Section 89 of the Civil Procedure Code was added by the Amendment in the Code in 1999. It gave powers to the courts to refer a dispute to Alternative Dispute Resolution (ADR) mechanisms like arbitration, mediation, conciliation, and judicial settlement including settlement through Lok Adalat. The amendment was made in light of the various recommendations and suggestions by the Law Commission of India and the Malimath committee. This article discusses the background in which the amendment was made in detail. It also examines Section 89 of CPC and the type of cases that be referred under the section. Additionally, it also includes the leading case law on the subject.
Alternate Dispute Resolution or ADR is meant to include a wide variety of techniques and mechanisms that are used by the parties to a dispute to resolve their conflicts. It acts as an alternative to the court system and includes methods like Arbitration, Conciliation, Mediation, Negotiation, Lok Adalat, etc.
The concept of ADR is not a foreign one, it has existed in our country since the Vedic times. However, the word ‘Arbitration’ was used for the first time in the Bengal Act of 1772, but it was applied only to the presidency states of Calcutta, Bombay, and Madras. The first Arbitration Act was introduced in India in the year 1899 but was again applied only to the presidency states. The Arbitration Act of 1940 replaced this act, but it could not meet the expectations of the legislators, therefore it was repealed by the Arbitration and Conciliation Act, 1996 which is currently followed in the country.
The Indian judiciary suffers from the menace of a backlog of cases. There is a huge pendency of cases before the Indian judiciary. According to the official data, 3,61,84,413 cases are currently pending before the various courts of the country. One of the reasons for such high numbers is the formal procedures that are followed in a court of law. Therefore, ADR methods are preferred by the parties because they are less costly, expeditious, flexible, and offers freedom to the parties to come to a settlement.
Due to the aforementioned reasons and keeping in mind the various advantages of such mechanisms, Section 89 was added in the Civil Procedure Code, which gave the powers to a court to refer a dispute to ADR mechanisms like, Arbitration, Conciliation, Judicial settlements including settlement through Lok Adalat, and Mediation. Also, Rules 1A, 1B, and 1C were added to Order X of the CPC, which lay down the manner in which the jurisdiction is to be exercised by the court.
Background and Development
As the famous saying goes, “Justice delayed is justice denied.” The huge backlog of cases in the Indian judiciary has caused the faith of the people in the judiciary to falter. It has also made the access to timely and adequate redressal of their grievances difficult for the citizens. Keeping this in mind, the Law Commission in its 124th and 129th Report emphasised the desirability of the Courts being empowered to compel parties to a private litigation to resort to arbitration or mediation. The Law Commission in its 129th Report advocated the need for amicable settlement of disputes between parties and the Malimath Committee recommended making it mandatory for courts to refer disputes, after their issues having been framed by courts, for resolution through alternate means rather than litigation/trials.
Further, the Law Commission in its 126th Report, recommended that the disputes between the government and its employees should be referred to arbitration. It also recommended the introduction of conciliation procedures for writ matters, and also the establishment of a Grievances’ Cell to deal with disputes and complaints of employees of PSUs and the government in regard to service matters and reference to compulsory arbitration of issues.
Furthermore, the Malimath committee recommended the incorporation of new provision in CPC which compels the parties to a private litigation to resort to arbitration and mediation. The committee stated that the conferment of such power on the courts would go a long way in reducing not only the burden of Trial Courts, but also of the Revisional and Appellate Courts. Thus, there would be a considerable divergence of work at the base level and the inflow of work from Trial Courts to the Revisional and Appellate Courts would thereby diminish.
Therefore, in light of the above recommendations, the Code of Civil Procedure (Amendment) Bill, 1999 was introduced, which inserted Section 89, and Rules 1A, 1B, and 1C to Rule 1 of Order X.
Analysis of Section 89, Civil Procedure Code
Section 89 of the Code provides for settlement of disputes outside Court and states that:
“(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) Where a dispute has been referred-
(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 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 Authorities Act, 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 Authorities 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.”
This section makes it obligatory for the Courts to refer a dispute to the mentioned ADR mechanisms if it appears to the court that there exist elements of a settlement which may be acceptable to the parties, and then the court shall formulate the terms of such settlement which will then be observed by the parties. After receiving the observations, the Court may reformulate those terms if possible and refer the dispute the mentioned ADR processes.
Further the section provides that if a dispute is referred under sub section (1), then the ADR procedure shall be governed by the appropriate laws.
It was held in Salem Advocate Bar Association v. Union of India that the purpose of section 89 of the Code is to try and see that all the cases which are filed in the court need not necessarily be decided by the court itself. Keeping in mind the law’s delay and the limited number of judges which are available, it has now become imperative that resort should be had to ADR mechanism with a view to bringing an end to litigation between the parties at an early date. The Alternative Dispute Resolution mechanism as contemplated by section 89 is arbitration or conciliation or judicial settlement including settlement through Lok Adalat or mediation. All this means is that effort has to be made to bring about an amicable settlement between the parties, but if settlements through those methods is not possible, despite efforts being made, the case will ultimately go to trial.
Disputes which can be referred to ADR under the section
In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. & Ors., the Supreme Court held that the following categories of cases can be settled through ADR processes:
- All cases relating to trade, commerce and contracts, including- disputes arising out of contracts; disputes relating to specific performance; disputes between suppliers and customers, or bankers and customers, or developers, builders and customers; etc.
- All cases arising from strained or soured relationships, including- disputes relating to matrimonial causes, maintenance, custody of children; disputes relating to partition or division among family members or coparceners or co-owners; disputes relating to partnership among partners; etc.
- All cases where there is a need for continuation of pre-existing relationship in spite of the disputes, including- disputes between neighbours; disputes between employers and employees; disputes among members of societies/associations/apartments; etc.
- All cases relating to tortious liability, including claims for compensation in motor accidents or other accidents.
- All consumer disputes, including disputes where a trader or supplier or manufacturer or service provider is keen to maintain his business or professional reputation and credibility or product popularity.
- All offenses which are compoundable.
Leading case law: Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. Pvt. Ltd.
In the instant case, the observations of the Supreme Court are as follows:
- Section 89 suffers from some serious mistakes from a clerical or drafting point of view, which gave rise to complexities in understanding. The court pointed out that there is a mixing up of the definitions of ‘mediation’ and ‘judicial settlement’ under clauses (c ) and (d) of sub-section (2) of the section. Therefore, the court was of the view that if the word ‘mediation’ in clause (d) and the words ‘judicial settlement’ in clause (c ) of section 89 are interchanged, then the provisions would be much clearer.
- Another flaw observed by the court was the use of the words “shall formulate the terms of the settlement” which suggested that the court has to formulate the terms of the settlement and present it to the parties for their consideration, then reformulate the terms if possible, and then finally refer the dispute to ADR mechanisms. The Court held that if that was the case, then the reference to ADR mechanisms would be meaningless and the court itself might as well proceed to record the settlement. In view of the foregoing, the Supreme Court held that it is sufficient for the court to merely describe the nature of the dispute and make the reference to the appropriate ADR processes.
- The Supreme Court then discussed how the interpretation of section 89 should be made. It held that the most practical way of reading the section with Order X Rule 1A is that after the pleadings are complete and after seeking admissions/denials wherever required, and before framing of the issues, the court should consider and record the nature of the dispute and inform the parties about the five options of ADR mechanism available and then finally refer the dispute to one of those mechanisms. The court further clarified that neither section 89 nor Rule 1A of Order X intended to supersede or modify the provisions of the Arbitration and Conciliation Act, 1996 or the Legal Services Authorities Act, 1987. The court also explicitly laid down a roadmap suggesting the procedure to be followed under section 89.
- Finally, the court discussed whether the reference to ADR processes is mandatory. The court observed that section 89 starts with the words “where it appears to the court that there exist elements of settlement”. This clearly shows that only the suitable cases are to referred under this section, and if the reference is not made, then the reasons for the same must be recorded. Therefore, it was held that having a hearing after completion of pleadings to consider recourse to ADR processes under section 89 of the Code, is mandatory. But, the actual reference to an ADR process in all cases is not mandatory. Where the case falls under an excluded category, there need not be a reference to the ADR process. In all other cases, a reference to ADR processes is a must.
One of the main reason behind the incorporation of section 89 in the Civil Procedure Code was to help in reducing the burden on the Courts by encouraging out of court settlements. However, the section suffers from some anomalies as observed by the Supreme Court in the Afcons Case. It needs to be amended in order to accommodate the changes as suggested by the court and also by the Law Commission in its 238th Report.
The ADR movement needs to be carried forward with greater speed. There is a need to make more and more people aware of the available options and encourage them to settle through the various ADR mechanisms. Hence, the provision under Section 89 is right in its essence but its purpose is defeated due to legal intricacies, draftsmen’s error and lack of awareness among individuals.
- Krishnan Keshav, Alternative Dispute Resolution (Singhal Law Publications, Delhi, 2019-2020)