The Practical Lawyer

Section 89 CPC: Need for an Urgent Relook

SECTION 89 CPC: NEED FOR AN URGENT RELOOK*

By Justice R.V. Raveendran**
Cite as : (2007) 4 SCC (Jour)

Resort to Alternative Disputes Resolution processes was found necessary to give speedy relief to the litigants and to
reduce pendency in courts, through a user-friendly system of disputes resolution. But the litigants were not resorting to
ADR processes with the desired frequency, either on account of ignorance or reluctance or indifference. Parliament
inserted Section 89 (as also Order 10 Rules 1 A to 1 C) in the Code of Civil Procedure, to ensure that ADR was resorted
to before trial of suits. The Statement of Objects and Reasons for introducing the Code of Civil Procedure (Amendment)
Bill, 1997 gave the following reasons for inserting Section 89:

“With a view to implement the 129th Report of the Law Commission of India and to make conciliation scheme effective, it
is proposed to make it obligatory for the court to refer the dispute after the issues are framed for settlement either by way
of arbitration, conciliation, mediation, judicial settlement or through Lok Adalat. It is only after the parties fail to get their
disputes settled through any one of the alternative dispute resolution methods that the suit shall proceed further in the
court in which it was filed.―

Section 89 reads thus:

“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; or
(d) mediation.

 Where a dispute has been referred—

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if

* Based on a lecture delivered at National Judicial Academy, Bhopal on 10-3-2007.

** Judge, Supreme Court.

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 Authority Act, 1987 (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 Authority Act, 1987 (39 of 1987) shall
apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for mediation, the court shall effect a compromise between the parties and shall follow such procedure as may be
prescribed.―
(emphasis supplied)

Section 89 apparently was drafted in a hurry. It is not very happily worded. It is not very practical. But the object behind
Section 89 is sound. Its constitutional validity was upheld in Salem Advocate Bar Assn. v. Union of India . Referring to its
scope and object, the Supreme Court observed: (SCC p. 55, paras 9 & 10)

“It is quite obvious that the reason why Section 89 has been inserted is to try and see that all the cases which are filed in
court need not necessarily be decided by the court itself. Keeping in mind the law’s delays and the limited number of
judges which are available, it has now become imperative that resort should be had to alternative dispute resolution
mechanism with a view to bring to an end litigation between the parties at an early date.

If the parties agree to arbitration, then the provisions of the Arbitration and Conciliation Act, 1996 will apply and that case
will go outside the stream of the court but resorting to conciliation or judicial settlement or mediation with a view to settle
the dispute would not ipso facto take the case outside the judicial system. All that this means is that effort has to be
made to bring about an amicable settlement between the parties but if conciliation or mediation or judicial settlement is
not possible, despite efforts being made, the case will ultimately go to trial.―

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Though the Supreme Court was of the view that there were some “creases― in Section 89, it did not refer to the anomalies.
It felt that the creases could be ironed out by formulating appropriate rules and regulations to implement the section. In
Salem Advocate Bar Assn. (II) v. Union of India the Supreme Court observed: (SCC p. 376, para 55)

“The intention of the legislature behind enacting Section 89 is that where it appears to the court that there exists an
element of a settlement which may be acceptable to the parties, they, at the instance of the court, shall be made to apply
their mind so as to opt for one or the other of the four ADR methods mentioned in the section and if the parties do not
agree, the court shall refer them to one or other of the said modes.―

The anomalies have remained in the section. Even the ADR/Mediation Rules framed under Section 89 may not help its
smooth implementation in its present form. The practical difficulties faced by judges in implementing the section and
achieving its object on account of its anomalies require to be addressed.

Anomaly (i): Division of conciliation

Section 89 refers to five types of ADR procedures: an adjudicatory process (arbitration) and four non-adjudicatory
processes (conciliation, mediation, judicial settlement and Lok Adalat settlement). The artificial division of conciliation into
four categories has created some difficulties. For example, if the negotiated settlement is described as a “settlement in
conciliation― or “Lok Adalat settlement― or “judicial settlement―, the settlement authenticated by the conciliator(s) o
Adalat members is deemed to be a decree. But if the settlement is described as a “settlement in mediation―, then the
settlement arrived at even if it is authenticated by the mediator(s), is not deemed to be a decree.

In law, there is no difference between “conciliation― and “mediation―. The two words are interchangeable. Both refer
non-binding dispute resolution process where a neutral third party renders assistance to the disputing parties to reach a
mutually agreeable settlement. The role of the conciliator or mediator is to listen to parties, ascertain the facts,
circumstances and nature of dispute, identify the cause for the grievance, suggest proposals for settlement and facilitate
the parties to reach a settlement. Byron A. Garner in his A Dictionary of Modern Legal Usage states:

“The distinction between mediation and conciliation is widely debated among those interested in ADR… Some suggest
that conciliation is ‘a non-binding arbitration’, whereas mediation is merely ‘assisted negotiation’. Others put it this w
conciliation involves a third party’s trying to bring together disputing parties to help them reconcile their differences,
whereas mediation goes further by allowing the third party to suggest terms on which the dispute might be resolved. Still
others reject these attempts at differentiation and contend that there is no consensus about what the two words mean—that
they are generally interchangeable. Though a distinction would be convenient, those who argue that usage indicates a
broad synonymy are most accurate.―
(emphasis supplied)

The relevant statute (Section 73 of the Arbitration and Conciliation Act, 1996) contemplates conciliators suggesting terms
of settlement. Therefore, there is no distinction between ‘conciliation’ and ‘mediation’ in India.

Of late, however, a distinction is emerging. Where the conciliator is a professional trained in the art of mediation (as
contrasted from a layman, friend, relative, well-wisher, or social worker acting as a conciliator), the process of conciliation
is referred to as mediation. In cases where the third party assisting the parties to arrive at a settlement is not a trained
professional mediator, the process is referred to as conciliation. Whatever may be the distinguishing features, mediation
is conciliation

Anomaly (ii): Mixing up of mediation and judicial settlement

Sub-section (2) of Section 89 provides that where the dispute is referred to arbitration or conciliation, the provisions of the
Arbitration and Conciliation Act, 1996, will apply, and where the dispute is referred to Lok Adalat, the provisions of the
Legal Services Authority Act, 1987 will apply. So far so good. The confusion arises in respect of clauses (c) and (d) of
sub-section (2). 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 effect a compromise between the parties by following such procedure as may be prescribed.

It makes no sense to call a compromise effected by a court, as “mediation―, as is done in clause (d). Nor does it make any
sense to call 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 settlement― is a term in vogue in USA and refers to a compromise effected
a court. Black’s Dictionary defines judicial settlement as a settlement of a civil case with the help of a judge who is not
assigned to adjudicate the dispute. “Mediation― is a dispute resolution by a suitable neutral institution or person assisting
disputing parties to arrive at a negotiated settlement. When words are universally understood in a particular sense, and
assigned a particular meaning in common parlance, defining or using such words with completely different meanings in
Section 89 has led to confusion, and created complications in implementation. The mix-up of meaning of the terms
“judicial settlement― and “mediation― in Section 89 is apparently due to a clerical or typographical error in drafting, re
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 click and make perfect sense, as is
demonstrated below:
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(c) for mediation, 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 Authority Act, 1987 (39 of 1987) shall apply as if
the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for judicial settlement, the court shall effect a compromise between the parties and shall follow such procedure as
may be prescribed.

Should not this “error apparent― on the face of Section 89 be rectified?

Anomaly (iii): Making Mediation Rules under Section 82(2)(d) relating to court effected a compromise
Several High Courts have now made Mediation Rules which provide for preparing a panel of mediators and for referring
cases to “mediation― under Section 89(2)(d). The subject-matter of such Rules is clearly relatable to conciliation by a third
party (individual or institution), though Section 89(2)(d) relates to court-effected settlement. As a consequence, as
already noticed, when a settlement is arrived at with the intervention of a “mediator―, the settlement though authenticated
by a mediator is not deemed to be decree; but when the same settlement is arrived by calling the mediator as conciliator,
the settlement is deemed to be a decree.

If the words “judicial settlement― and “mediation― in clauses (c) and (d) are interchanged, there may not be any need
“rules― under Section 89. This is because conciliation/mediation at pre-litigation stage will be governed by the Arbitration
and Conciliation Act, 1996 and conciliation/mediation in pursuance of a reference by the court will be governed by the
provisions of the Legal Services Authority Act, 1987. Judicial settlements is a judge-assisted settlement. Lok Adalat
settlements are also judge-assisted settlements as a judge, along with another member acts as the Lok Adalat. In fact,
“Lok Adalat settlement― can be said to be the Indian version of “judicial settlement― and both can be governed by the
Services Authority Act, 1987.

Anomaly (iv): Importing final process of conciliation into pre-ADR reference

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 ADR processes. This is really
unnecessary. If the reference is to arbitration, the terms of settlement will be of no use, as what is referred to is the
dispute. If the reference is to conciliation/mediation/Lok Adalat, then drawing up the terms of the settlement or
reformulating them is the job of the conciliator or the mediator or members of the Lok Adalat. In fact any terms of
settlement drawn up by the court would really hinder the free process of a negotiated settlement. In no event, will the
terms of settlement formulated or reformulated will be of any use or relevant in the ADR process. Then, should courts be
burdened with the onerous and delicate task of formulating terms of settlement which are redundant at pre-reference
stage?

It should also be noted that it will not be possible for the 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 Supreme Court, however, tried to dilute this anomaly in Salem Advocate
Bar Assn. (II)2 by equating “terms of settlement― to a “summary of disputes―. The requirement in Section 89 that the
should formulate terms of settlement is a great hindrance to courts in implementing it.

Section 89(1) requires the court to formulate the terms of settlement and reformulate them at the pre-ADR stage. Section
73 of the Arbitration and Conciliation Act, shows that formulation and reformulation of terms of settlement is to be done
only at the final stage of the conciliation process, as a part of actual settlement. What is required to be done at the final
stage of conciliation by a conciliator is borrowed and wrongly prescribed as something to be done by the court at pre-
reference stage of ADR process. This becomes evident by a comparison of the wording of the two provisions.

Section 73(1) of the Arbitration and Conciliation Act, 1996 relating to the final stage of settlement process in conciliation
(just before signing of settlement).Section 89(1) of the Code of Civil Procedure relating to a stage before reference to
conciliation/mediation.When it appears to the conciliator that there exist elements of a settlement which may be
acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their
observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible
settlement in the light of such observations.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; or (d) mediation.

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

Anomaly (v): Converting mandatory requirement into a directory provision

Section 89(1) starts with the words “where it appears to the court that there exists elements of a settlement which may be
acceptable to parties―. This implies that the court is required to make a reference to ADR process only if it appears to it
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that there exist elements of settlement. It also implies that if it does not appear to the court that any elements of
settlement exist, then it need not formulate the terms of settlement. Thus, these words tend to convert what was intended
to be a mandatory or obligatory exercise into something which is only directory or discretionary.

Anomaly (consequential) (vi): Double taxing of fee

Ideally, Section 89 should provide for non-adjudicatory (non-binding) mode of dispute resolution, that is, conciliation,
mediation and Lok Adalat settlements. Arbitration is an adjudicatory and binding mode of dispute resolution. Reference
to arbitration in a pending proceeding, in pursuance of an existing arbitration agreement is governed by Section 8 of the
Arbitration and Conciliation Act, 1996. Even when there is no pre-existing arbitration agreement, the court can refer the
disputes forming the subject-matter of a suit to arbitration whenever and wherever all the parties agree to arbitration.
Arbitration involves payment of arbitrator’s fee. On the other hand, references by court to conciliation or Lok Adalats have
always been free, without any additional expenditure to the litigant. But with mediation by professional mediators coming
into vogue, it may no longer be possible to have free service in court-referred mediations. In fact ADR Rules and
Mediation Rules require the litigants to bear the fees of conciliation and mediation. As the litigant has already paid the
court fee in respect of the suit, it may not be fair to ask him to bear the cost of conciliation/mediation.

At present, when a matter is referred to Lok Adalat for negotiated settlement, no fee is paid by the litigant. The Lok
Adalats are conducted free of cost by the Legal Services Authorities. 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 Lok Adalats. 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.

Anomaly (consequential) (vii): Court fee

Section 89 does not contemplate any of the parties being mulcted with the cost of alternative dispute resolution
processes, when a reference is made under that section. The Code of Civil Procedure (Amendment) Act, 1999 by which
Section 89 was inserted, also inserted a new Section 16 in the Court Fees Act, 1870 reading as follows:

“16. Refund of fee.—Where the court refers the parties to the suit to any one of the mode of settlement of dispute referred to
in Section 89 of the Code of Civil Procedure, 1908 the plaintiff shall be entitled to a certificate from the court authorising
him to receive back from the Collector, the full amount of the fee paid in respect of such plaint.―

The Court Fees Act, 1870 is in force only in some States. Several States have their own Acts governing court fees. Many
of them have not inserted a corresponding provision for refund of court fee.

Where Section 16 of the Court Fees Act, 1870 is applicable, a mere reference to one of the modes of settlement of
dispute under Section 89 entitles the plaintiff to a certificate from court for receiving back the full court fee paid on the
plaint. If Section 89 is to be interpreted as being mandatory, this would mean that virtually court fee paid in all suits will
have to be refunded. But what will happen if the reference to conciliation, mediation or Lok Adalats does not end in a
settlement and parties come back to the court for adjudication? If the court fee paid had already been refunded to the
plaintiff, when the reference was made, and when there is no provision for collecting fresh court fee when the matter
comes back to court for adjudication, adjudication of the suit becomes free. This means virtually there will be no court fee
on suits. Was this intended?

Section 21 of the Legal Services Authorities Act, 1987 provides that the court fee paid in a case which is settled before
the Lok Adalat shall be refunded in the manner provided under the Court Fees Act, 1870, only after a compromise or
settlement is arrived at between the parties. But Section 16 of the Court Fees Act, 1870, provides that the court fee is
refundable, merely on reference by court to any ADR process. This also creates a conflict.

A more practical way 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.

Conclusion
Section 89, requires change. If suitably amended, to run somewhat on the following lines, it will advance the cause of
ADR and enable a speedier and effective access to justice.

“After completion of pleadings and recording the admissions, the court shall direct the parties to attempt resolution of the
dispute by resorting to either of the non-adjudicatory alternative dispute resolution processes, namely, conciliation,
mediation and Lok Adalats. Any reference to such process shall be governed by Sections 20 and 21 of the Legal
Services Authorities Act, 1987.

Explanation.—‘Conciliation’ refers to the process of dispute resolution where the third party facilitating the negotiations fo
settlement is a person chosen by the parties. ‘Mediation’ refers to the process where the third party facilitating such
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negotiations is a professional mediator or is a person appointed from a panel maintained by the Legal Service Authority.
Lok Adalat settlement shall include a judicial settlement, that is, a settlement with the help of a judge.

The court may not refer the matter to any alternative dispute resolution process, where the matter involves allegation of
fraud, undue influence or coercion or where the relief sought can in law be granted only by a court on adjudication.
Provided however that the court shall record reasons wherever it decides not to make a reference under this section.

The court may also refer the parties to arbitration if both parties enter into an arbitration agreement during the pendency
of suit in which event, the arbitration shall be governed by the Arbitration and Conciliation Act, 1996.―

Postscript
Civil courts function under century-old procedural laws, made to ensure fair play, uniformity and avoidance of judicial
error. They permit appeals, revisions and reviews. They enable filing of innumerable applications which often results in
the main matter itself being lost sight of. Adjournments are routinely sought and obtained. Delay has thus virtually
become a part of adjudicatory process. Delay leads to “pendency―. Delay ultimately leads to frustration and dissatisfaction
among litigants and erosion of trust and faith of the common man in the judicial system.

The proliferation of laws and increase in population has resulted in manifold increase in the volume of litigation. The
overloaded judicial system is finding it difficult to cope up with the demands on it, having regard to the inherent limitations
of the system. The demands for more judges, more courts, better infrastructure, and better laws have remained
unfulfilled. It has become quite common for civil disputes, in particular litigations involving partitions, evictions, easements
and specific performance, to be fought for several decades through the hierarchy of courts. In commercial litigation, delay
destroys businesses. In family disputes, delay destroys peace, harmony and health turning litigants into nervous wrecks.
The uncertainty about the final outcome, the frequent changes in laws, the enormous expenditure of time, energy and
money, associated with court litigations, are taking a toll on the litigant. Many a litigant feels that delays, uncertainties,
inflexibilities and technicalities in law has made justice elusive and illusive. People find it costly, time consuming and
distressing. As a result, people with grievances and complaints have started looking for quicker relief outside law. A
landlord who wants possession from a tenant, knowing that litigation may take years with no certainty of success in
getting possession at the end of the litigation, does not think twice of engaging the services of musclemen to evict the
tenant. Instances of citizens approaching the underworld or unscrupulous police officials or politically influential elements,
to settle claims and recover properties are steadily increasing. Not only moneylenders, but even banks, instead of
approaching law courts, entrust debt collection to dubious agencies, to coerce, threaten and persuade debtors and
borrowers to repay loans. Though well aware that such methods are illegal, costly and risky, members of public are lured
towards illegal methods, in the hope that results will be swift, decisive and effective. Little do they realise that adopting
such means is illegal and fraught with danger to all concerned.

More importantly, the weak and downtrodden who are subjected to injustices, being ignorant of legal rights and
remedies, and not being able to access effective and speedy justice, tend to take law into their own hands. Several
disputes which ought to have found solution in civil litigations end up as crimes. There is an alarming trend in several
States where criminal litigation in subordinate courts outnumbers civil litigation by several times. It has, therefore,
become necessary to educate the public, in particular weaker and downtrodden sections of the society, about their rights
and obligations, as also about the remedies and forums available for securing justice. When such awareness is brought
and weaker sections are provided free legal aid, there will be more demands for equitable and effective administration of
the laws and more seekers of justice.

In this background, the need of the hour is to reduce adversarial adjudicatory litigation and at the same time, give
speedy, satisfactory and cost-effective justice. That is where alternative dispute resolution processes with the active
participation of the Bar, become relevant and urgent.

A meaningful and responsible debate as to the proper form of Section 89 by judicial academies and law fraternity and a
relook at the section by Parliament may go a long way to make ADR process an effective solution to provide speedy and
satisfactory justice at an affordable cost.

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