Judicial Settlement and Alternative Dispute Resolution: Distinction and Interaction

Judicial settlement is one of the four modes of settlement named in Section 89 of the Code of Civil Procedure, 1908, and it is also the general description of every process in which the court itself procures a settlement instead of deciding the dispute. The distinction between judicial settlement and alternative dispute resolution therefore works at two levels. As a term of art it identifies one specific mode, namely reference by the court to a judicial officer or institution, which by statutory deeming is treated as a Lok Adalat. As a broader category it marks the difference between processes annexed to the court and processes chosen by the parties for themselves.

1. The Statutory Text

Section 89(2)(c) and (d), CPC — as the text stands

(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.

Read literally, clause (c) describes what mediation is and clause (d) describes what judicial settlement is. A court cannot itself effect a compromise while remaining the court trying the suit, and a reference to an institution deemed to be a Lok Adalat is not a description of mediation. The Supreme Court held that the definitions had been interchanged by a drafting error and directed that they be read as transposed.

📖 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24

Held: The definitions of judicial settlement and of mediation in clauses (c) and (d) of Section 89(2) have been interchanged, and the provision must be read as if the words in the two clauses were transposed. Judicial settlement accordingly means a settlement arrived at through a judicial officer or an institution to whom the matter is referred, with the provisions of the Legal Services Authorities Act, 1987 applying to it, while mediation means the reference of the dispute to a trained mediator to assist the parties to arrive at a compromise.

Further held: The requirement that the court formulate the terms of settlement before making a reference cannot be taken literally; the court need only formulate a summary of the dispute. Consent of all parties is necessary for a reference to arbitration and to conciliation. No such consent is required for a reference to a Lok Adalat, to judicial settlement or to mediation.

2. What Judicial Settlement Means

After the correction, judicial settlement in the narrow statutory sense is the reference by the court of a pending case to a judicial officer other than the officer trying the suit, or to a suitable institution, for settlement. Two consequences follow from the deeming provision. First, the person or institution to whom the reference is made is treated as a Lok Adalat, so the procedure and powers under Chapter VI of the Legal Services Authorities Act, 1987 apply. Second, any settlement arrived at takes effect as an award of a Lok Adalat, which by Section 21 of that Act is deemed to be a decree of a civil court, is final and is not appealable. The court fee paid in the suit is refunded.

In the broader sense, judicial settlement describes any settlement procured within the court system and under judicial supervision. It includes the settlement conference before a judge, the reference to a court-annexed mediation centre attached to a High Court or a district court, the reference to a Lok Adalat under Section 20 of the Legal Services Authorities Act, 1987, and the recording of a compromise in the suit under Order XXIII Rule 3 of the Code. What is common to all of them is that the case remains on the file of the court, the court initiates and supervises the process, and the court gives effect to the result.

3. The Three Settings in which Settlement Occurs

It is useful to keep three settings separate, because the applicable rules differ in each.

Judicial determination. The court hears the case and decides it. The outcome is a judgment and decree, it is reasoned, it is appealable, and it operates as precedent to the extent that a court of record delivers it.
Court-annexed settlement. The court refers the pending case to a settlement process under Section 89 and Order X Rules 1A to 1C. The neutral acts under the authority of the referring court and under rules framed by the High Court, the process is free or nearly free to the parties, and the outcome returns to the court to be given effect. Failure returns the case to the file for trial.
Party-driven settlement. The parties resort to negotiation, private mediation or arbitration on their own, whether before or after litigation begins. The neutral acts under the authority of their agreement, the parties bear the cost, and the court is approached only to enforce the outcome or, in arbitration, to support and supervise the process.

The three settings, the reference under Section 89 and the return to the court

4. Points of Distinction

Basis	Judicial settlement	Alternative dispute resolution generally
Source of the process	An order of reference by the court, ordinarily under Section 89 of the Code	The agreement of the parties, or a statute giving effect to that agreement
Consent of the parties	Not required for a reference to judicial settlement, Lok Adalat or mediation	Required for arbitration and for conciliation; a private process cannot begin without it
Who conducts it	A judicial officer other than the trying judge, or an institution deemed to be a Lok Adalat	A mediator, conciliator or arbitral tribunal chosen by the parties or by an institution
Stage	Only after a case has been instituted and is pending	At any stage, including before institution and after a decree
Cost to the parties	No separate fee; court fee already paid is refunded on settlement	Fees of the neutral and of the institution, borne by the parties
Form of the outcome	Award deemed to be a decree under Section 21 of the Legal Services Authorities Act, 1987	Settlement agreement enforceable as a decree, or an arbitral award enforceable under Section 36
Effect of failure	The case returns to the referring court and the trial resumes	The dispute remains where it was; the claimant may sue or the arbitration proceeds
Supervision	Continuous supervision by the referring court	Limited judicial supervision at the points fixed by statute

5. The Position of the Judge

A judge who attempts to settle a case learns things about the parties' positions that he would not learn at a trial, and which he could not properly use in deciding the case. The model rules framed after the Salem Advocate Bar Association litigation therefore separate the two functions: the case is referred to a judicial officer other than the one who will try it, or to a mediation centre, and if the settlement fails, nothing said in the process is reported to or used by the trial court.

📖 Moti Ram (D) through LRs v. Ashok Kumar, (2011) 1 SCC 466

Held: Mediation proceedings are confidential. On failure, the mediator should report only that the mediation was unsuccessful, and should not disclose what transpired before him or the conduct of the parties.

Application to this topic: The principle applies with greater force to judicial settlement, because the neutral is a judicial officer and any communication of the parties' positions to the trial court would prejudice the trial itself.

⚠ Encouragement must not become pressure

A reference to settlement can be ordered without the consent of the parties, but a settlement cannot. Where a court or a Lok Adalat records a compromise that a party did not in truth accept, the award is open to challenge, since the jurisdiction to make it depends on the existence of a genuine compromise. Order XXIII Rule 3 of the Code correspondingly requires the agreement or compromise to be in writing and signed by the parties, and requires the court to be satisfied that it is lawful before passing a decree in its terms.

6. Is Judicial Settlement a Form of ADR?

The question is asked in two senses, and both have an answer. In the sense of process, judicial settlement is undoubtedly a form of alternative dispute resolution, because the dispute is resolved by the agreement of the parties and not by adjudication; the neutral happens to be a judicial officer, which changes who conducts the process but not what the process is. In the sense of institutional location, it is not an alternative to the court at all, because it takes place within the court system, on the court's initiative and under its control. The accurate description is court-annexed alternative dispute resolution, and Indian practice since 2002 has been built on precisely that model rather than on the diversion of disputes away from the courts.

The practical significance of this is that the growth of settlement in India has depended on judicial rather than contractual initiative. Lok Adalats are organised by the legal services authorities, court-annexed mediation centres are attached to the High Courts and district courts, references are made under Section 89 by the trying judge, and mandatory pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 is administered by the legal services authority. Private, contractual ADR remains largely confined to arbitration in commercial contracts.

7. Related Topics and Provisions

Topic or provision	Connection
Types of ADR Mechanisms	The four modes named in Section 89 and the wider family of processes
Consensual vs Adjudicatory Dispute Resolution	The theoretical basis of the distinction applied here
Section 89 and Order X Rules 1A to 1C, CPC	The reference power and the procedure preceding it
Order XXIII Rule 3, CPC	Compromise of a suit and a decree in its terms
Sections 19 to 22, Legal Services Authorities Act, 1987	Lok Adalat, its jurisdiction and the effect of its award
Section 16, Court Fees Act, 1870	Refund of court fee on settlement under Section 89
Mediation Act, 2023	Court-referred mediation under Section 7 and enforcement under Section 27