AFCONS INFRASTRUCTURE LTD. AND ANR.v.CHERIAN VARKEY CONSTRUCTION CO. (P) LTD. AND ORS.

(2010)8SCC24

•Powers of Civil Court U/S 89 CPC

•Is it mandatory for the Civil Court to refer every matter

to ADR
•Consent of the Parties is necessary to go to ADR

•Whether Court could refer a matter without the consent

of Parties
•Relevancy of procedure under specific laws-

• A & C Act, 1996, LSA Act, 1987

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Afcons- contd.,

Facts:
 Cochin Port Trust(R-2) entrusted the work of

construction of certain bridges and roads to

the appellants under an agreement dated
20.4.2001.
 The appellants sub-contracted a part of the

said work to the first respondent under an

agreement dated 1.8.2001.
 It is not in dispute that there is no arbitration

agreement between the appellants and the

first respondent.

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Afcons- contd.,
 The R-1 filed a suit against the appellants for recovery of Rs. 210,70,881
from the appellants.
 Thereafter in March 2005, R-1 filed an application u/s 89 of the Code
before the trial court praying that the court may formulate the terms of
settlement and refer the matter to arbitration.
 Appellants filed- not agreeable for Arbitration.
 Trial Court allowed the petition u/s 89.
 HC Dismissed the Revision Petition-
 Held-Section 89 of the Code permitted the court, in appropriate cases, to
refer even unwilling parties to arbitration.
 Pre existence of arbitration agreement under the provisions of the Act,
1996 was inapplicable to references under Section 89 of the Code.

3
Afcons-Contd.,
 89. 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.

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Afcons-contd.,
 (2) where a dispute has been referred –

 (a) for arbitration or conciliation, the provisions of the Arbitration and

Conciliation Act, 1996 (26 of 1996) shall apply.

 (b) to LokAdalat, the Court shall refer the same to the Lok Adalat in
accordance with the provisions of Sub-section (1) of Section 20 of the Legal
Services Authority Act, 1987-shall apply

 (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
LokAdalat and all the provisions of the Legal Services Authority Act, 1987-
shall apply

 (d) for mediation, the Court shall effect a compromise between the parties
and shall follow such procedure as may be prescribed.

5
Afcons-contd.,

 Order 10 Rule 1A. Direction of the Court to opt for any one mode of
alternative dispute resolution.—
 After recording the admissions and denials, the Court shall direct the
parties to the suit to opt either mode of the settlement outside the Court as
specified in Sub-section (1) of section 89.
 On the option of the parties, the Court shall fix the date of appearance
before such forum or authority as may be opted by the parties.

 Order 10 Rule 1B. Appearance before the conciliatory forum or

authority.—
 Where a suit is referred under Rule 1A, the parties shall appear before such
forum or authority for conciliation of the suit.

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Afcons-Contd.,
 Order 10 Rule 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.

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Afcons-Contd.,
• If Section 89 is to be read and required to be implemented in its literal
sense, it will be a Trial Judge's nightmare.

• the validity of Section 89, with all its imperfections, was upheld in Salem
Advocate Bar Association v. Union of India reported in 2003 (1) SCC 49.

• In Salem Advocate Bar Association v. Union of India, 2005 (6) SCC 344 -
for short, Salem Bar-(II) this Court applied the principle of purposive
construction in an attempt to make it workable.

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Afcons-Contd.,
• What is wrong with Section 89 of the Code?

• 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.

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Afcons-Contd.,
• 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.

• If everything is done by the trial judge nothing is left for conciliation.

• Formulation and re-formulation of terms of settlement by the court is

therefore wholly out of place at the stage of pre ADR reference.

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Afcons-contd.,
 It is not possible for courts to perform these acts at a preliminary hearing
to decide whether a case should be referred to an ADR process and, if so,
which ADR process.
 Trial judge should prepare the summary of dispute.(Salem Bar
Association-II) instead of terms of settlement.

 Interpretation:

 "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.
 Where the words used in the statutory provision are vague and ambiguous
or where the plain and normal meaning of its words or grammatical
construction thereof would lead to confusion, absurdity, repugnancy with
other provisions,

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Afcons-Contd.,
 the courts may, instead of adopting the plain and grammatical construction,
use the interpretative tools to set right the situation, by adding or omitting
or substituting the words in the Statute.

 When faced with an apparently defective provision in a statute, courts

prefer to assume that the draftsman had committed a mistake rather than
concluding that the Legislature has deliberately introduced an absurd or
irrational statutory provision.
 Whether the reference to ADR Process is mandatory?

 Section 89 starts with the words "where it appears to the court that there
exist elements of a settlement".
 This clearly shows that cases which are not suited for ADR process should
not be referred under Section 89 of the Code.

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Afcons-Contd.,
 Therefore, having a hearing after completion of pleadings, to consider
recourse to ADR process under Section 89 of the Code, is mandatory. But
actual reference to an ADR process in all cases is not mandatory.

 Cases not suitable for ADR process-

 (i) Representative suits under Order 1 Rule 8 CPC which involve public
interest or interest of numerous persons who are not parties before the
court.

 (ii) Disputes relating to election to public offices.

 (iii) Cases involving grant of authority by the court after enquiry.

13
Afcons-Contd.,
 Cases involving serious and specific allegations of fraud, fabrication of
documents, forgery, impersonation, coercion etc.
 (v) Cases requiring protection of courts, as for example, claims against
minors, deities and mentally challenged and suits for declaration of title
against government.
 (vi) Cases involving prosecution for criminal offences, etc.,
 Cases suitable for ADR processes:
 (i) All cases relating to trade, commerce and contracts, including
 - disputes arising out of contracts (including all money claims);
 - disputes relating to specific performance;
 - disputes between suppliers and customers;
 - disputes between bankers and customers;
 - disputes between developers/builders and customers;
 - disputes between landlords and tenants/licensor and licensees; etc.,

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Afcons-Contd.,
 All cases arising from strained or soured relationships, including
 - disputes relating to matrimonial causes, maintenance, custody of
children;
 - disputes relating to partition/division among family members/co-
parceners/co-owners; and
 - disputes relating to partnership among partners.
 All cases where there is a need for continuation of the pre-existing
relationship in spite of the disputes, including
 - disputes between neighbours (relating to easementary rights,
encroachments, nuisance etc.);
 disputes between employers and employees;
 - disputes among members of societies/associations/Apartment owners
Associations;
 (iv) All cases relating to tortious liability including
 - claims for compensation in motor accidents/other accidents; and
 (v) All consumer disputes , etc.,

15
Afcons-contd.,
 How to decide the appropriate ADR process under Section 89?

 Neither Section 89 nor Rule 1A of Order 10 of the Code is intended to

supersede or modify the provisions of the Arbitration and Conciliation Act,
1996 or the Legal Services Authorities Act, 1987.

 Section 89 makes it clear that two of the ADR processes - Arbitration and
Conciliation, will be governed by the provisions of the AC Act and two
other ADR Processes - LokAdalat Settlement and Mediation will be
governed by the Legal Services Authorities Act.

 Rule 1A of Order 10 requires the court to give the option to the parties, to
choose any of the ADR processes. This does not mean an individual
option, but a joint option or consensus about the choice of the ADR
process

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Afcons-contd.,

 Arbitration-Adjudicatory Process
 Consent of both parties necessary- S.8,11
 Conciliation- Non-Adjudicatory Process, which is also governed by the
provisions of AC Act.
 Consent of both parties necessary- S.62,64
 The other three ADR Processes-
 LokAdalat, Mediation and Judicial Settlement, which do not require the
consent of parties for reference.
 Award of Arbitral Tribunal-Decree of a Court
 Ss.30, 36 enforceable
 Conciliation- Settlement Agreement is enforceable as if it is a decree of
the court having regard to Section 74 read with Section 30 of the AC Act

17
Afcons-contd.,
 when a settlement takes place before the LokAdalat, the LokAdalat award
is also deemed to be a decree of the civil court and executable as such
under Section 21 of the Legal Services Authorities Act, 1987.
 Mediation may be through some third party.

 Judicial settlement by the same court or may be referred to another court.

 If no settlement, cases will be back to the court for adjudication.

 Appeal is Allowed -HC orders set aside-

 Trial Court –consider-non adjudicatory process.

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