DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NAME: Priyanka Chemudupati

ROLL NUMBER: 2017022

SUBJECT: Alternate Dispute Resolution

FACULTY: Prof. Vishnu Kumar

TOPIC ASSIGNED: Afcons Infrastructure and Ors. V. Cherian Verkay Construction and
Ors., Case study

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 ACKNOWLEDGEMENT

I am highly indebted to my Hon’ble ADR professor, Mr Vishnu Kumar, for giving me a

wonderful opportunity to work on the topic of Afcons Infrastructure and Ors. V. Cherian
Verkay Construction and Ors., Case study and it is because of his knowledge, experience
and guidance, this project is made with great interest and effort. It is hereby acknowledged
that the contents of this project are true to my knowledge and are made by my effort.

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 SYNOPSIS

Introduction
Section 89 of the Code of Civil Procedure, 1908 emerged as “Trial Nightmare” for quite
long period. This nightmare gripped the mind of the Indian judicial system till the recent
judgment of Afcons infrastructure and Ors. v. Cherian Verkay Construction and Ors.
2010 (8) SCC 24. I think this judgment has finally end up the chapter of dynamism of the
Alternate Dispute Resolution which is pro bono for the Indian Judicial System. Section 89 of
CPC, 1908, its need and the revolutionary changes has brought in terms of ADR practices in
India. The mixture in role of Legislature in promoting ADR practices and approach of
judiciary in this context is rightly pointed out in this particular case. The 238th Report of Law
Commission dated December, 2011 with regard to amending section 89 of the code of civil
procedure provides clear understanding of the existing process of Alternate Dispute
resolution and how the dynamism of Section 89 could be stopped.

Objectives/ Aim:
This project aims to enlighten the reader regarding the several changes that were brought in
to the process of ADR by the interpretation of Sec 89 through this judgment.

Significance:
This project brings about the various anomalies in the section 89 of the Civil Procedure Code
and also, it explains the interpretation of the court, being a landmark judgements given by the
supreme court of India, this projects not only interprets the courts decisions but also focuses
on the aftermath of the decision, and the changes that have been brought in the system.

Hypothesis:
1. The Judgement by the SC on the Afcons infrastructure and Ors. v. Cherian Verkay
Construction and Ors. 2010 (8) SCC 24, has brought in a robust impact on the Process of
ADR under CPC
2. There are still lacunas that have to be interpreted by the court in Sec 89 of CPC.

Scope of study:
This project is limited to the scope of
1. interpretation of the Supreme court of Sec 89 of CPC
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2. various Judgements referred by the court, to put emphasis on the interpretation.
3. The process of approaching for Alternate Dispute resolution through Sec 89.
4. The changes brought in or the aftermath of the Judgement.

Literature Review:
1. Mulla’s The Code of Civil Procedure (Abridged) by Sir Dinshaw Fardunji Mulla
Revised by Justice Deepak Verma and Namit Saxena , Lexis Nexis
Mulla’s Code of Civil Procedure (Abridged) is the most authoritative and comprehensive
work having a profound impact on its vast readership that covers judges, lawyers,
administrators, law teachers, academicians, students and research scholars. The book has
continuously served the readers for the last several decades. The recently enacted the
Commercial Courts, Commercial Division and Commercial Appellate Division of High
Courts Act, 2015 has made amendments to the Code in order to provide a special streamlined
procedure to be followed in case of commercial disputes

2. Alternative Dispute Resolution: A Conflict Diagnosis Approach (2nd Edition)

by Laurie S. Coltri J.D. Ph.D.
this book addresses the rapidly evolving field of Alternative Dispute Resolution in a manner
ahead of its time. Taking a cross-disciplinary approach, it explains the cognitive, social,
organizational and developmental psychology theories that influence ADR and its
approaches. From mediation to arbitration to hybrid processes, it helps students understand
the strengths and weaknesses of the many varieties of ADR, and why various approaches
succeed or fail. This edition includes streamlined coverage of conflict diagnosis, increased
treatment of non-adversarial, facilitative forms of dispute resolution, and the latest legal and
ethical trends impacting the field.

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 TABLE OF CONTENTS

1. INTRODUCTION………………………………………………………………………..07

1.1 Introduction to Section 89 of the Code of Civil Procedure, 1908...............................07

1.2 Objectives of sec 89……………………………………………………………….…

08

2. ADR MECHANISMS AVAILABLE UNDER SECTION 89……………………………

09

2.1 Conciliation…………………………………………………………………….........09

2.2 Lok Adalat…………………………………………………………..……………….10

2.3 Mediation……………………………………………………………………………11

2.4 Judicial Settlement………………………………………………………………..…13

2.5 Arbitration………………………………………………………………………...…13

3. AFCONS INFRASTRUCTURE AND ORS. V. CHERIAN VERKAY

CONSTRUCTION AND ORS……………………………………………………...……14

3.1 Facts of the Case………………………………………………………………..……14

4. ANOMALY IN AFCONS INFRASTRUCTURE CASE…………………………...……

15

4.1 The mixing up of the definitions of `mediation' and `judicial settlement' under
Clauses (c) and (d) of sub-section (2) of section 89 of the
Code………………………………………15

4.2 That sub-section (1) of section 89 imports the final stage of conciliation referred to in

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Section 73(1) of the AC Act into the pre-ADR reference stage under section 89 of the
Code……………………………………………………………………………………….…15

5. ISSUES DISCUUSED……………………………………………………...……………16

5.1 Procedure to be followed by a court in implementing section 89 and Order 10 Rule

1A of the
Code……………………………………………………………………………………18

5.2 Consent of all parties to the suit is necessary for reference to arbitration under section

89 of the

Code...........................................................................................................................19

6. EXERCISING JUDICIAL PROCEDURE UNDER SECTION 89 OF THE CPC.............22

7. JUDGEMENT......................................................................................................................24

8. CONCLUSION...................................................................................................................25

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 INTRODUCTION

Generally, it is noticed that Procedural Laws are static in nature and we never notice much
ups and downs while determining procedural matter. But introduction of Section 89 of the
Code of Civil Procedure, 1908 emerged as “Trial Nightmare” for quite long period. This
nightmare gripped the mind of the Indian judicial system till the recent judgment of Afcons
infrastructure and Ors. v. Cherian Verkay Construction and Ors. 2010 (8) SCC 24. I
think this judgment has finally end up the chapter of dynamism of the Alternate Dispute
Resolution which is pro bono for the Indian Judicial System. Section 89 of CPC, 1908, its
need and the revolutionary changes has brought in terms of ADR practices in India. The
mixture in role of Legislature in promoting ADR practices and approach of judiciary in this
context is rightly pointed out in this particular case. The 238 th Report of Law Commission
dated December, 2011 with regard to amending section 89 of the code of civil procedure
provides clear understanding of the existing process of Alternate Dispute resolution and how
the dynamism of Section 89 could be stopped.

INTRODUCTION TO SECTION 89 OF THE CODE OF CIVIL PROCEDURE, 1908

It embodies the legislative mandate to the court to refer sub judice disputes to various ADR
mechanisms enunciated therein where it finds it appropriate to do so, in order to enable the
parties to finally resolve their pending cases through well-established dispute resolution
methods other than litigation. Section 89 CPC has therefore recognized the need and
importance of ADR even at the post litigation stage.

In order to understand the niceties of section 89 CPC it is essential to refer to its text, which is

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as under: 89. Settlement of disputes outside the Court –

(1) Where it appears to the Court that there exist elements of a settlement which may be
acceptable to the parties, the Court shall formulate the terms of settlement and give them to
the parties for their observations and after receiving the observations of the parties, the Court
may re-formulate the terms of a possible settlement and refer the same for-

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat; or

(d) mediation.

(2) Where a dispute has been referred-

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996
(26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for
settlement under the provisions of that Act;

(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the
provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 (39 of
1987) and all other provisions of that Act shall apply in respect of the dispute so referred to
the Lok Adalat;

(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and
such institution or person shall be deemed to be a Lok Adalat and all the provisions of the
Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to
a Lok Adalat under the provisions of that Act;

(d) for mediation, the Court shall affect a compromise between the parties and shall follow
such procedure as may be prescribed.

Thus the court can refer the parties to arbitration, conciliation, mediation, lok adalat or
judicial settlement in terms of section 89 of the Code of Civil Procedure, 1908 for resolution
of their disputes at the post litigative stage. In fact the Delhi High Court has gone one step
forward and held that there is no reason why Early Neutral Evaluation (ENE), which is a
different form of ADR though similar to mediation, cannot be resorted to towards the object
of a negotiated settlement in pursuance of Section 89 of the Code of Civil Procedure, 1908
specially when the parties volunteer for the same.1

1
Bawa Masala Co. v. Bawa Masala Co. Pvt. Ltd, AIR 2007 Delhi 284.

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OBJECTIVES OF SEC 89:

the Law Commission of India2 had recommended the introduction of the conciliation court
system and had underlined the importance of conciliation/ mediation as a mode of ADR. The
Malimath Committee3 had also advocated the need of an amendment in law for introduction
of ADR mechanisms.4

On the recommendations5 of the Law Commission of India and the Malimath Committee the
Code of Civil Procedure (AMENDMENT) Bill was initiated in 1997. The Statement of
Objects and Reasons attached to the said bill 6 Resultantly Section 89 CPC as it stands today
was introduced into the statute book by the Code of Civil Procedure (Amendment) Act, 1999
with effect from 01.07.2002.

With the introduction of this provision, a mandatory duty has been cast on the civil courts to
make an endeavour for settlement of disputes by relegating the parties to an ADR process.

read as under: Statement of Objects and Reasons: “3. (d) with a view to implement the 129th
Report of the Law Commission of India and to make conciliation scheme effective, it is
proposed to make it obligatory for the court to refer the dispute after the issues are framed for
settlement either by way of arbitration, conciliation, mediation, judicial settlement or through
Lok Adalat.7 It is only after the parties fail to get their disputes settled through any one of the
alternate dispute resolution methods that the suit shall proceed further in the section in which
it was filed.8 It has now become imperative that resort should be had to ADR mechanisms
with a view to bring an end to litigation between the parties at an early date.9

ADR MECHANISMS AVAILABLE UNDER SECTION 89

2
Law Commission of India, 129th Report, Urban Litigation : Mediation as Alternative to Litigation (1988)
3
The Malimath Committee submitted its report in August, 1990.
4
Sudipto Sarkar & V.R. Manohar (Eds.), Sarkar’s Code of Civil Procedure (Wadhwa and Company, Nagpur,
11th Edn., 2006).
5
A.R. Lakshmanan, “Settlement of Disputes Outside the Court under section 89(1) read with Order X Rules 1A,
1B and 1C of the Code of Civil Procedure, 1908”, Keynote address delivered at the Karnataka Judicial
Academy, Bangalore on 14.07.2007, 5 MLJ 22 (2007).
6
Ibid.
7
Dr. Sandeepa Bhat B, 'Report Of The Research Project On Alternative Dispute Resolution (ADR) Mechanism
And Legal Aid In The Settlement Of Disputes: A Case Study Of State Of West Bengal, Department Of Justice,
Ministry Of Law And Justice, Under The Scheme Of Action Research And Studies On Judicial Reforms' (WB
NUJS, Kolkata 2017) accessed 22 May 2020.
8
Law Commission of India, 238th Report, Amendment of Section 89 of the Code of Civil Procedure, 1908 and
Allied Provisions
9
Salem Advocate Bar Association v. Union of India, AIR 2003 SC 189.

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CONCILIATION 

Conciliation is a non-adjudicatory ADR process, also governed by the provisions of the AC

Act (Ss.61 to 81). Where the Court, looking to the nature of dispute arrives at a satisfaction
that there are elements of settlement, it can make a reference to Conciliation, if both the
parties to the dispute agree to have negotiations with the help of third party, or third parties,
either by an agreement or by the process of invitation and acceptance provided under Section
62 of the Act followed by appointment of Conciliator(s) as provided in Section 64.

Conciliation may include an advisory aspect. The settlement with the help of the conciliator
under S.74 of the AC Act has same status and effect as if it is arbitral award on substance of
dispute given by arbitral tribunal under S.30. Where the dispute settled with the help of
Conciliator is not subject matter of suit/ proceedings, the Court will have to direct that the
settlements shall be governed by S.74 of the AC Act (in respect of conciliation proceedings),
or S.21 of the Legal Services Authority Act, 1987, (in respect of settlement by a Lok Adalat
or a mediator) to make the settlement effective.

On a reference of conciliation, the matter does not go out of the stream of the Court process
permanently. If there is no settlement, the matter returns to the Court for framing of issues
and trial.

LOK ADALAT

The reference to Lok Adalat does not require consent of the parties. The satisfaction of the
Court to the nature of the dispute, and the elements of settlement, where the issues are not
complicated and do not require determination or adjudication of any dispute, may be referred
to the Lok Adalat. The Court should make a short order preferably in a few lines recording its
satisfaction that the nature of dispute is not complicated; the disputes are easily sort able and
may be settled by applying clear-cut legal principles.

Lok Adalat has no adjudicatory or judicial functions. Their functions relate purely to
conciliation. A Lok Adalat under S.20 of Legal Service Authority Act, 1987 determines a
reference on the basis of a compromise or settlement between the parties at its instance, and
put its seal of confirmation by making an award in terms of the compromise or settlement.
When the Lok Adalat is not able to arrive at a settlement or compromise, no award is made
and the case record is returned to the court from which the reference was received, for

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disposal in accordance with law from the stage, which was reached before reference. No Lok
Adalat has the power to “hear” parties to adjudicate cases as a court does. It discusses the
subject matter with the parties and persuades them to arrive at a just settlement.

In their conciliatory role, the Lok Adalat is guided by principles of justice, equity, fair play.
When the LSA Act refers to ‘determination’ by the Lok Adalat and ‘award’ by the Lok
Adalat, the said Act does not contemplate nor require an adjudicatory judicial determination,
but a non- adjudicatory determination based on a compromise or settlement, arrived at by the
parties, with guidance and assistance from the Lok Adalat. The ‘award’ of the Lok Adalat
does not mean any independent verdict or opinion arrived at by any decision making process.
The making of the award is merely an administrative act of incorporating the terms of
settlement or compromise agreed by parties in the presence of the Lok Adalat, in the form of
an executable order under the signature and seal of the Lok Adalat10

MEDIATION

Mediation is a structured process of dispute resolution in which a mediator, a neutral person

trained in the process of mediation, works with the parties to a dispute, to bring them to a
mutually acceptable agreement. The mediator does not decide the dispute or give an award.
He is only a facilitator and in charge of the process of mediation. Mediation rules of each
State under Chapter X CPC, as recommended in Salem Advocate Bar Association (I) 11 and
(II)12 by the Supreme Court provide for a detailed procedure for mediation.

The mediation is a purely voluntary process in which parties continue out of their free will.
They can opt out at any time. Once an agreement is reached and signed, and is accepted by
the Court, it is enforceable in law by the Court. The mediation avoids adversarial approach
and instead adopts cooperative methods. The parties focus on mutual agreement with long
term gains, which improve their relationship. It offers win situation putting to end to the
dispute in an amicable manner. The mediation looks forward and offers long time acceptable
solution to the parties.

In B.S. Joshi vs. State of Haryana13, the Supreme Court held that in cases such as Section
498A IPC and Section 125 CrPC, where after a settlement no evidence may be led, the High
Court can quash the first information report or the proceedings.
10
State of Punjab & Anr. Vs. Jalour Singh & Ors., (2008) 2 SCC 660;
11
Salem Advocate Bar Association (I), (2003) 1 SCC 49
12
Salem Advocate Bar Association (II), (2005) 6 SCC 344;
13
B.S. Joshi vs. State of Haryana, AIR 2003 SC 1386;

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The mediation is recommended in all such matters in which the relations between the parties
have to survive beyond litigation. The Court should refer all such matters to mediation in
which disputes relating to properties, partition, marriage and custody of children, commercial
and business are involved. The mediation also succeeds in consumer disputes, suppliers,
contractors, banking, insurance, labour matters, doctor and patients, landlord and tenant and
in cases relating to intellectual property rights.

Mediation is not recommended, where questions of law are involved to be adjudicated by the
Court, or in which offences of moral turpitude and fraud are involved. Mediation is also not
recommended, when there is serious imbalance between the positions of the parties, in which
fair negotiation is not possible.

The court annexed and court referred Mediation Centres have been established in almost all
the High Courts and District Courts. In High Court, the Mediation Centres are run by the
Mediation Centres under the Supervisory Committees or Director/ Coordinator. In District
Courts, Mediation Centres are run by State Legal Services Authorities with a Judicial Officer
appointed as Coordinator in each district. There are five essential requirements for any
Mediation Centre namely awareness, infrastructure, training of mediators and referral judges,
reference by judges under Section 89 and Order X CPC and funds. The 13th Finance
Commission has given grants to set up one Mediation Centre in each of the 600 districts in
the country with outlay of 750 courts including one court for ADR centres in each district and
remaining amount for training out of which 10% may be spent for awareness.

The mediators receive training from the trainers of MCPC and those mediators, who have
gained sufficient experience in Mediation Centres in the High court. In the process of
mediation after receiving brief summary of the case from the parties, the mediator gives an
opening statement, explaining the entire structure including voluntariness of the mediation
process. He commits parties to good behaviour and allows them to sign a form to abide by the
terms of the mediation process. He actively listens without showing any sympathy, holds
joint and separate sessions, to identify the issues of conflict. He, thereafter, proceeds to
discuss the strength and weaknesses of the case with the parties and sets up the agenda. He,
thereafter, opens the channels of communication, brain storming the options, which the
parties generate among themselves, while controlling the process. He allows the parties to
focus on their long term interests, takes them out of impasse, if any such situation arise, and
brings out underlying issues. The mediator uses dynamic process of negotiation and
bargaining explaining the parties to the Best Alternative to Negotiated Settled Agreement

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(BATNA) and Worst Alternative to Negotiated Settled Agreement (WATNA).

Parties may agree to resolve the dispute, which may also involve the issues, which are not
involved in the case, and may arrive at an agreement, which is mutually beneficial and
acceptable. The mediator, thereafter, holds, if the parties reach to a settlement in drafting
realistic, legal, valid and effective settlement, which resolves all the issues between them and
does not leave anything for any further dispute in future. The agreement then comes to the
Court and may be accepted with or without modifications, which the Court may suggest and
to which the parties may agree. On the acceptance of the agreement, it becomes binding on
the parties under Order 23 Rule 1 CPC against which no appeal lies. The agreement may be
vitiated only in case of misrepresentation or fraud. The process is entirely confidential in
which the mediator binds himself to the confidentiality and cannot be required to appear in
court as a witness to the proceedings. The person in charge of Mediation Centre maintains the
confidentiality and ethics amongst mediators and in the process of mediation.

JUDICIAL SETTLEMENT 

The Court may at the stage of Section 89 or Order X Rule 1A, 1B, 1C, looking to the nature
of dispute and on being satisfied that there are elements of settlement, refer the dispute for
judicial settlement. If the Court feels that a suggestion or guidance by a judge would be
appropriate, it may refer the dispute to another judge for dispute resolution. The Judicial
Officer to whom the case is referred shall make efforts for settlement between the parties and
follow such procedures as may be prescribed. Where the settlement is arrived at before such
other judge, the settlement agreement will have to be placed before the court, which referred
the matter, and that Court will make a decree in terms of it. The case may not be tried by the
same judge to whom the matter is referred for judicial settlement but the parties did not agree
to settle the matter.

ARBITRATION UNDER SECTION 89 CPC

Arbitration is one of the modes of ADR prescribed by section 89 CPC. Even prior to
incorporation of Section 89 in the Code of Civil Procedure, 1908 the parties to litigation, with
mutual consent, could take recourse to arbitration as a mode of resolution of their dispute
which was sub judice before a court of law in terms of the Arbitration and Conciliation Act,

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1996 itself.14 The Arbitration and Conciliation Act, 1996 however, did not contemplate a
situation as in Section 89 CPC where the Court asks the parties to choose any ADR
mechanism and the parties choose arbitration as their option.

Section 89 CPC now provides for reference of a dispute in a sub judice matter to Arbitration.
The statute15 further provides that for arbitration the provisions of the Arbitration and
Conciliation Act, 1996 shall apply as if the proceedings for arbitration were referred for
settlement under the provisions of that Act. However, if reference is made to arbitration under
section 89 CPC, the Arbitration and Conciliation Act, 1996 would apply only from the stage
after reference and not before the stage of reference when options under section 89 CPC are
given by the court and chosen by the parties.16

Even though section 89 CPC mandates courts to refer pending suits to any of the several
ADR processes mentioned therein, there cannot be a reference to arbitration even under
section 89 CPC, unless there is a mutual consent of all parties, for such reference. 17 However,
once the matter is referred to arbitration the matter permanently moves out of the realm of
court proceedings and the suit stands disposed of at that very stage and afterwards the matter
has to be resolved in terms of the Arbitration and Conciliation Act, 1996.

AFCONS INFRASTRUCTURE AND ORS. v. CHERIAN VERKAY

CONSTRUCTION AND ORS. [2010 (8) SCC 24]

FACTS OF THE CASE

The Cochin Port Trust (2nd Respondent) entrusted the work of construction of certain bridges
and roads to the Afcons Infrastructure and Ors. (Appellants) under an agreement dated
20.04.2001. The Afcons Infrastructure and Ors. Sub-contracted a part of the said work to
Cherian Verkay Construction (1st Respondent) under an agreement dated 1.8.2001.

Cherian Verkay Construction filed a suit against the Afcons Infrastructure and Ors. for
recovery of Rs.210,70,881 which includes the amount due to the appellants from the
employer with interest at 18% per annum.

In the same suit an order of attachment was made on 15.09.2004 in regard to the sum of Rs.

14
P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539
15
S. 89(2)(a), Code of Civil Procedure, 1908.
16
Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC 3353
17
Jagdish Chander v. Ramesh Chander, 2007 (6) SCC 719.

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2.25 crores. Thereafter, In March 2005 ,Cherian Verkay Construction filed an application
under section 89 of CPC before the trial court praying that the court may formulate the terms
of settlement and refer the matter to arbitration.

Afcons infrastructure and Ors. filed a counter dated 24.10.2005 to the application submitting
that they were not agreeable for referring the matter to arbitration or any of the other ADR
processes under section 89 of the Code.

In the meanwhile, the High Court of Kerala by order dated 8.9.2005, allowed the appeal filed
by the appellants against the order of attachment and raised the attachment granted by the
trial court subject to certain conditions. While doing so, the High Court also directed the trial
court to consider and dispose of the application filed by the first respondent under section 89
of the Code.

The trial court after hearing the parties allowed the said application under section 89 of the
code. Then ,the Appellants filed the review petition against the order of the trial court.

The High Court by the impugned order dated 11.10.2006 dismissed the revision petition
holding that the apparent tenor of section 89 of the Code permitted the court, in appropriate
cases, to refer even unwilling parties to arbitration. This order was challenged in the Supreme
Court as an Appeal.

ANOMALY IN AFCONS INFRASTRUCTURE CASE

Not a single provision in the legal world seems genuine or uncontroversial. Law is a naturally
evolving subject. It is based on the development of society and its entities. According to my
opinion, it does not confine our ideas and strength but limits our scope.

The Supreme Court rightly pointed out various drafting errors in interpreting section 89 of the
code of civil procedure.

1. THE MIXING UP OF THE DEFINITIONS OF `MEDIATION' AND `JUDICIAL SETTLEMENT'

UNDER CLAUSES (C) AND (D) OF SUB-SECTION (2) OF SECTION 89 OF THE CODE

Clause (c) says that for judicial settlement, the court shall refer the same to a suitable
institution or person who shall be deemed to be a Lok Adalat.

Clause (d) provides that where the reference is to mediation, the court shall effect a
compromise between the parties by following such procedure as may be prescribed.

It makes no sense to call a compromise effected by a court, as mediation, as is done in clause

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(d). Nor does it make any sense to describe a reference made by a court to a suitable
institution or person for arriving at a settlement as judicial settlement, as is done in clause
(c).18

Judicial settlement is a term in vogue in USA referring to a settlement of a civil case with the
help of a judge who is not assigned to adjudicate upon the dispute.

Mediation is also a well known term and it refers to a method of non-binding dispute
resolution with the assistance of a neutral third party who tries to help the disputing parties to
arrive at a negotiated settlement. It is also synonym of the term conciliation.19

When words are universally understood in a particular sense, and assigned a particular
meaning in common parlance, the definitions of those words in section 89 with interchanged
meanings has led to confusion, complications and difficulties in implementation. The mix-up
of definitions of the terms judicial settlement and mediation in Section 89 is apparently due to
a clerical or typographical error in drafting, resulting in the two words being interchanged in
clauses (c) and (d) of Section 89(2). If the word “mediation” in clause (d) and the words
“judicial settlement” in clause (c) are interchanged, we find that the said clauses make perfect
sense.

2. THAT SUB-SECTION (1) OF SECTION 89 IMPORTS THE FINAL STAGE OF CONCILIATION

REFERRED TO IN SECTION 73(1) OF THE AC ACT INTO THE PRE-ADR REFERENCE STAGE

UNDER SECTION 89 OF THE CODE.

Sub-section (1) of section 89 requires the court to formulate the terms of settlement and give
them to the parties for their observation and then reformulate the terms of a possible
settlement and then refer the same for any one of the ADR processes. If sub-section (1) of
Section 89 is to be literally followed, every Trial Judge before framing issues, is required to
ascertain whether there exists any elements of settlement which may be acceptable to the
parties, formulate the terms of settlement, give them to parties for observations and then
reformulate the terms of a possible settlement before referring it to arbitration, conciliation,
judicial settlement, Lok Adalat or mediation. There is nothing that is left to be done by the
alternative dispute resolution forum. If all these have to be done by the trial court before
referring the parties to alternative dispute resolution processes, the court itself may as well

18
O. P Malhotra, The Law and Practice of Arbitration and Conciliation (2nd edn, LexisNexis 2006).
19
Black's Law Dictionary, 7th Edition, Pages 1377 and 996

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proceed to record the settlement as nothing more is required to be done, as a Judge cannot do
these unless he acts as a conciliator or mediator and holds detailed discussions and
negotiations running into hours.

Section 73 of Arbitration and Conciliation Act shows that formulation and reformulation of
terms of settlement is a process carried out at the final stage of a conciliation process, when
the settlement is being arrived at. What is required to be done at the final stage of conciliation
by a conciliator is borrowed lock, stock and barrel into section 89 and the court is wrongly
required to formulate the terms of settlement and reformulate them at a stage prior to
reference to an ADR process. This becomes evident by a comparison of the wording of the
two provisions.

The apex Court tried to make demarcation between the extent of ADR to dispute and
settlement . It was stated in Salem Advocate Bar Association v. Union of India 20 that If the
reference is to be made to arbitration, the terms of settlement formulated by the court will be
of no use, as what is referred to arbitration is the dispute and not the terms of settlement; and
the Arbitrator will adjudicate upon the dispute and give his decision by way of award.

If the reference is to conciliation/mediation/Lok Adalat, then drawing up the terms of the

settlement or reformulating them is the job of the conciliator or the mediator or the Lok
Adalat, after going through the entire process of conciliation/ mediation. Thus, the terms of
settlement drawn up by the court will be totally useless in any subsequent ADR process. 21
It will not be possible for a court to formulate the terms of the settlement, unless the judge
discusses the matter in detail with both parties. The court formulating the terms of settlement
merely on the basis of pleadings is neither feasible nor possible. The requirement that the
court should formulate the terms of settlement is therefore a great hindrance to courts in
implementing section 89 of the Code.

In Salem Bar Association case, it was stated that the court is only required to formulate a
“summary of disputes” and not “terms of settlement”. Interpretation of any statute is based on
the Principle of Statutory Interpretation. This principle applies when there is any ambiguity
in understanding the provisions of the statute. Where the words of the statute are clear and
unambiguous, the provision should be given its plain and normal meaning, without adding or

20
(2005) 6 SCC 344
21
'Evolution Of Arbitration In India - Litigation, Mediation & Arbitration - India' (Mondaq.com, 2016) accessed
7 May 2020.

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rejecting any words22 and ‘when a procedure is prescribed by the Legislature, it is not for the
court to substitute a different one according to its notion of justice, when the Legislature has
spoken, the judges cannot afford to be wiser.’23

ISSUES DISCUSSED

Keeping in view the contentions of both the parties, The apex court formulated two issues
which were later on discussed in this particular case:

1. PROCEDURE TO BE FOLLOWED BY A COURT IN IMPLEMENTING SECTION 89 AND ORDER

10 RULE 1A OF THE CODE.

All over the country, the courts have been referring cases under section 89 to mediation by
assuming and understanding `mediation' to mean a dispute resolution process by negotiated
settlement with the assistance of a neutral third party. Judicial settlement is understood as
referring to a compromise entered by the parties with the assistance of the court adjudicating
the matter, or another Judge to whom the court had referred the dispute.24

Section 89 has to be read with Rule 1-A of Order 10 which requires the court to direct the
parties to opt for any of the five modes of alternative dispute resolution processes and on their
option refer the matter. The said rule does not require the court to either formulate the terms
of settlement or make available such terms of settlement to the parties to reformulate the
terms of possible settlement after receiving the observations of the parties. Therefore the only
practical way of reading Section 89 and Order 10, Rule 1-A is that after the pleadings are
complete and after seeking admission/denials wherever required, and before framing issues,
the court will have recourse to section 89 of the Code. Such recourse requires the court to
consider and record the nature of the dispute, inform the parties about the five options
available and take note of their preferences and then refer them to one of the alternative
dispute resolution processes.

22
A.R Antulay v. R.S Naik & Ors.1987 SCR (1)91
23
Shri Mandir Sita Ramji vs. Lt. Governor of Delhi - (1975) 4 SCC 298
24
77Th Report on Delay and Arears in Trial Courts 1978' (LAW COMMISSION OF INDIA 2014) accessed 22
May 2020.

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It has to be concluded that proper interpretation of section 89 of the Code requires two
changes from a plain and literal reading of the section.

Firstly, it is not necessary for the court, before referring the parties to an ADR process to
formulate or re-formulate the terms of a possible settlement. It is sufficient if the court merely
describes the nature of dispute (in a sentence or two) and makes the reference.

Secondly, the definitions of `judicial settlement' and `mediation' in clauses (c) and (d) of
section 89(2) shall have to be interchanged to correct the draftsman's error.

Clauses (c) and (d) of section 89(2) of the Code will read as under when the two terms are
interchanged (c) for mediation the court shall refer the same to a suitable institution or person
and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the
Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to
a Lok Adalat under the provisions of that Act; (d) for judicial settlement, the court shall effect
a compromise between the parties and shall follow such procedure as may be prescribed.

The Supreme Court declared that the above changes made by interpretative process shall
remain in force till the legislature corrects the mistakes, so that section 89 is not rendered
meaningless and infructuous.

2.CONSENT OF ALL PARTIES TO THE SUIT IS NECESSARY FOR REFERENCE TO

ARBITRATION UNDER SECTION 89 OF THE CODE

The main question discussed by the Supreme Court in this particular case was whether
reference to ADR process is mandatory.

The Court considered the interpretation made in the Salem Bar Association Case which
considered the aspect of advert conflict between the language of section 89 and Order 10
Rule 1A of the code.

However after analysing the fact, the Supreme Court clarified the legal position more aptly
by stating that:

Section 89 starts with the words “where it appears to the court that there exist elements of a
settlement”. This clearly shows that cases which are not suited for ADR process should not
be referred under Section 89 of the Code. The court has to form an opinion that a case is one

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that is capable of being referred to and settled through ADR process 25. Having regard to the
tenor of the provisions of Rule 1-A of Order 10 of the Code, the civil court should invariably
refer cases to ADR process. Only in certain recognized excluded categories of cases it may
choose not to refer to an ADR process.26 Where the case is unsuited for reference to any of
the ADR processes, the court will have to briefly record the reasons for not resorting to any
of the settlement procedures prescribed under Section 89 of the Code. Therefore, having a
hearing after completion of pleadings, to consider recourse to ADR process under Section 89
of the Code, is mandatory. But actual reference to an ADR process in all cases is not
mandatory. Where the case falls under an excluded category, there need not be reference to
ADR process. In all other cases reference to ADR process is a must.

Though, The Supreme Court accepted that in most of the cases references to ADR process is
must but it also mentioned the excluded category which are not to be referred for ADR
Process. Those are:

o Representative suits under Order 1 Rule 8 CPC which involve public interest or
interest of numerous persons who are not parties before the court. (In fact, even a
compromise in such a suit is a difficult process requiring notice to the persons
interested in the suit, before its acceptance).

o Disputes relating to election to public offices (as contrasted from disputes between
two groups trying to get control over the management of societies, clubs, association,
etc.)

o Cases involving grant of authority by the section after enquiry, as for example, suits
or grant of probate or letters of administration.

o Cases involving serious and specific allegations of fraud, fabrication of documents,

forgery, impersonation, coercion etc.

o Cases requiring protection of sections, as for example, claims against minors, deities
and mentally challenged and suits for declaration of title against the Government.

o Cases involving prosecution for criminal offences.

25
Justice S.U. Khan, 'Judicial Settlement Under Section 89 C.P.C. A Neglected Aspect' (Ijtr.nic.in) accessed 23
May 2020.
26
Justice M. Jagannadha Rao, 'CONCEPTS OF CONCILIATION AND MEDIATION AND THEIR
DIFFERENCES' (Lawcommissionofindia.nic.in) accessed May 2020.

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The Supreme Court also stated that all the other suits and cases of civil nature which falls
under the following categories, whether pending in civil courts or any tribunals, can be
referred for ADR Process.

1. All cases relating to trade, commerce, and contracts, including - disputes arising out of
contracts (including all money claims);

a. Disputes relating to specific performance;

b. Disputes between suppliers and customers;

c. Disputes between bankers and customers;

d. Disputes between developers/builders and customers; - disputes between landlords and

tenants/licensor and licensees;

e. Disputes between the insurer and insured;

2. All cases arising from strained or soured relationships, including

a. Disputes relating to matrimonial causes, maintenance, custody of children;

b. Disputes relating to partition/division among family members/coparceners/co-owners; and

c. Disputes relating to a partnership among partners.

3. All cases where there is a need for continuation of the pre-existing relationship in spite of
the disputes, including

a. Disputes between neighbours (relating to elementary rights, encroachments, nuisance,

etc.);

b. disputes between employers and employees;

c. disputes among members of societies/associations/Apartment owners Associations;

4. All cases relating to tortious liability including - claims for compensation in motor
accidents/other accidents; and

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5. All consumer disputes including disputes where a trader/supplier/manufacturer/service
provider is very keen on maintaining his business/professional reputation and credibility or
'product popularity.

In this case, the Supreme Court further highlighted that there is a typographical error in
section 89 of CPC and which must be rectified. It also stated that while referring the disputes,
the judge must careful which ADR he is suggesting or the parties are preferring and the
nature of the dispute which he is referring.

The Supreme Court endeavoured to resolve the conflict under section 89 of the code and
hence made a demarcation as to which cases can be brought under „suitable‟ and
„unsuitable‟ categories for referring ADR processes.

EXERCISING JUDICIAL PROCEDURE UNDER SECTION 89 OF THE CPC

Sometime, it becomes difficult as to when can we exercise ADR process in continuation to

the Judicial Procedure. However, the court have summarized the procedure to be adopted by
the court under section 89 of the code.

 When the pleadings are complete, before framing issues, the court shall fix a
preliminary hearing for appearance of parties. The court should acquaint itself with
the facts of the case and the nature of the dispute between the parties.

 The court should first consider whether the case falls under any of the category of the
cases which are required to be tried by courts and not fit to be referred to any ADR
processes. If it finds the case falls under any excluded category, it should record a
brief order referring to the nature of the case and why it is not fit for reference to ADR
processes. It will then proceed with the framing of issues and trial.

 In other cases (that is, in cases which can be referred to ADR processes) the court
should explain the choice of five ADR processes to the parties to enable them to
exercise their option.

 The court should first ascertain whether the parties are willing for arbitration. The
court should inform the parties that arbitration is an adjudicatory process by a chosen
private forum and reference to arbitration will permanently take the suit outside the
ambit of the court. The parties should also be informed that the cost of arbitration will

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 have to be borne by them. Only if both parties agree for arbitration, and also agree
upon the arbitrator, the matter should be referred to arbitration.

 If the parties are not agreeable for arbitration, the court should ascertain whether the
parties are agreeable for reference to conciliation which will be governed by the
provisions of the AC Act. If all the parties agree for reference to conciliation and
agree upon the conciliator/s, the court can refer the matter to conciliation in
accordance with section 64 of the AC Act.

 If parties are not agreeable for arbitration and conciliation, which is likely to happen
in most of the cases for want of consensus, the court should, keeping in view the
preferences/options of parties, refer the matter to any one of the other three other
ADR processes

(a) Lok Adalat;

(b) mediation by a neutral third party facilitator or mediator; and

(c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.

 If the case is simple which may be completed in a single sitting, or cases relating to a
matter where the legal principles are clearly settled and there is no personal animosity
between the parties (as in the case of motor accident claims), the court may refer the
matter to Lok Adalat. In case where the questions are complicated or cases which may
require several rounds of negotiations, the court may refer the matter to mediation.
Where the facility of mediation is not available or where the parties opt for the
guidance of a Judge to arrive at a settlement, the court may refer the matter to another
Judge for attempting settlement.

 If the reference to the ADR process fails, on receipt of the Report of the ADR Forum,
the court shall proceed with hearing of the suit. If there is a settlement, the court shall
examine the settlement and make a decree in terms of it, keeping the principles of
Order 23 Rule 3 of the Code in mind.

 If the settlement includes disputes which are not the subject matter of the suit, the
court may direct that the same will be governed by Section 74 of the AC Act (if it is a
Conciliation Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if

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 it is a settlement by a Lok Adalat or by mediation which is a deemed Lok Adalat).
This will be necessary as many settlement agreements deal with not only the disputes
which are the subject matter of the suit or proceeding in which the reference is made,
but also other disputes which are not the subject matter of the suit.

 If any term of the settlement is ex facie illegal or enforceable, the court should draw
the attention of parties thereto to avoid further litigations and disputes about
executability.

JUDGEMENT

In this particular case, The Supreme Court relied upon the judgment of Sukanya Holdings
Case27 and held that to contend for a reference to arbitration under section 89 of the Code,
consent of parties is not required. The High Court has assumed that section 89 enables the
civil court to refer a case to arbitration even in the absence of an arbitration agreement.
Sukanya Holdings does not lay down any such proposition. In that decision, this Court was
considering the question as to whether an application under section 8 of the AC Act could be
maintained even where a part of the subject matter of the suit was not covered by an
arbitration agreement. The only observations in the decision relating to Section 89 are as
under:

Reliance was placed on Section 8 9 CPC in support of the argument that the matter should
have been referred to arbitration. The Division Bench held that Section 89 CPC cannot be
resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would
be applicable even in cases where there is no arbitration agreement for referring the dispute
for arbitration. Further, for that purpose, the court has to apply its mind to the condition
contemplated under Section 89 CPC and even if application under Section 8 of the Act is
rejected, the court is required to follow the procedure prescribed under the said section.

27
Sukanya Holding Pvt. Ltd. v. Jayesh H. Pandya & Anrs. 2003(5) SCC 531

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The Court drew out inference that even in the absence of Arbitration agreement, Parties can
go for ADR process through Mutual Consent and Finally the Supreme Court enlightened in
this matter by delivering landmark judgment stating that:

1. The trial court did not adopt the proper procedure while enforcing Section 89 of the
Code. Failure to invoke Section 89 Suo moto after completion of pleadings and
considering it only after an application under Section 89 was filed, is erroneous.

2. A civil court exercising power under Section 89 of the Code cannot refer a suit to
arbitration unless all the parties to the suit agree for such reference.

CONCLUSION

The implementation of Alternative Dispute Resolution mechanisms as a means to achieve

speedy disposal of justice is a crucial issue. . The first step had been taken in India way back
in 1940 when the first Arbitration Act was passed. However, due to a lot of loop ‐ holes and
problems in the legislation, the provisions could not fully be implemented. However, many
years later in 1996, The Arbitration and Conciliation Act was passed which was based on the
UNCITRAL model, as already discussed in the previous section of the paper. The
amendments to this Act were also made taking into account the various opinions of the
leading corporates and businessmen who utilize this Act the most. Sufficient provisions have
been created and amended in the area of Lok Adalat in order to help the rural and commoner
segments to make most use of this unique Alternative Dispute Resolution mechanism in
India. Therefore, today the provisions in India sufficiently provide for Alternative Dispute
Resolution. However, its implementation has been restricted to just large corporates or big
business firms. Lok Adalat, though a very old concept in Indian Society, has not been
implemented to its utmost level. People still opt for litigation in many spheres due to a lot of
drawbacks. Provisions made by the legislators need to be utilized. This utilization can take
place only when a definite procedure to increase the implementation of ADR is followed.
Although ADR programs can accomplish a great deal, however, no single program can

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accomplish all these goals. They cannot replace formal judicial systems which are necessary
to establish a legal code, redress fundamental social injustice, provide governmental sanction,
or provide a court of last resort for disputes that cannot be resolved by voluntary, informal
systems. Furthermore, even the best-designed ADR programs under ideal conditions are
labour intensive and require extensive management. In the development context, particular
issues arise in considering the potential impacts of the ADR. Firstly, some are concerned that
ADR programs will divert citizens from the traditional, community-based dispute resolution
systems.

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