Report No. 238
4. Drafting Errors in Section 8.- Afcons Infrastructure Case
4.1 Section 89 enacted with a lofty objective has revealed manifest drafting errors which in turn gave rise to complexities in understanding its true scope and purpose. The Supreme Court aptly observed in Afcons Infrastructure case that the correct interpretation and understanding of the provision has become "a trial judge's nightmare".
4.2 The first and foremost incongruity (which has also been pointed out by the Supreme Court in Afcons case) is related to sub-section (1) of section 89, especially the words "shall formulate the terms of settlement". The sub-section requires the court to formulate the terms of settlement and place them before the parties "for their observations" and then reformulate the terms of a possible settlement in the light of their observations. A literal reading further shows that on such reformulation, the court shall have to refer the dispute for one of the five ADR methods, which is really meaningless.
The language of section 73(1) of the AC Act has been borrowed and practically transplanted into section 89 without appreciating the intended scope and purpose of section 89. As pointed out by the Supreme Court in Afcons case, the formulation and reformulation of the terms of settlement by the court is wholly out of place at the stage of pre-ADR reference. At paragraph 16, the Supreme Court extracted section 73(1) of the AC Act and section 89 of the CPC (Annexure I) to highlight the absurdity and commented:
"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". The Supreme Court further commented:
"What is required to be done at the final stage of conciliation by a conciliator is borrowed lock, stock and barrel into Section 89 and the court is wrongly required to formulate terms of settlement and reformulate them at a stage prior to reference to an ADR process". The resultant situation has been graphically explained by the learned Judges in the following words:
"If the reference is to be made to arbitration, the terms of settlement formulated by the court will be of no use, as what is referred to arbitration is the dispute and not the terms of settlement; and the arbitrator will adjudicate upon the dispute and give his decision by way of award. 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 the Lok Adalat, after going through the entire process of conciliation/mediation.
Thus, the terms of settlement drawn up by the court will be totally useless in any subsequent ADR process. Why then the courts should be burdened with the onerous and virtually impossible, but redundant, task of formulating the terms of settlement at pre-reference stage?"
In this context, it may be mentioned that the Supreme Court in Salem Advocates Bar Association v. UOI, 2005 6 SCC 344 had equated the words "terms of settlement" to "summary of disputes" in an apparent attempt to resolve the anomaly.
4.3 "How Section 89 should be interpreted", was the next question addressed by the Supreme Court in Afcons case. The learned Judge, after referring to the principles of interpretation in support of the proposition that the language of a statute can be modified in exceptional cases to obviate an anomaly, laid down the legal position thus:
"Section 89 has to be read with Rule 1-A of Order 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 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 admissions/denials wherever required, and before framing issues, the Court will have recourse to Section 89 of the Code. Such recourse requires the court to consider and record the nature of the dispute, inform the parties about five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes."
4.4 Secondly, the Supreme Court very rightly exposed the other obvious drafting error in mixing up the terms "judicial settlement" and "mediation". The Supreme Court pointed out that in order to give proper meaning to section 89, the said two words should be interchanged. "Mediation" should find place in clause (c) of section 89 (2) and "judicial settlement" should be transferred to clause (d) in place of "mediation". Otherwise, as succinctly pointed out by the apex Court, the anomaly would persist. This anomaly has been explained in the following words:
"The first anomaly is the mixing up of the definitions of "mediation" and judicial settlement" under clauses (c) and (d) of sub-section (2) of Section 89 of the Code. 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 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)."
4.5 In tune with the above discussion, the Supreme Court propounded the amendments in the following terms:
"In view of the foregoing, it has to be concluded that proper interpretation of Section 89 of the Code requires two changes from a plain and literal reading of the court. Firstly, it is not necessary for the court, before referring the parties to an ADR process, to formulate or reformulate the terms of a possible settlement.
It is sufficient if the court merely describes the nature of dispute (in a sentence or two) and makes the reference. Secondly, the definitions of "judicial settlement" and "mediation" in clauses (c) and (d) of Section 89(2) shall have to be interchanged to correct the draftsman's error. Clauses (c) and (d) of Section 89(2) of the Code will read as under when the two terms are interchanged:
(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 Authorities 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."