Supreme Court of India
AFCONS INFRASTRUCTURE LTD. AND ANR.versusCHERIAN VARKEY CONSTRUCTION CQ. (P) LTD. AND ORS.
- Citation
- 2010 INSC 431
- Decided
- 26 July 2010
- Disposal
- Appeal(s) allowed
- Bench
- R V RAVEENDRAN
Holding
A civil court cannot refer a suit to arbitration under Section 89 of the CPC unless all parties consent, and the trial court failed to follow the proper Section 89 procedure.
Summary
The Supreme Court examined a suit where the plaintiff sought recovery and the trial court, after an application under Section 89 of the CPC, formulated issues and referred the matter to arbitration despite the defendants' refusal. The Court held that Section 89 requires a preliminary hearing after pleadings, a summary of the dispute, and the parties' consent for arbitration, which is an adjudicatory ADR process. It clarified that the statutory language of Section 89 contains drafting anomalies that must be interpreted purposively, including interchanging the terms ‘mediation’ and ‘judicial settlement’ and treating the formulation of terms of settlement as a summary of disputes. The Court also explained the mandatory nature of a hearing under Section 89 but not the mandatory reference to an ADR process, except for cases not falling within excluded categories. Consequently, the trial court’s procedure was deemed improper and the reference to arbitration was set aside, directing the court to consider a non‑adjudicatory ADR process. The appeal was allowed.
Issues considered
- What is the correct procedure for a court to implement Section 89 of the CPC and Order 10 Rule 1A?
- Is the consent of all parties required for a court to refer a suit to arbitration under Section 89?
- Is reference to an ADR process mandatory under Section 89, and what categories of cases are excluded?
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11, s. 30, s. 36, s. 62, s. 64, s. 73, s. 74, s. 8
- Code of Civil Procedure, 1908s. 89
- Legal Services Authorities Act, 1987s. 20, s. 21
- Order 10 of the CPCs. Rule 10, s. Rule 1A, s. Rule 1B
- Order 23 of the CPCs. Rule 3
Subjects
Section 89 CPCAlternative Dispute ResolutionArbitrationConciliationMediationLok AdalatJudicial SettlementConsent of partiesStatutory interpretationCivil procedure
Judgment
[2010] 8 S.C.R. 1053
AFCONS INFRASTRUCTURE LTD. AND ANR. A
v.
CHERIAN VARKEY CONSTRUCTION CQ. (P) LTD. AND
ORS.
(Civil Appeal No. 6000 of 2010)
B
JULY 26, 2010
[R.V. RAVEENDRAN AND J.M. PANCHAL, JJ.]
Code of Civil Procedure, 1908:
s. 89 - Object of - Held: Is to try for settlement between
c
the parties by resorting to appropriate ADR process before
the case proceeds to trial.
s. 89 - Anomalies in s. 89 and its correct interpretation -
Held: The first anomaly is the mixing up of the definitions of D
'mediation' and judicial settlement' under clauses (c) and (d)
of sub-section (2) of s. 89 - The second anomaly is that sub-
section (1) of s. 89 imports the final stage of conciliation
referred to in s. 73( 1) of the Arbitration and Conciliation Act,
1996 into the pre-ADR reference stage under s. 89 - The E
clauses (c) and (d) of sub-section (2) of s. 89 would make
perfect sense by interchanging the word "mediation" in clause
(d) with the words 'judicial settlement" in clause (c) - As
regards second anomaly, it is not possible for the courts to
formulate or re-formulate the terms of a possible settlement F
at a preliminary hearing to decide whether a case should be
referred to an ADR process and, if so, which ADR process -
This anomaly was diluted in Salem Bar-II by equating "terms
of settlement" to a "summary of dispute" - Alternative disputes
resolution (ADR) processes - Interpretation of statutes.
G
s. 89 - Reference to ADR process under - Whether
mandatory - Held: Having a hearing after completion of
pleadings, to consider recourse to ADR process u/s. 89 is
mandatory - But actual reference to an ADR process in all
1053 H
1054 SUPREME COURT REPOR rs [2010] 8 S.C.R.
A cases is not mandatory - Where the case falls under an
excluded category. there need not be reference to ADR
process - In all other case reference to ADR process 1s a
must.
s. 89 - ADR process - Governing statutes - Held: s 89
8 makes it clear that two of the ADR processes, arbitration and
conciliation, would be governed by the provisions of the
Arbitration and Conciliation Act. 1996 and two other ADR
processes, Lok Ada/at Settlement and Mediation would be
governed by the. Legal Services Authorities Act, 1987 -
C Judicial settlement is not governed by any enactment and the
court has to follow such procedure as may be prescribed (by
appropriate rules) - Arbitration and Conciliation Act, 1996 -
Legal Services Authorities Act, 1987
D s.89, 0.10, r.1A - Procedure to be followed by courts in
implementing s. 89 and Order 10, r. 1A - Guidelines laid down.
s. 89 and 0. 10, r. 1A - Distinction between - Held: Rule
1A of 0. 10 requires the court to give the option to the parties,
to choose any of the ADR processes ·- This would mean a
E joint option or consensus about the choice of the ADR
process - On the other hand, s. 89 vesis the choice of
reference to the court.
s. 89 - Consent of the parties for reference to ADR
F processes - Held. For referring matter to arbitration or to
conciliation, consent of all the parties to the suit is required -
Lok Ada/at, Mediation and Judicial Settlement do not require
consent of the parties.
Alternative disputes resolution (ADR) processes:
G Whether the settlement in an ADR process is binding in itself
- Held: When the court refers the matter to arbitration under
s. 89 of the Code, the case goes out of the stream of the court
and becomes an independent proceeding before the arbitral
tribunal - Arbitration award is binding on the parties and is
H executable/enforceable as if a decree of a court - The other
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four ADR processes are non-adjudicatory and the case does A
not go out of the stream of the court when a reference is made
to such a non-adjudicatory ADR forum - As the court
continues to retain control and jurisdiction over the cases
which it refers to conciliations, or Lok Adalats, the settlement
agreement in conciliation or the Lok Ada/at award will have B
to be placed before the court for recording it and disposal in
its terms - Whenever such settlements reached before non-
adjudicatory ADR Fora are placed before the court, the court
should apply the principles of Order 23 Rule 3, CPC and
make a decree/order in terms of the settlement, in regard to c
the subject matter of the suit/proceeding - In regard to the
matters/disputes which are not the subject matter of the suit!
proceedings, the court will have to direct that the settlement
shall be governed bys. 74 of AC Act (in respect of conciliation
settlements) or s. 21 of the Legal Services Authorities Act,
D
1987 (in respect of settlements by a Lok Ada/at or a Mediator)
- Only then ·such settlements would be effective - Arbitration
and Conciliation Act, 1996 - s. 74 - Legal Services Authorities
Act, 1987 - s.21.
The first respondent filed a recovery suit against the E
appellants. In the said suit, an order of attachment was
made. Thereafter, the first respondent filed an application
under Section 89, CPC praying that the court may
formulate the terms of settlement and refer the matter to
arbitration. The appellants filed a counter to the F
application contending that they were not agreeable for
referring the matter to arbitration or any of the other ADR
processes under Section 89, CPC. Meanwhile, the High
Court allowed the appeal filed by the appellant against
the order of attachment. Thereafter, the trial court allowed G
the application under Section 89 and formulated sixteen
issues and referred the matter to arbitration. The High
court dismissed the revision petition holding that the
apparent tenor of Section 89, CPC permitted the Court,
in appropriate cases to refer even the unwilling parties
H
1056 SUPREME COURT REPORTS [2010] 8 S.C.R.
A to arbitration and the concept of pre-existing arbitration
agreement which was necessary for reference to
arbitration under the Arbitration and Conciliation Act,
1996, was inapplicable to references under Section 89,
CPC. The order of High Court was under challenge in the
s instant appeal.
Allowing the appeal, the Court
HELD: 1.1. Resort to alternative disputes resolution
'ADR' processes is necessary to give speedy and
c effective relief to the litigants and to reduce the pendency
in and burden upon the courts. As ADR processes were
not being resorted to with the desired frequency,
Parliament introduced Section 89 and Rules 1-A to 1-C
in Order 10 in the Code of .Civil Procedure to ensure that
0 ADR process was resorted to before the commencement
of trial in suits. The validity of Section 89, with all its
imperfection was upheld in *Salem Bar-I, but was referred
to a Committee constituted by the court as it was hoped
that Section 89 could be implemented by ironing the
E creases. In **Salem Bar-II, the Supreme Court applied the
principle of purposive construction in an attempt to make
it workable.[Para 7] (1076-E-G]
*Salem Advocate Bar Association v. Union of India 2003
(1) SCC 49; **Salem Advocate Bar Association v. Union of
F India 2005 (6) SCC 344, referred to.
What is wrong with Section 89, CPC
1.2. The first anomaly is the mixing up of the
definitions of 'mediation' and 'judicial settlement' under
G clauses (c) and (d) of sub-section (2) of section 89, CPC.
Clause (c) says that for "judicial settlement", the court
shall refer the same to a suitable institution or person who
shall be deemed to be a Lok Adalat. Clause (d) provides
that where the reference is to "mediation", the court shall
H effect a compromise between the parties by following
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such procedure as may be prescribed. It makes no sense A
to call a compromise effected by a court, as "mediation",
as is done in clause (d). Nor does it make any sense to
describe a reference made by a court to a suitable
institution or person for arriving at a settlement as
"judicial settlement", as is done in clause (c). "Judicial B
settlement" is a term in vogue in USA referring to a
settlement of a civil case with the help of a judge who is
not assigned to adjudicate upon the dispute. "Mediation"
is also a well known term and it refers to a method of
non-binding dispute resolution with the assistance of a c
neutral third party who tries to help the disputing parties
to arrive at a negotiated settlement. It is also synonym of
the term 'conciliation'. The words are universally
understood in a particular sense, and assigned a
particular meaning in common parlance. The definitions D
of those words in section 89 with interchanged meanings
had led to confusion, complications and difficulties in
implementation. The mix-up of definitions of the terms
"judicial settlement" and "mediation" in Section 89 was
apparently due to a clerical or typographical error in
E
drafting, resulting in the two words being interchanged
in clauses (c) and (d) of Section 89(2). If the word
"mediation" in clause (d) and the words "judicial
settlement" in clause (c) are interchanged, the said
clauses would make perfect sense. These changes made
by interpretative process shall remain in force till the F
legislature corrects the mistakes so that Section 89 is not
rendered meaningless and infructuous. [Paras 8 and 16]
[1076-H; 1077 -A-F; 1086-8]
Black's Law Dictionary, 7th edition, Pages 1377 and G
996, referred to.
1.3. The second anomaly is that sub-section (1) of
Section 89 imports the final stage of conciliation referred
to in section 73(1) of the Arbitration and Conciliation Act,
1996 (AC Act) into the pre-ADR reference stage under H
1058 SUPREME COURT REPORTS [2010) 8 S.C.R.
section 89. Sub-section (1) of section 89 requires the
A..
court to formulate the terms of settlement and give them
to the parties for their observation and then reformulate
the terms of a possible settlement and then refer the same
for any one of the ADR processes. If sub-section (1) of
B Section 89 is to be literally followed, every trial Judge
before framing issues, is required to ascertain whether '
there exists any elements of settlement which may be
acceptable to the parties, formulate the terms of
settlement, give them to parties for observations and then
c reformulate the terms of a possible settlement before
referring it to arbitration, conciliation, judicial settlement,
Lok Adalat or mediation. There is nothing that is left to
be done by the alternative dispute resolution forum. If all
these have to be done by the trial court before referring
) the parties to alternative dispute resolution processes,
the court itself may as well 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. Sectiqtl 73 of AC Act
E shows that formulation and reformul~tion of terms of
settlement is a process carried out at,the ' final stage of a
conciliation process, when the settlement is being arrived
at. Formulation and re-formulation of terms of settlement
by the court is therefore wholly out of place at the stage
F of pre ADR reference. It is not possible for courts to
perform these acts at a preliminary hearing to decide
whether a case should be referred to an ADR process
and, if so, which ADR process. [Paras 9, 10] [1077-G-H;
1078-A-C; 1078-D-E]
G
1.4. If the reference is to be made to arbitration, the
terms of settlement formulated by the court would not be
of any use, as what is referred to arbitration is the dispute
and not the terms of settlement; and the arbitrator has to
H adjudicate upon the dispute and give his decision by way
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of award. If the reference is to conciliation/mediation/Lok A
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 would be totally B
useless in any subsequent ADR process. The
formulation of the terms of settlement by the court merely
on the basis of pleadings is neither feasible nor possible.
The requirement that the court should formulate the
terms of settlement is therefore a great hindrance to c
courts in implementing section 89 CPC. This anomaly
was diluted in Sa/em Bar-II by equating "terms of
settlement" to a "summary of disputes" meaning thereby
that the court is only required to formulate a 'summary
of disputes' and not 'terms of settlement'. [Paras 11,12]
0
[1079-G-H; 1080-A; 1080•C-D]
Correct Interpretation of Section 89, CPC
2.1. The principles of statutory interpretation are well
settled. Where the words of the statute are clear and
E
unambiguous, the provision should be given its plain
and normal meaning, without adding or rejecting any
words. Departure from the literal rule, by making
structural changes or substituting words in a clear
statutory provision, under the guise of interpretation pose
a great risk as the changes may not be what the F
legislature intended or desired. Legislative wisdom
cannot be replaced by the Judge's views. [Para 13] [1080-
E-F] .
Shri Mandir Sita Ramji v. Lt. Governor of Delhi (1975) 4 G
sec 298, relied on.
2.2. Where the words used in the statutory provision
are vague and ambiguous or where the plain and normal
meaning of its words or grammatical construction thereof
lead to confusion, absurdity, repugnancy with other H
1060 SUPREME COURT REPORTS (2010] 8 S.C.R.
A provisions, the courts may, instead of adopting the plain
and grammatical construction, use the interpretative tools
to set right the situation, by adding or omitting or
substituting the words in the Statute. When faced with an
apparently defective provision in a statute, courts prefer
B to assume that the draftsman had committed a mistake
rather than concluding that the legislature has
deliberately introduced an absurd or irrational statutory
provision. Departure from the literal rule of plain and
straight reading can however be only in exceptional
c cases, where the anomalies make the literal compliance
of a provision impossible, or absurd or so impractical as
to defeat the very object of the provision. [Para 13] [1080-
H; 1081-A-C]
Tirath Singh v. Bachittar Singh AIR 1955 SC 830 ;
D Shamrao V. Parulekar v. District Magistrate, Thana, Bombay
AIR 1952 SC 324; Molar Mal vs. Kay Iron Works (P) Ltd. 2004
(4) sec 285, relied on.
Mangin v. Inland Revenue Commission 1971 (1) All. ER
E 179; Stock v. Frank Jones (Tipton) Ltd., 1978 (1) All ER 948,
referred to.
Maxwell on Interpretation of Statutes 12th Edn., page
228; Justice GP. Singh "Principles of Statutory Interpretation"
12th Edn. - 2010, Lexis Nexis, referred to.
F
2.3. In Salem Bar-II, by judicial interpretation, the entire
process of formulating the terms of settlement, giving
them to the parties for their observation and reformulating
the terms of possible settlement after receiving the
observations, contained in sub-section (1) of section 89,
G is excluded or done away with by stating that the said
provision merely requires formulating a summary of
disputes. Further, Supreme Court in Salem Bar-I/, adopted
the definition of 'mediation' suggested in the Model
Mediation Rules, in spite of a different definition in section
H 89(2)(d) as the process by which a mediator appointed
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1061
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by parties or by the court, as the case may be, mediates A
the dispute between the parties to the suit by the
application of the provisions of the Mediation Rules, 2003
in Part 11, and in particular, by facilitating discussion
between parties directly or. by communicating with each
other through the mediator, by assisting parties in B
identifying issues, reducing misunderstandings,
clarifying priorities, exploring areas of compromise,
generating options in an attempt to solve the dispute and
emphasizing that it is the parties' own responsibility for
making decisions which affect them. All over the country, c
the- courts were referring cases under section 89 to
mediation by assuming and understanding 'mediation' to
mean a dispute resolution process by negotiated
settlement ~ith the assistance of a neutral third party.
Judicial settlement is understood as referring to a 0
compromise entered by the parties with the assistance
of the court adjudicating the matter, or another Judge to
whom the court had referred the dispute. [Para 14) [1084-
C-H; 1085-A)
2.4. Section 89 has to be read with Rule 1-A of Order E
10 which requires the court to direct the parties to opt for
any of the five modes of alternative dispute resolution
processes and on their option refer the matter. The said
rule does not require the court to either formulate the
terms of settlement or make available such terms of F
settlement to the parties to reformulate the terms of
possible settlement after receiving the observations of
the parties. Therefore the only practical way of reading
Section 89 and Order 10, Rule 1-A is that after the
pleadings are complete and after seeking admission/ G
denials wherever required, and before framing issues, the
court has to take recourse to section 89 CPC. Such
recourse requires the court to consider and record the
nature of the dispute, inform the parties about the five
options available and take note of their preferences and
H
1062 SUPREME COURT REPORTS [2010] 8 S.C.R.
A ther. refer them to one of the ADR processes. [Para 15]
[1085-B-D]
Whether reference to ADR process is m_?._r1datory
3. Section 89 starts with the words · wl1.:He fl appears
B to the court that there exist elements of a settlement". This
clearly would show that cases which are not suited for
ADR process should not be referred under section 89,
CPC. The court has to form an opinion that a case is one
that is capable of being referred to and settled through
c ADR process. Having regard to the tenor of the
provisions of Rule 1A of Order 10 CPC, the civil court
should invariably refer cases to ADR process. Only in
certain recognized excluded categories of cases, it may
choose not to refer to an ADR process. Where the case
0 is unsuited 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. Therefore, having a hearing after
completion of pleadings, to consider recourse to ADR
E process under section 89, CPC is mandatory. But actual
reference to an ADR process in all cases is not
mandatory. Where the case falls under an excluded
category, there need not be reference to ADR process.
In all other case reference to ADR process is a must.
F [Para 17] [1086-D-GJ
How to decide the appropriate ADR process under
Section 89, CPC
4.1. Section 89 refers to five types of ADR
procedures, made up of one adjudicatory process
G (arbitration) and four negotiatory (non adjudicatory)
processes - conciliation, mediation, judicial settlement
and Lok Adalat settlement. Section 89, CPC makes it clear
that two of the ADR processes - arbitration and
conciliation, would be governed by the provisions of the
H AC Act and two other ADR Processes - Lok Adalat
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1063
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Settlement and Mediation would be governed by the A
Legal Services Authorities Act. As for the last of the ADR
processes - judicial settlement, Section 89 makes it clear
that it is not governed by any enactment and the court
has to follow such procedure as may be prescribed (by
appropriate rules). [Para 20] [1089-E-H; 1090-A] B
4.2. Rule 1A of Order 10 requires the court to give the
option to the parties, to choose any of the ADR
processes. This does not mean an individual option, but
a joint option or consensus about the choice of the ADij
process. On the other hand, section 89 vests the choice C
of reference to the court. There is of course no
inconsistency. Section 89 CPC gives the jurisdiction to
refer to ADR process and Rules 1A to IC of Order 10 lay
down the manner in which the said jurisdiction is to be
exercised. The scheme is that the court explains the D
choice available regarding ADR process to the parties;
permits them to opt for a process by consensus, and i~
there is no consensus, proceeds to choose the process.'
[Para 21] [1090-8-C]
E
Arbitration
· 4.3.1. Arbitration is an ADR process by a private
forum, governed by the provisions of the AC Act. The said
Act makes it clear that there can be reference to arbitration
only if there is an 'arbitration agreement' between the F
parties. If there was a pre-existing arbitration agreement
between the parties, in all probability, even before the suit
reaches the stage governed by Order 10, CPC the matter
would have stood referred to arbitration either by
invoking section 8 or section 11 of the AC Act, and there G
would be no need to have recourse to arbitration under '
section 89, CPC. Section 89 therefore pre-supposes that
there is no pre-existing arbitration agreement. Even if
there was no pre-existing arbitration agreement, the
parties to the suit can agree for arbitration when the H
1064 SUPREME COURT REPORTS [2010] 8 S.C.R.
A choice of ADR processes is offered to them by the court
under section 89, CPC. Such agreement can be by
means of a joint memo or joint application or a joint
affidavit before the court, or by record of the agreement
by the court in the ordersheet signed by the parties. Once
B there is such an agreement in writing signed by parties,
the matter can be referred to arbitration under section 89
CPC; and on such reference, the provisions of AC Act
will apply to the arbitration, and as noticed in Sa/em Bar-
i, the case would go outside the stream of the court
c permanently and would not come back to the court. If
there is no agreement between the parties for reference
to arbitration, the court cannot refer the matter to
arbitration under section 89 CPC. (Paras 23, 24] (1090-F-
H; 1091-A-C]
D Jagdish Chander v. Ramesh Chander 2007 (5) SCC 719,
relied on.
CONCILIATION
4.3.2. Conciliation is a non-adjudicatory ADR
E process, which is also governed by the provisions of AC
Act. There can be a valid reference to conciliation only if
both the parties to the dispute agree to have negotiations
with the help of a third party or third parties either by an
agreement or by the process of invitati.on and
acceptance provided in section 62 of AC Act followed by
F appointment of conciliator/s as provided in section 64 of
AC Act. If both parties do not agree for conciliation, there
can be no 'conciliation'. As a consequence, as in the case
of arbitration, the court cannot refer the parties to
conciliation under section 89, in the absence of consent
G by all parties. As contrasted from arbitration, when a
matter is referred to conciliation, the matter does not go
out of the stream of court process permanently. If there
is no settlement, the matter is returned tc the court for
framing issues and proceeding with the trial. [Para 25]
H (1094-A-D]
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THE OTHER THREE ADR PROCESSES: A
4.3.3. If the parties are not agreeable for either
arbitration or conciliation, both of which require consent
of all the parties, the court has to consider wh!ch of the
other three ADR processes (Lok Adalat, Mediation and
8
Judicial Settlement) which do not require the consent of
parties for reference, is suitable and appropriate and refer
the parties to such ADR process. If mediation process is
not available (for want of a mediation centre or qualified
mediators), necessarily the court will have to choose
between reference to Lok Adalat or judicial settlement. If C
facility of mediation is available, then the choice becomes
wider. If the suit is complicated or lengthy, mediation will
be the recognized choice. If the suit is not complicated
and the disputes are easily sortable or could be settled
by applying clear cut legal principles, Lok Adalat will be D
the preferred choice. If the court feels that a suggestion
or guidance by a Judge would be appropriate, it can refer
it to another Judge for dispute resolution. The court has
to use its discretion in choosing the ADR process
judiciously, keeping in view the nature of disputes, E
interests of parties and expedition in ·dispute resolution.
[Para 26] [1094-E-H; 1094-A]
Whether the settlement in an ADR process is binding in
itself :
F
5.1. When the court refers the matter to arbitration
under Section 89 of the Act, the case goes out of the
stream of the court and becomes an independent
proceeding before the arbitral trib:.mal. Arbitration being
an adjudicatory process, it always ends in a decision. G
The award of the arbitrator is binding on the parties and
is executable/enforceable as if a decree of a court, having
regard to Section 36 of the AC Act. If any settlement is
reached in the arbitration proceedings, then the award
passed by the Arbitral Tribunal on such settlement, will H
1066 SUPREME COURT REPORTS [2010] 8 S.C.R.
A also be binding and executable/enforceable as if a decree
of a court, under Section 30 of the AC Act. [Para 27] [1095-
B-D]
5.2. The other four ADR processes are non-
adjudicatory process. The court retains its control and
8
jurisdiction over the case, even when the matter is before
such non-adjudicatory ADR forum. When a matter is
settled through conciliation, the Settlement Agreement is
enforceable as if it is a decree of the court having regard
to Section 74 read with Section 30 of the AC Act. Similarly,
C when a settlement takes place before the Lok Adalat, the
Lok Adalat award is also deemed to be a decree of the
civil court and executable as such under Section 21 of
the Legal Services Authorities Act, 1987. As the court
continues to retain control and jurisdiction over the cases
D which it refers to conciliations, or Lok Adalats, the
settlement agreement in conciliation or the Lok Adalat
award will have to be placed before the court for
recording it and disposal in its terms. Where the reference
is to a neutral third party on a court reference, though it
E will be deemed to be reference to Lok Adalat, as court
retains its control and jurisdiction over the matter, the
mediation settlement will have to be placed before the
court for recording the settlement and disposal. Where
the matter is referred to another Judge and settlement is
F arrived at before him, such settlement agreement would
also be placed before the court which referred the matter
and that court would make a decree in terms of it.
Whenever such settlements reached before non-
adjudicatory ADR Fora are placed before the court, the
G court should apply the principles of Order 23 Rule 3, CPC
and make a decree/order in terms of the settlement, in
regard to the subject matter of the suit/proceeding. In
regard to the matters/disputes which are not the subject
matter of the suit/proceedings, the court will have to direct
H
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that the settlement shall be governed by Section 74 of AC A
Act (in respect of conciliation settlements) or Section 21
of the Legal Services Authorities Act, 1987 (in· respect of
settlements by a Lok Adalat or a Mediator). Only then
such settlements would be effective. [Paras 28] [1095-E-
H; 1096-A-F] 8
SUMMATION
6.1. The procedure to be adopted by a court under
Section 89, CPC is thus summarised as follows:
(a) Wher. the pleadings are complete, before framing
c
issues, the court shall fix a preliminary hearing for
appearance of parties. The court should acquaint
itself with the facts of the case and the nature of the
dispute between the parties.
D
(b) The court should first consider whether the case
falls under any of the category of the cases which are
required to be tried by courts and not fit to be referred
to any ADR processes. If it finds the case falls under
any excluded category, it should record a brief order E
referring to i:he nature of the case and why it is not
fit for reference to ADR processes. It will then
proceed with the framing of issues and trial.
(c) In other cases (that is, in cases which can be
referred to ADR processes) the court should explain F
the choice of five ADR processes to the parties to
enable them to exercise their option.
(d) The court should first ;;scertain whether the
parties are willing for arbitration. The court should G
inform the parties that arbitration is an adjudicatory
process by a chosen private forum and reference to
arbitration will permanently take the suit outside the
ambit of the court. The parties should also be
informed that the cost of arbitration will have to be
H
1068 SUPREME COURT REPORTS [2010] 8 S.C.R.
A borne by them. Only if both parties agree for
arbitration, and also agree upon the arbitrator, the
matter should be referred to arbitration.
(e) If the parties are not agreeable for arbitration, the
court should ascertain whether the parties are
B agreeble for reference to conciliation which will be
governed by the provisions of the AC Act. If all the
parties agree for reference to conciliation and agree
upon the conciliator/s, the court can refer the matter
to conciliation in accordance with section 64 of the
c AC Act.
(f) If parties are not agreeable for arbitration and
conciliation, which is likely to happen in most of the
cases for want of consensus, the court should,
D keeping in view the preferences/options of parties,
refer the matter to any one of the other three other
ADR processes : (a) Lok Adalat; (b) mediation by a
neutral third party facilitator or mediator; and (c) a
judicial settlement, where a Judge assists the parties
to arrive at a settlement.
E
(g) 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
F case of motor accident claims), the court may refer
the matter to Lok Adalat. In cases 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
G mediation is not available or where the parties opt for
the gu!dance of a Judge to arrive at a settlement, the
court may refer the matter to another Judge for
attempting settlement.
(h) If the reference to the ADR process fails, on
H receipt of the Report of the ADR Forum, the court
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1069
CONSTRUCTION CO. (P) LTD.
shall proceed with hearing of the suit. If there is a A
settlement, the court shall examine the settlement
and make a decree in terms of it, keeping the
principles of Order 23 Rule 3 of the Code in mind.
(i) If the settlement includes disputes which are not
8
the subject matter of the suit, the court may direct
that the same will be governed by Section 74 of the
AC Act (if it is a Conciliation Settlement) or Section
21 of the Legal Services Authorities Act, 1987 (if it is
a settlement by a Lok Adalat or by mediation which
is a deemed Lok Adalat). If the settlement is through C
mediation and it relates not only to disputes which
are the subject matter of the suit, but also other
disputes involving persons other than the parties to
the suit, the Court may adopt the principle underlying
Order 23 Rule 3 of the Code. This will be necessary D
as many settlement agreements deal with not only
the disputes which are the subject matter of the suit
or proceeding in which the reference is made, but
also other disputes which are not the subject matter
of the suit. E
0) If any term of the settlement is ex facie illegal or
unforceable, the court should draw the attention of
parties thereto to avoid further litigations and
disputes about exe.cutability. [Para 31] [1097-E-H;
F
1098-A-H; 1099-A-H; 1100-A]
6.2. The Court should also bear in mind the following
consequential aspects, while giving effect to Section 89,
CPC:
G
(i) If the reference is to arbitration or conciliation, the
court has to record that the reference is by mutual
consent. Nothing further need be stated in the order
sheet.
H
1070 SUPREME COURT REPORTS [2010] 8 S CR.
(ii) If the reference is to any other ADR process, the
court should briefly record that having regard to the
nature of dispute, the case deserves to be referred
to Lok Adalat, or mediation or judicial settlement, as
the case may be. There is no need for an elaborate
B order for making the reference.
(iii) The requirement in Section 89(1) that the court
should formulate or reformulate the terms of
settlement would only mean that court has to briefly
refer to the nature of dispute and decide upon the
c appropriate ADR process.
(iv) If the Judge in charge of the case assists the
parties and if settlement negotiations fail, he should
not deal with the adjudication of the matter, to avoid
0 apprehensions of bias and prejudice. It is therefore
advisable to refer cases proposed for Judicial
Settlement to another Judge.
(v) If the court refers the matter to an ADR process
(other than Arbitration), it should keep track of the
E matter by fixing a hearing date for the ADR Report.
The period allotted for the ADR process can normally
vary from a week to two months (which may be
extended in exceptional cases, depending upon the
availability of the alternative forum, the nature of case
F etc.). Under no circumstances' the court should allow
the ADR process to become a tool in the hands of
an unscrupulous litigant intent upon dragging on the
proceedings.
(vi) Normally the court should not send the original
G record of the case when referring the matter for an
ADR forum. It should make available only copies of
relevant papers to the ADR forum. (For this purpose,
when pleadings are filed the court may insist upon
filing of an extra copy). However if the case is referred
H
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to a Court annexed Mediation Centre whi·ch is under A
the exclusive control and supervision of a Judicial
Officer, the original file may be made available
wherever necessary. [Para 32] [1100-B-H; 1101-A-B]
6.3. These procedure and consequential aspects are
B
intended to be general guidelines subject to such
changes as the concerned court may deem fit with
reference to the special circumstances of a case. Though
the process under Section 89 appears to be lengthy and
complicated, in practice the process is simple: know the
dispute; exclude 'unfit' cases; ascertain consent for C
arbitration or conciliation; if there is no consent, select
Lok Adalat for simple cases and mediation for all other
cases, reserving reference to a Judge assisted settlement
only in exceptional or special cases. [Para 33] [1101-C-
E] D
Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya & Anr.
2003 (5) sec 531, distinguished.
7. In the instant case, the trial court did not adopt the
proper procedure while enforcing Section 89 ePC. E
Failure to invoke Section 89 suo moto after completion
of pleadings and considering it only after an application
under Section 89 was filed, is erroneous. Further, while
exercising power under Section 89 of the Code, the trial
court cannot refer a suit to arbitration unless all the F
parties to the suit agree for such reference. [Para 35]
[1103-A-C]
Case Law Reference:
2003 (5) sec 531 distinguished Para 4, 34 G
2003 (1) sec 49 referred to Para 7, 24.1
2005 (6) sec 344 relied· on Paras 7,
13.5, 14,
24.2 H
1072 SUPREME COURT REPORTS [201 OJ 8 S.C.R.
A (1975) 4 sec 298 relied on Para 13
AIR 1955 SC 830 relied on Para 13.1
AIR 1952 SC 324 relied on Para 13.2
2004 (4) sec 285 relied on Para 13.3
B
1971 (1) All. ER 179 referred to Para 13.4
1978 (1) All ER 948 referred to Para 13.6
2001 (5) sec 119 relied on Para 24.3
C CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6000 of 2010.
From the Judgment & Order dated 11.10.2006 of the High
Court of Kerala at Ernakulam in Civil Revision Petition No. 1219
D of 2005.
Krishnanan Venugopal, Anil K. Bhatnagar, Amit Dhingra
Manu Seshadri (for Dua Associates) for the Appellants.
T.L.V. Iyer, V.J. Francis, Anupam Mishra, C.N. Sree
E Kumar, P.R. Nayak, Dushyant Parashar for the Respondents.
The Judgment of the Court was delivered by
R.V.RAVEENDRAN, J. 1. Leave granted. The general
scope of Section 89 of the Code of Civil Procedure ('Code'
F for short) and the question whether the said section empowers
the court to refer the parties to a suit to arbitration without the
consent of both parties, arise for consideration in this appeal.
2. The second respondent (Cochin Port Trust) entrusted
the work of construction of certain bridges and roads to the
G appellants under an agreement dated 20.4.2001. The
appellants sub-contracted a part of the said work to the first
respondent under an agreement dated 1.8.2001. It is not in
dispute that the agreement between the appellants and the first
H
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respondent did not contain any provision for reference of the A
disputes to arbitration.
3. The first respondent filed a suit against the appellants
for recovery of Rs.210,70,881 from the appellants and their
assets and/or the amounts due to the appellants from the 8
employer, with interest at 18% per annum. In the said suit an
order of attachment was made on 15.9.2004 in regard to a sum
of Rs.2.25 crores. Thereafter in March 2005, the first
respondent filed an application under section 89 of the Code
before the trial court praying that the court may formulate the
terms of settlement and refer the matter to arbitration. The C
appellants filed a counter dated 24.10.2005 to the application
submitting that they were not agreeable for referring the matter
to arbitration or any of the other ADR processes under section
89 of the Code. In the meanwhile, the High Court of Kerala by
order dated 8.9.2005, allowed the appeal filed by the appellants D
against the order of attachment and raised the attachment
granted by the trial court subject to certain conditions. While
doing so, the High Court also directed the trial court to consider
and dispose of the application filed by the first respondent under
section 89 of the Code. E
4. The trial court heard the said application under section
89. It recorded the fact that first respondent (plaintiff) was
agreeable for arbitration and appellants (defendants 1 and 2)
were not agreeable for arbitration. The trial court allowed the F
said application under section 89 by a reasoned order dated
26.10.2005 and held that as the claim of the plaintiff in the suit
related to a work contract, it was appropriate that the dispute
should be settled by arbitration. It formulated sixteen issues and
referred the matter to arbitration. The appellants filed a revision G
against the order of the trial court. The High Court by the
impugned order dated 11.10.2006 dismissed the revision
petition holding that the apparent tenor of section 89 of the
Code permitted the court, in appropriate cases, to refer even
unwilling parties to arbitration. The High Court also held that the
H
1074 SUPREME COURT REPORTS [2010) 8 S.C.R.
A concept of pre existing arbitration agreement which was
necessary for reference to arbitration under the provisions of
the Arbitration & Conciliation Act, 1996 ('AC Act for short) was
inapplicable to references under section 89 of the Code, having
regard to the decision in Sukanya Holdmgs (P) Ltd. v. Jayesh
B H. Pandya & Anr. (2003 (5) SCC 531]. The said order is
challenged in this appeal.
5. On the contentions urged, two questions arise for
consideration :
C (i) What is the procedure to be followed by a court in
implementing section 89 and Order 10 Rule 1A of
the Code?
(ii) Whether consent of all parties to the suit is
D necessary for reference to arbitration under section
89 of the Code?
6. To find answers to the said questions. we have to
analyse the object, purpose, scope and tenor of the said
provisions. The said provisions are extracted below :
E
'·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
F 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 anr:l refer
the same for -
(a} arbitration;
G
(b} conciliation:
(c} judicial settlement including settlement through Lok
Adalat: or
H
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(d) mediation. A
(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 B
were referred for settlement under the provisions of that
Act;
(b) to Lok Ada/at, the Court shall refer the same to the Lok
Ada lat in accordance with the provisions of sub-section (1) c
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 D
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;
E
(d) for mediation, the Court shall effect a compromise
between the parties and shall follow such procedure as
may be prescribed."
Order 10 Rule 1A. Direction of the Court to opt for any
one mode of alternative dispute resolution.-After F
recording the admissions and denials, the Court shall
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. On the option of the parties, the Court
shall fix the date of appearance before such forum or G
authority as may be opted by the parties.
Order 10 Rule 1B. Appearance before the conciliatory
forum or authority-Where a suit is referred under rule
H
1076 SUPREME COURT REPORTS [2010] 8 S.C.R.
A 1A, the parties shall appear before such forum or authority
for conciliation of the suit.
Order 10 Rule 10. Appearance before the Court
consequent to the failure of efforts of conciliation.-Where
a suit is referred under rule 1A and the presiding officer
B of conciliation forum or authority is satisfied that it would
not be proper in the interest of justice to proceed with the
matter further, then, it shall refer the matter again to the
Court and direct the parties to appear before the Court on
the date fixed by it."
c
7.lf section 89 is to be read and required to be
implemented in its literal sense, it will be a Trial Judge's
nightmare. It puts the cart before. the horse and lays down an
impractical, if not impossible, procedure in sub-section (1 ). It
o has mixed up the definitions in sub-section (2). In spite of these
defects, the object behind section 89 is laudable and sound.
Resort to alternative disputes resolution (for short 'ADR')
processes is necessary to give speedy and effective relief to
the litigants and to reduce the pendency in and burden upon
E the courts. As ADR processes were not being resorted to with
the desired frequency, Parliament thought it fit to introduce
Section 89 and Rules 1-A to 1-C in Order X in the Code, to
ensure that ADR process was resorted to before the
commencement of trial in suits. In view of its laudable object,
F the validity of section 89, with all its imperfections, was upheld
in Sa/em Advocate Bar Association v. Union of India reported
in [2003 (1) SCC 49 - for short, Salem Bar - (/)] but referred
to a Committee. as it was hoped that section 89 could be
implemented by ironing the creases. In Salem Advocate Bar
Association v. Union of India [2005 (6) SCC 344 - for short,
G Salem Bar-(11)], this Court applied the principle of purposive
construction in an attempt to make it workable.
What is wrong with section 89 of the Code?
8. The first anomaly is the mixing up of the definitions of
H
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'mediation' and 'judicial settlement' under clauses (c) and (d) A
of sub-section (2) of section 89 of the Code. Clause (c) says
that for 'judicial settlement, the court shall refer the same to a
suitable institution or person who shall be deemed to be a Lok
Adalat. Clause (d) provides that where the reference is to
"mediation'', the court shall effect a compromise between the B
parties by following such procedure as may be prescribed. It
makes no sense to call a compromise effected by a court, as
"mediation", as is done in clause (d). Nor does it make any
sense to describe a reference made by a court to a suitable
institution or person for arriving at a settlement as "judicial c
settlement", as is done in clause (c). "Judicial settlement is a
term in vogue in USA referring to a settlement of a civil case
with the help of a judge who is not assigned to adjudicate upon
the dispute. "Mediation" is also a well known term and it refers
to a method of non-binding dispute resolu'tion with the
D
assistance of a neutral third party who tries to help the disputing
parties to arrive at a negotiated settlement. It is also synonym
of the term 'conciliation'. (See : Black's Law Dictionary, 7th
Edition, Pages 1377 and 996). When words are universally
understood in a particular sense, and assigned a particular
E
meaning in common parlance, the definitions ~f those words
in section 89 with interchanged meanings has led to confusion,
complications and difficulties in implementation. The mix-up of
definitions of the terms"judicial settlement" and "mediation" in
Section 89 is apparently due to a clerical or typographical error
in drafting, resulting in the two words being interchanged in F
clauses (c) and (d) of Section 89(2). If the word "mediation" in
clause (d) and the words 'judicial settlement in clause (c) are
interchanged, we find that the said clauses make perfect sense.
9. The second anomaly is that sub-section (1) of section G
89 imports the final stage of conciliation referred to in section
73(1) of the AC Act into the pre-ADR reference stage under
section 89 of the Code. Sub-section ( 1) of section 89 requires
the court to formulate the terms of settlement and give them to
the parties for their observation and then reformulate the terms H
1078 SUPREME COURT REPORTS (2010] 8 S.C.R.
A of a possible settlement and then refer the same for any one
of the ADR processes. If sub-section ( 1) of Section 89 is to be
literally followed, every Trial Judge before framing issues, is
required to ascertain whether there exists any elements of
settlement which may be acceptable to the parties, formulate
s the terms of settlement, give them to parties for observations
and then reformulate the terms of a possible settlement before
referring. it to arbitration, conciliation. judicial settlement, Lok
Adalat or mediation. There is nothing that is left to be done by
the alternative dispute resolution forum If all these have to be
c 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.
0
10. Section 73 of AC Act shows that formulation and
reformulation of terms of settlement is a process carried out at
the final stage of a conciliation process, when the settlement
is being arrived at. What is required to be done at the final stage
E of conciliation by a conciliator is borrowed lock, stock and
barrel into section 89 and the court is wrongly required to
formulate the terms of settlement and reformulate them at a
stage prior to reference to an ADR process. This becomes
evident by a comparison of the wording of the two provisions.
F
G
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1079
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.]
Section 73(1) of Arbitration Section 89(1) of Code of A
andConciliation Act, 1996 Civil Procedure relating
relating to the final stage of to a stage before
settlement process· in . reference to an ADR
conciliation process.
B
When it appears to the Where it appears to the Court
conciliator that there exist that there exist elements of a
elements of a settlement which settlement which .may be
may be acceptable to the acceptable to the parties, the
parties, he shall formulate the Court shall formulate the c
terms of a possible settlement terms of settlement and give
and submit them to the parties them to the parties for their
for their observations. After observations and after
receiving the observations of receiving the observations of
the parties, the conciliator may the parties, the Court may D
reformulate the terms of a reformulate the terms of a
possible settlement in the light possible settlement and refer
of such observations. the same for (a) arbitration;
(b) conciliation; (c) judicial
settlement including E
settlement through Lok
Adalat; or (d) madiation.
Formulation and re-formulation of terms of settlement by the
court is therefore wholly out of place at the stage of pre ADR
reference. It is not possible for courts to perform these acts at F
a preliminary hearing to decide whether a case should be
referred to an ADR process and, if so, which ADR process.
11. If the reference is to be made to arbitration, the terms
of settlement formulated by the court will be of no use, as what
is referred to arbitration is the dispute and not the terms of G
settlement; and the Arbitrator will adjudicate upon the dispute
and give his decision by way of award. If the reference is to
conciliation/mediation/Lok Adalat, then drawing up the terms
of the settlement or reformulating them is the job of the
conciliator or the mediator or the Lok Adalat, after going through H
1080 SUPREME COURT REPORTS [2010] 8 S.C.R.
A 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. Why then the courts should be
burdened with the onerous and virtually impossible, but
redundant, task of formulating terms of settlement at pre-
B reference stage?
12. It will not be possible for a court to formulate the terms
of the settlement, unless the judge discusses the matter in detail
with both pa1ties. The court formulating the terms of settlement
merely on the basis of pleadings is neither feasible nor
C possible. The requirement that the court should formulate the
terms of settlement is therefore a great hindrance to courts in
implementing section 89 of the Code. This Court therefore
diluted this anomaly in Sa/em Bar (II) by equating "terms of
settlement" to a "summary of disputes" meaning thereby that
D the court is only required to formulate a 'summary of disputes'
and not 'terms of settlement'.
How should section 89 be interpreted?
E 13. The principles of statutory interpretation are well settled.
Where the words of the statute are clear and unambiguous, the
provision should be given its plain and normal meaning, without
adding or rejecting any words. Departure from the literal rule,
by making structural changes or substituting words in a clear
statutory provision, under the guise of interpretation will pose
F a great risk as the changes may not be what the Legislature
intended or desired. Legislative wisdom cannot be replaced
by the Judge's views. As observed by this Court in somewhat
different context : "When a procedure is prescribed by the
Legislature, it is not for the court to substitute a different one
G according to its notion of justice. When the Legislature has
spoken, the Judges cannot afford to be wiser." (See : Shri
Mandir Sita Ramji vs. Lt. Governor of Delhi - (1975) 4 SCC
298). There is however an exception to this general rule. Where
the words used in the statutory provision are vague and
H ambiguous or where the plain and normal meaning of its words
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1081
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or grammatical construction thereof would lead to confusion, A
absurdity, repugnancy with other P.rovisions, the courts may,
instead of adopting the plain and grammatical construction, use
the interpretative tools to set right the situation, by adding or
omitting or substituting the words in the Statute. When faced
with an apparently defective provision in a statute, courts prefer B
to assume· that the draftsman had committed a mistake rather
than concluding;thatthe Legislature has deliberately introduced
an absurd or irrational statutory provision. Departure from the
literal rule of plain and: straight reading can however be only in
exceptional cases, where the anomalies make the literal c
compliance of a provision impossible, or absurd or so
impractical as to defeat the very object of the provision. We may
also mention purposive interpretation to avoid absurdity and
irrationality is more readily and easily employed in relation to
procedural provisions than with reference to substantive 0
provisions.
(13.1) Maxwell on Interpretation of Statutes (12th Edn.,
page 228), under the caption 'modification of the language to
meet the intention' in the chapter dealing with 'Exceptional
Construction' state:s.> the' position succinctly: E
"Where the language of a statute, in its ordinary meaning
and grammatical construction, leads to a manifest
contradiction of the apparent purpose of the enactment, or
to some inconvenience or absurdity, hardship or injustice, F
which can hardly have been intended, a construction may
be put upon it which modifies the meaning of the words,
and even the structure of the sentence. This may be done
by departing from the rules of grammar, by giving an
unusual meaning to particular words, or by rejecting them G
altogether, on the ground that the legislature could not
possibly have intended what its words signify, and that the
modifications made are mere corrections of careless
language and really give the true meaning. Where the main
object and intention of a statute are clear, it must not be
H
1082 SUPREME COURT REPORTS [2010] 8 SC.R.
A reduced to a nullity by the draftman's unskilfulness or
ignorance of the law, except in a case of necessity, or the
absolute intractability of the language used "
This Court in Tirath Singh v. Bachittar Singh [AIR 1955 SC
830] approved and adopted the said approach.
8
(13.2.) In Shamrao V.Parulekar v. District Magistrate,
Thana, Bombay [AIR 1952 SC 324], this Court reiterated the
principle from Maxwell:
c "..... if one construction will lead to an absurdity while
another will give effect to what commonsense would show
was obviously intended, the construction which would
defeat the ends of the Act must be rejected even if the
same words used in the same section, and even the same
D sentence, have to be construed differently. Indeed, the law
goes so far as to require the Courts sometimes even to
modify the grammatical and ordinary sense of the words
if by doing so absurdity and inconsistency can be
avoided."
E (13.3) In Molar Mal vs. Kay Iron Works (P) Ltd. - 2004
(4) SCC 285, this Court while reiterating that courts will have
to follow the rule of literal construction, which enjoins the court
to take the words as used by the Legislature and to give it the
meaning which naturally implies, held that there is an exception
F to that rule. This Court observed :
"That exception comes into play when application of literal
construction of the words in the statute leads to absurdity,
inconsistency or when it is shown that the legal context in
G which the words are used or by reading the statute as a
whole, it requires a different meaning."
(13.4.) In Mangin v. Inland Revenue Commission [1971
(1) All.ER 179], the Privy Council held:
H " ...... The object of the construction of a statute, be it to
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ascertain the will of the legislature, it may be presumed that A
neither injustice nor absurdity was intended. If, therefore a
literal interpretation would produce such a result, and the
language admits of an interpretation which would avoid it,
then such an interpretation may be adopted."
B
(13.5.) A classic example of correcting an error committed
by the draftsman in legislative drafting is the substitution of the
words 'defendant's witnesses' by this Court for the words
'plaintiff's witnesses' occurring in Order VII Rule 14(4) of the
Code, in Salem Bar-II. We extract below the relevant portion C
of the said decision :
"Order VII relates to the production of documents by the
plaintiff whereas Order VIII relates to production of
documents by the defendant. Under Order VIII Rule 1A(4)
a document not produced by defendant can be confronted D
to the plaintiff's witness during cross-examination.
Similarly, the plaintiff can also confront the defendant's
witness with a document during:·cross-examination. By
mistake, instead of 'defendant's witnesses', the words
'plaintiff's witnesses' have been mentioned in Order VII E
Rule (4). To avoid any confusion, we direct that till the
legislature corrects the mistake, the wor.ds 'plaintiff's
witnesses, would be read as 'defendant's witnesses' in
Order VII Rule 4. We, however, hope that the mistake
would be expeditiously corrected by the legislature." F
(13.6.) Justice G.P. Singh extracts four conditions that
should be present to justify departure from the plain words of
the Statute, in his treatise "Principles of Statutory Interpretation"
(12th Edn. - 2010, Lexis Nexis - page 144) from the decision
of the House of Lords in Stock v. Frank Jones (Tipton) Ltd., G
[1978 (1) All ER 948] :
"...... a court would only be justified in departing from the
plain words of the statute when it is satisfied that (1) there
is clear and gross balance of anomaly; (2) Parliament, the H
1084 SUPREME COURT REPORTS [2010] 8 S.C.R.
A legislative promoters and the draftsman could not have
envisaged such anomaly and could not have been
prepared to accept it in the interest of a supervening
legislative objective; (3) the anomaly can be obviated
without detriment to such a legislative objective: and (4)
B the language of the statute is susceptible of the
modification required to obviate the anomaly."
14. All the aforesaid four conditions justifying departure
from the literal r.ule, exist with reference to section 89 of the
Code. Therefore, in Sa/em Bar-II, by judicial interpretation the
C entire process of formulating the terms of settlement, giving
them to the parties for their observation and reformulating the
terms of possible settlement after receiving the observations,
contained in sub-section (1) of section 89, is excluded or done
away with by stating that the said provision merely requires
D formu,lating a summary of disputes. Further, this Court in Sa/em
Bar-II, adopted the following definition of 'mediation' suggested
in the model mediation rules, in spite of a different definition in
section 89(2)(d) :
E "Settlement by 'mediation' means the process by which a
mediator appointed by parties or by the Court, as the case
may be, mediates the dispute between the parties to the
suit by the application of the provisions of the Mediation
Rules, 2003 in Part II, and in particular, by facilitating
F discussion between parties directly or by communicating
with each other through the mediator, by assisting parties
in identifying issues, reducing misunderstandings,
clarifying priorities, exploring areas of compromise,
generating options in an attempt to solve the dispute and
emphasizing that it is the parties' own responsibility for
G
making decisions which affect them."
All over the country the courts have been referring cases under
section 89 to mediation by assuming and understanding
'mediation' to mean a dispute resolution process by negotiated
H settlement ·.vith the assistance of a neutral third party. Judicial
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1085
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.]
settlement is understood as referring to a compromise entered · A
by the parties with the assistance of the court adjudicating the
matter, or another Judge to whom the .court had referred the
dispute.
15. Section 89 has to be read with Rule 1-A of Order 10
B
which requires the court to direct the parties to opt for any of
the five modes of alternative dispute resolution processes and
on their option refer the matter. The ~afd rule does not require
the court to either formulate the terms of settlement or make
available such terms of settlement to the parties to reformulate C
the terms of possible settlement after receiving the observations
of the parties. Therefore the only practical way of reading
Section 89 and Order 10, Rule 1-A is that after the pleadings
are complete and after seeking admission/denials wherever
required, and before .framing issues, the court will have recourse
to section 89 of the Code. Such recourse requires the court to D
consider and record the nature of the dispute, inform the parties
about the five options available and take note of their
preferences and then refer them to one of the alternative dispute
resolution processes.
E
16. 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 section. Firstly,
it is not necessary for the court, before referring the parties to
an ADR process to formulate or re"formulate the terms of a F
possible settlement. It is sufficient if the court merely describes
the: nature of dispute (in a sentence or two) and makes the
reference. Secondly, the definitions of 'judicial settlement' and
'mediation' in clauses (c) and (d) of section 89(2) shall have to
be interchanged to correct the draftsman's error. Clauses ·(C) G
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 H
1086 SUPREME COURT REPORTS [2010) 8 S.C.R.
A of the Legal Services Authority Act. 1987 (39 of 1987) shall
apply as if the dispute were referred to a Lok Adalat under
the provisions of that Act;
(d) for "judicial settlement", the court shall effect a
compromise between the parties and shall follow such
B
procedure as may be prescribed.
The above changes made by interpretative process shall
remain in force till the legislature corrects the mistakes, so that
section 89 is not rendered meaningless and infructuous.
c
Whether the reference to ADR Process is mandatory?
17. Section 89 starts with the words "where it appears to
the court that there exist elements of a settlement". This clearly
shows that cases which are not suited for ADR process should
0 not be referred under section 89 of the Code. The court has tn
form an opinion that a case is one that is capable of being
referred to and settled through ADR process. Having regard
to the tenor of the provisions of Rule 1A of Order 10 of the
Code, the civil court should invariably refer cases to ADR
E process. Only in certain recognized excluded categories of
cases, it may choose not to refer to an ADR process. Where
the case is unsuited 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
F 89 of the Code. Therefore, having a hearing after completion
of pleadings, to consider recourse to ADR process under
section 89 of the Code, is mandatory. But actual reference to
an ADR process in all cases is not mandatory. Where the case
falls under an excluded category there need not be reference
G to ADR process. In all other case reference to ADR process
is a must.
18. The following categories of cases are normally
considered to be not suitable for ADR process having regard
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1087
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.]
to their nature : A
(i) Representative suits under Order .1 Rule 8 CPC which
involve public interest or interest of numerous persons who
are not parties before the court. (In fact, even a
compromise in such a suit is a difficult process requiring
B
notice to the persons interested in the suit, before its
acceptance).
(ii) Disputes relating to election to public offices (as
contrasted from disputes between two groups trying to get
control over the management of societies, clubs, c
association etc.).
(iii) Cases involving grant of authority by the court after
enquiry, as for example, suits for grant of probate or letters
of administration. D
(iv) Cases involving serious and specific allegations of
fraud, fabrication of documents, forgery, impersonation,
coercion etc.
(v) Cases requiring protection of courts, as for example, E
Claims against minors, deities and mentally challenged and
suits for declaration of title against government.
(vi) Cases involving prosecution for criminal offences.
19. All other suits and cases of civil nature in particular the F
following categories of cases (whether pending in civil courts
or other special Tribunals/Forums) are normally suitable for
ADR processes :
(i) All cases relating to trade, commerce and G
contracts, including
disputes arising out of contracts (including all
· money claims);
H
1088 SUPREME COURT REPORTS [2010] 8 S.C.R.
A disputes relating to specific performance;
disputes between suppliers and customers;
disputes between bankers and customers;
B disputes between developers/builders and
customers;
disputes between landlords and tenants/
licensor and licensees;
c disputes between insurer and insured;
(ii) All cases arising from strained or soured
relationships, including
disputes relating to matrimonial causes,
D
maintenance, custody of children;
disputes relating to partition/division among
family members/co-parceners/co-owners; and
E disputes relating to partnership among
partners.
(iii) All cases where there is a need for continuation
of the pre-existing relationship in spite of the
disputes, including
F
disputes between neighbours (relating to
easementary rights.encroachments, nuisance
etc.);
G disputes between employers and employees;
disputes among members of societies/
associations/Apartmentowners Associations;
(iv) All cases relating to tortious liability including
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1089
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.]
claims for compensation in motor accidents/ A
other accidents; and
(v) All consumer disputes including
disputes where a trader/supplier/manufacturer/
service .provider is keen to maintain his business/ B
professional reputation and credibility or 'product
popularity.
The ab.ave enumeration of 'suitable' and 'unsuitable'
categorization of cases is not intended to be exhaustive or C
.rigid. They are illustrative, which 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.
D
How .to decide the appropriate ADR process under
section 89?
20. Section 89 refers to five types of ADR procedures,
made up of one adjudicatory process (arbitration) and four
negotiatory (non adjudicatory) processes - conciliation, E
mediation, judicial settlement and Lok Adalat settlement. The
object of section 89 of the Code is that settlement should be
attempted .by adopting an appropriate ADR process before the
case proceeds to trial. Neither section 89 nor Rule 1A of Order . ,
10 of the Code is intended to supersede or modify the F
provisions of the Arbitration and Conciliation Act, 1996 or the
Legal Services Authorities Act, 1987. On the other hand,,
'
section 89 of the Code makes it clear that two of the ADR 1
processes - Arbitration and Conciliation, will be governed by
the provisions of the AC Act and two other ADR Processes ~ G
Lok Adalat Settlement and Mediation (See : amended
definition in .para 18 above), will be governed by the Legal
Services Authorities Act. As for the last of the ADR processes
- judicial settlement (See : amended definition in para 18
above), .section 89 makes itclear that it is not governed by any
H
1090 SUPREME COURT REPORTS [2010] 8 S CR.
A enactment and the court will follow such procedure as may be
prescribed (by appropriate rules).
21. Rule 1A of Order 10 requires the court to give the
option to the parties, to choose any of the ADR processes. This
does not mean an individual option, but a joint option or
8
consensus about the choice of the ADR process. On the other
hand, section 89 vests the choice of reference to the court.
There is of course no inconsistency. Section 89 of the Code
gives the jurisdiction to refer to ADR process and Rules 1A to
IC of Order 10 lay down the manner in which the said
C jurisdiction is to be exercised. The scheme is that the court
explains the choices available regarding ADR process to the
parties, permits them to opt for a process by consensus, and
if there is no consensus, proceeds to choose the process.
D 22. Let us next consider which of the ADR processes
require mutual consent of the parties and which of them do not
require the consent of parties.
Arbitration
E 23. Arbitration is an adjudicatory dispute resolution
process by a private forum, governed by the provisions of the
AC Act. The said Act makes it clear that there can be reference
to arbitration only if there is an 'arbitration agreement' between
the parties. If there was a pre-existing arbitration agreement
F between the parties, in all probability, even before the suit
reaches the stage governed by Order 10 of the Code, the
matter would have stood referred to arbitration either by
invoking section 8 or section 11 of the AC Act, and there would
be no need to have recourse to arbitration under section 89 of
G the Code. Section 89 therefore pre-supposes that there is no
pre-existing arbitration agreement. Even if there was no pre-
existing arbitration agreement, the parties to the suit can agree
for arbitration when the choice of ADR processes is offered to
them by the court under section 89 of the Code. Such
H agreement can be by means of a joint memo or joint application
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1091
CONSTRUCTION CO. (P) LTD. [RV RAVEENDRAN, J.]
or a joint affidavit before the court, or by record of the A
agreement by the court in the ordersheet signed by the parties.
Once there is such an agreement in writing signed by parties,
the matter can be referred to arbitration under section 89 of the
Code; and on such reference, the provisions of AC Act will
apply to the arbitration, and as noticed in Salem Bar-/, the case B
will go outside the stream of the court permanently and will not
come back to the court.
24. If there is no agreement between the parties for
reference to arbitration, the court cannot refer the matter to
arbitration under section 89 of the Code. This is evident from C
the provisions of AC. Act. A court has no power, authority or
jurisdiction to refer unwilling parties to arbitration, if there is no
arbitration agreement. This Court has consistently held that
though section 89 of the Code mandates reference to ADR
processes, reference to arbitration under section 89 of the D
Code could only be with the consent of both sides. and not
otherwise.
(24.1) In Salem Bar(/), this Court held :
E
"It is quite obvious that the reason why Section 89 has been
inserted is to try and see that all the cases which are filed
in court need not necessarily be decided by the court itself.
Keeping in mind the law's delays and the limited number
of Judges which are available, it has now become
imperative that resort should be had to alternative dispute
F
resolution mechanism with a view to bring to an end
litigation between the parties at an early date. The
alternative dispute resolution (ADR) mechanism as
contemplated by Section 89 is arbitration or conciliation
or judicial settlement including settlement through Lok G
Adalat or mediation. x x x x x If the parties agree to
arbitration, then the provisions of the Arbitration and
Conciliation Act, 1996 will apply and that case will go
outside the stream of the court but resorting to conciliation
H
1092 SUPREME COURT REPORTS [2010) 8 S CR.
A or judicial settlement or mediation with a view to settle the
dispute would not ipso facto take the case outside the
judicial system. All that this means is that effort has to be
made to bring about an amicable settlement between the
parties but if conciliation or mediation or judicial settlement
B is not possible, despite efforts being made, the case will
ultimately go to trial."
(Emphasis supplied)
(24.2) In Salem Bar - (II), this Court held :
c
"Some doubt as to a possible conflict has been expressed
in view of used of the word "may" in Section 89 when it
stipulates that "the court may reformulate the terms of a
possible settlement and refer the same for" and use of the
D word "shall" in Order 10 Rule 1-A when it states that "the
court shall 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".
The intention of the legislature behind enacting Section
E 89 is that where it appears to the court that there exists
an element of a 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 four ADR methods mentioned in the section and
F if the parties do not agree, the court shall refer them to
one or the other of the said modes. Section 89 uses both
the words "shall" and "may" whereas Order 10 Rule 1-A
uses the word "shall" but on harmonious reading of these
provisions it becomes clear that the use of the word "may"
G in Section 89 only governs the aspect of reformulation of
the terms of a possible settlement and its reference to one
of ADR methods. There is no conflict. It is evident that what
is referred to one of the ADR modes is the dispute which
is summarized in the terms of settlement formulated or
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1093
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.]
reformulated in terms of Section 89. A
One of the modes to which the dispute can be referred is
"arbitration". Section 89(2) provides that where a dispute
has been referred for arbitration or conciliation, the
provisions of the Arbitration and Conciliation Act, 1996 (for 8
short "the 1996 Act") shall apply as if the proceedings for
arbitration or conciliation were referred for settlement
under the provisions of the 1996 Act. Section 8 of the
1996 Act deals with the power to refer parties to arbitration
where there is arbitration agreement. As held in P.Anand C
Gajapathi Raju v. P. V. G. Raju [2000 (4) SCC 539] the.
1996 Act governs a case where arbitration is agreed upon
before or pending a suit by all the parties. The 1996 Act,
however, does not contemplate a situation as in Section
89 of the Code where the court asks the parties to choose
one or other ADRs including arbitration and the parties D
choose arbitration as their option. Of course, the parties
have to agree for arbitration."
(Emphasis supplied)
E ,.
(24.3) The position was reiterated by this Court in Jagdish
Chander v. Ramesh Chander [2007 (5) SCC 719] thus :
"It should not also be overlooked that even though Section
89 mandates courts to refer pending suits to any of the
several alternative dispute resolution processes mentioned F
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."
(Emphasis supplied) F
(24.4) Therefore, where there is no pre-existing arbitration
agreement between the parties, the consent of all the parties
to the suit will be necessary, for referring the subject matter of
the suit to arbitration under section 89 of the Code.
H
1094 SUPREME COURT REPORTS [2010] 8 S.C.R
A Conciliation
25. Conciliation is a non-adjudicatory ADR process, which
is also governed by the provisions of AC Act There can be a
valid reference to conciliation only if both parties to the dispute
agree to have negotiations with the help of a third party or third
8
parties either by an agreement or by the process of invitation
and acceptance provided in section 62 of AC Act followed by
appointment of conciliator/s as provided in section 64 of AC
Act. If both parties do not agree for conciliation, there can be
no 'conciliation'. As a consequence, as in the case of
C arbitration, the court cannot refer the parties to conciliation
under section 89, in the absence of consent by all parties. As
contrasted from arbitration, when a matter is referred to
conciliation, the matter does not go out of the stream of court
process permanently. If there is no settlement, the matter is
D returned to the court for framing issues and proceeding with the
trial.
The other three ADR Processes
E 26. If the parties are not agreeable for either arbitration or
conciliation, both of which require consent of all parties, the court
has to consider which of the other three ADR processes (Lok
Adalat, Mediation and Judicial Settlement) which do not require
the consent of parties for reference, is suitable and appropriate
and refer the parties to such ADR process. If mediation process
F is not available (for want of a mediation centre or qualified
· mediators), necessarily the court will have to choose between
reference to Lok Adalat or judicial settlement. If facility of
mediation is available, then the choice becomes wider. It the
suit is complicated or lengthy, mediation will be the recognized
G choice. If the suit is not complicated and the disputes are easily
sortable or could be settled by applying clear cut legal
principles, Lok Adalat will be the preferred choice. If the court
feels that a suggestion or guidance by a Judge would be
appropriate, it can refer it to another Judge for dispute
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1095
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.)
resolution. The court has to use its discretion in choosing the A
ADR process judiciously, keeping in view the nature of
disputes, interests of parties and expedition in dispute
resolution.
Whether the settlement in an ADR process is binding in
B
itself?
27. When the court refers the matter to arbitration under
Section 89 of the Act, as already noticed, the case goes out
of the stream of the court and becomes an independent
proceeding before the arbitral tribunal. Arbitration being an C
adjudicatory process, it always ends in a decision. There is
also no question of failure of ADR process or the matter being
returned to the court with a failure report. The award of the
arbitrators is binding on the parties and is executable/
enforceable as if a decree of a court, having regard to Section D
36 of the AC Act. If any settlement is reached in the arbitration
proceedings, then the award passed by the Arbitral Tribunal on
such settlement, will also be binding and executable/
enforceable as if a decree of a court, under Section 30 of the
AC Act. E
28. The other four ADR processes are non-adjudicatory
and the case does not go out of the stream of the court when
a reference is made to such a non-adjudicatory ADR forum.
The court retains its control and jurisdiction over the case, even
when the matter is before the ADR forum. When a matter is F
settled through conciliation, the Settlement Agreement is
enforceable as if it is a decree of the court having regard to
Section 74 read with Section 30 of the AC Act. Similarly, when
a settlement takes place before the Lok Ada lat, the Lok Adalat
award is also deemed to be a decree of the civil court and G
executable as such under Section 21 of the Legal Services
Authorities Act, 1987. Though the settlement agreement in a
conciliation or a settlement award of a Lok Adalat may not
require the seal of approval of the court for its enforcement
H
1096 SUPREME COURT REPORTS [2010] 8 S.C.R.
A when they are made in a direct reference by parties without the
intervention of court, the position will be different if they are
made on a reference by a court in a pending suit/proceedings.
As the court continues to retain control and jurisdiction over the
cases which it refers to conciliations, or Lok Adalats, the
s settlement agreement in conciliation or the Lok Adalat award
will have to be placed before the court for recording it and
disposal in its terms. Where the reference is to a neutral third
party ('mediation' as defined above) on a court reference,
though it will be deemed to be reference to Lok Adalat, as court
c retains its control and jurisdiction over the matter, the mediation
settlement will have to be placed before the court for recording
the settlement and disposal. Where the matter is referred to
another Judge and settlement is arrived at before him, such
settlement agreement will also have to be placed before the
court which referred the matter and that court will make a decree
0
in terms of it. Whenever such settlements reached before non-
adjudicatory ADR Fora are placed before the court, the court
should apply the principles of Order 23 Rule 3 of the Code and
make a decree/order in terms of the settlement, in regard to
the subject matter of the suit/proceeding. In regard to matters/
E disputes which are not the subject matter of the suit/
proceedings, the court will have to direct that the settlement
shall be governed by Section 74 of AC Act (in respect of
conciliation settlements) or Section 21 of the- Legal Services
Authorities Act, 1987 (in respect of settlements by a Lok Adalat
F or a Mediator). Only then such settlements will be effective.
Summation
29. Having regard to the provisions of Section 89 and Rule
G 1-A of Order 10, the stage at which the court should explore,
whether the matter should be referred to ADR processes, is
after the pleadings are complete, and before framing the
issues, when the matter is taken up for preliminary hearing for
examination of parties under Order 10 of the Code. However,
if for any reason, the court had missed the opportunity to
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1097
CONSTRUCTION CO (P) LTD. [R.V. RAVEENDRAN, J.]
consider and refer the matter to ADR processes under Section A
89 before· framing issues, nothing prevents the court from
resorting to Section 89 even after framing issues. But once
evidenc.e is commenced, the court will be reluctant to refer the
matter to the ADR processes lest it becomes a tool for
protracting the trial.. B
30. Th<:wgh in civil. suits, th.e appropriate stage for
considering reference to ADR.processes is after the completion
of pleadings, in family disputes or matrimorial cases, the.
position cc;in be slightly different. In those cases, the relationship C
becomes hostile on account of the various allegations in the
petition against the spouse. The hostility will be further
aggravated by the counter-allegations made by the respondent
in his or her written statement or objections. Therefore, as far
as Family Courts are concerned, the ideal stage for mediation
will be immediately after service of respondent and before the D
respondent files objections/written statements. Be that as it
may.
31. We may summarize the procedure to be adopted by
a court under section 89 of the Code as under : E
(a) When the pleadings are complete, before framing
issues, !he court shall fix a preliminary hearing for
appearance of parties. The court should acquaint
itself with the facts of the case and the nature of the
F
dispute between the parties.
(b) The court should first consider whether the case falls
under any of the category of the cases which are
required to be tried by courts and not fit to be
referred to any ADR processes. If it finds the case G
falls under any excluded category, it should record
a brief order referring to the nature of the case and
why it is not fit for reference to ADR processes. It
will then proceed with the framing of issues and
trial. H
1098 SUPREME COURT REPORTS (2010] 8 S C.R
A (c) In other cases (that is, in cases which can be
referred to ADR processes) the court should explain
the choice of five ADR processes to the parties to
enable them to exercise their option.
(d) The court should first ascertain whether the parties
B
are willing for arbitration. The court should inform
the parties that arbitration is an adjudicatory
process by a chosen private forum and reference
to arbitration will permanently take the suit outside
the ambit of the court. The parties should also be
c informed that the cost of arbitration will have to be
borne by them. Only if both parties agree for
arbitration, and also agree upon the arbitrator, the
matter should be referred to arbitration.
D (e) If the parties are not agreeable for arbitration, the
court should ascertain whether the parties are
agreeble for reference to conciliation which will be
governed by the provisions of the AC Act. If all the
parties agree for reference to conciliation and
E agree upon the conciliator/s, the court can refer the
matter to conciliation in accordance with section 64
of the AC Act.
(f) If parties are not agreeable for arbitration and
conciliation, which is likely to happen in most of the
F cases for want of consensus, the court should,
keeping in view the preferences/options of parties,
refer the matter to any one qf the other three other
ADR processes : (a) Lok Adalat; (b) mediation by
a neutral third party facilitator or mediator; and (c)
G. a judicial settlement, where a Judge assists the
parties to arrive at a settlement.
(g) If the case is simple which may be completed in a
single sitting, or cases relating to a matter where
H thP legal principles are clearly settled and there is
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY 1099
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN. J.]
no personal animosity between the parties (as in A
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 B
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.
(h) If the reference to the ADR process fails, on receipt
c
of the Report of the ADR Forum, the court shall
proceed with hearing of the suit. If there is a
settlement, the court shall examine the settlement
and make a decree in terms of it, keeping the
principles of Order 23 Rule 3 of the Code in mind. D
(i) If the settlement includes disputes which are not the
subject matter of the suit, the court may direct that
the same will be governed by Section 74 of the AC
Act (if it is a Conciliation Settlement) or Section 21 E
of the Legal Services Authorities Act, 1987 (if it is
a settlement by a Lok Adalat or by mediation which
is a deemed Lok Adalat). If the settlement is
through mediation and it relates not only to disputes
which are the subject matter of the suit, but also F
other disputes involving persons other than the
parties to the suit, the court may adopt the principle
underlying Order 23 Rule 3 of the Code. This will
be necessary as many settlement agreements deal
with not only the disputes which are the subject
G
matter of the suit or proceeding in which the
reference is made, but also other disputes which
are not the subject matter of the suit.
(j) If any term of the settlement is ex facie illegal or
unenforceable, the court should draw the attention H
1100 SUPREME COURT REPORTS [2010] 8 S.C R.
A of parties thereto to avoid further litigations and
disputes about executability.
32. The Court should also bear in mind the following
consequential aspeCts, while giving effect to Section 89 of the
Code:
8
(i) If the reference is to arbitration or conciliation, the court
has to record that the reference is by mutual consent.
Nothing further need be stated in the order sheet.
c (ii) If the reference is to any other ADR process. the court
should briefly record that having regard to the nature of
dispute, the case deserves to be referred to Lok Adalat,
or mediation or judicial settlement. as the case may be.
There is no need for an elaborate order for making the
D reference.
(iii) The requirement in Section 89(1 )"that the court should
formulate or reformulate the terms of settlement would only
mean that court has to briefly refer to the nature of dispute
and decide upon the appropriate ADR process.
E
(iv) If the Judge in charge of the case assists the parties
and if settlement negotiations fail, he should not deal with
the adjudication of the matter. to avoid apprehensions of
bias and prejudice. It is therefore advisable to refer cases
F proposed for Judicial Settlement to another Judge.
(v) If the court refers the matter to an ADR process (other
than Arbitration), it should keep track of the matter by fixing
a hearing date for the ADR Report. The period allotted for
the ADR process can normally vary from a week to two
G months (which may be extended in exceptional cases.
depending upon the availability of the alternative forum, the
nature of case etc.). Under no circumstances the court
should allow the ADR process to become a tool in the
hands of an unscrupulous litigant intent upon dragging on
I I
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1101
CONSTRUCTION CO. (P) LTD. [RV RAVEENDRAN, J.]
the proceedings. A
(vi) Normally the court should not send the original record
. of the case when referring the matter for an ADR forum. It
should make available only copies of relevant papers to
the ADR forum. (For this purpose, when pleadings are filed B
the court may insist upon filing of an extra copy). However
if the case is referred to a Court annexed Mediation Centre
which is under the exclusive control and supervision of a
Judicial Officer, the original file may be made available
wherever necessary.
c
33. The procedure and consequential aspects referred to
in the earlier two paragraphs are intended to be general
guidelines subject to such changes as the concerned court may
deem fit with reference to the special circumstances of a case.
We have referred to the procedure and process rather D
elaborately as we find that section 89 has been a non-starter
with many courts. Though the process under Section 89
appears to be lengthy and complicated, in practice the process
is simple: know the dispute; exclude 'unfit' cases; ascertain
consent for arbitration or conciliation; if there is no consent, E
select Lok Adalat for simple cases and mediation for all other
cases, reserving reference to a Judge assisted settlement only
in exceptional or special cases.
Conclusion
F
34. Coming back to this case, we may refer to the decision
in Sukanya Holdings relied upon by the respondents, to
contend that for a reference to arbitration under section 89 of
the Code, consent of parties is not required. The High Court
assumed that Sukanya Holdings has held that section 89 G
enables the civil court to refer a case to arbitration even in the
absence of an arbitration agreement. Sukanya Holdings does
not lay down any such proposition. In that decision, this Court
was considering the question as to whether an application
under section 8 of the AC Act could be maintained even where H
1102 SUPREME COURT REPORTS [2010] 8 S.C.R.
A a part of the subject matter of the suit was not covered by an
arbitration agreement. The only observations in the decision
relating to Section 89 are as under:
"Reliance was placed on Section 89 CPC in support of
the argument that the matter should have been referred to
B
arbitration. In our view, Section 89 CPC cannot be
resorted to for interpreting Section 8 of the Act as it stands
on a different footing and it would be applicable even in
cases where there is no arbitration agreement for referring
the dispute for arbitration. Further, for that purpose, the
c court has to apply its mind to the condition contemplated
under Section 89 CPC and even if application under
Section 8 of the Act is rejected, the court is required to
follow the procedure prescribed under the said section."
D The observations only mean that even when there is no existing
arbitration agreement enabling filing of an application under
section 8 of the Act. there can be a reference under section
89 to arbitration if parties agree to arbitration. The observations
in Sukanya Holdings do not assist the first respondent as they
E were made in the context of considering a question as to
whether section 89 of the Code could be invoked for seeking
a reference under section 8 of the AC Act in a suit, where only
a part of the subject-matter of the suit was covered by arbitration
agreement and other parts were not covered by arbitration
F agreement. The first respondent next contended that the effect
of the decision in Sukanya Holdings is that "section 89 of CPC
would be applicable even in cases where there is no arbitration
agreement for referring the dispute to arbitration ... There can
be no dispute in regard to the said proposition as Section 89
G deals, not only with arbitration but also four other modes of non-
adjudicatory resolution processes and existence of an
arbitration agreement is not a condition precedent for
exercising power under Section 89 of the Code in regard to
the said four ADR processes.
H
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1103
CONSTRUCTION CO. (P) LTD. [R.V. RAVEENDRAN, J.]
35. In the light of the above discussion, we answer the A
questions as follows:
(i) The trial court did not adopt the proper procedure while
enforcing Section 89 of the Code. Failure to invoke
Section 89 suo moto after completion of pleadings and
8
considering it only after an application under Section 89
was filed, is erroneous.
(ii) A civil court exercising power under Section 89 of the
Code cannot refer a suit to arbitration unless all the parties
to the suit agree for such reference. C
36. Consequently, this appeal is allowed and the order of
the trial court referring the matter to arbitration and the order
of the High Court affirming the said reference are set aside.
The Trial Court will now consider and decide upon a non- D
adjudicatory ADR process.
D.G. Appeal allowed.
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