Afcons infrastructure and Ors. v.

Cherian Verkay Construction and Ors

Facts of the Case

The Cochin Port Trust (2nd Respondent) entrusted the work of construction of
certain bridges and roads to the Afcons Infrastructure and Ors. (Appellants) under an
agreement dated 20.04.2001. The Afcons Infrastructure and Ors. Sub-contracted a
part of the said work to Cherian Verkay Construction (1st Respondent) under an
agreement dated 1.8.2001.
Cherian Verkay Construction filed a suit against the Afcons Infrastructure and Ors.
for recovery of Rs.210,70,881 which includes the amount due to the appellants from
the employer with interest at 18% per annum.
In the same suit an order of attachment was made on 15.09.2004 in regard to the
sum of Rs. 2.25 crores. Thereafter, In March 2005 ,Cherian Verkay Construction filed
an application under section 89 of CPC before the trial court praying that the court
may formulate the terms of settlement and refer the matter to arbitration.
Afcons infrastructure and Ors. filed a counter dated 24.10.2005 to the application
submitting that they were not agreeable for referring the matter to arbitration or any
of the other ADR processes under section 89 of the Code.
In the meanwhile, the High Court of Kerala by order dated 8.9.2005, allowed the
appeal filed by the appellants against the order of attachment and raised the
attachment granted by the trial court subject to certain conditions. While doing so,
the High Court also directed the trial court to consider and dispose of the application
filed by the first respondent under section 89 of the Code.
The trial court after hearing the parties allowed the said application under section 89
of the code. Then ,the Appellants filed the review petition against the order of the trial
court.
The High Court by the impugned order dated 11.10.2006 dismissed the revision
petition holding that the apparent tenor of section 89 of the Code permitted the
court, in appropriate cases, to refer even unwilling parties to arbitration. This order
was challenged in the Superme Court as an Appeal.
Anomaly in Afcons Infrastructure Case
Not a single provision in the legal world seems genuine or uncontroversial. Law is a
naturally evolving subject . It is based on the development of society and its
entities.According to my opinion, it doesnot confine our ideas and strength but limits
our scope.
The Supreme Court rightly pointed out various drafting errors in interpreting section
89 of the code of civil procedure.
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).
Judicial settlement 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.
Mediation 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. It is also synonym of the term
`conciliation'.
When words are universally understood in a particular sense, and assigned a
particular meaning in common parlance, the definitions of those words in section 89
with interchanged meanings has led to confusion, complications and difficulties in
implementation. The mix-up of definitions of the terms judicial settlement and
mediation in Section 89 is apparently due to a clerical or typographical error in
drafting, resulting in the two words being interchanged in clauses (c) and (d) of
Section 89(2). If the word “mediation” in clause (d) and the words “judicial
settlement” in clause (c) are interchanged, we find that the said clauses make
perfect sense.
The second anomaly is that 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.
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. If
sub-section (1) of Section 89 is to be literally followed, every Trial Judge before
framing issues, is required to ascertain whether there exists any elements of
settlement which may be acceptable to the parties, 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. There is nothing that is left to be done by the alternative
dispute resolution forum. If all these have to be done by the trial court before
referring the parties to alternative dispute resolution processes, the court itself may
as well proceed to record the settlement as nothing more is required to be done, as a
Judge cannot do these unless he acts as a conciliator or mediator and holds detailed
discussions and negotiations running into hours.
Section 73 of Arbitration and Conciliation 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. 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 the terms of
settlement and reformulate them at a stage prior to reference to an ADR process.
This becomes evident by a comparison of the wording of the two provisions.
The apex Court tried to make demarcation between the extent of ADR to dispute and
settlement . It was stated in Salem Advocate Bar Association v. Union of India that 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 terms of settlement at
pre-reference stage?
It will not be possible for a court to formulate the terms of the settlement, unless the
judge discusses the matter in detail with both parties. The court formulating the
terms of settlement merely on the basis of pleadings is neither feasible nor possible.
The requirement that the court should formulate the terms of settlement is therefore
a great hindrance to courts in implementing section 89 of the Code.
In Salem Bar Association case, it was stated that the court is only required to
formulate a ‘summary of disputes’ and not ‘terms of settlement'. Interpretation of any
statute is based on the Principle of Statutory Interpretation. This principle applies
when there is any ambiguity in understanding the provisions of the statute. Where
the words of the statute are clear and unambiguous, the provision should be given its
plain and normal meaning, without adding or rejecting any words and ‘when a
procedure is prescribed by the Legislature, it is not for the court to substitute a
different one according to its notion of justice, when the Legislature has spoken, the
judges cannot afford to be wiser’

Judgment
The Supreme Court relied upon the judgment of Sukanya Holdings Case and held
that to contend for a reference to arbitration under section 89 of the Code, consent
of parties is not required. The High Court has assumed that section 89 enables the
civil court to refer a case to arbitration even in the absence of an arbitration
agreement. Sukanya Holdings does not lay down any such proposition. In that
decision, 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. The only observations in the
decision relating to Section 89 are as under:
Reliance was placed on Section 89 CPC in support of the argument that the matter
should have been referred to arbitration.The Division Bench held that Section 89 CPC
cannot be resorted to for interpreting Section 8 of the Act as it stands on a different
footing and it would be applicable even in cases where there is no arbitration
agreement for referring the dispute for arbitration. Further, for that purpose, the court
has to apply its mind to the condition contemplated under Section 89 CPC and even
if application under Section 8 of the Act is rejected, the court is required to follow the
procedure prescribed under the said section.
The Court drew out inference that even in the absence of Arbitration agreement,
Parties can go for ADR process through Mutual Consent and Finally the Supreme
court enlightened in this matter by delivering landmark judgment stating that:
1. The trial court did not adopt the proper procedure while enforcing Section 89 of
the Code. Failure to invoke Section 89 suo moto after completion of pleadings and
considering it only after an application under Section 89 was filed, is erroneous.
2. A civil court exercising power under Section 89 of the Code cannot refer a suit to
arbitration unless all the parties to the suit agree for such reference.