Section 89 of the Code of Civil Procedure: How a Court Sends a Case Out to Be Settled

Clause (b) is the bridge to Module I: a section 89 reference to a Lok Adalat runs through section 20(1), chapter 110, and produces an award that is deemed a decree under section 21, chapter 120.

Clause (c) is worth a mark: a person or institution to whom a case is sent for judicial settlement is deemed to be a Lok Adalat, which imports the whole of the Legal Services Authorities Act including the decree-status of the award.

Order X rules 1A, 1B and 1C

Section 89 does not stand alone. Order X, inserted at the same time, is its machinery.

Rule 1A: 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 for either mode of settlement outside the Court as specified in section 89, and on the option of the parties shall fix the date of appearance before such forum or authority as may be opted by the parties.

Rule 1B: appearance before the conciliatory forum or authority. Where a suit is referred under rule 1A, the parties shall appear before such forum or authority for conciliation of the suit.

Rule 1C: appearance before the Court consequent to the failure of efforts of conciliation. Where a suit is referred under rule 1A and the presiding officer of the forum or authority is satisfied that it would not be proper in the interest of justice to proceed with the matter further, he shall refer the matter again to the Court and direct the parties to appear before it on the date fixed by him.

Rule 1C is the safety valve, and it matches section 20(5) of the Legal Services Authorities Act, chapter 110: where the settlement forum cannot settle, the case goes back to the court and resumes.

Afcons: the case that made section 89 work

Afcons Infrastructure Ltd v. Cherian Varkey Construction Co (P) Ltd, decided 26 July 2010, R.V. Raveendran J with J.M. Panchal J.

The judgment does three things, and a good answer covers all three.

One: it corrects a drafting error

Section 89(2) defines what happens on a reference for judicial settlement in clause (c) and for mediation in clause (d). Read literally, the definitions describe each other's process: a "mediation" in which the Court shall effect a compromise, and a "judicial settlement" conducted by an outside institution deemed to be a Lok Adalat.

The Court held that the mix-up of the definitions of "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 clauses (c) and (d) of section 89(2), and that if the word "mediation" in clause (d) and the words "judicial settlement" in clause (c) are interchanged, the clauses make perfect sense.

That is a striking thing for a court to do, and it is the point students remember. Read the two clauses as interchanged: judicial settlement is settlement by the court or an institution deemed a Lok Adalat, and mediation is settlement by a mediator following the prescribed procedure.

Two: it makes the section workable at the right stage

The Court held that having a hearing after completion of pleadings to consider recourse to an ADR process under section 89 is mandatory, but that actual reference to an ADR process in all cases is not mandatory. Having regard to the tenor of Order X rule 1A, the civil court should invariably refer cases to an ADR process, and only in certain recognised excluded categories may it choose not to. Where a case is unsuited to any ADR process, the court must briefly record the reasons for not resorting to one.

So the rule is: consider always, refer usually, and give reasons if you do not.

Three: it lists what should not be referred, and what should

Categories normally NOT suitable for an ADR process:

• (i) representative suits under Order I rule 8 involving public interest or the interest of numerous persons who are not parties;
• (ii) disputes relating to election to public offices, as contrasted with disputes between groups seeking control of societies, clubs or associations;
• (iii) cases involving grant of authority by the court after enquiry, such as suits for probate or letters of administration;
• (iv) cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion and the like;
• (v) cases requiring protection of courts, such as claims against minors, deities and mentally challenged persons, and suits for declaration of title against government; and
• (vi) cases involving prosecution for criminal offences.

Categories normally suitable include all cases of a civil nature, and in particular:

• (i) all cases relating to trade, commerce and contracts, including money claims, specific performance, and disputes between suppliers and customers, bankers and customers, developers and customers, landlords and tenants or licensors and licensees, and insurers and insured;
• (ii) all cases arising from strained or soured relationships, including matrimonial causes, maintenance, custody of children, partition among family members, co-parceners or co-owners, and disputes among partners; and
• (iii) all cases where there is a need for continuation of the pre-existing relationship in spite of the disputes.

Compare that first list with Booz Allen's non-arbitrable categories, chapter 250. They overlap but are not the same, and the reason is that they answer different questions. Booz Allen asks what the law does not permit to be arbitrated at all. Afcons asks what a court should not send out for settlement. A case can be arbitrable and still unsuitable for a section 89 reference, and saying that shows the examiner you understand both.

Salem Advocate Bar Association

Salem Advocate Bar Association, Tamil Nadu v. Union of India, decided 2 August 2005, is the decision usually cited alongside section 89, in which the Supreme Court dealt with the 1999 and 2002 amendments to the Code and with the model rules for ADR and mediation prepared by a committee it had constituted.

That judgment is in the queue in authorities/cases.json and has not been read for facts and holding. This book does not state what it decided. Know that it is where the model civil procedure ADR and mediation rules came from, and read the judgment before attributing propositions to it.

A worked example

A suit between a builder and a flat purchaser is at the stage of admissions and denials under Order X. The judge thinks it could settle.

What must the court do first? Under section 89(1), form the view that there exist elements of a settlement which may be acceptable, formulate the terms of settlement, give them to the parties for their observations, and after receiving those observations it may reformulate them.

Must it refer? On Afcons, the hearing to consider recourse to ADR after completion of pleadings is mandatory; the reference itself is not, but the court should invariably refer unless the case falls in an excluded category, and if it does not refer it must briefly record its reasons.

Is this case excluded? No. It is a dispute between a developer and a customer, which Afcons lists as normally suitable.

Which mode? Any of the four. If the parties choose a Lok Adalat, section 89(2)(b) sends it through section 20(1) of the Legal Services Authorities Act and any settlement becomes an award deemed a decree under section 21. If they choose conciliation, section 89(2)(a) applies Part III, so sections 73 and 74 govern the settlement.

Order X. Under rule 1A the court directs the parties to opt for a mode and fixes the date of appearance before that forum; under rule 1B they must appear.

The mediation fails. Under Order X rule 1C, the presiding officer of the forum, being satisfied that it would not be proper in the interest of justice to proceed further, refers the matter back to the Court and directs the parties to appear on a fixed date. If it had gone to a Lok Adalat, section 20(5) of the Legal Services Authorities Act sends the record back and the suit resumes from the stage reached.

Change the case. Make it a suit alleging that the builder forged the purchaser's signature on a cancellation deed. That is Afcons category (iv), serious and specific allegations of fraud, fabrication of documents, forgery, and it is normally not suitable for an ADR process. The court should record its reasons for not referring.

What beginners get wrong

Section 89 offers four modes, not one, and each is governed by a different statute through section 89(2).

The definitions in section 89(2)(c) and (d) are interchanged. Afcons holds it a clerical or typographical drafting error and reads them as swapped.

Considering ADR is mandatory; referring is not. Afcons, and reasons must be recorded for not referring.

Judicial settlement is not a hearing by the judge. The institution or person is deemed to be a Lok Adalat under clause (c).

Afcons' unsuitable list is not the same as Booz Allen's non-arbitrable list. One is about what a court should refer; the other about what the law permits to be arbitrated.

Quick revision

• Section 89(1): where it appears there are elements of a settlement acceptable to the parties, the Court shall formulate the terms, give them to the parties for observations, may reformulate, and refer for (a) arbitration, (b) conciliation, (c) judicial settlement including through Lok Adalat, or (d) mediation.
• Section 89(2): arbitration or conciliation, the 1996 Act applies; Lok Adalat, section 20(1) of the Legal Services Authorities Act; judicial settlement, a suitable institution or person deemed to be a Lok Adalat; mediation, the Court shall effect a compromise following the prescribed procedure.
• Order X rule 1A: after admissions and denials, direct the parties to opt for a mode and fix the date of appearance. Rule 1B: the parties shall appear. Rule 1C: the forum may refer the matter back to the Court.
• Afcons (26 July 2010): the definitions of judicial settlement and mediation are interchanged by a clerical or typographical error and should be read swapped; a hearing to consider ADR after pleadings is mandatory while reference is not, courts should invariably refer except in excluded categories, and reasons must be recorded for not referring; and it lists six categories normally unsuitable and three broad categories normally suitable.
• Salem Advocate Bar Association (2 August 2005): the source of the model ADR and mediation rules. Unread here; do not state its ratio.

Test yourself

1. What four modes may a court refer a dispute to under section 89? Arbitration; conciliation; judicial settlement including settlement through Lok Adalat; and mediation.

2. What did Afcons say about the definitions in section 89(2)? That the mix-up of the definitions of "judicial settlement" and "mediation" is apparently due to a clerical or typographical error in drafting, the two words having been interchanged in clauses (c) and (d), and that if "mediation" in clause (d) and "judicial settlement" in clause (c) are interchanged the clauses make perfect sense.

3. Is a court bound to refer every case to an ADR process? No. On Afcons, having a hearing after completion of pleadings to consider recourse to ADR is mandatory, but actual reference is not. The court should invariably refer except in recognised excluded categories, and where a case is unsuited it must briefly record its reasons.

4. Name four categories Afcons treats as normally unsuitable for ADR. Representative suits under Order I rule 8 involving public interest; disputes relating to election to public offices; cases involving grant of authority by the court after enquiry, such as probate or letters of administration; and cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation or coercion. Cases requiring the protection of courts, and cases involving prosecution for criminal offences, complete the list.

5. A section 89 reference to mediation fails. What happens to the suit? Under Order X rule 1C, where the presiding officer of the forum or authority is satisfied that it would not be proper in the interest of justice to proceed further, he refers the matter again to the Court and directs the parties to appear before it on the date he fixes, and the suit resumes.