# AFCONS INFRASTRUCTURE LTD. AND ANR v. CHERIAN VARKEY CONSTRUCTION CQ. (P) LTD. AND ORS

- **Citation:** [2010] 8 S.C.R. 1053
- **Court:** Supreme Court of India
- **Decided:** 2010-07-26
- **Case number:** Civil Appeal No. 6000 of 2010
- **Bench:** R.V. Raveendran, J.M. Panchal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/afcons-infrastructure-ltd-and-anr-v-cherian-varkey-construction-cq-p-ltd-and-ors-26999
- **Pages:** 51

## Headnote

Code of Civil Procedure, 1908:
B
c
s. 89 - Object of - Held: Is to try for settlement between
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 subsection (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.
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
G
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. 1 A - Guidelines laid down.
s. 89 and 0. 10, r. 1 A - Distinction between - Held: Rule
1 A 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
AFCONS INFRASTRUCIURE LTD. v. CHERIAN VARKEY1055
CONSTRUCTION CO. (P) LTD.
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
to be placed before the court for recording it and disposal in
B
its terms - Whenever such settlements reached before nonadjudicatory ADR Fora are placed before the court, the court
should apply the prin

## Text

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[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)
JULY 26, 2010
[R.V. RAVEENDRAN AND J.M. PANCHAL, JJ.]
Code of Civil Procedure, 1908:
B
c
s. 89 - Object of - Held: Is to try for settlement between
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 subsection (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.
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
G
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. 1 A - Guidelines laid down.
s. 89 and 0. 10, r. 1 A - Distinction between - Held: Rule
1 A 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
AFCONS INFRASTRUCIURE LTD. v. CHERIAN VARKEY1055
CONSTRUCTION CO. (P) LTD.
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
to be placed before the court for recording it and disposal in
B
its terms - Whenever such settlements reached before nonadjudicatory 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,
1987 (in respect of settlements by a Lok Ada/at or a Mediator)
D
- Only then ·such settlements would be effective - Arbitration
and Conciliation Act, 1996 - s. 7 4 - Legal Services Authorities
Act, 1987 - s.21.
The first respondent filed a recovery suit against the
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
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
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
E
F
G
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
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1057
CONSTRUCTION CO. (P) LTD.
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
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
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
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]
D
E
F
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.
A..
section 89. 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 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
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1059
CONSTRUCTION CO. (P) LTD.
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
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
legislature intended or desired. Legislative wisdom
cannot be replaced by the Judge's views. [Para 13] [1080E-F]
.
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] [1080H; 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.
F
Maxwell on Interpretation of Statutes 12th Edn., page
228; Justice GP. Singh "Principles of Statutory Interpretation"
12th Edn. - 2010, Lexis Nexis, referred to.
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) [1084C-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]
Arbitration
· 4.3.1. Arbitration is an ADR process by a private
forum, governed by the provisions of the AC Act. The said
E
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 Bari, 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-FH; 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]
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1065
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THE OTHER THREE ADR PROCESSES:
4.3.3. If the parties are not agreeable for either
arbitration or conciliation, both of which require consent
A
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 :
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
F
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
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A also be binding and executable/enforceable as if a decree
of a court, under Section 30 of the AC Act. [Para 27] [1095B-D]
5.2. The other four ADR processes are nonadjudicatory 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 nonadjudicatory 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
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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-EH; 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
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.
(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
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
the choice of five ADR processes to the parties to
enable them to exercise their option.
c
D
E
F
(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
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D
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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
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
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,
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.
(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
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
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
receipt of the Report of the ADR Forum, the court
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1069
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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;
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:
F
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.
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[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
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
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
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
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
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
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
AFCONS INFRASTRUCTURE LTD. v. CHERIAN VARKEY1071
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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
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
B
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-CE]
Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya & Anr.
2003 (5) sec 531, distinguished.
D
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
2003 (1) sec 49
2005 (6) sec 344
distinguished
referred to
relied· on
Para 4, 34
G
Para 7, 24.1
Paras 7,
13.5, 14,
24.2
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(1975) 4 sec 298
AIR 1955 SC 830
AIR 1952 SC 324
2004 (4) sec 285
1971 (1) All. ER 179
1978 (1) All ER 948
2001 (5) sec 119
relied on
relied on
relied on
relied on
referred to
referred to
relied on
[201 OJ 8 S.C.R.
Para 13
Para 13.1
Para 13.2
Para 13.3
Para 13.4
Para 13.6
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
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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
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
F
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[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 1 A 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?
E
6. To find answers to the said questions.