Section 89 of the Code of Civil Procedure: Settlement of Disputes Outside Court

Section 89 is the provision by which a civil court sends a pending case out of the courtroom to be settled. It was inserted by the Code of Civil Procedure (Amendment) Act, 1999 on the recommendation of the Law Commission and the Malimath Committee, and was brought into force on 1 July 2002. As enacted it was badly drafted, and the working section is the one the Supreme Court produced in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24. The Mediation Act, 2023 has since substituted the section in terms that adopt what Afcons decided.

1. Object and Scope

The object is to divert to settlement those cases that do not need adjudication, and so to reduce both the burden on the courts and the cost to the parties. Three features define the scope of the provision.

• It operates on a pending case. Section 89 is not a route into ADR before litigation; it presupposes a suit already instituted. Pre-litigation settlement is dealt with by Section 5 of the Mediation Act, 2023 and, compulsorily for certain commercial suits, by Section 12A of the Commercial Courts Act, 2015.
• It is for the court to consider, not the parties to demand. Order X Rule 1A requires the court, after recording admissions and denials, to direct the parties to opt for one of the modes; Rules 1B and 1C deal with appearance before the forum chosen and with referring the matter back where the presiding officer finds it not proper to proceed.
• It is engaged where elements of a settlement exist. The threshold is that it appears to the court that the dispute may be settled and that there exist elements of settlement which may be acceptable to the parties.

2. The Four Modes

The four modes, what each produces, and the rule on consent

The section offers arbitration, mediation, Lok Adalat and judicial settlement. The first ends the suit and transfers the dispute to a private tribunal; the other three keep the case within the court's control and return a settlement to it.

1. Arbitration. The dispute goes to an arbitral tribunal and the Arbitration and Conciliation Act, 1996 applies as if the reference were on an arbitration agreement. The suit does not return; the outcome is an award enforced under Section 36.
2. Mediation. The court refers the parties to a mediator, now under the Mediation Act, 2023. A settlement is reported to the court, which passes a decree in its terms.
3. Lok Adalat. The court refers the matter under Section 20(1) of the Legal Services Authorities Act, 1987, and the provisions of that Act apply. A settlement takes effect as an award deemed to be a decree, final and not appealable, under Section 21.
4. Judicial settlement. The court itself effects a compromise between the parties, following such procedure as it thinks fit, and the outcome is recorded as a compromise decree under Order XXIII Rule 3.

3. The Drafting Defects and How They Were Cured

Two defects made the section as enacted unworkable. Sub-section (1) required the court to formulate the terms of settlement, give them to the parties for observations and reformulate them before making a reference, which was both impossible at that stage and a duplication of what the chosen forum was to do. And the definitions in sub-section (2) were interchanged: clause (c) defined judicial settlement in terms of what is in truth mediation, and clause (d) defined mediation in terms of what is in truth judicial settlement.

4. Which Cases Go to Settlement

The categories identified in Afcons, and the test behind them

The lists are illustrative and not exhaustive. Two ideas run through them. A dispute is unsuitable where the parties cannot lawfully compromise it, as with a prosecution or an election to public office, or where a grant is to be made only after a judicial enquiry, as with probate. And it is unsuitable where a settlement would affect persons who are not before the court, which is why representative suits and matters of public interest are excluded. Everything else, and in particular commercial disputes, family disputes, claims in tort and disputes between parties in a continuing relationship, is suitable.

5. Court-Annexed ADR in Practice

• Where the process happens. Court-annexed mediation centres attached to the High Courts and district courts, staffed by trained mediators drawn from the Bar and from retired judicial officers, operating under the High Court rules framed on the model rules approved in Salem II.
• Who bears the cost. The parties pay little or nothing; the centres are maintained by the courts and the legal services authorities.
• Court fee. Where the suit is settled through any of the modes under Section 89, the plaintiff is entitled to a refund of the court fee under Section 16 of the Court Fees Act, 1870, and Section 21 of the Legal Services Authorities Act, 1987 provides for the same where the matter is settled in a Lok Adalat.
• What returns to the court. In mediation and judicial settlement the settlement is placed before the court, which satisfies itself that it is lawful and passes a decree under Order XXIII Rule 3. In a Lok Adalat the award itself is deemed a decree and nothing further is needed. In arbitration the suit is disposed of and the award is enforced separately.
• If settlement fails. Order X Rule 1C permits the presiding officer of the forum to refer the matter back to the court where he finds it not proper to proceed, and the suit resumes from the stage it had reached, with nothing said in the process admissible against a party.

6. Section 89 after the Mediation Act, 2023

Section 59 of the Mediation Act, 2023, read with its Fourth Schedule, substituted Section 89 of the Code. The new section provides that where it appears to the court that the dispute may be settled and there exist elements of settlement which may be acceptable to the parties, the court may refer the dispute to arbitration, or to mediation, or to a Lok Adalat under Section 20(1) of the Legal Services Authorities Act, 1987, or may effect a compromise between the parties following such procedure as it thinks fit for judicial settlement. The Schedule also omits the sub-heading relating to arbitration in Part V of the Code.

7. Assessment

Section 89 has been the principal engine of court-annexed settlement in India for two decades, and the mediation centres it produced settle a substantial volume of matrimonial, commercial and motor accident claims. Its weaknesses have been equally visible. Reference is discretionary and depends on the attitude of the presiding judge, so practice varies widely between courts. The section had to be rewritten by the Supreme Court before it could work at all, and the legislative correction took a further thirteen years. And because a reference is made after the suit has been filed, much of the cost the process was meant to save has already been incurred, which is the argument for pre-litigation mediation under Section 5 of the Mediation Act, 2023 and under Section 12A of the Commercial Courts Act, 2015.

8. Related Topics and Provisions