Disputes Suitable for ADR in India

Share:

The Supreme Court of India in Afcons Infra. Ltd. v. Cherian Varkey had the opportunity to list down the categories of disputes that are suitable for the resolution through Alternative Dispute Resolution (ADR) processes. This article focuses on the decision of the Supreme Court of India in Afcons Infra. Ltd. v. Cherian Varkey and the observations made therein with regards to reference of disputes to ADR process under Section 89 of the Code of Civil Procedure, 1908 (CPC).

Importance of Section 89 of CPC

Section 89 of the CPC has a very important role to play as it offers an opportunity to the parties to consider alternative dispute resolution (ADR) processes for resolution of their dispute. The parties can opt for (1) arbitration, (2) mediation, (3) conciliation, (4) judicial settlement or (5) refer their dispute to Lok Adalat in line with the provisions of the Legal Services Authority Act, 1987.

Section 89 was inserted by way of The Civil Procedure (Amendment) Act, 1999 (Act No. 46 of 1999) for providing opportunities to the disputing parties to resolve the said dispute. The amendment was considered because a large chunk of the disputing parties had been waiting for outcome of their respective legal cases for a long period of time. The amendment was considered to reduce the burden on the Courts and bring about use of ADR processes which had seen minimal participation from disputing parties.

Section 89 of CPC reads as follows –

“[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:–

• arbitration;
• conciliation;
• judicial settlement including settlement through Lok Adalat: or
• mediation.

(2) Were a dispute has been referred–

• for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;
• 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 Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;
• 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 Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
• for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.]”

The aim of Section 89 is to ensure that parties can make an ‘attempt’ to settle the dispute by adopting any of the ADR process mentioned therein. It is unique provision that encourages parties to settle the dispute by a choice of procedure that the parties can mutually agree upon.  Even though Section 89 has its own shortcomings, it is heart and soul of the ADR movement in India when it comes to civil disputes. The Supreme Court of India in Afcons Infra. Ltd. v. Cherian Varkey had the opportunity to discuss at length the inner workings of Section 89 and its interpretation. These observations will not be discussed in this article. Rather, the focus of the present article will be on the observations made by the Supreme Court on the type of disputes suitable for ADR processes mentioned in Section 89.

Cases suitable for ADR processes under Section 89

The Supreme Court of India presented an illustrative (not exhaustive) list of disputes that would be suitable for reference to ADR processes (whether pending in a civil court or in other special tribunals/forums) that have been mentioned in Section 89 –

1. All cases relation to trade, commerce and contracts, including
2. disputes arising out of contracts (including all money claims)
3. disputes relating to specific performance
4. disputes between suppliers and customers
5. dispute between bankers and customers
6. disputes between developers/builders and customers
7. disputes between landlords and tenants/licensor and licensees
8. disputes between insurer and insured

• 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/coparceners/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

• All cases relating to tortious liability, including
• Claims for compensation in motor accidents/other accidents; and

• All consumer disputes, including
• disputes where a trader/suppler/manufacturer/service provider is keen to maintain his business/professional reputation and credibility or product popularity.

Cases not suitable for ADR processes under Section 89

The Supreme Court also presented a list of categories of cases which will not be suitable for ADR processes. The Supreme Court observed as follows:

1. Representative suits under Order 1 Rule 8 of CPC which involve public interest or interest of numerous persons who are not parties before the Court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance).

• Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association, etc.)

• Cases involving grant of authority by the court after enquiry, as for examples, suits for grant of probate or letters of administration.

• Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion, etc.

• Cases requiring protection of courts, as for examples, claims against minors, deities and mentally challenged and suits for declaration of title against the Government.

• Cases involving prosecution for criminal offences.

For the cases which are suitable to be referred to ADR processes under Section 89, the Supreme Court held that civil courts should “invariably” refer such cases to the ADR process. But where the case is unsuitable for reference, then the court should record the reasons for not referring the case. It is important to keep in mind that the stage at which the Court should ideally consider referring the matter to ADR process should be after the pleadings are complete and before framing of the issues is done.  But if the Court has somehow missed the opportunity to refer the matter to ADR processes under Section 89, nothing will prevent the Court from referring the matter to ADR processes even after issues have been framed. But the Court needs to ensure that the reference to the ADR process does not become a tool for protracting the trial. It is often seen that parties and their advocates use Section 89 to stretch the trial and seek such adjournments. The observations of the Supreme Court intend to tackle such instances as parties aim to elongate the proceedings before the Court.

Consent of the Parties for choosing the ADR process

A key question before the Supreme Court concerned the consent of the parties in referring the dispute to ADR processes. The Court deemed it important to clarify if both the parties need to give consent for reference to ADR process under Section 89. The Court was of the opinion that the consent of all the parties would be required to refer the matter for arbitration and conciliation. But the other three ADR processes (Mediation, Judicial Settlement and Lok Adalat) do not require consent of the parties for reference. The Supreme Court was of the opinion that out of these three ADR processes, if the suit is complicated, then the process of mediation would become the “recognised choice”. If the suit is not complicated and can be settled by “applying clear-cut legal principles”, then Lok Adalat would become the preferred choice. But if the Court is of the opinion, that guidance by a judge would be appropriate, it can refer it to another judge for resolution of the dispute through judicial settlement.

Conclusion

Afcons Infra. Ltd. v. Cherian Varkey is a landmark judgment as it clarifies the scope and workings of Section 89 of CPC. The judgment aims to ease the burden on the Courts by bringing within the scope of Section 89 different categories of disputes for reference to the ADR processes mentioned therein. The Courts in India can make use of ADR processes to tackle the ever increasing number of pending cases. But this judgment alone would make little impact on the number of pending cases in India if it is not backed with legislations that lend support to ADR processes. Section 12A of the Commercial Courts Act, 2015 is one example of how legislative provisions aid in development of ADR processes like mediation. Similar legislative enactments concerning different categories of disputes suitable for resolution via ADR processes, would support India on its journey towards creating a robust judicial framework with minimal pendency of disputes. India needs to build a strong foundation in order to create a dispute resolution mechanism in which ADR processes not only thrive but also acquire the centre stage.