Section 89 of the Civil Procedure Code

And the fee. Section 16 of the Court Fees Act 1870 provides for the REFUND of the court fee where a suit is settled under section 89, which is the incentive the design relies on.

Afcons

Facts. Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24, decided 26 July 2010 by Raveendran and Panchal JJ. A construction contract dispute. The plaintiff applied under section 89 for a reference to ARBITRATION and the defendant did not consent. The questions were whether a court may refer to arbitration without consent, and what the section means given that clauses (c) and (d) appeared reversed.

Held, on the drafting. That the use of the two words with interchanged meanings had led to confusion, complications and inconsistency, and that this was a clerical or typographical error in drafting. The definitions in clauses (c) and (d) must be INTERCHANGED, so that section 89(2) reads: for MEDIATION, the court refers the matter to a suitable institution or person, which is deemed to be a Lok Adalat with the Act of 1987 applying; and for JUDICIAL SETTLEMENT, the court effects a compromise between the parties and follows the prescribed procedure. The changes hold UNTIL THE LEGISLATURE CORRECTS THE MISTAKE, so that the section is not rendered meaningless and infructuous.

Held, on formulating the terms. That it is NOT necessary for a court, before referring the parties to an ADR process, to formulate or reformulate the terms of a possible settlement. It is enough that the court describes the NATURE OF THE DISPUTE in a sentence or two and makes the reference. A literal reading would require the judge to do the mediator's work before the mediation, which is impossible and would defeat the section.

Held, on consent. That ARBITRATION and CONCILIATION require the CONSENT of all the parties, because both are consensual processes under the Act of 1996, so a court cannot refer to them without agreement. The other three, judicial settlement, Lok Adalat and mediation, do not require consent, and a court may refer to them.

Held, on whether reference is mandatory. That the opening words, where it appears to the court that there exist elements of a settlement, mean that a case unsuited to settlement should not be referred; but that having regard to Order X rule 1A the civil court should INVARIABLY refer, and may decline only in the recognised excluded categories, briefly recording its reasons.

The two lists

Not suitable for reference. Representative suits under Order 1 rule 8 involving public interest or the interest of numerous persons not before the court; disputes relating to ELECTION TO PUBLIC OFFICES, as distinct from contests for control of a society or club; cases involving the grant of authority by the court after inquiry, such as probate or letters of administration; cases involving serious and specific allegations of FRAUD, fabrication of documents, forgery, impersonation or coercion; cases requiring the PROTECTION OF THE COURT, such as claims against minors, deities and mentally challenged persons and suits for declaration of title against the Government; and cases involving prosecution for criminal offences.

Suitable for reference. All cases relating to TRADE, COMMERCE AND CONTRACTS, including money claims, specific performance, supplier and customer, banker and customer, developer and customer, landlord and tenant, and insurer and insured. All cases arising from STRAINED OR SOURED RELATIONSHIPS, including matrimonial causes, maintenance and custody, partition among family members and coparceners, and partnership disputes. And all cases where there is a need for the CONTINUATION OF A PRE-EXISTING RELATIONSHIP, including disputes between neighbours over easements, encroachment and nuisance.

Learn the two lists. They are the practical content of the section and they answer any question about which case goes where.

The criticisms

A section that had to be judicially rewritten. Fifteen years after Afcons the transposition in clauses (c) and (d) has not been corrected by Parliament, so the operative text of a central statute differs from the printed one. That is a fact worth stating plainly.

Reference as a formality. Order X rule 1A directs the court to require the parties to OPT, and in practice a reference is often made and the file returns unsettled after a date, adding a stage rather than removing one.

Consent and compulsion. Afcons holds that mediation may be ordered without consent. A mediation nobody wants is a wasted month, and the counter-argument is that parties frequently settle once they are in the room.

The matrimonial category. Afcons lists matrimonial causes, maintenance and custody as suitable, and it is exactly the category in which the bargaining power is most unequal. The answer is that the mediator must not be a bargaining agent and that the court must scrutinise the settlement, which is [Domestic Violence]'s concern as well.

And the incentive. A refund of court fee under section 16 of the Court Fees Act rewards settlement, and there is no corresponding incentive for the lawyers, whose fee depends on the hearings.

A worked example

A suit between a builder and a purchaser over delayed possession, in which the purchaser also alleges that the builder forged a consent letter.

Should the court refer it? Under section 89 and Order X rule 1A, a civil court should invariably refer unless the case is in an excluded category. Contract and money claims and disputes between developers and customers are in the SUITABLE list.

But the forgery allegation? Afcons excludes cases involving serious and specific allegations of FRAUD, fabrication of documents, forgery, impersonation or coercion. So the court must consider whether the allegation is serious and specific or a general averment, and where it is the former, decline to refer and RECORD BRIEF REASONS.

Can the court refer to arbitration? Only if both consent, because arbitration under the Act of 1996 is consensual and Afcons holds that a court cannot refer to it without agreement.

Can it refer to mediation without consent? Yes. Mediation, judicial settlement and Lok Adalat do not require the consent of the parties.

What must the judge do before referring? Not formulate the terms of settlement. It is enough to describe the nature of the dispute in a sentence or two and make the reference.

And if the mediation succeeds? The settlement is placed before the court, the suit is disposed of in its terms, and the court fee is refunded under section 16 of the Court Fees Act 1870.

What this does NOT mean

It does not mean the printed section is the law. Afcons interchanged clauses (c) and (d), and the interchange holds until Parliament corrects the error.

It does not mean a court may compel arbitration. Arbitration and conciliation need consent; the other three do not.

It does not mean every case must be referred. Six categories are excluded, and the court must record brief reasons for declining.

And it does not mean a reference ends the suit. Order X rule 1C allows the forum to send the matter back, and an unsettled reference returns the case to the docket.

Quick revision

Section 89, inserted by the Amendment Act of 1999 in force 1 July 2002: where elements of a settlement exist, the court shall formulate the terms, give them to the parties, reformulate and refer for ARBITRATION, CONCILIATION, JUDICIAL SETTLEMENT INCLUDING LOK ADALAT, or MEDIATION. Order X rule 1A, the court directs the parties to OPT; rule 1B, appearance before the chosen forum; rule 1C, referral back. Section 16 of the Court Fees Act 1870, REFUND of the fee on settlement.

AFCONS, 26 July 2010: clauses (c) and (d) of section 89(2) are TRANSPOSED by a draftsman's error and must be INTERCHANGED, so that MEDIATION means a reference to an institution or person deemed a Lok Adalat and JUDICIAL SETTLEMENT means a compromise effected by the court, the correction to hold until the legislature acts; the court need NOT formulate or reformulate the terms but need only describe the dispute in a sentence or two; ARBITRATION and CONCILIATION require the CONSENT of all parties and the other three do not; and the court should INVARIABLY refer except in the excluded categories, recording brief reasons.

NOT SUITABLE: representative suits under Order 1 rule 8; election to public offices; probate and letters of administration; serious and specific allegations of fraud, forgery, impersonation or coercion; cases requiring the court's protection, such as claims against minors, deities and mentally challenged persons and title suits against government; and prosecutions. SUITABLE: trade, commerce and contract including money claims, specific performance, supplier, banker, developer, landlord and insurer disputes; cases from SOURED RELATIONSHIPS including matrimonial, maintenance, custody, partition and partnership; and cases needing the CONTINUATION of a pre-existing relationship such as neighbours' disputes.

Test yourself

1. What does section 89 provide, and when was it inserted? That where it appears to the court that there exist elements of a settlement acceptable to the parties, the court shall formulate the terms, give them to the parties for observations, reformulate them, and refer the dispute for arbitration, conciliation, judicial settlement including settlement through Lok Adalat, or mediation. It was inserted by the Code of Civil Procedure (Amendment) Act 1999 with effect from 1 July 2002.

2. What was the drafting error, and how was it corrected? The definitions of JUDICIAL SETTLEMENT and MEDIATION in clauses (c) and (d) of section 89(2) were transposed, so that judicial settlement meant sending the case to an outside institution and mediation meant the judge effecting a compromise. In Afcons the Supreme Court held this a clerical or typographical error and INTERCHANGED the two clauses by interpretation, the correction to hold until the legislature corrects the mistake.

3. What did Afcons say about formulating the terms of settlement? That it is not necessary for the court, before referring the parties to an ADR process, to formulate or reformulate the terms of a possible settlement; it is enough that the court describes the nature of the dispute in a sentence or two and makes the reference, because a literal reading would require the judge to do the mediator's work before the mediation.

4. Which processes require consent? Arbitration and conciliation, both being consensual under the Arbitration and Conciliation Act 1996, so a court cannot refer to them without the agreement of all parties. Judicial settlement, Lok Adalat and mediation may be ordered without consent.

5. Name four categories of case not suitable for reference. Representative suits under Order 1 rule 8 involving public interest or the interest of persons not before the court; disputes relating to election to public offices; cases involving the grant of authority by the court after inquiry, such as probate and letters of administration; cases involving serious and specific allegations of fraud, fabrication, forgery, impersonation or coercion; cases requiring the protection of the court, such as claims against minors, deities and mentally challenged persons; and prosecutions for criminal offences.