Introduction to ADR

Week#1
Article 39 A of the Indian Constitution
39A. Equal justice and free legal aid.

The State shall secure that the operation of the legal system promotes
justice, on a basis of equal opportunity,
and shall, in particular, provide free legal aid, by suitable legislation or
schemes
or in any other way, to ensure that opportunities for securing justice are
not denied to any citizen by reason of economic or other disabilities.
Section 89, Civil Procedure Code 1908
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.
Section 89, Civil Procedure Code 1908

(2) Were 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 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;
Section 89, Civil Procedure Code 1908

(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.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.

Facts the issue arises out of construction contract which is further subcontracted to Cherian Varkey
Construction Co.
Subsequently, Cherian Varkey Construction Co. has filed an application u/s 89 of the CPC to refer the
matter (recovery of due payment) for arbitration.
The dispute arises pursuant to refusal of Afcon Infrastructure to refer the matter for recovery of
pending payment to arbitration u/s 89 of the CPC.
Issues
(i) What is the procedure to be followed by a court in implementing Section 89 and Order 10 Rule 1A
of the Code?
(ii) Whether consent of all parties to the suit is necessary for reference to arbitration under Section 89
of the Code?
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Rule (apart from section 89)
Order 10 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 either mode of the
settlement outside the Court as specified in Sub-section (1) of section 89. On the option of the parties, the Court shall fix
the date of appearance before such forum or authority as may be opted by the parties.
Order 10 Rule 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.
Order 10 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 conciliation forum or authority is satisfied that it would
not be proper in the interest of justice to proceed with the matter further, then, it shall refer the matter again to the Court
and direct the parties to appear before the Court on the date fixed by it.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Section 89 is to be read and required to be implemented in its literal sense, it will be a Trial Judge's
nightmare. It puts the cart before the horse and lays down an impractical, if not impossible, procedure in
Sub-section (1). It has mixed up the definitions in Sub-section (2).
spite of these defects, the object behind Section 89 is laudable and sound. Resort to alternative
disputes resolution (for short 'ADR') processes is necessary to give speedy and effective relief to the
litigants and to reduce the pendency in and burden upon the courts.
ADR processes were not being resorted to with the desired frequency, Parliament thought it fit to
introduce Section 89 and Rules 1A to 1C in Order X in the Code, to ensure that ADR process was
resorted to before the commencement of trial in suits.
In view of its laudable object, the validity of Section 89, with all its imperfections, was upheld in Salem
Advocate Bar Association v. Union of India. The section was referred to a committee and in Salem Bar II
a purposive construction of the section was attempted.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Issues with section 89 (Clerical and typographical error in drafting)
1. Mixing up of definitions of and under clause (c) and (d) of
Subsection (2).
2. Compromise affected by a court cannot be mediation and referring a judicial settlement
matter to a suitable institution or person.
.. 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.
is also a well known term and it refers to a method of non-binding dispute
resolution with the assistance of a neutral third party who tries to help the disputing parties to
arrive at a negotiated settlement. (Synonymous with conciliation)
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Issues with section 89 Sub-section (1) of Section 89 imports the final stage of conciliation referred to in Section 73(1) of the AC
Act into the pre-ADR reference stage under Section 89 of the Code. (formulating terms of settlement at pre-reference stage)
Section 73 of AC Act shows that formulation and reformulation of terms of settlement is a process carried out at
the final stage of a conciliation process, when the settlement is being arrived at.
3. 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.
4. Every trial judge will have to ascertain whether there are elements of settlement before framing of the issues.
formulate the terms of settlement, give them to parties for observations and then reformulate the terms of a
possible settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat or mediation. Then
what will be the role of the DR forum?
Salem Bar (II) of to a of
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Interpretation of section 89
- Not necessary for the court, before referring the parties to an ADR process to formulate or re-
formulate the terms of a possible settlement. It is sufficient if the court merely describes the nature of
dispute (in a sentence or two) and makes the reference.
- The definitions of judicial and in Clauses (c) and (d) of Section 89(2) shall have to be
interchanged to correct the draftsman's error.
for , 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
.
for judicial settlement the court shall effect a compromise between the parties and shall follow such
procedure as may be prescribed.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.

Appropriate ADR Process

Section 89 nor Rule 1A of Order 10 of the Code is intended to supersede or modify the
provisions of the Arbitration and Conciliation Act, 1996 or the Legal Services Authorities Act,
1987. On the other hand, Section 89 of the Code makes it clear that two of the ADR processes -
Arbitration and Conciliation, will be governed by the provisions of the AC Act and two other
ADR Processes - Lok Adalat Settlement and Mediation will be governed by the 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 will follow such procedure as may be
.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Elements of settlement Having a hearing after completion of pleadings, to consider recourse to
ADR process under Section 89 of the Code, 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.
Illustrative list
Cases not suitable for Public interest, election to public office, grant of authority suits, fraud,
ADR process forgery, impersonation, cases requiring protection of court, criminal
offences. (Para 18)

Cases suitable for ADR Trade, commerce, and contracts; strained and sour relationship; need
process for continuation of pre-existing relationship; tortious liability;
consumer disputes. (Para 19)
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.

Appropriate ADR Process

Mechanism Reasoning

Arbitration - Adjudicatory dispute resolution process by a private forum, governed by AC Act.

-
- If the Arbitration Agreement is present, section 8 or section 11 of the AC Act can be invoked.
(Section 89 not required)
- If there is no pre-existing arbitration agreement, parties can agree later, when the court offers
the option (through Joint memo, joint application, Joint affidavit, or record of agreement in
order sheet signed by the parties)
- Once referred to arbitration, the matter goes outside the stream of the court permanently and
will not come back to the court (Salem Bar I).
- In case of absence of agreement: court cannot refer the matter to arbitration. (Para 24)
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Appropriate ADR Process
Salem Bar (I)
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.
Salem Bar (II)
89 uses both the words "shall" and "may" whereas Order 10 Rule 1A uses the word "shall" but
on harmonious reading of these provisions it becomes clear that the use of the word "may" in Section 89
only governs the aspect of reformulation of the terms of a possible settlement and its reference to one of
ADR methods. There is no conflict. It is evident that what is referred to one of the ADR modes is the
dispute which is summarized in the terms of settlement formulated or reformulated in terms of Section
89.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Mechanism Reasoning

Conciliation - Non adjudicatory, governed by the AC Act.

-
- 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 to
the court for framing issues and proceeding with the trial.
Mediation -
- If the suit is complicated or lengthy, mediation will be the recognized choice.
- 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.
Lok Adalat and Judicial - If the suit is not complicated and the disputes are easily sortable or could be settled by applying
Settlement clear cut legal principles, Lok Adalat will be 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.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Whether settlements are binding?
The award of the arbitrators is binding on the parties and is executable/enforceable as if a decree of a
court.
The other four ADR processes are non-adjudicatory and the case does not go out of the stream of the
court when a reference is made to such a 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.
when a settlement takes place before the Lok Adalat, the Lok Adalat award is also deemed to be a decree
of the civil court.
Pending Suit or Proceeding settlement has to be placed before the court for recording and disposal.
(Order 23 Rule 3 to make a decree/order in terms of the settlement).
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Family or
Section 89 matrimonial
After pleadings disputes
are complete Mediation
Should be
and framing the After service of
before
issues. respondent
evidence
However, can and before
taking
consider after filing of
objection/writt Record why a
framing of ADR fails
en statement certain dispute
issues proceed with
by Respondent. may not be fit
Consent for a hearing of the
for ADR
particular ADR suit.
Process. Or
the dispute; exclude cases; ascertain consent the court
process. Settlement
make a
for arbitration or conciliation; if there is no consent, should explain
decree.
the choices.
select Lok Adalat for simple cases and mediation for all Highlight
other cases, reserving reference to a Judge assisted anything ex
facie illegal.
settlement only in exceptional or special cases.
 Afcons Infrastructure v. Cherian Verkey Pvt. Co.
Ltd., (2010) 8 SCC 24.
Holdings does not lay down any proposition that consent is not required. This Court was
considering the question as to whether an application under Section 8 of the AC Act could be maintained
even where a part of the subject matter of the suit was not covered by an arbitration agreement.
observations only mean that even when there is no existing arbitration agreement enabling filing of
an application under Section 8 of the Act, there can be a reference under Section 89 to arbitration if
parties agree to .
Held i) Failure to invoke section 89 after pleadings and considering only after an application was
erroneous by the trial court.
ii) Consent of the parties is a must for arbitration (in the present case, no consent is present)
The Trial Court will now consider and decide upon a non-adjudicatory ADR process.
 Other Readings
Guru Nanak Foundation v. Rattan Singh & Sons, (1981) 4 SCC 634
time consuming, complex and expensive court procedures impelled jurists to
search for an alternative forum, less formal, more effective, and speedy for resolution, avoiding
procedural claptrap and this led to the 1940 Act. However, the way in which the proceedings
under the act are conducted and without exception challenged in courts, has made lawyers laugh
and legal philosophers weep.
shows and law reports bear ample testimony that the proceedings under the Act
have become technical, accompanied by unending prolixity, at every stage providing a legal trap
to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes
has by the decisions of the courts, been clothed with legalese of unforeseeable complexity.
238th Law Commission Report
(Refer to Proposed Amendments)
89: Settlement of disputes outside the court
1) Where it appears to the court, having regard to the nature of the dispute involved in the suit
or other proceeding that the dispute is fit to be settled by one of the non-adjudicatory
alternative dispute resolution processes, namely, conciliation, judicial-settlement, settlement
through Lok Adalat or mediation the court shall, preferably before framing the issues, record
its opinion and direct the parties to attempt the resolution of dispute through one of the said
processes which the parties prefer or the court determines.

2) Where the parties prefer conciliation, they shall furnish to the court the name or names of
the conciliators and on obtaining his or their consent, the court may specify a time-limit for the
completion of conciliation. Thereupon, the provisions of sections 65 to 81 of the Arbitration
and Conciliation Act, 1996, as far as may be, shall apply and to this effect, the court shall
inform the parties. A copy of the settlement agreement reached between the parties shall be
sent to the court concerned. In the absence of a settlement, the conciliator shall send a brief
report on the process of conciliation and the outcome thereof.
238th Law Commission Report
(Refer to Proposed Amendments)
89: Settlement of disputes outside the court
3) Where the dispute has been referred:-
a) for judicial-settlement, the Judicial Officer shall endeavor to effect a compromise between
the parties and shall follow such procedure as may be prescribed;
b) To Lok Adalat, the provisions of sub-sections (3) to (7) of section 20, sections 21 and 22
of the Legal Services Authorities Act, 1987 shall apply in respect of the dispute so referred
and the Lok Adalat shall send a copy of the award to the court concerned and in case no
award is passed, send a brief report on the proceedings held and the outcome thereof;
c) For mediation, the court shall refer the same to a suitable institution or person or persons
with appropriate directions such as time-limit for completion of mediation and reporting
to the court.
4) On receipt of copy of the settlement agreement or the award of Lok Adalat, the court, if it
finds any inadvertent mistakes or obvious errors, it shall draw the attention of the conciliator
or the Lok Adalat who shall take necessary steps to rectify the agreement or award suitably
with the consent of parties.
238th Law Commission Report
(Refer to Proposed Amendments)
89: Settlement of disputes outside the court
(5) Without prejudice to section 8 and other allied provisions of the Arbitration and
Conciliation Act, 1996, the court may also refer the parties to arbitration if both parties
enter into an arbitration agreement or file applications seeking reference to arbitration
during the pendency of a suit or other civil proceeding and in such an event, the
arbitration shall be governed, as far as may be, by the provisions of the Arbitration and
Conciliation Act, 1996. The suit or other proceeding shall be deemed to have been
disposed of accordingly.

Proposed changes in Rules:

1A Direction of the court to opt for any one mode of alternative dispute resolution.
1B Appearance before the court consequent upon the failure of efforts of conciliation