Section 89 of the Code of Civil Procedure, 1908 (inserted by the CPC Amendment Act, 1999; effective 2002) empowers courts to refer disputes to ADR at any stage of the proceedings where "elements of a settlement" exist. Order X Rules 1A-1C operationalise S.89 by directing courts to explore ADR options at the first hearing. Together, they form the statutory gateway for court-referred ADR in India.
Why: Despite the existence of ADR statutes (Arbitration Act, LSA Act), courts were not actively diverting suitable cases to ADR. S.89 creates a positive duty on courts to consider ADR referral, reducing pendency and promoting amicable resolution.
Legal Framework
| Provision | Content |
|---|---|
| S.89(1) | Where it appears that elements of settlement exist, court shall formulate terms of settlement and refer to: arbitration, conciliation, judicial settlement (including Lok Adalat), or mediation |
| S.89(2)(a) | Arbitration: formulate terms and refer to arbitral tribunal; applicable provisions of A&C Act apply |
| S.89(2)(b) | Conciliation: formulate terms and refer; Part III of A&C Act applies |
| S.89(2)(c) | Judicial settlement: refer to Lok Adalat for settlement; provisions of LSA Act apply |
| S.89(2)(d) | Mediation: effect compromise/settlement between parties |
| Order X Rule 1A | At first hearing after filing written statement, court shall direct parties to opt for any mode of ADR under S.89 |
| Order X Rule 1B | Parties to appear before ADR institution/forum within time fixed by court |
| Order X Rule 1C | No party shall be prejudiced if ADR fails; case continues from where it was referred |
Operation of S.89: Step-by-Step (Illustrated)
Scenario: M/s Sunrise Builders files a suit against M/s Green Developers for Rs. 40 lakhs (breach of joint development agreement). Green Developers files a written statement denying breach.
| Step | Action | What Happens in This Case |
|---|---|---|
| 1 | Suit filed; written statement filed | Sunrise files suit on 1 March 2025. Green files WS on 15 April 2025. |
| 2 | First hearing: court examines if "elements of settlement" exist (Order X Rule 1A) | At the first hearing on 10 May, the judge notices: both parties are in the construction business, the JDA contemplates future phases, and the dispute is essentially about money (not personal animosity). "Elements of settlement" exist. |
| 3 | Court directs parties to opt for ADR mode | Judge tells both lawyers: "Under Order X Rule 1A, I am directing you to opt for an ADR mode. You can choose mediation, conciliation, or Lok Adalat. Since you have no arbitration agreement, I cannot refer to arbitration." |
| 4 | Court formulates terms of possible settlement (post-Afcons, this is not strictly required) | Judge suggests (optional): "A possible settlement could be Rs. 25 lakhs with Phase 2 continuation." Parties may or may not accept this formulation. Per Afcons, even without formulation, the court can simply refer. |
| 5 | Refers to appropriate ADR forum | Parties choose mediation. Court refers to the Court-Annexed Mediation Centre (CAMC) attached to the district court. Orders both parties to appear on 20 May. |
| 6 | ADR process conducted within time frame | Mediation sessions happen on 20 May, 3 June, and 17 June. Mediator helps both sides understand each other's interests. |
| 7A | If settlement: recorded as compromise decree (Order XXIII Rule 3) | Green agrees to pay Rs. 30 lakhs in 3 instalments; Sunrise agrees to continue Phase 2. Settlement recorded. Judge passes compromise decree. Case disposed. |
| 7B | If no settlement: matter returns to court; suit resumes (Order X Rule 1C) | Mediation fails. Mediator sends report: "No settlement." Case relisted before the judge on 1 July. Trial resumes from where it was referred. NOTHING said in mediation can be used as evidence. Neither party is prejudiced. |
Guidelines from Afcons Infrastructure v Cherian Varkey (2010)
The Supreme Court laid down comprehensive guidelines for the operation of S.89:
| Guideline | Content |
|---|---|
| "Elements of settlement" | Court need not determine whether dispute will settle; should consider nature of dispute and suitability for ADR |
| Formulation of terms | Court need NOT formulate detailed settlement terms before referral; referral itself is sufficient |
| Choice of ADR mode | Court should choose appropriate mode based on nature of dispute |
| Arbitration referral | Only if valid arbitration agreement exists; court cannot compel arbitration |
| Mediation/Conciliation | Can be directed in all cases (even without consent) except enumerated exclusions |
| Lok Adalat | Suitable for motor accident claims, compoundable offences, matrimonial (except divorce), labour, disputes where parties are at near-settlement |
Cases Unsuitable for ADR (per Afcons)
| Category |
|---|
| Cases involving serious allegations of fraud |
| Criminal prosecution cases (non-compoundable) |
| Cases under Special Acts where specific forums prescribed |
| Cases where urgent relief (injunction) is required immediately |
| Writ petitions under Art. 226/32 (public interest) |
| Election disputes |
| Tax cases (where statutory appellate mechanism exists) |
Order X Rules 1A, 1B, 1C
| Rule | Content |
|---|---|
| Rule 1A | After recording admissions/denials at first hearing, court SHALL direct parties to opt for any ADR mode |
| Rule 1B | Parties appear before the ADR forum/institution on the date fixed by court |
| Rule 1C | Appearance at ADR forum shall not in any way prejudice the rights of parties if ADR fails |
Rule 1C significance: Removes the fear of prejudice. Parties can freely participate in ADR knowing that if it fails, their legal positions remain unaffected. Nothing said or offered during ADR can be used against them in subsequent proceedings.
Recall Check
- What are the five ADR modes mentioned in S.89(1)?
- What did Afcons hold about formulating settlement terms before referral?
- What protection does Order X Rule 1C provide?
Key Cases
Salem Advocate Bar Association v Union of India (2005) Salem-Advocate-Bar-Association-v-Union-of-India-2005 Issue: Whether S.89 CPC is constitutionally valid and how it should be implemented. Rule: S.89 is constitutionally valid; courts must actively explore ADR in suitable cases. Held: Directed framing of mediation rules for civil courts; upheld S.89 as a tool to reduce pendency. Constituted a committee to suggest rules for the operation of S.89.
Afcons Infrastructure v Cherian Varkey (2010) Afcons-Infrastructure-v-Cherian-Varkey-2010 Issue: How should S.89 be operationalised? What cases are suitable for ADR referral? Rule: Court need not formulate settlement terms before referral. Cannot compel arbitration without agreement. Mediation/conciliation can be directed in all cases except enumerated exclusions. Held: Laid down comprehensive operational guidelines for S.89. Classified cases as suitable/unsuitable for different ADR modes. Made S.89 workable in practice.
Distinctions
| Basis | S.89 CPC (Court-Referred) | S.12A Commercial Courts Act (Pre-Institution) | Part III A&C Act (Voluntary) |
|---|---|---|---|
| Stage | After filing of suit (during pendency) | Before filing of suit | At any time (independent of court) |
| Initiative | Court's suo motu power | Plaintiff's obligation | Parties' mutual agreement |
| Mandatory | Discretionary ("court shall" but based on elements of settlement) | Mandatory ("suit shall not be instituted unless") | Voluntary (S.62: invitation + acceptance) |
| Modes | All five (arbitration, conciliation, judicial settlement, Lok Adalat, mediation) | Mediation only | Conciliation only |
| Non-compliance | No penalty (discretionary referral) | Suit not maintainable | Proceedings don't commence |
| Settlement status | Compromise decree (Order XXIII R.3) | Deemed award under S.30 A&C Act | Deemed award under S.30 (S.74) |
| Failure | Suit resumes (Rule 1C) | Plaintiff files suit | Parties pursue arbitration/litigation |
Flashcards
Q: What triggers the operation of S.89? A: When it appears to the court that there exist "elements of a settlement" which may be acceptable to the parties.
Q: Can a court compel parties to arbitration under S.89 without an arbitration agreement? A: No. Per Afcons Infrastructure v Cherian Varkey (2010), arbitration requires a valid agreement. Court can only direct mediation/conciliation/Lok Adalat without consent.
Q: What are the five ADR modes under S.89? A: Arbitration, Conciliation, Judicial Settlement (including through Lok Adalat), and Mediation.
Q: Must the court formulate settlement terms before referring to ADR? A: No. Afcons clarified that the court need not formulate detailed settlement terms. The referral itself is sufficient.
Q: What is the effect of Order X Rule 1C? A: No party shall be prejudiced if ADR fails. The case continues from where it was referred; nothing said during ADR can be used against any party.
Q: At what stage must the court consider ADR under Order X Rule 1A? A: At the first hearing after filing of written statement. The court shall direct parties to opt for any ADR mode.
Q: Is S.89 referral mandatory or discretionary? A: Discretionary. The court "shall" formulate terms "where it appears" elements of settlement exist. The court must exercise judicial discretion in identifying suitable cases.
Exam Scenario
In a civil suit for specific performance of contract valued at Rs. 50 lakhs, both parties file their pleadings. At the first hearing, the court notices that the dispute is essentially about price adjustment and both parties have interest in completing the transaction. The court proposes referral under S.89. The plaintiff insists on trial, refusing any ADR. Advise the court.
Approach: (1) Under Order X Rule 1A, the court shall direct parties to opt for ADR. (2) S.89 empowers the court to refer where "elements of settlement exist." Here, both parties want the transaction completed (only price is disputed) = clear elements of settlement. (3) Per Afcons, the court can direct mediation/conciliation even without consent of both parties (for non-arbitration modes). (4) However, successful ADR requires genuine participation. (5) Court should: refer to mediation (most appropriate for ongoing commercial relationships where parties seek continued performance); if plaintiff refuses to participate or mediation fails, the suit resumes without prejudice (Rule 1C). (6) The court cannot force settlement but can create the opportunity. (7) Cite Salem Advocate Bar Association for the court's duty to actively promote ADR. The plaintiff's refusal does not prevent referral but may limit effectiveness.