“ADR UNDER SECTION 89 OF CPC,1908- A CRITICAL

ANALYSIS”

A Project submitted in the complete fulfilment of the course

ALTERNATIVE DISPUTE RESOLUTION, 6thSEMESTER during the
Academic Year 2020-2021

SUBMITTED BY:

AASTHA AGNIHOTRI

Roll No. – 1902

B.A. LL.B. (Hons.)

SUBMITTED TO:

PROF. HRISHIKESH MANU

FACULTY OF ALTERNATIVE DISPUTE RESOLUTION

ACADEMIC SESSION- 2018-2023

CHANAKYA NATIONAL LAW UNIVERSITY, NAYAYA NAGAR,

MEETHAPUR, PATNA-800001
 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.A. LL.B (Hons.) Project Report Entitled “
ADR UNDER SECTION 89 OF CPC,1908- A CRITICAL ANALYSIS” submitted at
Chanakya National Law University, Patna is an authentic record of my work carried out
under the supervision of Prof. HRISHIKESH MANU. I have not submitted this work
elsewhere for any other degree or diploma. I am fully responsible for the contents of my
Project Report.

(Signature of the Candidate)

AASTHA AGNIHOTRI

Chanakya National Law University, Patna

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 ACKNOWLEDGEMENT

Firstly, I would like to thank my faculty of ALTERNATIVE DISPUTE RESOLUTION,

Prof. HRISHIKESH MANUfor providing me an opportunity to make my project on such an
interesting topic which is also a contemporary issue as for now.
Secondly, I would like to thank all my colleagues and friends for helping me out in arranging
of the accumulated collected study material.

Lastly, special thanks to my parents for guiding me in giving the final touch to this project
and helping me out throughout this project.

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 TABLE OF CONTENTS

STATEMENT OF PURPOSE .....................................................................................................5

IMPORTANCE OF RESEARCH................................................................................................5

INTRODUCTION ......................................................................................................................6

HISTORY OF SECTION 89 CIVIL PROCEDURE CODE,1908. ...............................................8

PROBLEMS OF SECTION 89, CIVIL PROCEDURE CODE,1908. ........................................ 10

SECTION 89 AND ARBRITRATION AND CONCILLIATION ACT 1996 ............................ 14

CRITICAL ANALYSIS ............................................................................................................ 18

AMENDMENTS PROPOSED BY THE LAW COMMISSION REPORT…………………….22

CONCLUSION ......................................................................................................................... 24

BIBLIOGRAPHY ..................................................................................................................... 25

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 STATEMENT OF PURPOSE

The purpose of this project is to critically analyze section 89 of Civil Procedure Code 1908 and
discuss in detail the problems underling the provision as well as solutions for these problems the
project further also discusses the relationship between section 89 of the Civil Procedure Code
and the Arbitration and conciliation Act of 1996.

IMPORTANCE OF RESEARCH

Section 89of the Civil Procedure Code 1908 is soul of Alternative Dispute Resolution, it is only
through this section that legal matters could be resolved by the different methods of ADR which
help in speedy disposal of cases, and therefore it is essential to understand the importance and
the problems underlining the provision.

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 INTRODUCTION

In every civilized society there are two kinds of laws: substantive laws and procedural laws.
While the substantive laws determine the rights and obligations of citizens, procedural laws
provide for the framework for enforcement of the same. Despite the fact that substantive laws are
comparatively more important, but the effectiveness of substantive laws in contingent upon the
qualitative deliverance of procedural laws. The latter needs to be efficient, simple, expeditious
and inexpensive, lest the substantive provisions fail in fulfillment of their purpose and object.

Throughout history it has been determined that for proper dispensation of justice the procedural
and substantive law have to work hand in hand. The same cannot be held to contradict each
other, as one provides the manner of realization of the objective of the other. As such, both
streams of law work in consonance with each other, wherein neither exceeds the scope, which is
determined to be in the other's field.

The Code of Civil Procedure, 1908 is a consolidated document that is the primary procedural law
relating to all civil disputes in India, the Code in its present form was formally brought into force
in 1908. Over the years a number of amendments have been passed to ensure the Code is more
efficient and justice oriented but still a judicial lag exists in India. The number of cases kept on
rising day by day while the adjudicators are limited. In light of the same, a provision is provided
under Section 89 of the Code which calls for settlement of disputes outside courts.

It is also well-known fact that Indian judiciary is becoming inefficient to deal with pending
cases; Indian courts are clogged with long unsettled cases. The scenario is that even after setting
up more than a thousand fast track Courts that already settled millions of cases the problem is far
from being solved as pending cases are still piling up. To deal with such a situation Alternative
Dispute Resolution (ADR) can be helpful mechanism, it resolves conflict in a peaceful manner
where the outcome is accepted by both the parties. 1

The provision under Section 89 is an attempt to bring about resolution of disputes between
parties, minimize costs and reduce the burden of the courts. It is provided for with the sole
objective of blending judicial and non-judicial dispute resolution mechanism and bringing

1
Anubhav Pandey, ‘ All you needto know about ADR’,< https://blog.ipleaders.in/adr-alternative-dispute-
resolution/> accssed 2 April 2021

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alternate dispute mechanism to the centre of the Indian Judicial System. The long-drawn process
of litigation, the costs incurred by both parties for the same have and limited number of
adjudicators have made Alternate Dispute Resolution an important aspect of the judicial system
to ensure swifter and speedier justice.2

2
R V Raveendran, ‘Alternative Dispute resolution under Section 89 of the Code of Civil Procedure: Guidelines’ (3
September 2011) <http://www.legalblog.in/2011/09/alternate-dispute-resolution-under.html> accessed 2 April 2021

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 HISTORY OF SECTION 89 CIVIL PROCEDURE CODE,1908.

Section 89 of the Code of Civil Procedure (hereafter referred to as CPC) was bought about so
that settlements between parties can take place in a more peaceful manner without much damage
being inflicted on both the parties without the courts having to interfere. In most the countries
disputes are settled outside of the court and only when the parties cannot come to a settlement
will the dispute go for trial.

Section 89 was added by the CPC (Amendment) Act. 1999 which came into effect on 1 st July
2002. When it first came into force there was a provision which was for Alternate Dispute
Resolution but this was repealed by the coming of the Arbitration Act (Act 10 of 1940) under
Section 49 and Schedule 10. It was felt that there was no need for Section 89 of CPC but as luck
would have it the section was brought back with some changes. i.e., new alternatives and not
restricted to arbitration alone. A new section 89 was added in the Code by Section 7 of the CPC
Amendment Act, 1999 with the purpose to settle dispute without the parties having to approach
the court for trial and was in accordance to the recommendation put forward by the Law
Commission of India and the Malimath Committee Report.3

Section 89 came to force alongside Rule 1A, 1B and 1C of Order X of the First Schedule which
have been since then implemented by Section 7and section 20 of the CPC Amendment Act
which deals with Alternative Dispute Resolution (hereafter referred to as ADR). Order X sub-
section (1) mentions the various mediums for ADR while sub-section 2 mentions the various
Acts that are there in connection to the referred ADR. The changes that the amendment brought
have no retrospective effect and shall not affect any suit where the matters have been resolved
before the amendment and shall be dealt as if section 7 and 20 of CPC Amendment Act never
came into force.4

The decisions that the various ADR process will bring about will be effective and have the same
binding effect as that of a court decree or order which will be given at a shorter time and less
expensive. The rules added under Order X will tell when the court can direct to take recourse to

3
GauravPrakash, ‘ Section 89 of CPC- A Critical Analysis’ <http://www.legalserviceindia.com/legal/article-385-
section-89-of-cpc-a-critical-analysis.html> accessed 2 April 2021.
4
GauravPrakash, ‘ Section 89 of CPC- A Critical Analysis’ <http://www.legalserviceindia.com/legal/article-385-
section-89-of-cpc-a-critical-analysis.html> accessed 2 April 2021.

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the other processes to resolve matters, duty of the parties to appear before the respective forum to
take recourse and duties of the presiding officer to act justly and revert the matter back to the
court if it is best suited for the court.

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 PROBLEMS OF SECTION 89, CIVIL PROCEDURE CODE,1908.

If we have a bare reading of the provision then we will notice some problems under lining the
very provision. Some problems identified are as follows:

1. FORMULATING AND REFORMULATING OF TERMS

The section says that if the court sees that there is chance of settlement which the parties may
agree to then the court shall undertake the task of formulating the terms of the settlement and
give it to the parties to consider it and after taking the feedback of the parties it may re-formulate
the terms which may make the parties agree to a settlement and refer it to any of the ADR
methods mentioned in section 89 of CPC.

This indicates that it is essential for any party who opt to the ADR methods provided in section
89 CPC to be recorded by the judge concerned to note or identify the existence or chance of a
settlement which the other party might be willing to accept. Ten the terms of the settlement will
be formulated and reformulated after taking the opinions of the parties involved. However it
must be kept in mind that section 89 CPC and section 73(1) of the Arbitration and Conciliation
Act, 1996 are notquite in the same page as section 89 CPC requires formulating and
reformulating the terms of the settlement at the pre ADR stage while section 73 of Arbitration
and Conciliation Act, 1996 provides that formulating and reformulating the terms of the should
be dene as the last stage as part of the real settlement.5

One reason why section 89 CPC was brought was due to the fact that trial judges could not give
enough time to bring about conciliation between the parties and so the issue was to be taken up
by some other ADR method. If section 89 (1) is to be strictly followed then the trial judge has to
make sure that there is a chance of settlement which both the parties may agree to then he may
formulate the terms of settlement and give it to the parties to consider it before referring it to any
of the ADR methods given in section 89 CPC. In such cases there is nothing much left to do for
the ADR mechanism. If the trial court had to do all of these before referring to ADR process then
the judge might as well continue to act as conciliator or mediator and spend time negotiating.
There after nullifying the reason of bringing the section in the first place and the process of ADR

5
R V Raveendran, ‘ Section 89 CPC: Need for an urgent relook’ (2007) 4 SCC Journal 23.

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redundant.Therefore the formulation and reformulation of terms of settlement by the court is
wholly out of place in the pre-reference stage of ADR process.6

2. MANDATORY NATURE OF SECTION 89 CPC

According to the section the court are look at the various ADR process and refer to one of the
process given in the section. But there is a pre-condition to it which is that there should be an
element of settlement which should be present. However if there is none then the court may not
formulate the terms of the settlement. Thus the precondition converts what was supposed to be
mandatory or obligatory to directory or discretionary.7

3. INTERCHNGING TERM OF MEDIATION AND JUDICIAL SETTLEMENT

The court can refer a dispute to judicial settlement according to section 89 CPC to a suitable
institution or person and such institution or person is to be deemed to be a LokAdalat and the
provision of Legal Services Authority Act, 1987.8 To bring the provision into force, a committee
headed by Justice M.JagannandhaRao was formed and the committee placed before the Supreme
Court the Draft Civil Procedure – ADR and Mediation Rules, 2003 which was put under
consideration in the 2nd Salem Bar Association case. 9 Under the draft, the definition of judicial
definition was given as:

“Judicial Settlement means a final settlement by way of compromise entered into before a
suitable institution or person to which the court has referred the dispute and which institution
or person deemed to be the LokAdalats under the provisions of the Legal Service Authority
Act, 1987 (39 of 1987) and where after such a reference, the provisions of the said Act apply
as if the dispute was referred to a LokAdalat under the provision of the Act” 10 If the parties
decide to opt for judicial settlement then the court has to refer the matterto a suitable
institution or person which shall be deemed to be a LokAdalat.11

Thus under section 89 CPC, the court is to refer the dispute to a suitable institution or person but
there is no mention of who that person will be or which institution it should be which renders

6
R V Raveendran, ‘ Section 89 CPC: Need for an urgent relook’ (2007) 4 SCC Journal 23
7
R V Raveendran, ‘Alternative Dispute resolution under Section 89 of the Code of Civil Procedure: Guidelines’ (3
September 2011) <http://www.legalblog.in/2011/09/alternate-dispute-resolution-under.html> accessed 2 April 2021
8
Code of Civil Procedure 1908, s 89(2)(c).
9
Salem Advocate Bar Association v. Union of India (II) AIR 2005 SC 3353.
10
ADR and Mediation Rules 2003 (Draft), Rule 4.
11
ADR and Mediation Rules 2003 (Draft), Rule 5.

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judicial settlement a sui generis settlement procedure. The term implies that a judge should
preside over the matter and meaning to be understood as used in the West but in India through
section 89 CPC any person or institution is deemed to be a LokAdalat and all the provisions of
the Legal Services Authority Act, 1987 apply to such proceedings as if the dispute were referred
to a LokAdalat under the provisions of that Act.The difference in the understanding of the tem
was pointed out by Justice R.V.Raveendran and he analysed clause (c) and (d) of section 89 (2).
He observed that judicial settlement is a term in vogue in USA means a compromise brought
about by a court. According to Black’s Law Dictionary12 judicial settlement is to be understood
as a settlement of a civil case with the assistance of a judge who is not given to adjudicate the
matter while mediation involves resolving the matter with the help of a suitable neutral person or
institution.There has been a mix up of the terms of judicial settlement and mediation in section
89 of CPC as an outcome of clerical or typographical error in drafting.The problem came into
consideration in the Afconscase 13 where the Supreme Court acknowledged that there was an
error and said that there is mixing up of meanings of the terms.

4. DOUBLE TAXING OF FEES

Section 89 CPC does not provide non-binding mode of dispute resolution. A pending arbitration
process is governed by section 8 of the Conciliation and Arbitration Act, 1996. In arbitration the
arbitrators are paid fees whereas reference by court to conciliation or LokAdalat has always been
free. The litigants don’t bear any additional expense. As the litigant has already paid the court
fee of the suit it is not fair asking him to bear the cost of arbitration under the ADR/ Mediation
Rules.

5. COURT FEES

The amendment act of 1999 which included section 89 CPC also inserted section 16 in the Court
Fees Act, 1870 which states that if the court refers the parties to a suit to any ADR process given
in section 89 CPC then the plaintiff will be refunded ‘the full amount of the fee paid in respect of
such plaint.’14 The Court Fees Act, 1870 is not applicable in all the states but wherever it is
applicable, a mandatory interpretation of Section 89 would mean that all court fees will be
refunded. But what is the consequence if the conciliation, mediation or LokAdalat does come to

12
Black’s Law Dictionary ( 7thedn) 1377, 996.
13
Afcons Infrastructure Ltd. v. CherianVarkey Construction Co. (P) Ltd., JT 2010 (7) SC 616.
14
Court Fees Act 187, s16.

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a settlement and they bring the matter back to the court? There is nothing in the provision which
says about collecting fresh court fees when it comes back to the court which means that the suit
becomes free. Also section 21 of the Legal Services Authority Act 1987 provide that when a case
is resolved before the LokAdalat there will be refund of the court fee as given in Court Fees Act,
1870. This is to be done only after a compromise or settlement is arrived by both the parties15
however section 16 of the Court Fees Act, 1870 says that the fee is to be refunded even on a
reference made by the court to any ADR mechanism. This clearly creates a conflict as well.

15
Legal Services Authority Act 1987,s 21.

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 SECTION 89 AND ARBRITRATION AND CONCILLIATION ACT 1996

There are various modes for the settlement of disputes in India. One such mode is the Alternative
Dispute Resolution modes which is summarized and formulated in terms of Section 89 of the
Civil Procedure Code. Alternative Dispute Resolution in itself involves Arbitration, Conciliation
and mediation. Section 89(2) provides that where a dispute has been referred for Arbitration or
Conciliation, the provisions of the Arbitration and Conciliation Act, 1996 would apply and thus,
it would imply that the proceedings of such a matter for Arbitration and Conciliation took place
under the provisions of the 1996 Act. The power of the Court to refer the parties to arbitration is
dealt by Section 8 of the 1996 Act. This however is subjected to the presence of an arbitration
agreement between the parties involved.

Arbitration is one of the modes of ADR prescribed by section 89 CPC. Even prior to
incorporation of Section 89 in the Code of Civil Procedure, 1908 the parties to litigation, with
mutual consent, could take recourse to arbitration as a mode of resolution of their dispute which
was sub judice before a court of law in terms of the Arbitration and Conciliation Act, 1996
itself. 16 The Arbitration and Conciliation Act, 1996 however, did not contemplate a situation as
in Section 89 CPC where the Court asks the parties to choose any ADR mechanism and the
parties choose arbitration as their option.

Section 89of CPC now provides for reference of a dispute in a sub judice matter to Arbitration.
The statute further provides that for arbitration the provisions of the Arbitration and Conciliation
Act, 1996 shall apply as if the proceedings for arbitration were referred for settlement under the
provisions of that Act. However, if reference is made to arbitration under section 89 CPC, the
Arbitration and Conciliation Act, 1996 would apply only from the stage after reference and not
before the stage of reference when options under section 89 CPC are given by the court and
chosen by the parties17

A point of difference between the Arbitration and conciliation Act and Section 89 of the code is
that under the Act, the parties would refer to arbitration whereas under the Code, the court
actually asks the parties to choose one or other ADRs including Arbitration and parties may
choose accordingly. Thus, Section 89 cannot be resorted to for interpreting Section 8, Arbitration

16
P. Anand Gajapathi Raju v. . P.V.G. Raju, (2000) 4 SCC 539.
17
Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC 3353.

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and Conciliation Act, 1996 as it stands son a different footing and it would be applicable even in
case where there is arbitration agreement. The High Court is empowered to make rules to all
proceedings before the Court under the provisions of the Arbitration and Conciliation Act, 1996
under Section 82. These rules however have to be consistent with the said Act. The same power
is conferred upon the Central Government under Section 84 of the Act. Contrary to this, when
parties agree to go for arbitration under section 89 of the code, the option of the parties to choose
arbitration and the procedure for the same is not contemplated by the Arbitration and
Conciliation Act, 1996 and Section 82 and 84 has no application under these circumstances.
Arbitration and Conciliation Act, 1996 would apply to proceedings only after the stage of
reference and not before the stage of reference when options are given under section 89 of the
code, if reference to arbitration is made by the parties under Section 89. Drawing analogy on the
same, it will be only after the stage of reference to conciliation that the 1996 Act pertaining to
conciliation would apply.

The power under Section 89(1)(a) and 89(2)(a) to refer the parties for arbitration would and
must necessarily include, imply and inhere in it the power and jurisdiction to appoint the
Arbitrator also. When the Arbitration and Conciliation Act which is a special law provides for a
forum to adjudication, Section 89 Code of Civil Procedure cannot be resorted to refer a dispute
for arbitration unless there is mutual consent of all parties or arbitration agreement. It was also
held by a SC judgement that Section 5 of the Act does not debar a revision being filed against the
order passed by a civil court in an appeal under Section 37 of the act.

As aforementioned, Section 89 of the Civil procedure Code cannot be used to interpret and
understand the provisions under Section 8 of the Arbitration and Conciliation Act,1996. Still, for
this purpose, the court has to apply its mind to the condition contemplated under Section 89 of
the Code and even if the application under Section 8 is rejected, the Court is bound to follow the
procedure as laid down under the said section.

Under Section 89 of the Code of Civil Procedure does not create an obligation for the Court to
necessarily conduct arbitration, but merely permits the Court to refer the dispute to arbitration or
conciliation etc., where it is satisfied with respect to a reference to the dispute in a pending suit
that there is a possibility of settlement of the same by way of arbitration or conciliation.

However, The Government of India or any party can create a compulsion or obligation on the
Civil Court to necessarily arbitrate the matter between the parties depending upon the nature of
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the agreement entered by the parties. The fact that Government is one of the parties to the
arbitration agreement makes no difference. The mandate under Section 89 ought to be made to
settle the matter and every endeavour should be made for amicable settlement [16]. It appears
from Section 89(1) of the code of Civil Procedure that a duty is cast upon the court to refer the
dispute either by way of arbitration, conciliation, judicial settlement including settlement through
Lok Adalats or mediation if it appears that there are elements of settlement. The constitutional
validity of Section 89 of the Code was upheld by the Supreme Court of India in Salem Advocate
Bar Association, Tamil Nadu v. Union of India. All endeavors shall be made by the Court at the
earliest point of time to settle the dispute under Section 89 of the Code through any of the
mechanisms provided under it.

However, the Court cannot compel a party to surrender to ADR if any of the part did not settle
for settlement. Under the guise of this provision, a party cannot be allowed to prolong the
litigation when the trail is in progress and more particularly when it is ready for disposal. The
Parliament has not conferred the jurisdiction on any personal designate but on regular Courts
properly constituted which must be held or assumed to be held by competent trained officials.
When a reference has been made for arbitration under Section 89(1) of the Code, it is to be kept
in mind that it would thus bring the suit to a termination before that Court and such decision will
certainly be amenable to challenge in revision even under Section 115 of the Code. However, the
above mentioned situation will occur only if reasons are given and such reasons are considered
by Superior Courts discharging supervisory jurisdiction.

Section 89(2)(b) of the Code of Civil Procedure also provides that where a dispute has been
referred to the Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with
the provisions of sub-section 20 of the Legal Services Authority Act, 1987 and all other
provisions of that Act shall apply in respect of the dispute so referred to Lok Adalat. Parties are
entitled to refunding of full Court fee where the parties settled the matter without the intervention
of the Court. The Lok Adalats while resolving the disputes are guided by the principles of
justice, equity and fair play, and aim to settle the dispute by explaining the pros and cons to the
parties of their respective claims. Similar to the amendments made by the State Government in

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Central Court Fee Act by virtue of the amendments to the code, the State Government can also
consider making similar amendments to State Court Fee Legislations. 18

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

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

conciliation would apply only after the stage of reference to conciliation. Thus, for
conciliation also rules can be made under Part X of the Code of Civil Procedure, 1908
for the determining the procedure for opting for 'conciliation' and upto the stage of
reference to conciliation.19 Further as in the case of arbitration, the court cannot refer the
parties to conciliation under section 89 CPC, in the absence of express consent of all
parties. However when a matter is referred to conciliation, the matter does not go out of
the stream of court process permanently. If the parties are not able to arrive at a final
settlement during the conciliation the matter is returned back to the court.

The court may also refer a pending dispute to mediation in terms of the provisions of
section 89 CPC. The statute has undergone a sea change after the judgment of the
Supreme Court in Afcons case 20 and after the Afcons judgment, for mediation the
44
dispute is to be referred to a suitable person or institution which is to be deemed to
be a Lok Adalat. The reference to mediation in terms of section 89 CPC can also be
made even without the consent of the parties.

18
<http://www.legalserviceindia.com/legal/article-385-section-89-of-cpc-a-critical-analysis.html>accessed 2 April
2021
19
Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC 3353.
20
Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., JT 2010 (7) SC 616.

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 CRITICAL ANALYSIS

Section 89 is an important part of the Code of Civil Procedure and is an effective method to
resolve dispute between parties where there is scope for the same. The section is right in its spirit
as the objective has been to reduce the burden of the court, ensure a compromise is arrived at
between parties and move towards speedier/ effective method of administrating justice.
However, the Section suffers from many anomalies, which have reduced its efficiency & act as a
hindrance in delivering justice to the people. The recommendations of the 238thLaw Commission
report strike at the heart of the matter and there is a need for amendments specified by the
Report.21

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 not be
referred under this section. The court has to form an opinion that a case is one that is capable of
being referred to and settled through ADR process.

The Apex Court has said 22: If section 89 is to be read and required to be implemented in its
literal sense, it will be a Trial Judge's nightmare. It lays down an impractical, if not impossible,
procedure in sub- section (1). It has mixed up the definitions in sub-section (2). The validity of
section 89, with all its imperfections, was upheld in Salem Advocate Bar Association v. Union of
India23but 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, 24 the Apex Court
applied the principle of purposive construction in an attempt to make it workable.

The first inconsistency is the mixing up of the definitions of `mediation' and `judicial settlement'
under Section 89(2)(c) and Section 89(2)(d) of the Code. It makes no sense to call a compromise
affected by a court, as mediation. 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. The
mix-up of definitions of the terms judicial settlement and mediation in Section 89 is apparently

21
<http://www.legalserviceindia.com/legal/article-385-section-89-of-cpc-a-critical-analysis.html>accessed 2 April
2021
22
M/S. Afcons Infra. Ltd. &Anr v. M/S CherianVarkeyConstructio Co. (P) Ltd. &Anr, CivilAppeal No.6000 Of 2010
(Arising out of SLP (C) No.760 of 2007).
23
Salem Advocate Bar Association v. Union of India [2003] (1) SCC 49.
24
Salem Advocate Bar Association v. Union of India [2005](6) SCC 344.

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due to a clerical or typographical error in 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, we find that the said clauses make perfect sense.

The second inconsistency is that Section 89(1) imports the final stage of conciliation referred to
in section 73(1) of the 1996 Act into the pre-ADR reference stage under Section 89 of the Code.
If sub-section (1) of Section 89 is to be literallyfollowed, every Trial Judge before framing
issues, is required to ascertain whether there exists any elements of settlement which may be
acceptable to the parties, formulate the terms of settlement, give them to parties for observations
and then reformulate the terms of a possible settlement before referring it to arbitration,
conciliation, judicial settlement, LokAdalat or mediation. There is nothing that is left to be done
by the ADR forum. If all this has to be done by the trial court before referring the parties to ADR
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.

Section 73 of 1996 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 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. 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.

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 settlement; and
the Arbitrator will adjudicate upon the dispute and give his decision by way of award. If the
reference is to conciliation/mediation/LokAdalat, then drawing up the terms of the settlement or
reformulating them is the job of the conciliator or the mediator or the LokAdalat, after going
through the entire process of conciliation/ mediation. Thus, the terms of settlement drawn up by
the court will be totally useless in any subsequent ADR process. Why then the courts should be
burdened with the onerous and virtually impossible, but redundant, task of formulating terms of
settlement at pre- reference stage?

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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 parties. The court formulating the terms of settlement
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 courts in implement ing
section 89 of the Code. The Apex Court therefore diluted this anomaly in Salem 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'.

SOLUTIONS:

How can we interpret section 89? 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 literal meaning. 25 In Salem Advocate Bar Association v. Union of India,26 Justice G.P.
Singh27was of the opinion that a court is justified in departing from the plain words of the statute
when it is satisfied that:

i. There is clear and gross balance of anomaly.

ii. Parliament, the 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.
iii. The anomaly can be obviated without detriment to such a legislative objective.
iv. The language of the statute is susceptible of the modification required to obviate the
anomaly.

All the aforesaid four conditions justifying departure from the literal rule exist with reference to
section 89 of the Code. Therefore, in Salem Advocate Bar Association v. Union of India,28 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, is excluded or done away with by
stating that the said provision merely requires formulating a summary of disputes. Further, the
Apex Court adopted the definition of `mediation' suggested in the model mediation rules, in spite
of a different definition in section 89(2) (d).

25
ShriMandirSitaRamji v. Lt. Governor of Delhi[1975] 4 SCC 298.
26
Salem Advocate Bar Association v. Union of India [2005](6) SCC 344.
27
Justice G.P. Singh, Principles of StatutoryInterpretation, (14thedn, Lexis Nexis 2016).
28
Salem Advocate Bar Association v. Union of India [2005](6) SCC 344.

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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
settlement with the assistance of a neutral third party. Judicial settlement is understood as
referring to a 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.

Section 89 has to be read with Rule 1-A of Order 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 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/denials wherever required, and before framing issues, the court will have
recourse to section 89 of the Code. 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 then refer them to one of the alternative dispute resolution processes.

With respect to Double taxation, Conciliation/mediation should also be free of cost, and should
be made available by Legal Services Authorities as two alternative modes of dispute resolution
in addition to conducting LokAdalats. For this purpose each Legal Services Authority should
maintain a panel of mediators. There is no logic or justice in asking a litigant to pay twice for a
dispute resolution once as court fee and again as fee of conciliator/mediator under
ADR/Mediation Rules.

And a more practical way to deal with court fees would be to delete the provision for any refund
of court fee, and also delete the requirement in the Rules that the litigant should bear the
expenses of conciliation/mediation. Conciliation/ mediation during pendency of the suit, should
be free. Arbitration, of course, is different. Being purely optional, when both parties opt for it,
they will necessarily have to bear the cost of it.

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AMENDMENTS PROPOSED BY THE LAW COMMISSION REPORT

The Commission recommends the following amendments to the relevant provisions of CPC
dealing with alternative dispute resolution. 29

The following shall be substituted in the place of existing section 89 of the Code of Civil
Procedure, 1908:

Section 89: Settlement of disputes outside the court - 1) Where it appears to the court, having
regard to the nature of the dispute involved in the suit or other proceeding that the dispute is fit to
be settled by one of the non-adjudicatory alternative dispute resolution processes, namely,
conciliation, judicial-settlement, settlement through Lok Adalat or mediation the court shall,
preferably before framing the issues, record its opinion and direct the parties to attempt the
resolution of dispute through one of the said processes which the parties prefer or the court
determines.

2) Where the parties prefer conciliation, they shall furnish to the court the name or names of the
conciliators and on obtaining his or their consent, the court may specify a time-limit for the
completion of conciliation. Thereupon, the provisions of sections 65 to 81 of the Arbitration and
Conciliation Act, 1996, as far as may be, shall apply and to this effect, the court shall inform the
parties. A copy of the settlement agreement reached between the parties shall be sent to the court
concerned. In the absence of a settlement, the conciliator shall send a brief report on the process
of conciliation and the outcome thereof.

3) Where the dispute has been referred:-

a) for judicial-settlement, the Judicial Officer shall endeavour to effect a compromise between
the parties and shall follow such procedure as may be prescribed;

b) to Lok Adalat, the provisions of sub-sections (3) to (7) of section 20, sections 21 and 22 of the
Legal Services Authorities Act, 1987 shall apply in respect of the dispute so referred and the Lok
Adalat shall send a copy of the award to the court concerned and in case no award is passed, send

29
Law Commission of India, Report No. 238: Amendment of Section 89 of the Code of Civil Procedure, 1908 and
Allied Provisions, December, 2011.

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a brief report on the proceedings held and the outcome thereof; c) for mediation, the court shall
refer the same to a suitable institution or person or persons with appropriate directions such as
time-limit for completion of mediation and reporting to the court.

4) On receipt of copy of the settlement agreement or the award of Lok Adalat, the court, if it
finds any inadvertent mistakes or obvious errors, it shall draw the attention of the conciliator or
the Lok Adalat who shall take necessary steps to rectify the agreement or award suitably with the
consent of parties.

5) Without prejudice to section 8 and other allied provisions of the Arbitration and Conciliation
Act, 1996, the court may also refer the parties to arbitration if both parties enter into an
arbitration agreement or file applications seeking reference to arbitration during the pendency of
a suit or other civil proceeding and in such an event, the arbitration shall be governed, as far as
may be, by the provisions of the Arbitration and Conciliation Act, 1996. The suit or other
proceeding shall be deemed to have been disposed of accordingly”.

The existing rule 1B of Order X of the Code of Civil Procedure should be deleted. In the place of
existing Rules 1-A and 1-C of Order X, the following rules shall be substituted:

(1A) Direction of the court to opt for any one mode of alternative dispute resolution.- At the
stage of framing issues or the first hearing of the suit, the court shall direct the parties to opt
either mode of the settlement outside the court as specified in sub-section (1) of section 89 and
for this purpose may require the parties to be personally present and in case of non-attendance
without substantial cause, follow the procedure for compelling the attendance of witness. The
court shall fix the date of appearance before such forum or authority or persons as may be opted
by the parties or chosen by the court.”

(1B) Appearance before the court consequent upon the failure of efforts of conciliation.-
Where a suit is referred under rule 1A and the presiding officer of conciliation forum or authority
or the person to whom the matter has been referred is satisfied that it would not be proper in the
interest of justice to proceed with the matter further, in view of the stand taken by the respective
parties, it shall refer the case back to the court who shall direct the parties to appear before it on
the date fixed and proceed with the suit.

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 CONCLUSION

In light of the above analysis, it can 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 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'serror. 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.

Apart from the legal aspect of the inefficiency of the provision, another major reason for section
failing to fulfil its purpose is the lack of legal knowledge among the people. Rather than going
for Alternate means which might be cheaper in some cases and less time consuming, citizens
continue to go for trial hoping to secure a larger award from the respective Court.

The alternate forums accorded under Section 89 are economically more viable as they are
relatively less in amount of transaction costs and thus, there is a need to make people aware
about the same. Hence, the provision under Section 89 is right in its essence but its purpose is
defeated due to legal intricacies, draftsmen's error and lack of awareness among individuals.

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 BIBLIOGRAPHY

PRIMARY SOURCES:
STATUTES:

 Legal Services Authority Act 1987,s 21.

 ADR and Mediation Rules 2003 (Draft), Rule 4.
 Code of Civil Procedure 1908, s 89(2)(c).
 Court Fees Act 187, s16

CASES:
 P. Anand Gajapathi Raju v. . P.V.G. Raju, (2000) 4 SCC 539.
 Salem Advocate Bar Association v. Union of India (II), AIR 2005 SC 3353.
 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. Ltd., JT 2010 (7) SC 616.
 ShriMandirSitaRamji v. Lt. Governor of Delhi[1975] 4 SCC 298.
 Salem Advocate Bar Association v. Union of India [2005](6) SCC 344.

SECONDARY SOURCES:

BOOKS:

 Black’s Law Dictionary ( 7thedn) 1377, 996.

 Justice G.P. Singh, Principles of StatutoryInterpretation, (14thedn, Lexis Nexis 2016).

ARTICLES:

 R V Raveendran, ‘Alternative Dispute resolution under Section 89 of the Code of Civil

Procedure: Guidelines’ (3 September 2011) <http://www.legalblog.in/2011/09/alternate-
dispute-resolution-under.html> accessed 2 April 2021.
 Anubhav Pandey, ‘ All you need to know about ADR’,< https://blog.ipleaders.in/adr-
alternative-dispute-resolution/> accssed 2 April 2021.

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 GauravPrakash, ‘Section 89 of CPC- A Critical Analysis’
<http://www.legalserviceindia.com/legal/article 385-section-89-of-cpc-a-critical-
analysis.html> accessed 2 April 2021.
 R V Raveendran, ‘ Section 89 CPC: Need for an urgent relook’ (2007) 4 SCC Journal
23.

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