CHAPTER VI ALTERNATIVE DISPUTE RESOLUTION UNDER SECTION 89 OF THE CODE OF CIVIL PROCEDURE

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1 CHAPTER VI ALTERNATIVE DISPUTE RESOLUTION UNDER SECTION 89 OF THE CODE OF CIVIL PROCEDURE 1. SECTION 89 CPC INTRODUCTION 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. In order to understand the niceties of section 89 CPC it is essential to refer to its text, which is 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; 199

2 (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 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, 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 OBJECTIVE OF ENACTMENT OF SECTION 89 CPC The Law Commission of India 2 had recommended the introduction of the conciliation court system and had underlined the importance of conciliation/ mediation as a mode of ADR. The Malimath Committee 3 had also 1 Bawa Masala Co. v. Bawa Masala Co. Pvt. Ltd, AIR 2007 Delhi Law Commission of India, 129 th Report, Urban Litigation : Mediation as Alternative to Litigation (1988). 3 The Malimath Committee submitted its report in August,

3 advocated the need of an amendment in law for introduction of ADR mechanisms. 4 On the recommendations 5 of the Law Commission of India and the Malimath Committee the Code of Civil Procedure (Amendment) Bill was initiated in The Statement of Objects and Reasons attached to the said bill 6 read as under: Statement of Objects and Reasons: 3. (d) with a view to implement the 129 th 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. 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 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. 7 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. 8 Indeed this is the 4 Sudipto Sarkar & V.R. Manohar (Eds.), Sarkar s Code of Civil Procedure (Wadhwa and Company, Nagpur, 11 th 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 , 5 MLJ 22 (2007). 6 The notes attached to the bill further stated that clause 7 seeks to insert a new section 89 in the Code in order to provide for alternative dispute resolution based on the recommendations made by the Law Commission of India and the Malimath Committee. 7 Law Commission of India, 238 th Report, Amendment of Section 89 of the Code of Civil Procedure, 1908 and Allied Provisions (December, 2011); In fact mandatory ADR is accepted globally. See Paul Randolph, Compulsory Mediation?, 4 (2) The Indian Arbitrator 2 (February 2012). 8 Salem Advocate Bar Association v. Union of India, AIR 2003 SC

4 policy 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. 9 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 modes FORMULATING AND REFORMULATING THE TERMS OF SETTLEMENT 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 See Roselle L. Wissler, Court-Connected Settlement Procedures: Mediation and Judicial Settlement Conferences, 26 Ohio St. J. on Disp. Res. 271 (2011); Another advantage of court mandated ADR is that neither party fears having to initiate the ADR process. See Ari Davis, Moving from Mandatory: Making ADR Voluntary in New York Commercial Division Cases, 8 Cardozo J. Conflict Resol. 283 (2006). 10 Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC D.D.A v. Happy Himalaya Construction Co., 2009 (1) A.D. (Delhi) 383; Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC

5 However the anomalous position is that section 89 CPC introduces the ultimate stage of conciliation referred to in section 73(1) 12 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, Lok Adalat 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 13, as a judge cannot do these unless he acts as a conciliator or mediator and holds detailed discussions and negotiations running into hours. 14 This will not only eat away precious judicial time but would also render the subsequent ADR processes redundant. Thus formulation and reformulation of terms of 12 S. 73(1), Arbitration and Conciliation Act, 1996 reads as under: When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations. 13 D.M. Popat, ADR and India: An Overview, The Chartered Accountant (December 2004). 14 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC

6 settlement by the court is wholly out of place in the pre-reference stage of ADR process. 15 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/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. 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 settlement SECTION 89 CPC IT S MANDATORY NATURE AND 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. 17 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. 15 R.V. Raveendran, Section 89 CPC: Need for an Urgent Relook 4 SCC Journal 23 (2007). 16 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC A.M. Khanwilkar, Need to Revitalise ADR Mechanism, available at: bombayhigh court.nic.in/mediation/mediation_ Concept_and_Articles/need to revitalis.pdf (last visited on ). 204

7 The provisions 18 when 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 unsuited 19 for 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. 20 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 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. 21 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. 22 In this respect 18 S. 89(1) and Order X Rules 1A, 1B and 1C, Code of Civil Procedure, Cases which are normally considered to be not suitable for ADR process are representative suits under Order 1 Rule 8 CPC, disputes relating to election to public offices, cases involving grant of authority by the court after enquiry, for example, suits for grant of probate or letters of administration, cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc., cases requiring protection of courts, for example, claims against minors, deities and mentally challenged and suits for declaration of title against government and cases involving prosecution for criminal offences. See Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC Basheer v. Kerala State Housing Board, AIR 2005 Kerala Order X Rule 1A of the Code of Civil Procedure, Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC

8 section 89 CPC has introduced the concept of mandatory ADR. 23 Thereafter the parties are supposed to appear before such forum or authority for settlement of the case. 24 However if the matter is not settled the matter is again referred back to the court. 25 If the matter is settled the settlement is recorded by the court and the matter is disposed of. 26 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. 27 Even if the matter is settled in appeal the appellant is entitled to refund of court fees. 28 This is an added incentive for taking recourse to the provisions of section 89 CPC. 5. THE ROLE OF REFERRAL JUDGES Section 89 CPC is an important step towards popularizing the employment of ADR methods for settlement of cases pending before courts. The reference to ADR mechanisms is mandatory in cases which are found to possess elements of settlement. The responsibility of deciding whether a case possesses elements of settlement has been put on the shoulders of the trial judge who is also referred to as the referral judge since it his on his orders that a case is referred to any one of the ADR mechanisms enunciated in section 89 CPC. It is the referral judge who determines that which case is suitable for being referred to ADR in terms of section 89 CPC. The key to 23 However such mandatory court referred/ court annexed ADR should be complemented by education and other steps to increase the general awareness regarding the ADR processes and their benefits. See Dorcas Quek, Mandatory Mediation: An Oxymoron? Examining the Feasibility of a Court Mandated Mediation Program, 11 Cardozo J. Conflict Resol. 479 (2010). 24 Order X Rule 1B, Code of Civil Procedure, Order X Rule 1C, Code of Civil Procedure, Except in case of arbitration where an arbitral award on merits is passed by the arbitral tribunal. 27 S. 16, Court Fees Act, 1870 (again inserted by Act 46 of 1999, s. 34). 28 Vallabh Das Gupta v. Geeta Bai, 2004(4) R.C.R.(Civil)

9 success depends on judges referring appropriate cases and conversely, failure is dependent on referring inappropriate cases. 29 The second responsibility upon a referral judge is to refer the dispute to the most appropriate ADR process 30 in terms of section 89 CPC where the parties are not able to arrive at a consensus. 31 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. 32 In order to discover as to which case is apposite for being referred to any one of the ADR mechanisms enunciated under section 89 CPC, when the pleadings are complete the referral judge should sift through pleadings of the parties and should hold a preliminary hearing with the parties. The court should accustom itself with the facts of the case and the substance of the dispute between the parties in order to discharge its duty in a fair and efficacious manner. After all reference of a case is the first important stage in the entire dispute resolution process on which the success of section 89 CPC depends. 29 Guidelines for referral judges at (last visited on ). However these need to be reworked in light of the Afcons judgment. 30 One of the most challenging problems in the field of alternative methods of dispute resolution (ADR) is deciding which process or processes are most appropriate for a particular dispute. See Frank E. A. Sander, Lukasz Rozdeiczer, Matching Cases and Dispute Resolution Procedures: Detailed Analysis Leading to a Mediation Centered Approach, 11 Harv. Negot. L. Rev. 1 (Spring 2006). 31 However for referring the matter to arbitration or conciliation, the consent of both the parties is required. 32 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC

10 In that regard, necessarily intense training 33 must be imparted to the referral judges so as to enable them to identify the cases which may be considered fit for referral to any of the ADR mechanisms. 34 The message and philosophy of Section 89 CPC, if rightly appreciated and purposefully utilized, would shift the judge from back seat to the driving seat holding the steering from day one 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. 36 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, 33 Some training programs are conducted by the Delhi Mediation Centre at various court complexes for referral judges on referral of cases for mediation and court management. See Delhi Mediation Centre, 4 (2) Mediation Newsletter (February 2010). These training programs, however need to be more comprehensive coupled with detailed refresher courses on ADR. 34 S.B. Sinha, ADR: Mechanism and Effective Implementation, available at: highcourt.nic.in/mediation/index_articles.htm (last visited on ); See also M.M. Kumar, Relevance of Mediation to Justice Delivery in India, a paper presented in the National Conference on Mediation, organised by the Mediation & Conciliation Project Committee, Supreme Court of India, held on July 10, 2010 at New Delhi, available at: (last visited on ). 35 Justice R.C. Lahoti, Keynote address at the Valedictory Session of two days Conference on ADR, Conciliation, Mediation and Case Management organised by the Law Commission of India, available at: Lahoti_Address (last visited on ). 36 P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC S. 89(2)(a), Code of Civil Procedure,

11 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. 38 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. 39 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, CONCILIATION Section 89 CPC also provides for reference of a dispute in a sub judice matter to conciliation. The statute 40 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, 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 the 38 Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC Jagdish Chander v. Ramesh Chander, 2007 (6) SCC S. 89(2)(a), Code of Civil Procedure, Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC

12 stream 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 LOK ADALATS The Court may also refer a pending dispute to a Lok Adalat 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 Lok Adalat. 42 The Lok Adalat 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 Lok Adalats 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 43 and after the Afcons judgment, for mediation the dispute is to be referred to a suitable person or institution 44 which is to be deemed to be a Lok Adalat. 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 What is 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 we 42 S. 89(2)(b), Code of Civil Procedure, Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC However the disputes are being only referred to the court annexed mediation centres where they are dealt by empanelled judicial or lawyer mediators. 210

13 have what are known as judicial settlement conferences. A judicial settlement conference is an informal process in which a judge 45, trained in mediation and settlement conference skills, actively facilitates a process whereby parties in conflict may reach a mutually satisfactory resolution. 46 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. 47 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. 48 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. 49 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. 50 The intent is that a judge who 45 In some jurisdictions we have sitting judges who are designated as judicial conference judges. In others like Virginia (USA) we have retired judges who conduct judicial settlement conferences. 46 See (last visited on ). 47 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC Elizabeth Plapinger & Donna Stienstra, ADR and Settlement in the Federal District Courts: A Sourcebook for Judges and Lawyers, available at: (last visited on ). 49 Goldschmidt and Milford, Judicial Settlement Ethics (American Judicature Society, 1996), available at: (last visited on ); See also Justice Sunil Ambwani, Alternative Dispute Resolution: National Judicial Excellence Enhancement Programme (JEEP) First Visit, Speech at National Judicial Academy, Bhopal on September 11th, 2011, available at: (last visited on ). 50 However there is another view that the rule should be that a judge should not make any decision in the case after conducting a settlement conference, without the consent of the parties. But it is not feasible to leave the issue as dependent on the will/ consent of the parties 211

14 conducts trial is not prejudiced by the conduct of a party during judicial settlement proceedings 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. 52 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 Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 are applicable. 53 To implement the objectives of section 89 CPC under the directions of the Supreme Court in the 1 st Salem Bar Association Case 54 a committee headed by Justice M. Jagannadha Rao 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 2 nd Salem Bar Association Case. 55 The Supreme Court thereafter directed the respective High Courts to examine and finalise the said rules. or their lawyers and a uniform rule should be developed of judges not hearing the case on merits if they conduct a settlement conference therein. See Roselle L. Wissler, Court- Connected Settlement Procedures: Mediation and Judicial Settlement Conferences, 26 Ohio St. J. on Disp. Res. 271 (2011). 51 In B.P. Moideen Sevamandir v. A.M. Kutty Hassan, 2009 (2) S.C.C. 198 the Supreme Court held that when deciding a matter on merits of a case, if a court carries any prejudice against a party on account of his conduct before an ADR forum, it will violate the inviolable guarantee against prejudice or bias in the decision making process. 52 Inserted by the Code of Civil Procedure (Amendment) Act, 1999 with effect from The relevant provision i.e. S. 89(2)(c), Code of Civil Procedure, 1908 reads as under:...(2) Where a dispute has been referred:... (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.. 54 Salem Advocate Bar Association v. Union of India, AIR 2003 SC Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC

15 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 Lok Adalats 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 Lok Adalat under the provisions of that Act. 56 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 Lok Adalat. 57 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 Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 apply to such proceedings as if the dispute were referred to a Lok Adalat under the provisions of that Act. 56 Rule 4, ADR and Mediation Rules, 2003 (Draft). 57 Rule 5, ADR and Mediation Rules, 2003 (Draft). 213

16 6.5.3 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) 58 of section 89 (2) CPC in his article 59 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 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: (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 has thus stepped into the picture to correct the apparent error in the legislative provision. After the rectification effected by the 60 The Supreme Court also 58 Section 89(2)(d), Code of Civil Procedure, 1908 provides that for mediation, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed. 59 Section 89 CPC: Need for an Urgent Relook, 4 SCC Journal 23 (2007). 60 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC

17 Supreme 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 Judicial Settlement Need for Outlining Procedure The expression judicial settlement, pursuant to the Afcons judgment is to be understood in the modified form as enunciated by the Supreme Court that in case of judicial settlement the court has to effect a compromise between the parties and follow such procedure as may be prescribed. There is a severe lacuna in law as there is no procedure at all which has been prescribed for judicial settlement. How the compromise is to be effected is not expressly mentioned, but it gives an indication that the court is to play a positive role in steering the disputant parties to arrive at a mutually acceptable solution. The need for a detailed procedure is accepted by all, but who will prescribe the procedure is also a perplexed question. Either the procedure would have to be prescribed by the Supreme Court or the High Courts on their judicial side. The procedure can also be prescribed by the High Courts by framing rules under Part X of the Code of Civil Procedure. The legislature may also step in to prescribe the procedure for judicial settlement. Until and unless such a procedure is prescribed it would not be possible for the judges and parties to take resort to judicial settlement as a mode of dispute resolution in terms of section 89 CPC See visited on ). 62 In Delhi in case of applications for plea bargaining the case is referred by the magistrate to the ACMM who marks it to another magistrate for disposal of the plea bargaining application. A similar roster can be devised for judicial settlement also where the case is marked to the Incharge, Judicial Settlement who further assigns it to another judge for conducting judicial settlement proceedings. If the matter is settled a compromise decree can be passed straight away. In case the matter is not settled the same is sent back to the referral court. 215

18 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. 63 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. 64 The judgment of the Supreme Court in Afcons case has been considered by the Law Commission of India and the Law Commission 65 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 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC Eg. The Alternative Dispute Resolution Act, 1998 in the United States of America deals with the use of ADR processes in district courts of the United States of America; The Alternative Dispute Resolution Act, 2004 of the Republic of Philippines comprehensively deals with ADR in all respects. 65 Law Commission of India, 238 th Report, Amendment of Section 89 of the Code of Civil Procedure, 1908 and Allied Provisions (December, 2011) : Settlement of disputes outside the court 1) Where it appears to the court, having regard to the nature of the dispute involved in the suit or other proceeding that the dispute is fit to be settled by one of the non-adjudicatory alternative dispute resolution processes, namely, conciliation, judicial-settlement, settlement through Lok Adalat or mediation the court shall, preferably before framing the issues, record its opinion and direct the parties to attempt the resolution of dispute through one of the said processes which the parties prefer or the court determines. 2) Where the parties prefer conciliation, they shall furnish to the court the name or names of the conciliators and on obtaining his or their consent, the court may specify a time-limit for the completion of conciliation. Thereupon, the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996, as far as may be, shall apply and to this effect, the court shall inform the parties. A copy of the settlement agreement reached between the parties shall be sent to the court concerned. In the absence of a settlement, the conciliator shall send a brief report on the process of conciliation and the outcome thereof. 3) Where the dispute has been referred:- 216

19 8. EFFICACY OF SECTION 89 CPC IN DELHI 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. 67 However the pre condition for referring the matter is satisfaction of the court that there exist elements of settlement. Despite the fact that various shortcomings have been pointed out by the Supreme Court in the phraseology adopted by the Supreme Court yet there can be no doubt that section 89 CPC has proved to be a system changer. 68 The Supreme Court has given detailed practical guidelines so that section 89 CPC can be utilized so as to achieve the best results. 69 What is particularly laudable is that the Supreme Court has recommended sufficient safeguards and checks to prevent ADR from being used by an unscrupulous litigant as a tool for protracting the trial including, inter alia, recommending the a) for judicial-settlement, the Judicial Officer shall endeavour to effect a compromise between the parties and shall follow such procedure as may be prescribed; b) to Lok Adalat, the provisions of sub-sections (3) to (7) of section 20, sections 21 and 22 of the Legal Services Authorities Act, 1987 shall apply in respect of the dispute so referred and the Lok Adalat shall send a copy of the award to the court concerned and in case no award is passed, send a brief report on the proceedings held and the outcome thereof; c) for mediation, the court shall refer the same to a suitable institution or person or persons with appropriate directions such as time-limit for completion of mediation and reporting to the court. (4) On receipt of copy of the settlement agreement or the award of Lok Adalat, the court, if it finds any inadvertent mistakes or obvious errors, it shall draw the attention of the conciliator or the Lok Adalat who shall take necessary steps to rectify the agreement or award suitably with the consent of parties. (5) Without prejudice to section 8 and other allied provisions of the Arbitration and Conciliation Act, 1996, the court may also refer the parties to arbitration if both parties enter into an arbitration agreement or file applications seeking reference to arbitration during the pendency of a suit or other civil proceeding and in such an event, the arbitration shall be governed, as far as may be, by the provisions of the Arbitration and Conciliation Act, The suit or other proceeding shall be deemed to have been disposed of accordingly. 67 A.M. Khanwilkar, Need to Revitalise ADR Mechanism, available at: bombayhigh court.nic.in/mediation/mediation_ Concept_and_Articles/need to revitalis.pdf (last visited on ). 68 The importance of s. 89, Code of Civil procedure, 1908 has also been emphasized even by the Law Commission of India. See Law Commission of India, 222 nd Report, Need for Justicedispensation through ADR, etc., Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC

20 stage and the duration for which non-adjudicatory ADR processes ought to be resorted to while retaining control over the same by insisting on periodic reports and further in laying down the manner in which agreements reached in the ADR process are made binding upon parties. 70 However an empirical study reveals that arbitration and conciliation are being rarely resorted to in terms of section 89 CPC in Delhi. The prime reasons are that a state sponsored or state funded arbitration or conciliation centre is lacking and the parties have to bear the cost of arbitration/ conciliation which acts as a deterrent. Secondly the matter moves out of the court system permanently in arbitration and temporarily in conciliation thus the public is not able to repose so much confidence as it is able to do in other three processes where the case remains in a court annexed system. As far as judicial settlement is concerned there are no rules in place for reference of the matters to judicial settlement after the Afcons judgment and hence judicial settlement is also not being employed at all as an ADR mechanism in terms of section 89 CPC in Delhi. Resultantly mediation and Lok Adalats are the most widely employed ADR mechanisms in terms of section 89 CPC in Delhi. It was only to give effect to the mandate of section 89 CPC that mediation centers were established under the aegis of the judiciary all over the country. The contribution of these mediation centres in ameliorating the overburdened judicial system cannot be overlooked. In Delhi more than 51,900 cases (excluding connected cases) in total have been settled on account of mediation at courts. 71 Apart from this a total number of cases 3120 (including connected cases) were settled at the Delhi High Court Mediation 70 Eastern Book Company, Correcting the Printer s Devil & Clearing the Air over Alternate Dispute Resolution: Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24, Practical Lawyer, available at: (last visited on ). 71 See (last visited on ). 218

21 and Conciliation Centre from 2006 to Thus mediation has emerged as the primary ADR process in Courts in Delhi. 73 Further after the advent of section 89 of the Code of Civil Procedure there has been a spurt in the cases being referred to the Lok Adalats also thereby increasing the number of settlements also. 74 ADR under section 89 CPC has therefore proved to be an efficient mechanism for clearing docket congestion whilst at the same time ensuring quality justice EPILOGUE 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, lok adalats 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, 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 be 72 See High Court of Delhi, Biennial Report ( ); See also Interview of Sadhana Ramachandran, Organising Secretary of Samadhan, published in Civil Society (June 2010) available at: (last visited on ). 73 The US experience also shows that mediation had emerged as the primary ADR process in the federal district courts in USA in the early stages. See Elizabeth Plapinger & Donna Stienstra, ADR and Settlement in the Federal District Courts: A Sourcebook for Judges and Lawyers, available at: (last visited on ). 74 Although cases were being referred to Lok Adalats earlier also in terms of section 20 of the Legal Services Authorities Act, 1987 yet the incorporation of section 89 CPC has served as a booster for the same. 75 Case studies reveal that in almost all the cases, with a few exceptions, referred to mediation or Lok Adalats the settlements were on the lines which could have been expected had there been a decision on merits. The fact that ADR outcomes are not significantly different from litigated outcomes indicates that the process is neutral and fair. See also Lisa Blomgren Bingham, Tina Nabtchi, Jeffrey M.Senger, Michael Scott Jackman, Dispute Resolution and the Vanishing Trial: Comparing Federal Government Litigation and ADR Outcomes, 24 (2) Ohio St. J. on Disp. Res. 225 (2009). 219

22 referred to ADR fora 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 India, AIR 2003 SC 189 and Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC 3353 gave the initial momentum to use of ADR in courts pursuant to section 89 CPC. Thereafter in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC 616, 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. The Supreme Court has pointed out serious errors in section 89 CPC which have also been acknowledged by the Law Commission of India thereby underlining the need of an amendment of section 89 CPC. However despite these flagrant errors section 89 CPC has been made workable by the Supreme Court by laying down detailed guidelines for efficient utilization of section 89 CPC. Section 89 CPC is being efficiently utilized in Delhi. Mediation and Lok Adalats are the most widely employed ADR mechanisms in terms of section 89 CPC in Delhi. Arbitration and conciliation are being rarely resorted to in terms of section 89 CPC in Delhi and since there are no rules in place for reference of the matters to judicial settlement after the Afcons judgment, judicial settlement is also not being employed at all. The reference to Lok Adalats in terms of section 89 CPC is also limited as majority of the matters 220