You are on page 1of 13

1.

SECTION 89 OF CPC

Section 89 of the Code of Civil Procedure, 1908 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.

89. Settlement of disputes outside the Court –


(1) Where it appears to theCourt 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 LokAdalat; 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) toLokAdalat, the Court shall refer the same to the LokAdalat 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 LokAdalat;
(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 LokAdalat and
all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall
apply as if the dispute were referred to a LokAdalat 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.

Thus the court can refer the parties to arbitration, conciliation, mediation, lokadalat 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 same1.

2. OBJECTIVE OF ENACTMENT OF SECTION 89 CPC

The Law Commission of India2had recommended the introduction of the conciliation


court system and had underlined the importance of conciliation/ mediation as a mode
of ADR. The Malimath Committee3had alsoadvocated the need of an amendment in
law for introduction of ADR mechanisms.

On the recommendationsof 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 billread as under:

With a view to implement the129th 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 LokAdalat. 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.

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.

1Bawa Masala Co. v. Bawa Masala Co. Pvt. Ltd, AIR 2007 Delhi 284.
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.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 2 .Indeed this is thepolicy in the west also where court efforts to facilitate
settlement in civil cases, whether through judicial settlement conferences or court-
connected mediation and other ADR processes, have become commonplace.

The Supreme Court has also stated that the intention of the legislature behind enacting
Section 89 CPC is that where it appears to the Court that there exists elements of
settlement which may be acceptable to the parties, they, at the instance of the court,
shall be made to apply their mind so as to opt for one or the other of the five ADR
methods mentioned in section 89 CPC and if the parties do not agree, the court shall
refer them to one or other of the said modes3.

3. FORMULATING AND REFORMULATING THE TERMS


OFSETTLEMENT UNDER SECTION 89 CPC

Section 89 CPC provides that 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 any of ADR mechanisms as specified in the
provision.

This shows that the sine qua non for referring the parties to an ADR mechanism
within the contemplation of section 89 CPC is the opinion recorded by the judge
concerned regarding the existence of elements of settlement which may be acceptable
to the parties followed by the formulation of the terms of the settlement followed by
re-formulation of the possible terms of the settlement after taking observations of the
parties.

2
Salem Advocate Bar Association v. Union of India, AIR 2003 SC 189.
3
Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC 3353.
However the anomalous position is that section 89 CPC introduces the ultimate stage
of conciliation referred to in section 73(1)of the Arbitration and Conciliation Act,
1996 into the pre-ADR reference stage under section 89 CPC. Section 89 CPC
provides conciliation as one of the ADR processes to which the matter can be referred
to for settlement. But curiously enough, the task of formulation and reformulation of
the terms of settlement which a conciliator has to perform at the concluding stage of
conciliation has been entrusted to the trial judge at the pre ADR reference stage.

One of the reasons for introducing section 89 CPC was that the trial judge is not able
to devote much time and attention to effect conciliation between the parties and
therefore the matter should be referred to some other ADR fora for resolution. If sub-
section (1) of Section 89 CPC 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, LokAdalat or
mediation. There is nothing that is left to be done by the ADR forum thereafter. 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 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.This will not only eat away precious judicial time but would also
render the subsequent ADR processes redundant. Thus formulation and reformulation
of terms ofsettlement by the court is wholly out of place in the pre-reference stage of
ADR process.

Moreover if the reference is to be made to arbitration, the terms of settlement


formulated by the court will be of no use. If the reference is to
conciliation/mediation/LokAdalat, then drawing up the terms of the settlement or
reformulating them is the job of the conciliator or the mediator or the LokAdalat, 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. Therefore now the Supreme Court has unequivocally held that it is not
necessary for the court, before referring the parties to an ADR process to formulate or
reformulate the terms of a possible settlement4.

4. SECTION 89 CPC–MANDATORY NATUREAND PROCEDURE FOR


REFERRAL

Section 89 CPC makes it obligatory for the courts to explore the possibility of
resolution of the dispute by making reference to one of the several ADR mechanisms
provided therein.However the pre condition for referring the matter is satisfaction of
the court that there exist elements of settlement. The court has to form an opinion that
a case is one that is capable of being referred to and settled through any of the ADR
processes. Simultaneously Order X Rule 1A CPC mandates that the court to direct the
parties to the suit to opt either mode of the settlement outside the court as specified in
sub-section (1) of section 89 CPC and on the option of the parties, the court has to fix
the date of appearance before such forum or authority as may be opted by the parties.

The provisionswhen harmoniously construed indicate that the need of the having a
hearing after completion of pleadings, to consider recourse to ADR process under
section 89 CPC is mandatory. But actual reference to an ADR process in all cases is
not mandatory. Where the case is unsuitedfor reference to any of the ADR process,
the court will have to briefly record the reasons for not resorting to any of the
settlement procedures prescribed under section 89 CPC. In other cases reference to
ADR is mandatory. The court need not elaborate the terms of the proposed settlement
nor is there any requirement to give detailed reasons for arriving at the conclusion
regarding the existence of elements of settlement and the court may describe very
briefly the nature of the dispute and the existence of the elements of settlement in
three or four lines. However, a duty is cast upon the court to consider whether it is
possible to refer the parties for a settlement.

During the course of legal proceedings after recording the admissions and denials, the
court has to direct the parties to suit to opt either mode of the settlement outside the
court as specified in sub-section (1) of section 89 CPC by mutual consent and on the
4
Afcons Infrastructure Ltd. v. CherianVarkey Construction Co. (P) Ltd., JT 2010 (7) SC 616.
option of the parties, the court has to fix the date of appearance before such forum or
authority as may be opted by the parties. If the parties are not able to opt for a
particular mode of ADR provided in section 89 CPC then the court has to refer the
matter itself to a suitable ADR mechanism in terms of section 89 CPC except for
arbitration and conciliation which require express consent of the parties.In this
respectsection 89 CPC has introduced the concept of mandatory ADR. Thereafter the
parties are supposed to appear before such forum or authority for settlement of the
case. However if the matter is not settled the matter is again referred back to the court.

If the matter is settled the settlement is recorded by the court and the matter is
disposed of. Where the court refers the parties to the suit to anyone of the mode of
settlement of dispute referred to in section 89 CPC and the matter is settled and
disposed of the plaintiff is entitled for refund of court fees. Even if the matter is
settled in appeal the appellant is entitled to refund of court fees. This is an added
incentive for taking recourse to the provisions of section 89 CPC.

6. ADR MECHANISMS AVAILABLE UNDER SECTION 89 CPC

6.1. Arbitration
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, 1996 itself. 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 statute 37 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.

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. 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.

6.2. Conciliation
Section 89 CPC also provides for reference of a dispute in a sub judice matter to
conciliation. The statute further provides that for conciliation the provisions of the
Arbitration and Conciliation Act, 1996 shall apply as if the proceedings for
conciliation were referred for settlement under the provisions of that Arbitration and
Conciliation Act, 1996.

As in case of arbitration, the Arbitration and Conciliation Act, 1996 in relation to


conciliation would apply only after the stage of reference to conciliation. Thus, for
conciliation also rules can be made under Part X of the Code of Civil Procedure, 1908
for the determining the procedure for opting for 'conciliation' and upto the stage of
reference to conciliation.41 Further as in the case of arbitration, the court cannot refer
the parties to conciliation under section 89 CPC, in the absence of express consent of
all parties. However when a matter is referred to conciliation, the matter does not go
out of thestream of court process permanently. If the parties are not able to arrive at a
final settlement during the conciliation the matter is returned back to the court.

6.3. Lokadalats
The Court may also refer a pending dispute to a LokAdalat and for that purpose the
court has to take recourse to the provisions of sub-section (1) of section 20 of the
Legal Services Authority Act, 1987 and all other provisions of the Legal Services
Authority Act, 1987 apply in respect of the dispute so referred to the LokAdalat. The
LokAdalat thereafter effects a settlement in terms of the Legal Services Authorities
Act, 1987, passes the award and the referral court thereafter disposes of the suit in
terms of the settlement. The reference to LokAdalats in terms of section 89 CPC can
be made even without the consent of the parties.

6.4. Mediation
The court may also refer a pending dispute to mediation in terms of the provisions of
section 89 CPC. The statute has undergone a sea change after the judgment of the
Supreme Court in Afcons case and after the Afcons judgment, for mediation the
dispute is to be referred to a suitable person or institution which is to be deemed to be
a LokAdalat. The reference to mediation in terms of section 89 CPC can also be made
even without the consent of the parties.

6.5. Judicial settlement


The expression Judicial Settlement suggests that it is some sort of a judge mediated
settlement of a dispute. Judicial Settlement is a term which is in vogue in the west –
particularly the United States of America. There wehave what are known as judicial
settlement conferences. A judicial settlement conference is an informal process in
which a judge, trained in mediation and settlement conference skills, actively
facilitates a process whereby parties in conflict may reach a mutually satisfactory
resolution. The term judicial settlement therefore refers to a settlement of a civil case
with the help of a judge who, has not been not assigned the duty to adjudicate upon
the dispute.

Thus judicial settlement conference is presided over by a judge who uses fair
settlement techniques to enable the parties to arrive at an amicable settlement. The
archetypal role of the settlement conference judge is to roughly evaluate the case on
the merits and to assist the bargaining of settlement proposals. Some settlement
judges also use mediation techniques in the judicial settlement conferences to improve
communication among the parties, probe barriers to settlement, and help formulate
resolutions. A settlement judge has however no power to force the parties to arrive at
a settlement. An important feature of judicial settlement conference is that the judge
who presides over the judicial settlement conference does not conduct the trial of the
case on merits. Either the case is marked to a different judge for a settlement
conference or the trial judge after conducting a settlement conference does not
proceed with the trial. The intent is that a judge whoconducts trial is not prejudiced by
the conduct of a party during judicial settlement proceedings.

6.5.1. Judicial settlement in India


As far as Indian Law is concerned the expression judicial settlement was introduced
in to the Code of Civil Procedure, 1908 through Section 89 CPC. Section 89 CPC
provides judicial settlement as a mode of ADR. The court can refer a dispute to
judicial settlement in terms of section 89 CPC to a suitable institution or person and
such institution or person is to be deemed to be a LokAdalat and all the provisions of
the Legal Services Authority Act, 1987 are applicable.

To implement the objectives of section 89 CPC under the directions of the Supreme
Court in the 1st Salem Bar Association Case a committee headed by Justice M.
JagannadhaRao was formed and the committee placed before the Supreme Court the
Draft Civil Procedure - ADR and Mediation Rules, 2003 which were considered by
the Supreme Court in the 2nd Salem Bar Association Case. The Supreme Court
thereafter directed the respective High Courts to examine and finalise the said rules.

Under the said draft Civil Procedure - ADR and Mediation Rules, 2003, Judicial
settlement was defined as :
'Judicial settlement' means a final settlement by way of compromise entered into
before a suitable institution or person to which the Court has referred the dispute and
which institution or person are deemed to be the LokAdalats under the provisions of
the Legal Service Authority Act, 1987 (39 of 1987) and where after such reference,
the provisions of the said Act apply as if the dispute was referred to a LokAdalat
under the provisions of that Act.

Where all the parties to the suit decide to exercise their option and to agree for
judicial settlement the court has to refer the matter to a suitable institution or person
which shall be deemed to be a LokAdalat.

Thus for judicial settlement as provided under section 89 CPC the court is supposed
to refer the dispute to a suitable institution or person. However there is no indication
in the statute, that to which institution or person the matter is to be referred to. That
person may be a judge or may not be a judge. He may be a person of legal
background or may not be a person of legal background. The dispute may also be
referred to some external private institution offering institutionalized conciliation or
mediation services. There is no indication as to what are the guidelines/ practice
directions for referring the matter. Thus section 89 CPC is silent on these aspects.

This renders judicial settlement a sui generis settlement procedure. This is because the
term judicial settlement per se gives as indication that it is a judge mediated
settlement and this is also the plain meaning of judicial settlement as is understood in
the west. However in India by virtue of section 89 CPC any person or institution may
conduct judicial settlement and such institution or person is deemed to be a LokAdalat
and all the provisions of the Legal Services Authority Act, 1987 apply to such
proceedings as if the dispute were referred to a LokAdalat under the provisions of that
Act.

6.5.2. Judicial Settlement – Post Afcons Judgment


The legislative description ascribed to the term judicial settlement by section 89 CPC
is manifestly not in sync with the ordinary meaning of judicial settlement as a
settlement device as understood all over the world. This anomaly was noticed by
Justice R.V. Ravindran and he considered and reviewed clauses (c) and (d) of section
89 (2) CPC in his article and opined that there is a mixing up of the meanings of the
terms judicial settlement and mediation due to a clerical or typographical error in
drafting, resulting in the two words being interchanged in clauses (c) and (d) of sub
section (2) of section 89 CPC.

This issue was thereafter considered by the Supreme Court of India in the famous
Afcons judgment in the year 2010. The Supreme Court also acknowledged the fact
that there is an error in the provision. It was held that a proper interpretation of section
89 of the Code requires a change from a plain and literal reading of the section and
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. The Supreme
Court also unequivocally directed that the above changes made by interpretative
process shall remain in force till the legislature corrects the mistakes, so that section
89 CPC is not rendered meaningless and infructuous.
If the two clauses are interchanged judicial settlement acquires an altogether different
meaning. Section 89 (2) (d) CPC would read:
(e) for "judicial settlement", the court shall effect a compromise between the
parties and shall follow such procedure as may be prescribed.

The Supreme Court has thus stepped into the picture to correct the apparent error in
the legislative provision. After the rectification effected by theSupreme Court both the
terms i.e. mediation and judicial settlement, acquire their natural meanings. Judicial
settlement postulates a process where the court has to effect a compromise between
the parties and follow such procedure as may be prescribed. This is in consonance
with the natural meaning of the expression judicial settlement and as it is understood
in the west.

7. NEED FOR AMENDMENT OF SECTION 89 CPC

It is, therefore, seen that various shortcomings have been pointed out by the Supreme
Court in the text of section 89 CPC and therefore there is an urgent need that section
89 CPC be amended to eliminate the anomalies. The Supreme Court had in fact
unequivocally directed that the changes made by the Supreme Court in section 89
CPC by interpretative process shall remain in force till the legislature corrects the
mistakes, so that section 89 is not rendered meaningless and infructuous. There
cannot be a more unequivocal assertion of the fact that section 89 CPC needs to be
amended. In fact, instead of amending the provision we may have a separate
comprehensive legislation dealing with ADR in all respects.

The judgment of the Supreme Court in Afcons case has been considered by the Law
Commission of India and the Law Commission has also opined that Section 89 CPC
which provides for settlement of disputes outside the court is inappropriately worded
and the language adopted has created difficulty in giving effect to the provision and
therefore Section 89 CPC should be recast.

8. CONCLUSION
Section 89 CPC embodies the legislative mandate to courts for exploring the
possibility of a resolution of a dispute de hors the litigative process in matters pending
for judicial determination and if found appropriate, refer the dispute to any of the
ADR processes provided therein namely arbitration, conciliation, mediation,
LokAdalats and judicial settlement.

In case of arbitration and conciliation there can be no reference without the consent of
the parties and after reference the proceedings are to be conducted in accordance with
the provisions of the Arbitration and Conciliation Act, 1996. If the matter is referred
to arbitration it permanently moves out of the realm of the court and the suit stands
disposed of at that very juncture. In case of reference to other ADR procedures the
matter can bereferred to ADR for even without the consent of the parties if the court
finds the existence of elements of settlement. The proceedings before the court remain
pending and if the matter is settled in the ADR process the proceedings before the
court are disposed of in accordance with the settlement.

The initiatives taken by the Supreme Court in Salem Advocate Bar Association v.
Union of India5, and Salem Advocate Bar Association v. Union of India (II)6, gave the
initial momentum to use of ADR in courts pursuant to section 89 CPC. Thereafter in
Afcons Infrastructure Ltd. v. CherianVarkey Construction Co. (P) Ltd7, which can be
described as a comprehensive practical guide for effective use of section 89 CPC, the
Supreme Court has given detailed practical guidelines so that section 89 CPC can be
utilized so as to achieve the best results. In Afcons Infrastructure Ltd. the Supreme
Court has also directed interchange of clauses (c) and (d) of section 89 (2) CPC by
interpretative process to correct the draftsman's error so that section 89 CPC is not
rendered meaningless and infructuous.

5AIR 2003 SC 189.


6AIR 2005 SC 3353.
7JT 2010 (7) SC 616.