Loopholes

Judicial Settlement under Section 89 C.P.C.

A Neglected Aspect.
By: Justice S.U.Khan1
Section 89 C.P.C.
"Settlement of disputes outside the Court. (1)Where it
appears to the court that there exist elements of a settlement
which may be acceptable to the parties, the court shall
formulate the terms of settlement and give them to the
parties for their observations and after receiving the
observations of the parties, the court may reformulate the
terms of a possible settlement and refer the same for
a) arbitration;
b) conciliation;
c) judicial settlement including settlement through Lok
Adalat; or
d) mediation
(2) Where a dispute has been referred
(a) for arbitration or conciliation, the provisions of the
Arbitration and Conciliation Act, 1996 shall apply as if the
proceedings for arbitration or conciliation were referred for
settlement under the provisions of that Act;
(b) to Lok Adalat, the court shall refer the same to the
Lok Adalat in accordance with the provisions of subsection
(1) of section 20 of the Legal Services Authorities Act, 1987
and all other provisions of that Act shall apply in respect of
the dispute so referred to the Lok Adalat;
1 Former Judge, Allahabad High Court, at present Chairman, Judicial Training
& Research Institute, U.P., Lucknow
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(c) for judicial settlement, 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 shall
apply as if the dispute were referred to a Lok Adalat under
the provisions of that Act;
(d) for mediation, the court shall effect a compromise
between the parties and shall follow such procedure as may
be prescribed."
(Corresponding Rules being Order 10 Rules 1A, 1B & 1C)
Section 89 C.P.C. and the corresponding Rules were inserted
by Act No. 46 of 1999 (w.e.f. 1.7.2002). However the section
contained some glaringly anomalous drafting errors due to clerical
or typographical mistakes. Supreme Court in Afcons Infrastructure
Limited v. Cherian Varkey Construction Company Private Limited
2010 (8) SCC 24, hereinafter referred to as Afcon under compulsion
of circumstances rewrote the provision.
Part of Para 9 and paras 15 and 25 are quoted below:
“9. If Section 89 is to be read and required to be
implemented in its literal sense, it will be a trial Judge's
nightmare. It puts the cart before the horse and lays down
an impractical, if not impossible, procedure in subsection (1).
It has mixed up the definitions in subsection (2)……...
15. If subsection (1) of Section 89 is to be literally
followed, every trial Judge before framing issues, is required
to ascertain whether there exist any elements of a settlement
which may be acceptable to the parties, formulate the terms
of settlement, give them to the parties for observations and
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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.
25. 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 section. 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;
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(d) for 'judicial settlement', the court shall
effect a compromise between the parties and shall
follow such procedure as may be prescribed.
The above changes made by interpretative process
shall remain in force till the legislature corrects the mistakes,
so that Section 89 is not rendered meaningless and
infructuous.”
In respect of judicial settlement it was observed in Afcon that
‘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’ (para 12).
In the case of Salem Advocate Bar Association v. Union of India
validity of amendments made in C.P.C. in 1999 and 2002, (both
enforced w.e.f. 1.7.2002) including Section 89 was challenged. The
first order was passed by the Supreme Court on 25.10.2002
reported in AIR 2003 SC 189 hereinafter referred to as Salem ABA
first order. Through the said order a committee was formed to
devise inter alia,
‘rules and regulations which should be followed while taking
recourse to the ADR referred to in section 89. The model Rules
which are formulated may be adopted by the High Courts
concerned for giving effect to section 89 (2) (d)’ para 12.
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Earlier the para 9 it had been observed that ‘section 89 (2)(d),
therefore contemplates appropriate rules being framed with regard to
mediation,. (Underlining supplied)
In the end the matter was directed to be listed after 4 months
to consider the report of the committee.
The requisite report was submitted which was considered in
the second order reported in AIR 2005 SC 3353 hereafter referred to
as Salem ABA second order. The report was in three parts, report
no. 2 dealt with Model ADR and Mediation Rules and was
considered in paras 55 to 69. In para 69, covering more than 9
pages of AIR the entire Rules prepared by the committee were
reproduced. In para 73 it was hoped ‘that the High Courts in the
country would be in a position to examine the aforesaid rules
expeditiously and would be able to finalize the Rules within a period
of four months.’
Thereafter various High Courts adopted the Rules almost in
verbatim including the High Courts of West Bengal (2006),
Maharashtra (2007), Bihar (2008) & U.P. (2009). The Rules were
framed / adopted exercising power under Section 89 and 122
C.P.C.
ADR Rules framed by Allahabad High Court define judicial
settlement under Rule 2(g) as follows:
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2(g) “Judicial Settlement means a final settlement by
way of compromise entered into before a suitable institution
or person to which the Court has referred the dispute and
which institution or person are deemed to be the Lok Adalats
under the provisions of the Legal Service Authority act, 1987
(39 of 1987) and where after such reference, the provisions
of the said Act apply as if the dispute was referred to a Lok
Adalat under the provisions of that Act.”
Rule 6 dealing with ‘Procedure for Reference by the Court to
the different modes of settlement provides under Subrule (c) as
follows:
6(c) “Where all the parties to the suit decide to exercise
their option and to agree for judicial settlement, they shall
apply to the court within thirty days of the direction under
subrule (b) of Rule 3 and then the Court shall, within thirty
days of the application, refer the matter to a suitable
institution or person and such institution or person shall be
deemed to be a Lok Adalat and thereafter the provisions of
the Legal Service Authority Act, 1987 (39 of 1987) which are
applicable after the stage of making of the reference to Lok
Adalat under that act, shall apply as if the proceedings were
referred for settlement under the provisions of that Act.”
Corresponding Rules of ADR Rules framed by Bihar,
Maharashtra and West Bengal are word by word same.
It is strange that neither in first nor second order of Salem
ABA the drafting errors in section 89, as pointed out subsequently
by Afcon were noticed. As in para 9 of first order it was hled that
section 89 (2) (d) required framing of rules with regard to mediation,
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supra, hence the committee did not frame any appropriate rule with
regard to judicial settlement. Even though the Rules use the words
‘judicial settlement’ but they relate to Lok Adalat alone due to
drafting error in Section 89 (undetected till then) under which the
Rules were framed.
These Rules (in respect of Judicial Settlement) have become
meaningless after correction of Clause (d) of sub section (2)
of
Section 89 by Afcon, supra in bold letters.
In fact section 89, as corrected by Afcon, require framing of
Rules only in respect of judicial settlement as is evident from its last
clause i.e. clause (d) of subsection (2) as per corrections affected by
Afcon, supra in bold letters.
If the definition of judicial settlement given in para 12 of
Afcon, supra, is to be fully incorporated in the section then until
framing of proper Rule, it will remain a dead letter. In view of the
definition given in Afcon no Court before whom the case is pending
can by itself attempt judicial settlement and without proper Rule
such Court has got no power to send the matter to other court for
Judicial Settlement. Neither C.P.C. nor General Rules Civil warrant
it. If the file is sent to District Judge on administrative side he will
also feel the same inhibition. Moreover it will be quite difficult for
the District Judge to decide that to which Court/ Judge such
matter should be sent. All these requirements may be supplied by
the Rules.
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However in my opinion there is no need to completely debar
the hearing judge from attempting judicial settlement. The section
does not warrant such approach. In Afcon also even though it was
repeatedly stated that for judicial settlement matters should
preferably be sent to some other judge but absolute bar was not
prescribed vide para 44 (iv) infra:
“(iv) If the Judge in charge of the case assists the
parties and if settlement negotiations fail, he should not
deal with the adjudication of the matter, to avoid
apprehensions of bias and prejudice. It is therefore
advisable to refer cases proposed for judicial settlement
to another Judge.”
In Afcon, it was held that framing and reframing of terms of
settlement by the trial judge, even though matter of settlement etc.
is to be referred to some other authority / agency, will be his
nightmare (para 9) and it is not necessary (para 25). In para 44 (iii)
it was observed that:
(iii) The requirement in Section 89(1) that the court should
formulate or reformulate the terms of settlement would only
mean that the court has to briefly refer to the nature of
dispute and decide upon the appropriate ADR process.”
However it was not explored that there might be some purpose
not properly expressed for which such exercise was prescribed in
the very first sentence of the section. Here also there is a drafting
error. Such exercise is required only for judicial settlement and not
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when matter is to be referred for other modes of ADR provided in
the section.
If this interpretation is correct then it cannot be assumed that
the section imposes absolute bar on the trial judge to attempt
judicial settlement.
The correct approach and interpretation will be that the trial
judge may, at any stage of the suit, either before settlement of
issues or even after hearing arguments in part, try to persuade the
parties to settle the dispute amicably or may send the matter for the
said purpose to some other judge, if Rules in this regard are
framed. (However it shall not be done during continuance of oral
examination as it may be used as a tool to delay, para 41 of Afcon)
Same exercise may be done by the appellate Court also with greater
chances of success as a judgment will already be there making each
party realize the worth of his case to some extent. Section 89 uses
the word ‘Court’ and not the words ‘Trial Court’. It is
utmost
essential that if the judge finds that the learned counsel for both
the parties, and the parties if present, are showing some interest in
settlement, however faint or strong it may be, the proposed terms as
come in the mind of the judge are reduced in writing on the order
sheet and the parties are given two or three days time to consider
the same. The counsel must be either supplied free copy of the said
order sheet or be permitted to copy the order at once. The judges
have to develop the skill of persuasion by practice.
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This is how I interpreted judicial settlement in section 89
C.P.C. and as Allahabad High Court judge attempted judicial
settlement in about one thousand writ petitions, applying the
principle of Section 89 C.P.C. My success ratio was about one
third.
If the judge concerned considers that in attempting judicial
settlement lot of time may be consumed, he may avoid that and
persuade the parties to have recourse to other modes of ADR.
If the judge hearing a case attempts judicial settlement but
fails, he may request the District Judge to transfer the case to
some other judge only if one of the parties, request for the same
otherwise there is no need for it. However in Afcon para 44 (iv),
supra it has been directed otherwise.
If the terms of settlement formulated or reformulated in
writing by Court have been accepted by parties and such
acceptance, conveyed through their learned counsel has been
recorded in the order sheet by the Court, there is no need to ask
the parties to file formal compromise in terms of Order 23 Rule 3
C.P.C. This aspect also requires to be taken care of by Rules
adverted to in Section 89(2)(d). However as far as U.P. is
concerned, there is no need for separate Rule in this regard as by
virtue of Allahabad High Court Amendment (31.8.1974) the
following Explanation has been added to Rule 3 of Oder 23:
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“Explanation – The expression “agreement” and
“compromise”, include a joint statement of the parties
concerned or their counsel recorded by the court, and the
expression “Instrument” includes a statement of the plaintiff
or his counsel recorded by the court”.
In this regard second sentence of para 39 and first sentence
of para 40 are also quoted below:
“39…..Where the matter is referred to another Judge
and settlement is arrived at before him, such settlement
agreement will also have to be placed before the court which
referred the matter and that court will make a decree in
terms of it.
40. Whenever such settlements reached before nonadjudicatory ADR fora
are placed before the court, the court
should apply the principles of Order 23 Rule 3 of the Code
and make a decree/order in terms of the settlement, in
regard to the subjectmatter of the suit/proceeding…..”
Clause (d) of sub section (2) of section 89 C.P.C. even after
correction by Afcon (supra, in bold letters) requires further
correction. It mandates that ‘court shall effect compromise’.
Through judicial settlement compromise cannot be forced upon the
parties. It may be read as follows:
(d) for ‘judicial settlement’, if the parties accept the
suggestion of the court for settlement of dispute, the court
shall effect…………………..
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In Afcon also it was observed in para 43 (h) as follows:
“(h) If the reference to the ADR process fails, on receipt of the
report of the ADR forum, the court shall proceed with hearing
of the suit. If there is a settlement, the court shall examine
the settlement and make a decree in terms of it, keeping the
principles of Order 23 Rule 3 of the Code in mind.”
To the same effect is order 10 Rule 1c, infra:
“1C. Appearance before the court consequent to the
failure of efforts of conciliation. Where a suit is referred
under Rule 1A and the presiding officer of conciliation
forum or authority is satisfied that it would not be
proper in the interest of justice to proceed with the
matter further, then, it shall refer the matter again to
the court and direct the parties to appear before the
court on the date fixed by it.”
As a topping to the title reference is made to the underlined
part of the following portion of para 45 of Afcon:
45. “……We have referred to the procedure and process
rather elaborately as we find that Section 89 has been a nonstarter with many
courts. Though the process under Section
89 appears to be lengthy and complicated, in practice the
process is simple: know the dispute; exclude 'unfit' cases;
ascertain consent for arbitration or conciliation; if there is no
consent, select Lok Adalat for simple cases and mediation for
all other cases, reserving reference to a Judgeassisted
settlement only in exceptional or special cases.” (underlining
supplied)
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It is submitted with respect that judicial settlement, if used
judiciously and tactfully, can do wonders and become most effective
of all the five ADRs referred to in Section 89.
In the end it is suggested that after 14 years of introduction of
section 89 C.P.C., an impact assessment exercise may be done.
Either High Courts from all the districts of their States or the
Supreme Court from all the districts of the Country may get the
following information in respect of suits instituted in a particular
year say 2014:
i. Total number of suits instituted
ii. Number of suits in which any of the ADRs under Section 89
was attempted, and their split subject wise and ADR wise
iii. Number of suits in which attempted ADR succeeded and
their split subject wise and ADR wise
iv. Number of suits in which attempted ADR failed and their
split subject wise and ADR wise
v. Number of suits in which attempted ADR are pending and
their split subject wise and ADR wise
(For subject wise split only broad categories, 4 or 5 in number
may be chosen)
Result of the survey may help in better implementation of the
provision.
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