SYMBIOSIS LAW SCHOOL, PUNE

INTERNAL ASSESSMENT COMPONENT 1 OF CIVIL PROCEDURE CODE-1908

TOPIC: CASE ANALYSIS OF AFCONS INFRASTRUCTURE LTD. AND OTHER

VS CHERIAN VARKEY CONSTRUCTION CO. (P) LTD.: (2010) 8 SCC 24

SUBMITTED BY
BANDANA SAIKIA
19010125405, DIV- E,
BA LLB 2nd Year
BATCH- 2019-2024
 AFCONS INFRASTRUCTURE LTD. AND OTHER VS CHERIAN
VARKEY CONSTRUCTION CO. (P) LTD.: (2010) 8 SCC 24

FACTS OF THE CASE

The Cochin Port Trust apportioned more or less some construction work to the appellants
concerning bridges and roads underneath agreement dated 20.4.2001. The appellants sub-
contracted a part of the aforementioned work to the first respondent underneath agreement
dated 1.8.2001.The Primary Respondent filed a suit in contradiction of the appellants for
recuperation of Rs-210, 70,881/- from the appellants wherein their properties and/or the sums
anticipated to appellants from the employer with a profit rate at 18% per yearly and an order
of attachment was made on 15.9.2004 in relevance to an amount of Rs-2.25 crores. In March,
2005, the primary respondent filed an application beneath section 89 of the Code before the
trial court pleading that the court might frame the terms of the settlement, frame the issues
and refer the dispute to the adjudicative mode of Arbitration. The appellants counter-filed on
24.10.2005 to the application claiming that they weren’t agreeable for referring the matter
before arbitration or the other ADR processes accessible under sec.89 of the Civil Procedure
Code and filed an appeal against the order of attachment in the Kerala High Court that was
allowed in favour of the appellant subjecting to definite conditions through an order dated
8.9.2005. Moreover, the High Court directed the Trial Court to ponder and eliminate the
application underneath sec.89. The trial court allowed the aforementioned application
underneath section 89 by a reasoned order dated 11.10.2006, and apprehended that because
the claim of the plaintiff within the suit is related to a piece of contractual work, it had been
suitable that the dispute ought to be settled through arbitration. The appellants filed a revision
petition against the order of the trial court but the High Court by the impugned order dated
11.10.2006 discharged the revision petition holding that the apparent tenor of section 89 of
the Code allowed the court, in applicable cases, to refer even unwilling parties to arbitration.
This order was challenged within the Supreme Court as an Appeal.

ISSUES INDUCED

The issues before the Honourable Supreme Court were –

1. What is the correct process to be followed by a court in executing section 89

and Order X Rule 1A of the Code?
 2. Whether the consent of each of the parties to the suit an essential for reference
to arbitration by section 89 of the Code?

RULE/LAWS INVOLVED

 Section 89 of the Code of Civil Procedure Code, 1908 - Settlement of disputes outside
the Court.
 Order 10 Rule 1A of the Code of Civil Procedure Code, 1908 - Direction of the court
to opt for any one mode of alternative dispute resolution.

ANALYSIS

Taking the first issue into consideration, we find that section 89 of the Code has to be read
with Rule 1-A of Order X which calls for the court to direct the parties in dispute to choose
for any of the five modes of Alternative Dispute Resolution processes and on their option
refer the matter to the opted mode for resolution. Rule 1-A empowers the court to decide
among any one mode of ADR mechanism mentioned under section 89 of the Code and after
recording the admissions and abjurations, the court shall instruct the parties to the suit to
decide upon either method of the settlement outside the court as specified in sub-section (1)
of section 89 of the Code and on the preference of the parties, the court shall fix the date of
appearance before such forum as perhaps opted by the parties in dispute. This rule does not
require the court either to formulate the terms of settlement or present such terms of
settlement to the parties to reformulate the terms of possible settlement after receiving the
remarks of the parties. The most reliable method of reading section 89 and Order X, Rule 1-A
is that after the pleadings are concluded and after looking for admission and denials wherever
necessary and before outlining the issues, the court will have a resort to section 89 of the code
which requires the court to consider and record the nature of the dispute, inform the parties
about the five modes of ADR available and take note of their respective preferences and then
refer them to any of the ADR processes. It is sufficient from the part of the court if it merely
describes the nature of the dispute and makes the reference to either of the five ADR
processes. Rule 1-A of Order X requires the court to give the option to the parties, to opt for
any of the five ADR processes which does not give an individual option but a join option or
census about the choice of the ADR process which is written under para 21 of the judgement.
The Court explains the alternatives available concerning to ADR process to the parties,
permits them to select for an alternative dispute process by consensus, and if there’s no
consensus, proceeds to choose the process on their behalf. The phase at which the court ought
to explore whether or not a matter should be referred to ADR processes, is after the pleadings
are finished, and earlier than framing the issues, once the matter is taken up for initial hearing
for examination of parties under Order 10 of the Code.

The Supreme Court has therefore summarise the procedure to be adopted by a court under
section 89 of the Code as -

1. When the pleadings are complete, earlier than outlining the issues, the court is meant
to fix an initial hearing for appearance of parties. The court is need to acquaint itself
with the information (especially facts) of the case and the nature of the dispute among
the parties .
2. The court need to initially consider whether the case falls under any of the category of
the cases which are required to be tried by way of means of courts and not fit to be
referred to any ADR mechanism. If it discovers that the case falls under any excluded
category, it is required to record a brief order which will relate to the nature of the
case and why it isn’t fit for reference to any of the five ADR processes under section
89 of the Code. It will then continue with the framing of issues and trial.
3. In instances which can be referred to ADR processes, the court need to provide an
explanation for the selection of the five ADR processes to the parties to allow them to
exercising their option.
4. The court needs to first decide whether or not the parties are inclined for arbitration.
The court needs to inform the parties that arbitration is an adjudicatory system by a
selected private forum and reference to arbitration will perpetually take the suit
outside the domain of the court. The parties should also need to be informed that the
cost of arbitration will have to be borne by them. Only if both parties agree for
arbitration, and also agree upon the arbitrator, then the matter should be cited to
arbitration.

The Apex Court thereby, decided that the trial court did not adopt the proper procedure while
enforcing Section 89 of the Code. Failing to invoke Section 89 suo moto after conclusion of
pleadings and bearing in mind it only after an application under Section 89 was filed, is
flawed.

Referring to the second issue, we see that the Respondent 1 has filed an application under
section 89 of the Civil Procedure Code before the trial court praying that the court may
formulate the terms of the settlement in dispute and refer the matter to arbitration. The
Respondent has relied upon the contention that section 89 of the Code empowers the Court to
suo moto refer the dispute for any of the five Alternative Dispute Resolution Mechanism
despite taking into consideration of the mutual consent of both the parties. The Respondent
has tried to rely upon the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya & Anr to
contend before the court that for a reference to arbitration under section 89 of the Code,
consent of parties is not required. The Kerala High Court wrongly assumed that Sukanya
Holdings has held that section 89 empowered the court to refer the case to arbitration even
when there was an absence of an arbitration agreement. The Bombay High Court in this case
was considering the question as to whether an application under section 8 of the Arbitration
and Conciliation Act, 1986 could be maintained even when a part of the subject matter of the
suit was not covered under that arbitration agreement. The case before us doesn’t deal within
the ambit of the case under which the respondents have relied upon. Section 89 of the Civil
Procedure Code, 1908 refers to the five categories of Alternative Dispute Resolution
mechanism which is made up of one adjudicatory process (arbitration) and four non-
adjudicatory processes – ( conciliation , mediation, judicial settlement and Lok Adalat)
settlement. Section 89 of the code is to be dealt with Rule 1-A of Order X which requires the
court to direct the parties in dispute to opt for any of the five modes of ADR mechanism and
on their option refer the matter to their desired mode. Rule 1-A of Order X of the Code does
not make it a mandatory element for the court to either formulate the terms of settlement or
make available terms of settlement to the parties to reformulate the terms of possible
settlement after receiving the observations of the parties. After the pleadings are complete
and after seeking admission/denials wherever necessary, and before framing the issues, the
Court will have recourse to sec.89 of the Code. Such recourse requires the court to consider
and record the nature of the dispute, inform the parties about the five modes of alternative
dispute resolution available and take note of their preferences and then refer them to one of
the five process laying emphasis on their preferences. Such a contention of mutual consent
being the important element was also discussed in the case of Jagdish Chander vs Ramesh
Chander & Ors, where the Delhi High Court held that, even though section 89 mandates the
courts to refer pending suits to any of the several alternative dispute resolution processes
mentioned therein, there cannot be a reference to arbitration even under section 89 CPC,
unless there is a mutual consent of all the parties, for such reference 1. While giving effect to
section 89 of the Code, the Court has to keep in mind that if they are referring the matter to
arbitration or conciliation, the court has to record that the reference is by mutual consent.
1
Jagdish Chander vs Ramesh Chander & Ors, Appeal (civil) 4467 of 2002, pp.10.
Thereby, the Supreme Court held that a civil court exercising power under Section 89 of the
Code ought not to allude a suit to arbitration unless all the parties to the suit agree for such
reference.

CONCLUSION CUM OBSERVATIONS

When we try to look into the legislative intention behind introducing the alternative dispute
mechanism under the Civil Procedure Code, we find that this mechanism is to provide a
chance to the parties in dispute to settle their disputes on their own which inversely reduces
the burden of the court in trivial matters. The inference or observation that I have drawn by
analysing this judgement, is of that this ruling of the Supreme Court reflects that consent is
always given a priority in seeking remedies. The Apex Court have precisely tried to resolve
the issues before it by interpreting the provisions in a practical way by drawing a proper
interpretation of a margin between section 89 and Order X Rule 1-A of the Code.

The court has to establish an opinion that a case one that is suitable of being referred to and
settled through ADR process. The Supreme Court in its judgement have mentioned the cases
which are non-suitable and suitable for ADR in para 18 and 19 respectively. When the court
finds that a case is unsuited for refereeing it to any of the ADR process, the court will have to
briefly record the reasons for not resorting to any of the ADR settlements prescribed under
section 89 of the Code. The Supreme Court has firmly held that though section 89 of the
Code mandates reference to ADR processes, arbitration beneath section 89 of the Code could
only be referred with the agreement of both the parties in dispute and not otherwise.
The Apex Court through this judgement have examined section 89 along with the stipulation
of Order X wherein , the court was of the opinion that the provision is incorrectly worded and
there is an error from the part of the legislative drafting, so the court removed this anomaly
through the rule of interpretation to make it workable. The mixture of definitions of
`mediation' and `judicial settlement under clauses (c) and (d) of sub-section (2) of section 89
of the Code was the anomaly which the court tried to resolve. Companies and various parties
to a dispute is opting for methods of Alternative Dispute Resolution, the most effective being
the Arbitration in these testing times, such that they could reach to a mutual agreement over
their contracts such that neither parties are at an absolute loss. Various methods include
Arbitration, Conciliation, Mediation and Adjudication. These methods are the future of the
legal industry and the current pandemic period might act as the biggest example of showing
how people can actually adapt to ADR methods in resolving disputes which will also help in
reducing the pendency of cases in the courts. ADR based solutions have come to the rescue,
since either of the parties can mutually reach terms without the need for any actual physical
meet.