Section 89 CPC: Settlement of disputes outside the Court

Section 89 of Code of Civil Procedure: Settlement of disputes outside the Court

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(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:—

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat: or

(d) mediation.

(2) Were a dispute has been referred—

(a) 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;

(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 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;

(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 Authority Act, 1987 (39 of 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.

Legal Commentary & Landmark Judgments: Section 89

Section 89 of the Code of Civil Procedure, 1908 mandates the referral of disputes by civil courts to alternative dispute resolution (ADR) mechanisms, including arbitration, conciliation, judicial settlement, Lok Adalat, and mediation.

Core Legal Standard: The section introduced ADR into the mainstream of Indian civil litigation.
Procedural Rule & Jurisdiction: Under sub-section (2), where a dispute is referred to arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 apply; where referred to Lok Adalat, the Legal Services Authorities Act, 1987 applies; and where referred to mediation, the court-annexed mediation rules govern.

Consent of both parties is not required to refer them to mediation; referral to arbitration, however, strictly requires mutual written agreement.

Key Landmark Precedents:

Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24: The landmark ruling restructured Section 89: the Supreme Court held that the court need not formulate terms of settlement prior to reference; the court must simply identify whether the dispute is suited for ADR (categorizing disputes suitable and unsuitable for mediation) and refer parties after completion of pleadings without requiring consent for mediation/Lok Adalat.
Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344: The Supreme Court approved model ADR and mediation rules under Section 89, establishing institutional frameworks for court-annexed mediation centers.
High Court of Judicature at Madras v. M.C. Subramaniam, (2021) 3 SCC 560: The Court affirmed that settlements under Section 89 entitle parties to 100% refund of court fees under Section 16 of the Court-Fees Act.

Legal Commentary:

Under the authoritative *Afcons* guidelines, matrimonial disputes, partnership dissolutions, consumer claims, specific performance suits, and commercial breach cases are prime candidates for mandatory mediation referral under Section 89. Consent of both parties is not required to refer them to mediation; referral to arbitration, however, strictly requires mutual written agreement.

Section 89: Settlement of disputes outside the Court

Section 89 of Code of Civil Procedure: Settlement of disputes outside the Court

Legal Commentary & Landmark Judgments: Section 89