Analysis of Section 89 CPC 1908and its Scheme

Analysis of Section 89 CPC 1908and its Scheme

 By the Code of Civil Procedure (Amendment) Act 1999, section 89 had been introduced 
in the Code of Civil Procedure, 1908 and it became effective from 01-07-2002. Section 89 of the 
CPC reads as under:
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 courtshall
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 sub-section (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;

(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.”

The objective of Section 89 is to ensure that the court makes an endeavor to facilitate
out-of-court settlements through one of the ADR processes before the trial commences.

 The related provisions which were incorporated by the same amendment Act are those 
contained in Rules 1A, 1B and 1C of Order X, CPC, which are extracted hereunder:

1A. Direction of the Court to opt for any one mode of alternative dispute 
After recording the admissions and denials, the courtshall direct the parties
to 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.”
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.”
1C. Appearance before the Court consequent to the failure of efforts of 
Where a suit is referred under rule 1A and the forum or authority to whom
the matter has been referred 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.”

 With the introduction of these provisions, a mandatory duty has been cast on the civil
courts to endeavour for settlement of disputes by relegating the parties to an ADR process.
Five ADR methods are referred to in section 89. They are:
(a) Arbitration,
 (b) Conciliation,
 (c) Judicial settlement,
 (d) Settlement through Lok Adalat, and
 (e) Mediation.

 Arbitration as well as Conciliation are governed by the Arbitration and Conciliation Act,
1996 (“AC” Act, for short) which superseded the previous Arbitration Act of 1940. The
arbitration unlike conciliation is an adjudicatory process. Once a civil dispute is referred to
arbitration, the case will go outside the stream of the court permanently and will not come back
to the court. However, in contrast, a dispute referred to conciliation which is a non-adjudicatory
process, does not go out of the domain of the court-process permanently. If there is no amicable
settlement, the matter reverts back to the court which has to proceed with the trial after framing
issues. The reference to arbitration or conciliation is only possible if there is consent of the
parties. In the absence of consent, the court cannot on its own refer the parties to arbitration or
This legal position is no longer in doubt in view of the recent judgment of Supreme 
Court in Afcons Infrastructure Ltd. Vs. Cherian Varkey Consturction Co. (P) Ltd.
In the case of arbitration, if there is no pre-existing arbitration agreement, the parties to suit can agree for
arbitration by filing a joint memo or application and the court can then refer the matter to
arbitration and such arbitration will be governed by the provisions of the AC Act. The award of
the arbitrators is binding on the parties and is enforceable as if it is a decree of the court, in view
of what has been said in section 36 of the AC Act. If any settlement is reached in the arbitration
proceedings, then the award passed by the arbitrator on the basis of such agreed terms will have
the same status and effect as any other arbitral award, vide section 30 of the AC Act.

When the matter is settled through conciliation, the settlement agreement shall have the
same status and effect as if it is an arbitral award (vide Section 74 of AC Act) and therefore it is
enforceable as a decree of the court by virtue of section 36 of the AC Act. Similarly, when a
settlement takes place before the Lok Adalat, the award of the Lok Adalat is deemed to be a
decree of a civil court under section 21 of the Legal Services Authorities Act, 1987 (for short,
“LSA Act”) and executable as such.

Coming to mediation, there is practically no difference between conciliation and
mediation and quite often they are used as inter-changeable terms. Mediation is aimed at
conciliation and conciliation has the elements of mediation.

Judicial settlement means a compromise entered by the parties with the assistance of the
court adjudicating the matter or another judge to whom the court had referred the dispute. In
Black’s Law Dictionary, “judicial settlement” is defined as “the settlement of a civil case with
the help of a Judge who is not assigned to adjudicate the dispute”.

Referring to the inter-relation between section 89 and Order X Rule 1 A, the Supreme
Court pointed out that there is no inconsistency. Section 89 confers the jurisdiction on the court
to refer a dispute to an ADR process, whereas Rules 1A to1C of Order X lay down the manner in
which the jurisdiction is to be exercised by the court. The scheme is that the court explains the
choices available regarding ADR process to the parties, permits them to opt for a process by
consensus, and if there is no consensus, proceeds to choose the process


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