Section 89 CPC (inserted by the Amendment Act 1999, operative from 2002) requires courts, after issues are framed, to assess whether a dispute is suitable for resolution through an alternative dispute resolution (ADR) mechanism. If the court determines that elements exist for a settlement, it formulates the terms and refers the dispute to one of four ADR modes.
Why: Courts were congested with disputes that parties could resolve faster and cheaper out of court. S.89 institutionalised the referral of civil disputes to ADR as a mandatory step in litigation, reducing docket load while preserving party autonomy.
Legal Framework
| Provision | Subject |
|---|---|
| S.89(1) CPC | Court must formulate terms and refer dispute to ADR |
| S.89(2) CPC | Four modes: arbitration, conciliation, judicial settlement, mediation |
| Order X R.1A | Court directs parties to opt for ADR mode after filing of written statement |
| Order X R.1C | Failure to opt: court may refer to suitable mode |
The Four ADR Modes (S.89(2))
| Mode | Nature | Who decides | Binding? |
|---|---|---|---|
| Arbitration | Adjudicative | Arbitrator (neutral third party) | Yes (award enforceable as decree) |
| Conciliation | Facilitative-evaluative | Conciliator proposes settlement | Yes if parties accept |
| Judicial Settlement | Court-facilitated | Judge acts as conciliator | Yes (Lok Adalat award) |
| Mediation | Facilitative | Parties decide, mediator facilitates | Yes if settlement signed |
Arbitration is governed by the Arbitration and Conciliation Act 1996. The arbitrator (or panel) hears evidence and gives an award. The court is only involved to enforce the award.
Conciliation is governed by Part III of the Arbitration and Conciliation Act 1996. The conciliator may propose a settlement but cannot impose one. A settlement agreement signed by the parties has the effect of an arbitral award.
Judicial settlement refers the matter to another judicial officer or the same court functioning as conciliator, often through the Lok Adalat mechanism under the Legal Services Authorities Act 1987. An award by a Lok Adalat is final and not appealable.
Mediation involves a trained mediator facilitating dialogue between the parties. The mediator does not adjudicate. A settlement reached in mediation is signed by the parties and presented to the court, which passes a decree on its terms.
Recall Check
- At what stage of a civil suit does Section 89 CPC require the court to consider ADR referral?
- What are the four ADR modes under Section 89(2) CPC?
- What is the distinction between arbitration and mediation in terms of who determines the outcome?
Key Cases
Salem Advocate Bar Association v. Union of India (2005) Salem-Advocate-Bar-Assn-v-UOI-2005 Issue: Whether S.89 CPC mandating ADR referral is constitutionally valid and mandatory on courts. Rule: S.89 is constitutionally valid; the court must consider ADR referral in every suit, but parties retain the ultimate choice of ADR mode. Held: S.89 is mandatory in the sense that courts must apply their mind to ADR suitability; however, parties cannot be forced into a particular ADR mechanism against their will.
Afcons Infrastructure v. Cherian Varkey Construction (2010) Afcons-Infrastructure-v-Cherian-Varkey-2010 Issue: Which categories of disputes are suitable and unsuitable for ADR referral under S.89. Rule: Simple commercial, property, and contractual disputes are well-suited for ADR; suits involving fraud, constitutional questions, and matrimonial disputes are generally unsuitable. Held: Courts must apply the suitability criteria before referring disputes to ADR; not all disputes are appropriate for non-adjudicatory resolution.
Distinctions
| Aspect | Arbitration | Mediation |
|---|---|---|
| Decision-maker | Arbitrator | Parties themselves |
| Process | Adjudicative (hearing, evidence, award) | Facilitative (dialogue, no evidence) |
| Binding on parties | Yes (arbitral award) | Only if settlement reached and signed |
| Governed by | Arbitration and Conciliation Act 1996 | Mediation Act 2023 + court rules |
Flashcards
Q: When was Section 89 CPC inserted and when did it come into force? A: Inserted by the CPC Amendment Act 1999; came into force in 2002.
Q: At what stage must a court consider S.89 referral? A: After framing of issues (S.89(1)). Also after filing of written statement per Order X R.1A.
Q: Is a Lok Adalat award appealable? A: No. An award of a Lok Adalat is final and binding and not subject to appeal under the Legal Services Authorities Act 1987.
Q: Name two categories of disputes unsuitable for ADR referral under Afcons. A: Suits involving fraud; cases involving constitutional questions.
Q: Under which mode does the neutral party propose a settlement rather than adjudicate? A: Conciliation. The conciliator proposes a settlement; it is not an adjudication.
Exam Scenario
A files a suit against B for recovery of money under a contract. After issues are framed, the court proposes referral to ADR under S.89. B objects, arguing the suit involves an allegation of fraud. A agrees to mediation. Decide.
In Afcons Infrastructure v. Cherian Varkey, the Supreme Court held that disputes involving serious allegations of fraud are generally unsuitable for ADR under S.89. Fraud requires examination of witnesses and documents in open court. If the fraud allegation is genuine and central to the dispute, the court should decline to refer. If the fraud allegation is peripheral and the core dispute is contractual, the court may refer the contractual aspects to mediation while retaining the fraud question. The court retains full discretion under S.89.