The Evolution of Section 89 of the Code of Civil Procedure: From Case Law to Reform

Enacting Section 89 — Resolution beyond courts

Section 89 of the Code of Civil Procedure (CPC) was inserted in 1999 to facilitate extra-judicial settlements through participation of parties in alternate dispute resolution mechanisms (ADR) to alleviate the burden on courts and enable speedy resolution of disputes.¹

Section 89 reads as follows—

89. Settlement of disputes outside the Court.— (1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for:

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat; and

(d) mediation.

(2) Were a dispute has been referred:

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996² (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;

(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of Section 20 of the Legal Services Authorities Act, 1987³ (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;

(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authorities Act, 1987⁴ (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act; and

(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.⁵

Formulation of settlement terms prior to ADR referral — Procedural redundancies

The judgment in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd.⁶ noted that if Section 89(1) was to be followed literally, then every trial Judge would, before framing issues, need to assess the existence of a settlement acceptable to both parties, formulate and reformulate its terms of such settlement as per the observations of the parties and refer it to the relevant ADR forum.⁷ Post this juncture, there would be nothing for the dispute resolution forum to do, making the process redundant.⁸

The Judge cannot arrive at a settlement merely based on pleadings, and there must be some deliberation with parties.⁹ However, once the matter is referred to arbitration, the arbitrator is free to make the award as they deem fit and not bound by the court’s settlement. This would render the time of the court wasted, accelerating delays and procedural inefficiencies.¹⁰

ADR mechanisms and consent of parties

Although a pre-existing arbitration agreement would allow for a referral to ADR much earlier in the course of proceedings, parties can also bring such an agreement into existence via a joint memo or affidavit when being given the choice of ADR proceedings by the court under Section 89.¹¹ The main consideration in such matters would not be the existence of the arbitration agreement prior to the suit but the willingness of both parties to engage in arbitral proceedings. The Court has no authority to refer unwilling parties to arbitration or conciliation under Section 89.¹²

If the parties are not agreeable to arbitration or conciliation, then the court can take recourse to the three other ADR processes — Lok Adalat, mediation and judicial settlement. According to the court, these alternatives do not require the consent of parties to make the reference.¹³ Foregoing of consent is especially problematic in the case of mediation, wherein voluntariness of the party is integral to the resolution sought through the process.¹⁴ Section 3(h) of the Mediation Act highlights the need for amicability of the attempted settlement and likens it to a conciliatory process.¹⁵

Co-jointly reading Order 10 Rule 1-A and Section 89

Order 10 Rule 1-A¹⁶—

1-A. Direction of the court to opt for any one mode of alternative dispute resolution.—After 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 authority as may be opted by the parties.

Order 10 Rule 1-A does not require the terms of settlement to be formulated, unlike Section 89. In reading the two provisions together, the Court has discerned that recourse to Section 89 should be made available only when pleadings are complete and after admissions or denials have been sought but before framing issues. Such recourse requires the court to consider and record the nature of the dispute and take note of mutually favorable preferences.¹⁷ While Section 89 gives jurisdiction to courts to refer matters to ADR, Rules 1-A to 1-C of Order 10¹⁸ prescribe the manner in which the said jurisdiction is to be exercised.¹⁹

A departure from literal interpretation

Due to the anomaly that Section 89 presents, the Court has endeavoured to depart from its literal reading.²⁰ The judgment in Afcons Infrastructure case²¹ has ascertained that formulation of terms of settlement need not be necessary. Rather, it would be sufficient if the court provides a summary of disputes²² and discerns the amenability of the parties to extra-judicial settlement before making the reference.²³

Word switch — The draftsman’s error

The interchanging of “judicial settlement” in and “mediation” in clauses (c) and (d) of sub-section (2)²⁴ was held in Afcons Infrastructure case²⁵ to be a draftsman’s error. The section would have to be read by switching the terms such that clause (c) would refer mediation and (d) to judicial settlement.²⁶

In Salem Advocate Bar Assn. v. Union of India²⁷, the Court did not address the error and proceeded to frame rules regarding mediation in Salem Advocate Bar Assn. v. Union of India.²⁸ The correction made in Afcons Infrastructure case²⁹ has rendered these rules meaningless.

Justice U.U. Khan, former Judge at the Allahabad High Court however opines that if the section is interpreted to allow the trial Judge to, at any stage of the suit, either before settlement of issues or after hearing arguments in part, attempt to persuade the parties to settle the dispute amicably or to send the matter for to some other Judge for settlement if rules in this regard are framed, then there would be no absolute Bar on judicial settlement. This interpretation has been used by them to attempt several judicial settlements. Additionally, they point out that the proviso for formulating and reformulating the settlement under Section 89(1) would be appropriate for judicial settlement but not when the matter is to be referred to other ADR forums, therefore highlighting the drafting error in the section.³⁰

Amendment and future considerations

In 2023, the Mediation Act substituted Section 89 CPC to read as follows:

89. Settlement of disputes outside the Court.—Where it appears to the Court that the dispute between the parties may be settled and there exists elements of settlement which may be acceptable to the parties, the Court may—

(a) refer the dispute to arbitration, and thereafter, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration were referred for settlement under the provisions of that Act; or

(b) refer the parties to mediation, to the court-annexed mediation centre or any other mediation service provider or any mediator, as per the option of the parties, and thereafter the provisions of the Mediation Act, 2023³¹ shall apply as if the proceedings for mediation were referred for settlement under the provisions of that Act; or

(c) refer the dispute to Lok Adalat, in accordance with the provisions of sub-section (1) of Section 20 of the Legal Services Authorities Act, 1987 (39 of 1987) and thereafter, all other provisions of that Act shall apply in respect of the dispute; or

(d) effect compromise between the parties and shall follow such procedure as deemed fit for judicial settlement.³²

The amended section has incorporated the recommendations made in Afcons Infrastructure case³³ by eliminating the requirement to formulate settlement terms before the ADR referral, updating the procedural laws relevant to the dispute resolution mechanisms in the proviso and correcting the mix up between judicial settlement and mediation in Section 89(2).

In 2023, Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd.³⁴ held that the potential of Section 89 CPC for resolving disputes has remained largely untapped since mediation now occurs at the volition of parties. The responsiveness of the public to dispute redressal mechanisms beyond the confines of the courtroom has been highlighted in this judgment. The endeavour that Section 89 set out to fulfil has manifested in the increased incorporation of mandatory pre-litigation ADR procedures, as seen in Section 12-A of the Commercial Courts Act, 2015³⁵ (hereinafter “CCA”), which mandates mediation between parties prior to institution of litigation. Interestingly, while Section 89, does contemplate ADR proceedings when ordered by a court, Section 12-A of the CCA contemplates mediation without any involvement of the Court.³⁶

Conclusion

Section 89 in its current form rectifies the limitations to the pre-amended section that were highlighted in Afcons Infrastructure case³⁷. In its endeavour to encourage the utilisation of ADR mechanisms, it has encountered several hurdles. The Court’s decision to align Section 89 with Order 10 Rule 1-A, forego its literal interpretation in favour of a more practical understanding and the subsequent amendment in 2023 indicate a pragmatic shift towards a more streamlined approach to dispute resolution. This section has been a pioneer of sorts in incorporating ADR mechanisms as complementary to courts, rather than an isolated field. This highlights a broader trend towards expanding accessibility to justice and ensuring procedural efficacy.