no legal bar preventing courts from referring ongoing matters to mediation after a suit is filed. The true intent of Section 12-A, the Court observed, is to facilitate amicable dispute resolution, not to impose rigid procedural hurdles, and any contrary interpretation would defeat the legislative purpose of promoting settlement.

These divergent viewpoints and interpretations were ultimately resolved by the Supreme Court in Patil Automation³⁸, wherein the Court analysed the legislative intent behind Section 12-A of the Act introduced via the 2018 Amendment. The Court noted that Section 12-A mandates pre-institution mediation for commercial disputes, except when urgent interim relief is genuinely required, to alleviate court backlog and promote mediation as an efficient dispute resolution mechanism. The term “shall” in the provision underscores its obligatory nature, supported by detailed procedural rules ensuring accessibility, like capped fees shared equally by the parties and the option for legal representation. The Supreme Court clarified that the right to file a suit is subject to statutory conditions, and the possibility of mediation failure does not render Section 12-A optional.

In Yamini Manohar v. T.K.D. Keerthi³⁹, the Supreme Court reaffirmed the principles laid down in Patil Automation⁴⁰, reiterating that parties cannot bypass the statutory mandate of pre-institution mediation under Section 12-A merely by citing the need for urgent interim relief. The Court clarified that commercial courts possess the authority to scrutinise the averments in the plaint, supporting documents, and surrounding circumstances to evaluate whether the plea for interim relief is bona fide. If the Court is not satisfied that such relief is immediately necessary, then the parties are obligated to undergo pre-litigation mediation.

A conjoint reading of Patil Automation⁴¹ and Sabita Jha⁴² leads the authors to conclude that the legal position established in Patil Automation⁴³ remains undisturbed. When read together, these decisions render Section 12-A of the Act more holistic, effectively conserving valuable commercial time for parties who have already attempted mediation before initiating a commercial suit. Thus, through this ruling, it has been clarified that Section 12-A imposes a statutory condition on the right to file a suit, prioritising mediation to streamline commercial dispute resolution.

Conclusion — The way forward after Sabita Jha

The Supreme Court’s decision in Sabita Jha⁴⁴ marks a transformative moment in India’s mediation landscape, redefining the spectrum of Section 12-A of the Act, through the lens of “substantial compliance”. By deeming pre-suit mediation attempts sufficient to fulfil the statutory mandate, the Court has struck a delicate balance between the procedural rigour and the pragmatic need for expeditious dispute resolution. This ruling mitigates the risk of Section 12-A becoming a technical barrier to justice, aligning with the Act’s core objective of streamlining commercial disputes while promoting mediation as a viable alternative to litigation.

However, the decision also exposes an interpretative fault line, as it diverges from the strict compliance emphasised in Patil Automation⁴⁵ and contrasts with varying High Court approaches, such as the Bombay High Court’s flexibility in Ganga Taro Vazirani⁴⁶ and the Calcutta High Court’s rigidity in Laxmi Polyfab⁴⁷. This judicial divergence underscores the urgent need for a unified framework to guide the application of Section 12-A.

The only way to iron out the bulging overlapping in the decisions rendered in Sabita Jha⁴⁸ and Patil Automation⁴⁹, a larger Bench of the Supreme Court should reiterate Sabita Jha⁵⁰ in a more detailed fashion, which comprehensively clarifies the scope of “substantial compliance,” harmonising it with the mandatory nature of Section 12-A. If at the judicial front mediation is made to standout more effectively it will defy systemic challenges — such as limited public awareness, a litigation-centric mindset, and a shortage of trained mediators, especially in matters of commercial nature.

India must prioritise embedding mediation training in legal curricula, fostering skills like empathy and emotional intelligence as the future is nothing but bright for commercial dispute resolution. The integration of online mediation, enabled by the Mediation Act, offers a promising avenue to enhance accessibility, particularly for cross-border commercial disputes in an increasingly digital economy. Public-private partnerships, aimed to be championed by the Mediation Association of India, should drive awareness campaigns and scale mediator training to cultivate a “mediation-first” culture.

By addressing these imperatives, India can transform its dispute resolution ecosystem, preserving business relationships and positioning itself as a global mediation hub. The Sabita Jha⁵¹ ruling, if reaffirmed and expanded, could serve as a catalyst for this paradigm shift, ensuring that mediation not only complements but redefines commercial justice in India.