This article is written by Kishita Gupta, a graduate of the Unitedworld School of Law, Karnavati University, Gandhinagar. This article deals with Section 89 CPC (1908) which deals with the settlement of disputes outside of court.
It has been published by Rachit Garg.
“See you in court.”
We have all heard this phrase used very easily around us. But did you know that one can settle disputes outside of the court legally as well? Yes! You read it right. It is not necessary that parties who seek legal justice always approach the court. They can instead resort to the method of Alternative Dispute Resolution (ADR), which is primarily provided by Section 89 of the Code of Civil Procedure, 1908 (hereinafter referred to as ‘CPC’). Court proceedings are sometimes a nightmare as they are costly as well as time-consuming due to the several pending cases in the courts. This Section’s main purpose is to combine judicial and extrajudicial dispute resolution processes and to place alternative dispute processes at the core of the Indian legal system. The goal of introducing Section 89 of the CPC was to encourage peaceful, cordial, and mutually beneficial resolutions between parties without the need for court intervention. In this article, we will be discussing the Section in detail by understanding its sub-sections, judicial pronouncements and any Orders of the Code that deal with the same.
Section 89 CPC : an analysis
Background of Section 89 CPC
Arbitration is well-known in the legal community as a less formal type of adjudication where a decision is made in one party’s favour and the award may be contested. Since 1987, Lok Adalats (peoples’ courts) have gained popularity as a speedy means of resolving minor disputes. Conciliation, which is also referred to as mediation, is a relatively new practice. As a systematic method of dispute resolution, mediation started to gain popularity in the 1970s, first in the United States of America and then in other nations. An impartial party interacts with the parties during this voluntary and private procedure and assists them in reaching a mutually agreeable resolution of their conflict. Mediators have undergone training, use a set of skills and strategies, and adhere to a set of rules. In other nations, courts have established court-annexed mediation centres and are increasingly referring pending cases to mediation.
In the past, structured mediation of this kind was not accessible in India. It was hoped to integrate advancements from other countries into the legal culture of the nation through Section 89. Section 89 of the CPC and the corresponding rules (Order 10 Rules 1A, 1B & 1C) were inserted by Section 7 and Section 20 of the Code of Civil Procedure (Amendment) Act, 1999 Act No. 46 of 1999 (w.e.f. 1.7.2002). The Law Commission of India in its 129th Report proposed the establishment of a conciliation court system and emphasised the value of conciliation/mediation as a form of alternative dispute resolution. The Arrears Committee (commonly known as the ‘Malimath Committee’), in its report, had also suggested that the law needed to be changed in order to include ADR processes. On the recommendations of the Malimath Committee and the Law Commission of India, the legislature introduced the Code of Civil Procedure (Amendment) Bill in 1997.
A clause enabling alternative dispute resolution was included in the CPC from its inception. However, it was repealed by the Arbitration Act (Act 10 of 1940). The previous provision simply mentioned arbitration and the procedure mentioned under its Second Schedule (now repealed). After the 1940 Arbitration Act was passed, it was thought that the legislation had been unified and Section 89 was no longer necessary. This Section has since been amended to include other alternatives in addition to arbitration.
The amendments brought by the CPC Amendment Act of 1999 didn’t have a retrospective effect and didn’t apply to any suit in which the issues were resolved prior to the effective date of Section 7 of the CPC Amendment Act of 1999; instead, it shall be treated as though Sections 7 and 20 of the CPC Amendment Act had never been passed.
The following justifications were given for inserting Section 89 in the Statement of Objects and Reasons (SOR) for introducing the Code of Civil Procedure (Amendment) Bill, 1997:
- The SOR recommended that it needs to be made obligatory for the court to refer to the dispute once the issues are framed for settlement by arbitration, conciliation, mediation, judicial settlement, or through Lok Adalat.
- The abovementioned point is important in order to implement the Law Commission’s report and an effective conciliation scheme.
- Further, the suit will only continue in the court where it was filed if the parties are unable to resolve their differences through one of the alternative dispute resolution procedures.
The State must ensure that the functioning of the legal system promotes justice on the basis of equal opportunity, according to Article 39A of the Indian Constitution (enacted in 1976), and must, in particular, provide free legal aid through appropriate legislation or programmes to ensure that opportunities to secure justice are not denied to any citizen due to economic or other disabilities. Therefore, the cherished objectives of our Constitutional Republic—and for that matter, of any progressive democracy—are easy access to justice for all groups of people, the provision of legal aid for the poor and needy, and the administration of justice by an independent judiciary within a reasonable timeframe.
Since the consensual ADR processes resolve disputes with a great deal less time and expense, protect relationships, and lessen the load of the courts, the legislative intent was commendable. However, much of Section 89 was unclear and directly at odds with fundamental ADR principles and practices as it was written and implemented. For a number of years, the courts refrained from using Section 89, partly due to this uncertainty.
What does Section 89 CPC say
“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 reformulate the terms of a possible settlement and refer the same for:–
(c) judicial settlement including settlement through Lok Adalat: or
(2) Were 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 shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.”
Order 10 Rule 1 CPC : allied provision to Section 89 CPC
The following extracts from Rules 1A, 1B, and 1C of Order X, CPC, which are related provisions that were included by the same amending Act, are provided:
Order 10 Rule 1A
Rule 1A deals with the direction of the court to opt for any one mode of alternative dispute resolution. In general terms, it states that it is in the power of the court to instruct the parties to the lawsuit to choose one of the two methods of out-of-court settlement as described in subsection (1) of Section 89 after recording the admissions and denials. Then, the court will set the date of the parties’ presence before the forum or authority of their choice at their request.
Order 10 Rule 1B
Rule 1B deals with the appearance before the conciliatory forum or authorities. It states that the parties must appear before the forum or authority for conciliation when a suit is referred under Rule 1A.
Order 10 Rule 1C
Rule 1C deals with the appearance before the court consequent to the failure of efforts of conciliation. It states that if a lawsuit is referred under Rule 1A and the forum or authority to which the matter has been referred, determines that, further action would not be desirable in the interest of justice, it shall re-refer the case to the court and order the parties to appear before the court on the date set by it.
However, along with Section 89, these rules are also highly criticised. Therefore, in order to correct this, in the year 2011, the Law Commission of India through its 238th Report made suggestions for the amendment. It suggested the following amendments to the above mentioned rules:
It is necessary to eliminate existing Rule 1B of Order 10 of the CPC. The following rules shall be used in place of the current Rules 1A and 1C of Order 10:
“1A. Direction of the court to opt for any one mode of alternative dispute resolution. – At the stage of framing issues or the first hearing of the suit, the court shall direct the parties to opt either mode of the settlement outside the court as specified in sub-section (1) of section 89 and for this purpose may require the parties to be personally present and in case of nonattendance without substantial cause, follow the procedure for compelling the attendance of witness. The court shall fix the date of appearance before such forum or authority or persons as may be opted by the parties or chosen by the court.”
“1B Appearance before the court consequent upon the failure of efforts of conciliation . – Where a suit is referred under rule 1A and the presiding officer of conciliation forum or authority or the person to whom the matter has been referred is satisfied that it would not be proper in the interest of justice to proceed with the matter further, in view of the stand taken by the respective parties, it shall refer the case back to the court who shall direct the parties to appear before it on the date fixed and proceed with the suit.”
Fundamental issues with Section 89 CPC
- Two definitions were inapplicable. A judge mediates a settlement meeting between the parties in conflict, warns them of the issues in their case, and implores them to reach a settlement. But Section 89(2)(c) defined ‘judicial settlement’ as a court’s reference to a body or someone that is presumed to be a Lok Adalat. When it came to the definition of ‘mediation,’ Section 89(2)(d) stated that the court would reach a settlement on behalf of the parties by adhering to any approved method, but mediation entails a neutral third party who assists the parties in reaching a solution.
- The Section required that the court draft the terms of settlement before making any mention of the ADR procedures. If this is to happen, the judge will need to review all the case materials and possibly listen to the attorney’s arguments. One of the key benefits of ADR is that it will save court time; if the judge has to come up with the terms of the settlement, that is not going to happen. Furthermore, if he does so, the parties and the mediator might be constrained by the formulation and prevented from adopting a wider viewpoint and taking into account several potential settlement choices.
- Conciliation and mediation were depicted in Section 89 as two distinct procedures. In the earlier case, it was said that the subject should be addressed in accordance with the requirements of the Arbitration and Conciliation Act, 1996, while in the latter case, it was indicated that the compromise is to be implemented by the court in accordance with the established procedure. This ignores facts. The majority of nations employ one term or another, regarding them as interchangeable; only seldom are they given separate meanings. There is no distinction between the processes in real-world use. Prior to the 1970s, ‘conciliation’ was more frequently used, and then ‘mediation’ gained popularity. Judges, practitioners, and disputants were troubled by the dichotomy that Section 89 produced.
- Additionally, Section 89 did not have any written guidelines for how it should be used.
Conciliation and mediation
Five different ADR methods are mentioned in Section 89: arbitration is an adjudicatory process, and the other four are not (conciliation, mediation, judicial settlement, and Lok Adalat settlement).
Conciliation has been artificially divided into four groups, which has led to various issues. The settlement authenticated by the conciliator(s) or Lok Adalat members is regarded as a decree, for instance, if the negotiated solution is referred to as a “settlement in conciliation” or ‘Lok Adalat settlement’ or ‘judicial settlement.’ But if the agreement is referred to as a “settlement in mediation,” even if it is confirmed by the mediator(s), it is not regarded as a decree.
There is no distinction between ‘conciliation’ and ‘mediation’ in legal terms. Both terms can be used interchangeably. Both terms allude to the informal dispute resolution procedure in which the opposing parties are assisted in reaching a settlement by a neutral third party. The conciliator’s or mediator’s job is to listen to the parties, determine the facts, circumstances, and nature of the conflict, pinpoint the source of the grievance, make settlement options, and assist the parties in reaching an agreement. Conciliators may propose terms of the settlement according to the appropriate statute (Section 73 of the Arbitration and Conciliation Act, 1996). Therefore, in India, there is no difference between ‘conciliation’ and ‘mediation.’
But recently, a divergence has begun to take shape. The practice of conciliation is known as mediation, where the conciliator is a trained professional in the art of mediation (as opposed to a layperson, friend, relative, well-wisher, or social worker serving as a conciliator). Conciliation is the term used to describe the process when a non-professional mediator assists the parties in reaching a settlement. Whatever the differences, mediation is still conciliation.
Mixing up mediation and judicial settlement
The Arbitration and Conciliation Act, 1996’s provisions will apply when the disagreement is referred to arbitration or conciliation, according to subsection (2) of Section 89, and the Legal Services Authority Act, 1987’s provisions will apply when the dispute is referred to Lok Adalat. All is well thus far. Concerning clauses (c) and (d) of sub-section (2), there is ambiguity. According to clause (c), the court must recommend a ‘judicial settlement’ to an appropriate entity or individual who will be regarded as a Lok Adalat. When ‘mediation’ is mentioned, according to clause (d), the court must mediate a settlement between the parties by adhering to any approved procedure.
It is absurd to refer to a court-enacted compromise as ‘mediation,’ as is done in clause (d). Additionally, it makes no sense to refer to a court’s suggestion of an appropriate party or entity for reaching a settlement as a ‘judicial settlement,’ as is done in clause (c). The term ‘judicial settlement,’ which is popular in the USA, refers to a compromise reached by a court. According to Black’s Dictionary, ‘judicial settlement’ refers to the resolution of a civil case with the assistance of a judge who is not designated to decide the case. The term ‘mediation’ refers to the process of helping disputing parties reach a mediated settlement through the use of an impartial organisation or individual. When words are used in everyday speech and are commonly understood to have a specific meaning, defining or using such words in Section 89 with entirely different meanings has caused confusion and complicated implementation. Due to a clerical or typographical error in the writing of Section 89 (2), the terms ‘judicial settlement’ and ‘mediation,’ which have different meanings, are interchanged in clauses (c) and (d).
Clauses (d) and (c) make perfect sense if the words ‘mediation’ in clause (d) and the words ‘judicial settlement’ in clause (c) are swapped, as seen below:
( c )The Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the issue were referred to a Lok Adalat under the terms of that Act; the court shall refer the matter to a suitable institution or person for mediation, and such institution or person shall be deemed to be a Lok Adalat;
( d ) In order to reach a judicial settlement, the court must reach an agreement between the parties and adhere to any mandated procedures.
Compromise effected by establishing mediation rules under Section 82(2)(d) of the court’s rules
In accordance with Section 89(2)(d), some High Courts have now established Mediation Rules that call for the creation of a panel of mediators and the referral of cases to ‘mediation’. Although Section 89(2)(d) refers to court-mediated settlement, the subject matter of such rules is obviously related to conciliation by a third party (person or institution). As a result, as you may have already noticed, when a settlement is reached with the help of a ‘mediator,’ even though the mediator authenticated the agreement, the settlement is not considered to be a decree. However, when the same settlement is reached by appointing the mediator as a conciliator, the settlement is considered to be a decree.
There might not be a need for any ‘rules’ under Section 89 if ‘judicial settlement’ and ‘mediation’ in clauses (c) and (d) are interchangeable. This is due to the fact that pre-litigation conciliation and mediation will be governed by the Arbitration and Conciliation Act, 1996, while post-litigation conciliation and mediation will be governed by the Legal Services Authority Act, 1987. A judge will assist in a judicial settlement. Lok Adalat settlements are also judge-assisted because a judge serves as the Lok Adalat together with another member. The Legal Services Authority Act, 1987 can be used to regulate both ‘judicial settlement’ and ‘Lok Adalat settlement,’ which are essentially the same thing.
Including the conciliation’s final process into the pre-ADR reference
According to Section 89, the court must draft the settlement terms and provide them to the parties for their review before reformulating the conditions of a potential settlement and referring the matter to ADR procedures. Really, this is not essential. The specifics of the settlement will be useless if arbitration is mentioned because the issue itself is what is being discussed. If conciliation, mediation, or Lok Adalat are being discussed, the conciliator, mediator, or members of the Lok Adalat are responsible for drafting the conditions of the settlement or reformulating them.
The free process of a negotiated settlement would actually be hampered by any terms of settlement created by the court. The conditions of a settlement that have been created or modified will never be useful or relevant in an ADR proceeding. So, should the difficult and sensitive work of drafting settlement terms, which are unnecessary at the pre-reference stage, fall to the courts?
It should be noted that until the judge has a thorough discussion with both parties, the court will not be able to determine the conditions of the settlement. It is neither practical nor possible for the court to determine the terms of settlement based solely on the pleadings. In the case of Salem Advocate Bar Assn. v. Union of India (2005), the Supreme Court attempted to mitigate this issue by equating “terms of the settlement” with a “summary of disputes.” Courts have a difficult time putting Section 89’s mandate that the judge should draft settlement conditions into practice.
The court must draft the terms of settlement and reformulate them in the pre-ADR stage, according to Section 89(1). According to Section 73 of the Arbitration and Conciliation Act, the terms of the settlement should only be formulated or revised as part of the actual settlement at the very end of the conciliation process. The court incorrectly prescribes what must be done at the pre-reference stage of the ADR procedure in place of what must be done at the final stage of conciliation by the conciliator. A comparison of the two provisions’ phrasing demonstrates this. The pre-reference phase of the ADR process is not the time for the court to formulate and rephrase the parameters of settlement.
Changing a requirement that is obligatory into a directory provision
“Where it appears to the court that there are components of a settlement which may be acceptable to the parties,” begins Section 89(1). This suggests that the court must only mention the ADR procedure if it believes there are elements of settlement present. It also means that the court need not put forth the terms of the settlement if it does not appear to the court that any components of the settlement exist. As a result, these terms often make what was meant to be a mandatory or obligatory activity merely an advisory or voluntary one.
Double taxing of fee
Conciliation, mediation, and Lok Adalat settlements are examples of non-adjudicatory (non-binding) conflict resolution methods that Section 89 should ideally support. Arbitration is a final and conclusive method of resolving disputes. Section 8 of the Arbitration and Conciliation Act, 1996 governs references to arbitration in pending proceedings that are made in accordance with a current arbitration agreement. The court may send issues that are the subject of a lawsuit to arbitration whenever and wherever both parties agree to arbitration, even if there is no prior arbitration agreement. The arbitrator’s fee must be paid in arbitration.
Contrarily, court referrals to conciliation or Lok Adalats have always been free and without cost to the party seeking the referral. However, free assistance in court-referred mediations may no longer be an option given the popularity of mediation by trained professionals. In actuality, the parties to a dispute must pay the costs of conciliation and mediation under ADR and mediation rules. It might not be fair to ask the litigant to pay for conciliation or mediation when he has already paid the court charge associated with the lawsuit.
Currently, the litigant does not pay a fee when a matter is submitted to Lok Adalat for negotiation of a settlement. The Legal Services Authorities hold Lok Adalats free of charge. In addition to holding Lok Adalats, the Legal Services Authorities should also offer free conciliation and mediation as additional options for resolving disputes. Each Legal Services Authority should maintain a panel of mediators. Asking a litigant to pay twice for a dispute resolution, once as court fees and again as conciliator/mediator fees under ADR/Mediation Rules is neither logical nor just.
When a reference is made under Section 89, it is not intended for any of the parties to be held financially responsible for any alternative dispute resolution procedures. A new Section 16 was added to the Court Fees Act of 1870 by the Code of Civil Procedure (Amendment) Act of 1999, along with Section 89 to the CPC.
Only a select few states have implemented the Court Fees Act of 1870. There are various states with their own different laws regarding court costs. Many of them do not have a corresponding clause for court fee reimbursement.
If Section 16 of the Court Fees Act, 1870 is relevant, the plaintiff is entitled to a certificate from the court authorising the return of the entire court fee paid on the plaint. This is true even if only one of the dispute resolution options under Section 89 is mentioned. If Section 89 is considered to be obligatory, then almost all court fees spent on lawsuits would need to be reimbursed.
But what will happen if the parties return to court for resolution after using conciliation, mediation, or Lok Adalats but without reaching an agreement? When a referral is made, if the court fee paid by the plaintiff has already been returned to him or her, and if there is no provision for charging a new court fee when the case is heard again, the suit’s adjudication is free. This effectively eliminates the need for court fees for lawsuits. Was this the lawmakers’ intent?
According to Section 21 of the Legal Services Authorities Act, 1987, a compromise or settlement between the parties is required before the court fee paid in a case that is resolved before the Lok Adalat will be reimbursed in the manner specified by the Court Fees Act, 1870. However, the Court Fees Act of 1870’s Section 16 stipulates that the court charge is returned simply upon the court’s reference to any ADR process. Conflict is also caused by this.
A more practical solution would be to remove both the rule requiring that the litigant pay for conciliation/mediation costs and the clause allowing for any reimbursement of court fees. Conciliation and mediation should be free while the case is pending. Of course, arbitration is different. Although it is totally optional, if both partners choose to use it, they will both be required to pay for it.
Judicial pronouncement on Section 89 CPC
Afcons Infrastructure Ltd. and Ors. v. Cherian Varkey Construction Co. (P) Ltd. (2010)
Afcons Infrastructure Ltd. and Ors. v. Cherian Varkey Construction Co. (P) Ltd. 2010 (8) SCC 24
Facts of the case
One of the defendants, the Cochin Port Trust, contracted with the petitioners, Afcons Infrastructure, and a few other parties on April 20, 2001, to create a few overpasses and roadways. The Afcons Infrastructure and Ors., the other defendant, subcontracted Cherian Varkey Construction to complete a portion of the work on August 1st, 2001. It is beyond question that the contract signed by the petitioners and the primary respondent had no provision for obtaining relief through arbitration in the event of a dispute.
The first defendant filed a lawsuit against the respondents seeking to recover their property and a little over 2 crore rupees at an interest rate of 18% annually. On September 15, 2004, a court issued an attachment order for the sum of Rs. 2 crores. The first defendant filed an application with the trial court in March of the following year, using Section 89 of the Civil Procedure Code, pleading for the preparation of the settlement terms and avoiding arbitration of the current dispute.
The appellants filed a counterclaim on October 24, 2005, stating that they opposed bringing the matter to arbitration or other types of ADR under Section 89 of the CPC. On September 8, 2005, the Kerala High Court approved the petitioners’ appeal and took into account the attachment that had been authorised by the lower court. In addition, it required the lower court to reject the application submitted by the first defendant in accordance with Section 89 of the CPC.
By a proposed mandate dated October 26, 2005, the trial court approved the Section 89 petition and stated that arbitration was the appropriate forum for the resolution of the dispute. In defiance of the trial court’s order, the appellants provided documentation of a retrial. In a speculative judgement, the High Court dismissed the appeal, claiming that the clear intent of Section 89 required the court to subject even non-consenting parties to the arbitration process. Consequently, the order was presented to the Apex Court through an appeal.
Issues in the case
- What procedure should the court use in order to enforce Section 89 and Order 10 Rule 1A of the CPC?
- Does Section 89 of the CPC require the approval of both parties to the lawsuit in order to initiate arbitration as a process?
Observations of the Court and its analysis
The technical issues in the definition
The Court started by addressing the definitions of ‘judicial settlement’ and ‘mediation’ under Sections 89(2)(c) and 89(2)(d), respectively, under the heading “What is wrong with Section 89 of the Code?”. According to the Court, “it makes no sense to describe a compromise effected by the court as mediation” and “it makes no sense to describe a referral made by the court to an institution or person as judicial settlement.” The Court determined that the definitions of mediation and judicial settlement were misunderstood. In other words, what is referred to as mediation is actually a court settlement, and the reverse is true of what is referred to as mediation. The Court stated, “We find that the foregoing clauses make perfect sense if the terms ‘mediation’ in clause (d) and the words ‘judicial settlement’ in clause (c) are interchanged.” The Court continued, “probably due to a clerical or typographical error in drafting,” this confusion being the cause. It is argued that the Court showed the parliamentary draughtsman kindness.
Issue of prescription
The prescription under Section 89 to the judge to create and reformulate settlement terms was then addressed by the Court. The Court stated that if sub-section (1) of Section 89 is to be taken literally, every trial judge must determine whether there are any components of a settlement that might be acceptable to the parties before framing issues, formulate the terms of the settlement, present them to the parties for comments, and then reformulate the terms of a potential settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat, or mediation. The alternative dispute resolution forum has no further action to take. If the trial court must complete all of these steps before referring the parties to alternative dispute resolution procedures, it may as well record the settlement itself because no further action is necessary. A judge cannot complete these steps unless he serves as a conciliator or mediator and engages in lengthy discussions and negotiations.
Issue of whether conciliation and mediation were different processes
The Court determined that mediation was “a synonym of the term conciliation” when it came to the question of whether conciliation and mediation were distinct processes. However, the Court provided no justification for this conclusion other than citing Black’s Law Dictionary in doing so. Since there are differing opinions in India regarding this fundamental issue, it would have been preferable for the Court to engage in debate and provide evidence for its conclusions. The Court could have discussed what ‘mediation’ and ‘conciliation’ are, how they are used abroad, the reasons why there is a perceived difference between the two processes, and how there is essentially no difference between them in practice because they are both methods of consensual dispute resolution that involve the assistance of neutral third parties who have no decision-making power, the process is confidential, and the disputants are allowed to participate.
The Court could have also considered the issues that could develop if each term were to be given a different degree or sort of distinction. There is particular ambiguity regarding the distinction between mediation under court-referred schemes and conciliation under the Arbitration and Conciliation Act. The Justice Jagannadha Rao Committee’s Model ADR Rules, which aimed to distinguish between mediation and conciliation by stating that the conciliator has a stronger role than a mediator, made matters worse. That misunderstanding has spread across the entire nation as a result of the High Court’s acceptance of the Model ADR Rules. For judges, attorneys, and mediators to understand that there is no difference between the two processes of mediation and conciliation, a thorough analysis would have been useful. Nevertheless, one should find solace in the fact that the Supreme Court has now explicitly said that conciliation and mediation are the same thing.
The Court essentially rewrote the clause by modifying the definitions of ‘mediation’ and ‘judicial settlement,’ eliminating the requirement for formulation and reformulation of settlement and equating mediation and conciliation. It used all of its interpreting abilities. It is common for a court to interpret a statute’s text differently on the grounds that doing so would result in apparent contradictions, difficulties, absurdities, or hardships. However, it is uncommon to see a court change definitions or essentially ignore a statutory requirement, such as creating settlement conditions. There is no question that this was required to provide the Act coherence, purpose, and utility, even if it could be agreed that the Court used exceptionally broad interpretational powers. In this instance, the degree of oddity, ambiguity, and departure from clarity in the law as legislated had to be matched by the degree of interpretation that was necessary. The Court made it clear that the adjustments it made would remain in effect until the legislature fixed the errors, which is the typical disclaimer attached to judge-made law.
Issue of whether the reference to ADR processes is mandatory
It was observed that Section 89 begins with the phrase “when it appears to the court that there exist components of a settlement….”, indicating that the Court had to determine if the case was appropriate for ADR. The Court noted that Order 10 Rule 1-A’s general intent would lead courts to always send matters to ADR, which provides that “the court shall order the parties to the suit to pick any mode of settlement outside the court.” In order to harmonise these two CPC rules, the Court determined that, under Section 89, courts must contemplate using ADR, but actual use is not required. It continued by defining an excluded group in which no mention of ADR is required and making the observation that “in all other circumstances, reference to ADR proceedings is a must.”
Stage of making the reference under Section 89
The Court believed that the time to make the reference under Section 89 should be after the pleadings are finished but before the trial starts. The exception, according to the document, is in divorce matters where the hostility between the parties will be heightened by counter-allegations made by the respondent. As a result, it is advised that the reference be made as soon as the respondent has been served. ‘Experience demonstrates that situations other than matrimonial ones can also be resolved early on,’ it is said. It is ideal if there isn’t a rigid prohibition against referrals before the pleadings are finished, leaving it up to the judge, the parties, and the counsel to examine it in light of the specific case’s facts and circumstances. It is advised for the courts to issue such referrals only with the permission of both parties in cases where the pleadings have not yet been completed.
Step-by-step procedure under Section 89
The judgement gave a step-by-step procedure under Section 89:
- The parties’ willingness to submit their dispute to arbitration should be the court’s first priority. The parties should be made aware that they are responsible for paying the arbitration fees. It should only be sent to arbitration if both parties agree to it. Once arbitration is mentioned, the case is no longer in the court’s purview.
- The courts should determine if the parties are willing or agreeable to refer to conciliation if the parties are not amenable to arbitration. The provisions of the Arbitration and Conciliation Act, 1996 will apply to this. According to Section 64 of the Act, the parties must jointly choose conciliators. In the absence of a resolution, the conciliation process is ended, and the case is sent back to court for issue framing and trial preparation.
- The court must decide which of the three alternative dispute resolution (ADR) procedures—Lok Adalat, mediation, and judicial settlement—is most suitable and appropriate for the particular case at hand if the parties are unwilling to participate in arbitration or conciliation. These do not call for parties’ consent.
Issue of enforcement of settlements reached in ADR
- In accordance with Section 36 of the Arbitration and Conciliation Act of 1996, the arbitral award is enforceable and has the same legal force as a court order. If a settlement is reached during the arbitration process, the award made in that regard will be enforceable and binding under Section 30 of the Act.
- The provisions of the Arbitration and Conciliation Act would apply in the event of a conciliation settlement; the settlement is to be regarded as an arbitral award on mutually agreed-upon conditions.
- The Legal Services Authority Act’s provisions will apply in cases when a settlement is reached in Lok Adalat. When the parties reach a settlement, the Lok Adalat makes an award, which is regarded as a court order and is enforceable.
- When a settlement is reached through judicial or court-annexed mediation, the court must review the agreement and issue a ruling on its terms while bearing in mind Order 23 Rule 3 CPC.
Consent of the parties for recourse to arbitration under S.89
The Supreme Court noted that Section 89 of the Code clearly states that suits that are not appropriate for ADR should not be used as a last option. If the matter is not appropriate for referral to the same, the court must clearly document the reasons why it chose not to use any of the settlement options described in Section 89. There does not need to be an ADR referral where the suit falls under a disregarded category. If not, using ADR must be strictly avoided.
Representative lawsuits that involve the public interest, disagreements over candidates for public office, the section’s awarding of authority following an investigation, and arraignment for criminal offences are among the categories that are excluded. ADR may be used in civil lawsuits that fall within one of the aforementioned categories. These encompass lawsuits relating to business, commerce, and agreements, the necessity of maintaining a prior connection, tortious obligations, and customer complaints. The Apex Court attempted to address the issue under Section 89 by making such a delineation.
Cases suitable for ADR
The Supreme Court further went on to list the matters that were appropriate for ADR procedures and were currently ongoing in civil courts or special tribunals. These situations are categorised into five categories:
- All cases involving contracts, trade, and commerce;
- Every case involving a tense relationship, such as marriage disputes;
- All instances where maintaining the pre-existing relationship is necessary, such as conflicts between neighbours and society members;
- All tort cases, including those involving motor vehicle accidents; and
- Every customer disagreement.
The Supreme Court made it clear that after classifying the cases as ‘suitable’ or ‘not suitable’ for ADR processes, they are ‘illustrative’ and “can be subjected to just exceptions or additions by the court/tribunal exercising its jurisdiction/discretion in referring a dispute/case to an ADR process,” respectively.
Judgement by the Court
The Supreme Court concluded by propounding the amendments in the following terms:
“In view of the foregoing, 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 court.
Firstly, it is not necessary for the court, before referring the parties to an ADR process, to formulate or reformulate the terms of a possible settlement. It is sufficient if the court merely describes the nature of the 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 Authorities 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.”
It was then declared by the Supreme Court that: “In order to prevent Section 89 from becoming meaningless and infructuous, the legislature must make the necessary corrections before the above changes made through the interpretative process go into effect.” (emphasis supplied)
The Supreme Court cited the case of Sukanya Holdings Pvt. Ltd v. Jayesh H. Pandya & Anr (2003), in which it was noted that the parties’ consent is not necessary to make an argument in favour of holding an arbitration under Section 89 of the Code. In that instance, the court was arguing whether an investigation under Section 8 of the Arbitration and Conciliation Act could be upheld even if a portion of the case’s subject matter wasn’t covered by arbitration under the terms of the agreement.
The Bench noted that because Section 89 of the Code is on a different legal basis and applies in cases where there is no arbitration agreement to which the issue may be directed, it cannot be used to interpret Section 8 of the Arbitration and Conciliation Act. It further implies that, as long as everyone agrees, the parties are free to choose an ADR session even in the absence of an arbitration agreement.
As a result, the Supreme Court handed down a historic decision that stated the following:
- The trial court violated Section 89 of the CPC by failing to follow the correct procedure.
- Section 89 of the Civil Procedure Code prohibits a civil court from referring a case to arbitration without the assent of all parties to the lawsuit.
Analysis of the judgement
It is said that if this Supreme Court decision is fully implemented, it will alter the nature of civil litigation in India. If ADR is required to be taken into account and must be mentioned in all categories except those that are excluded, there will be a significant shift of cases from litigation to ADR. It is unlikely that litigants will favour arbitration under Section 89(2)(a) given the cost, duration, procedural requirements, and frequent challenges to awards that have caused it to come under growing criticism. The issues that Lok Adalats handle are straightforward and don’t have a complicated factual or legal framework; they don’t often handle a lot of civil litigation. Due to Indian judges’ extreme workloads and involvement in the docket disposal process, the concept of judicial settlement is essentially unknown there and is unlikely to catch on.
Thus, we arrive at mediation (now equated to conciliation). When conciliation under the Arbitration and Conciliation Act is mentioned in Section 89(2)(b), this is essentially a private mediation where the parties choose the neutral third party and pay his expenses. The availability of a sufficient number of skilled and seasoned mediators is the fundamental prerequisite in this situation. A sufficient number of skilled mediators are required for court-annexed mediation (now covered by Section 89(2)(c)), just as they are for private mediation. According to Afcons, most of the civil litigation will be in the referable category; a sizable proportion of cases will end up on the mediation tables with the rigorous observation of Section 89 and Order 10 Rules 1-A and 1-B. Only a small portion of the anticipated workload can be handled by the current crop of mediators.
Mediators now work for free and are rarely paid more than a token stipend for their services, which may include holding several lengthy sessions. Long-term talent attraction is unlikely to result from this. It is undeniably satisfying to bring about settlements, but it would be foolish to assume that pro bono work will always be possible. Lawyers cannot be expected to spend a significant portion of their time in mediation without proper compensation, much alone make the transition from litigator to a full-time mediator.
We should encourage the growth of a professional mediation practice if we wish to have a big pool of skilled mediators. When there are high stakes involved, courts should encourage the parties to proceed with private mediation (conciliation). In court-annexed mediation centres, pro bono work from mediators is required for cases involving underprivileged litigants; in cases where parties can afford to pay fees, it should be assumed that they will pay the costs associated with using qualified mediators to reach agreements. A Code of Ethics, appropriate criteria and procedures for certification, removal from the panel for a lack of integrity or other sufficient reason, and continuous education are a few other characteristics of professional functioning that should be established in addition to acceptable compensation.
ADR will become an appealing career option for students, attorneys, retired judges, and other experts if mediation is promoted as a professional practice. This will increase the number of mediators, promote expertise, instil seriousness and dedicated time, and expand the pool of mediators. These steps will provide ADR initiatives with viability and durability so they can fulfil their promise and help our legal system reap the numerous rewards of consensual dispute settlement. Then, and only then, can we anticipate that the workload of disputes will be handled by mediation (also known as conciliation), employing court-annexed and private professional services. If not, the great legislative goal behind Section 89 and the admirable court activist interpretation of the section may well result in issues with overload, poor mediation management, and resulting discontent with the ADR process.
High Court of Judicature at Madras Rep. by its Registrar General v. MC Subramaniam (2021)
In this most recent case of the High Court of Judicature at Madras Rep. by its Registrar General v. MC Subramaniam (2021), the Supreme Court ruled that the parties are also entitled to a court fee refund if they privately decide to resolve their dispute in a manner other than that described in Section 89 of the Code of Civil Procedure. In this case, the administrative side of the Madras High Court approached the Supreme Court to appeal the High Court’s decision that all out-of-court dispute resolution agreements between parties that the Court later finds to have been reached legally fall under the purview of Section 89 of the CPC and Section 69A of the Tamil Nadu Court Fees and Suit Valuation Act, 1955. The 1955 Act’s Section 69A addresses refunds following the resolution of disputes arising under Section 89 CPC.
When it comes to referring conflicts to non-adjudicatory methods like mediation, Lok Adalat, and judicial settlement, Section 89 appears to have failed on both fronts in terms of lowering the court’s backlog and providing swift justice. In order to guarantee that this provision achieves its goal, it must be urgently reviewed. Right after the Afcon judgement in the year 2011, the Law Commission of India, through its 238th Report, made suggestions for the amendment of Section 89. However, to date, no parliamentary action has been taken on it. A move in the right direction is not sufficient, and India must take Section 89 of the CPC seriously. To advance the ADR programme, comprehensive guidelines are needed. Even if ADRs must be treated seriously, efforts must be made to prevent a decline in the standard of justice. Regardless of how one feels about them, established judicial systems have benefits. India needs to proceed cautiously on the path of originality.
Frequently Asked Questions (FAQs)
How is Section 89 CPC important for ADR?
The purpose of Section 89 is relatively clear because the majority of developed nations had previously implemented alternative dispute resolution techniques, which had proven to be effective to the extent that more than 90% of cases were resolved outside of court. It had been added to ensure justice despite the lengthy legal process and the shortage of judges. Parties have the option to forego going to court and instead use alternative dispute resolution techniques to settle their differences.
Which landmark judgement by the Supreme Court of India corrected the errors in Section 89 CPC?
The Supreme Court of India, through the judgement of Afcons Infrastructure Ltd. and Ors. v. Cherian Varkey Construction Co. (P) Ltd. (2010), corrected the errors in the wording of the Section. It also declared that in order to prevent Section 89 from becoming meaningless and infructuous, the legislature must make the necessary corrections before the above changes made through the interpretative process go into effect.
- The anomaly in Afcons Infrastructure case – The Daily Guardian
- Judicial Settlement under Section 89 C.P.C.
- Section 89 CPC- Settlement of Dispute Outside of Court
- ADR – Effectiveness of Section 89 of Code of Civil Procedure – IJLMH
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