Report No. 238
2. Analysis of Section 89 and its Scheme
2.1 By the Code of Civil Procedure (Amendment) Act 1999, section 89 had been introduced in the Code of Civil Procedure, 1908 and it became effective from 01-07-2002. Section 89 of the CPC reads as under:
"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 fo.-
(c) judicial settlement including settlement through Lok Adalat; or
(2) Where a dispute has been referred-
(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 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 Authorities Act, 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 Authorities Act, 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." The objective of Section 89 is to ensure that the court makes an endeavour to facilitate out-of-court settlements through one of the ADR processes before the trial commences.
2.2 The related provisions which were incorporated by the same amendment Act are those contained in Rules 1A, 1B and 1C of Order X, CPC, which are extracted hereunder:
"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 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."
"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."
"1C. Appearance before the Court consequent to the failure of efforts of conciliation.- Where a suit is referred under rule 1A and the forum or authority to whom the matter has been referred 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."
2.3 With the introduction of these provisions, a mandatory duty has been cast on the civil courts to endeavour for settlement of disputes by relegating the parties to an ADR process. Five ADR methods are referred to in section 89. They are: (a) Arbitration, (b) Conciliation, (c) Judicial settlement, (d) Settlement through Lok Adalat, and (e) Mediation.
2.4 Arbitration as well as Conciliation are governed by the Arbitration and Conciliation Act, 1996 ("AC" Act, for short) which superseded the previous Arbitration Act of 1940. The arbitration unlike conciliation is an adjudicatory process. Once a civil dispute is referred to arbitration, the case will go outside the stream of the court permanently and will not come back to the court. However, in contrast, a dispute referred to conciliation which is a non-adjudicatory process, does not go out of the domain of the court-process permanently.
If there is no amicable settlement, the matter reverts back to the court which has to proceed with the trial after framing issues. The reference to arbitration or conciliation is only possible if there is consent of the parties. In the absence of consent, the court cannot on its own refer the parties to arbitration or conciliation.
This legal position is no longer in doubt in view of the recent judgment of Supreme Court in Afcons Infrastructure Ltd. v. Cherian Varkey Consturction Co. (P) Ltd., 2010 8 SCC 24 In the case of arbitration, if there is no pre-existing arbitration agreement, the parties to suit can agree for arbitration by filing a joint memo or application and the court can then refer the matter to arbitration and such arbitration will be governed by the provisions of the AC Act.
The award of the arbitrators is binding on the parties and is enforceable as if it is a decree of the court, in view of what has been said in section 36 of the AC Act. If any settlement is reached in the arbitration proceedings, then the award passed by the arbitrator on the basis of such agreed terms will have the same status and effect as any other arbitral award, vide section 30 of the AC Act.
2.5 When the matter is settled through conciliation, the settlement agreement shall have the same status and effect as if it is an arbitral award (vide Section 74 of AC Act) and therefore it is enforceable as a decree of the court by virtue of section 36 of the AC Act. Similarly, when a settlement takes place before the Lok Adalat, the award of the Lok Adalat is deemed to be a decree of a civil court under section 21 of the Legal Services Authorities Act, 1987 (for short, "LSA Act") and executable as such.
2.6 The Supreme Court observed in the case of Afcons Infrastructure (supra): "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 Adalat award will have to be placed before the court recording it and disposal in its terms". Whether or not such a course of action is really necessary, we shall discuss a little later.
2.7 Coming to mediation, there is practically no difference between conciliation and mediation and quite often they are used as inter-changeable terms. Mediation is aimed at conciliation and conciliation has the elements of mediation. In the Dictionary of Modern Legal Usage by Bryan A. Garner, it is stated thus:
"The distinction between mediation and conciliation is widely debated among those interested in ADR. Some suggest that conciliation is 'a nonbinding arbitration', whereas mediation is merely 'assisted negotiation'. Others put it nearly the opposite way: 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".
2.8 It may be noticed that section 73 of the AC Act contemplates the conciliator suggesting the terms of settlement. Therefore, the point of distinction noted in the above passage does not hold good in India. According to Shri Justice R.V. Raveendran, former Judge, Supreme Court of India and author of the judgment in Afcons Infrastructure case, 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.1 It is however necessary to point out that in many States, there are trained mediators including legal professionals and there are mediation centres managed by the Judiciary in few States. Mediation has emerged as a science now.
1. Justice R.V. Raveendran, " Section 89 CPC: Need for an Urgent Relook", (2007) 4 SCC J23
In Afcons Infrastructure case, the Supreme Court referred to the definition of mediation as given in the Model Mediation Rules, according to which "settlement by 'mediation' means the process by which a mediator appointed by parties or by the court, as the case may be, mediates the dispute between the parties to the suit by the application of the provisions of the Mediation Rules, 2003 in Part II, and in particular, by facilitating discussion between the parties directly or by communicating with each other through the mediator, by assisting the parties in 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."
In short, mediation is a process of dispute-resolution by which the mediator assists and persuades the disputing parties to arrive at an amicable settlement.
2.9 Judicial settlement means a 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. In Black's Law Dictionary, "judicial settlement" is defined as "the settlement of a civil case with the help of a Judge who is not assigned to adjudicate the dispute".
2.10 Referring to the inter-relation between section 89 and Order X Rule 1 A, the Supreme Court pointed out that there is no inconsistency. Section 89 confers the jurisdiction on the court to refer a dispute to an ADR process, whereas Rules 1A to1C of Order X lay down the manner in which the jurisdiction is to be exercised by the court. The scheme is that the court explains the choices available regarding ADR process to the parties, permits them to opt for a process by consensus, and if there is no consensus, proceeds to choose the process.