ADR and the Civil Procedure Code: section 89 and Afcons

Alternative Dispute Resolution Systems · Unit I · Topic 3 of 18 · 6 min read

Section 89 and Order X Rules 1A to 1C of the CPC, the Salem Advocate Bar Association cases, the Afcons reading of section 89, pre-institution mediation under section 12A of the Commercial Courts Act, and what the Mediation Act, 2023 would change.

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On this page

1. Section 89: the text
2. Order X Rules 1A to 1C
3. The Salem Advocate Bar Association cases
4. Afcons: section 89 rewritten by interpretation
5. Pre-institution mediation in commercial suits
6. What the Mediation Act, 2023 would change
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The CPC itself sends parties out of court. Since 1 July 2002 a civil court must consider, after the pleadings close, whether the dispute can be settled by one of four ADR methods. The section was badly drafted, and the Supreme Court in Afcons rewrote it by interpretation. Learn the text, the two anomalies the Court found, and the consent rules it laid down.

1. Section 89: the text

Section 89 was inserted by the Code of Civil Procedure (Amendment) Act, 1999, in force from 1 July 2002. Sub-section (1) provides that 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 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.

Sub-section (2) states the consequence of each reference. For arbitration and conciliation the Arbitration and Conciliation Act, 1996 applies as if the proceedings had been referred under that Act. For Lok Adalat, the Legal Services Authorities Act, 1987 applies (section 20(1) of that Act). For judicial settlement, the court refers to a suitable institution or person deemed to be a Lok Adalat. For mediation, the court effects a compromise between the parties following the prescribed procedure.

2. Order X Rules 1A to 1C

Rule 1A: after recording the admissions and denials, the court directs the parties to opt for one of the modes in section 89(1), and fixes the date of appearance before the chosen forum.
Rule 1B: the parties must appear before the conciliation forum or authority so chosen.
Rule 1C: if the efforts fail, the presiding officer of the forum refers the matter back to the court and directs the parties to appear before it.

3. The Salem Advocate Bar Association cases

The 1999 and 2002 amendments to the CPC were challenged. In Salem Advocate Bar Association, Tamil Nadu v. Union of India, 2002 INSC 444, (2003) 1 SCC 49, the Court upheld their validity and set up a committee to frame model rules, including rules for ADR under section 89. In the sequel, Salem Advocate Bar Association, Tamil Nadu v. Union of India, 2005 INSC 324, (2005) 6 SCC 344, decided on 2 August 2005, the Court considered the committee's report, which contained draft rules on ADR and mediation under section 89, and directed High Courts to frame rules on those lines. High Courts then framed rules for ADR and court-annexed mediation, and mediation centres were set up in court complexes.

4. Afcons: section 89 rewritten by interpretation

In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., 2010 INSC 431, (2010) 8 SCC 24, R.V. Raveendran J. found two anomalies and corrected them.

First anomaly: the definitions are swapped. Section 89(2)(c) and (d) mix up “judicial settlement” and “mediation”. Read sensibly, on a reference for judicial settlement the court effects the compromise itself (or through another judge), and on a reference for mediation it sends the matter to a suitable institution or person, deemed to be a Lok Adalat for that purpose. The Court read the two clauses interchanged.
Second anomaly: formulating terms too early. Section 89(1) asks the judge to formulate and reformulate the terms of settlement before referring the case, which is the final stage of conciliation borrowed from section 73(1) of the 1996 Act. That would make the ADR process redundant. The judge need only record the nature of the dispute and the elements of settlement in brief and then refer.

The Court also held:

Considering ADR under section 89 is mandatory: the court must consider reference after the pleadings and before framing issues. Actual reference is not compulsory in every case.
Arbitration and conciliation need the consent of all parties. A court cannot compel parties into arbitration; once they agree, the 1996 Act governs and the suit is effectively disposed of. Reference to Lok Adalat, judicial settlement or mediation does not require consent; the court may refer on its own.
The Court set out categories of cases suitable and unsuitable for ADR (reproduced in the previous note).
Where a settlement is reached in mediation or judicial settlement, it is placed before the court, which records it and passes a decree in its terms under Order XXIII Rule 3.

5. Pre-institution mediation in commercial suits

Section 12A of the Commercial Courts Act, 2015, inserted in 2018, provides that a suit which does not contemplate urgent interim relief shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in the manner prescribed by the Central Government's rules. In Patil Automation Private Limited v. Rakheja Engineers Private Limited, 2022 INSC 841, (2022) 10 SCC 1, the Court held the requirement mandatory: a suit filed without it is liable to be rejected under Order VII Rule 11. The declaration was made prospective from the date of the judgment, 17 August 2022.

6. What the Mediation Act, 2023 would change

Section 59 and the Fourth Schedule of the Mediation Act substitute a new section 89. The new text drops conciliation altogether and lets the court refer the dispute to (a) arbitration, (b) mediation under the Mediation Act, (c) Lok Adalat under section 20(1) of the Legal Services Authorities Act, or (d) judicial settlement by the court itself. It also removes the anomalies Afcons identified. Section 64 and the Ninth Schedule would recast section 12A as “pre-litigation mediation”, to be completed within 120 days (extendable by 60), with the settlement enforceable under sections 27 and 28 of the Mediation Act.

These amendments are not yet in force. The Central Government's notification of 9 October 2023 (S.O. 4384(E)) brought into force only sections 1, 3, 26, 31 to 38, 45 to 47, 50 to 54, 56 and 57, and no later notification bringing sections 59 or 64 into force could be confirmed. Until it comes, section 89 and section 12A apply in their existing form, read with Afcons and Patil Automation.

Trap. Students write that the court can compel parties to arbitrate under section 89. It cannot. After Afcons, a reference to arbitration or conciliation needs the consent of all parties. Only Lok Adalat, mediation and judicial settlement can be ordered without consent, and even then the parties are not obliged to settle.

How this is examined

The syllabus lists “Civil Procedure Code and ADRs” and it appears as a short note or as part of the “concept of ADR” question. Quote section 89(1) with its four methods, list Order X Rules 1A to 1C, then spend most of the answer on Afcons: the two anomalies, the consent rule and the lists. End with section 12A and Patil Automation, and a sentence that the Mediation Act's substitute section 89 is not yet in force.

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