What is Section 89 of the CPC?

The Indian civil justice system has long struggled with delay, mounting arrears and procedural complexity. Traditional litigation, though structured and authoritative, often consumes significant time and resources. In this background, the legislature introduced Section 89 into the Code of Civil Procedure, 1908 (CPC) to promote settlement of disputes outside the courtroom through Alternative Dispute Resolution (ADR) mechanisms.

Section 89 represents a conscious shift in Indian civil procedure. It attempts to integrate judicial and extra-judicial methods of dispute resolution. Instead of treating ADR as separate from courts, the provision makes it a complementary part of the civil justice framework. 

Over the years, however, Section 89 faced interpretational challenges, drafting anomalies and practical difficulties. Judicial intervention, especially in Afcons Infrastructure Ltd. and Ors. v. Cherian Varkey Construction Co. (P) Ltd. (2010) 8 SCC 24, played a major role in clarifying its scope. Later, statutory reform through the Mediation Act, 2023 reshaped the provision further.

This article explains the meaning, background, procedure, judicial interpretation and evolution of Section 89 CPC in a clear and structured manner.

Background and Legislative Intent

Section 89 was inserted by the Code of Civil Procedure (Amendment) Act, 1999 (Act 46 of 1999), which came into effect on 1 July 2002. The amendment was based on recommendations of the Law Commission of India and the Malimath Committee, both of which emphasised the urgent need to reduce court backlog and institutionalise ADR.

The Statement of Objects and Reasons indicated that once issues are framed, courts should make an effort to refer disputes to ADR processes such as arbitration, conciliation, mediation or Lok Adalat. The objective was:

• To reduce the burden on courts.
• To promote amicable and speedy settlement.
• To preserve relationships between parties.
• To advance access to justice in light of Article 39A of the Constitution of India.

Before the 1999 amendment, Section 89 existed in a limited form dealing primarily with arbitration. That earlier provision had been repealed after the enactment of the Arbitration Act, 1940. The 1999 amendment reintroduced Section 89 in an expanded form to cover multiple ADR processes.

Text and Structure of Section 89 (Pre-2023 Position)

Before its substitution by the Mediation Act, 2023, Section 89 provided that where it appears to the court that there exist elements of a settlement acceptable to the parties, the court shall formulate the terms of settlement, give them to the parties for observations, and may reformulate them before referring the dispute to:

1. Arbitration
2. Conciliation
3. Judicial settlement including Lok Adalat
4. Mediation

Sub-section (2) clarified that:

• If referred to arbitration or conciliation, the Arbitration and Conciliation Act, 1996 would apply.
• If referred to Lok Adalat, the Legal Services Authorities Act, 1987 would apply.
• Judicial settlement would be deemed to be Lok Adalat for enforcement.
• For mediation, the court would effect compromise following prescribed procedure.

This structure aimed to harmonise CPC with other dispute resolution statutes.

Allied Provisions: Order X Rules 1A–1C CPC

The 1999 amendment also introduced Order X Rules 1A, 1B and 1C.

• Rule 1A empowered the court, after recording admissions and denials, to direct parties to opt for one of the ADR modes under Section 89.
• Rule 1B required appearance before the chosen forum.
• Rule 1C dealt with return of the matter to court if ADR efforts failed.

While Section 89 provided substantive authority, Order X prescribed the procedural framework for exercising that authority.

Core Objectives of Section 89

Section 89 seeks to:

• Encourage consensual dispute resolution.
• Save judicial time.
• Reduce litigation costs.
• Provide flexible settlement options.
• Promote participatory justice.

It marks a transition from adversarial rigidity to cooperative problem-solving within civil procedure.

Fundamental Issues in the Original Section 89

Despite noble intentions, the drafting of Section 89 led to serious confusion.

Formulation of Settlement Terms Before Referral

Section 89(1) required courts to formulate and reformulate terms of settlement before referring disputes to ADR. This created practical difficulty.

A judge cannot realistically determine settlement terms solely from pleadings. Such formulation requires negotiation and deliberation, which are functions of mediators or conciliators. If the court completed this exercise, little would remain for the ADR forum to do. This created procedural redundancy.

Confusion Between Mediation and Judicial Settlement

Clauses (c) and (d) of Section 89(2) appeared to interchange the meanings of “judicial settlement” and “mediation”. Judicial settlement was defined as referral to an institution deemed to be Lok Adalat, while mediation was described as court-effected compromise.

In practice, mediation involves a neutral third party, whereas judicial settlement is compromise facilitated by a judge. The drafting inverted these meanings.

Distinction Between Conciliation and Mediation

Section 89 treated conciliation and mediation as distinct. However, in practice, both involve neutral facilitation without adjudication. This artificial distinction created enforcement anomalies.

For example:

• Settlement in conciliation under the Arbitration and Conciliation Act has the status of an arbitral award.
• Settlement labelled as mediation did not automatically carry such status.

Mandatory or Directory Nature

Section 89 began with “where it appears to the court…”. This wording suggested discretion. However, Order X Rule 1A used mandatory language (“shall direct”). The interaction between these provisions required judicial clarification.

Judicial Interpretation: Afcons Infrastructure Case (2010)

The landmark decision in Afcons Infrastructure Ltd. and Ors. v. Cherian Varkey Construction Co. (P) Ltd. (2010) 8 SCC 24 addressed major defects in Section 89.

Issues Before the Court

• Whether arbitration under Section 89 requires consent of parties.
• Whether courts must strictly follow the requirement of formulating settlement terms.
• Whether mediation and judicial settlement definitions were erroneous.

Key Findings

1. Drafting Error

The Supreme Court held that “mediation” and “judicial settlement” in clauses (c) and (d) were interchanged due to a draftsman’s error. The Court directed that they be read by switching the terms.

2. Formulation of Terms Not Mandatory

The Court observed that literal compliance would make ADR redundant. It held that instead of formulating settlement terms, it is sufficient for the court to provide a summary of disputes and assess amenability to settlement.

This approach aligned with its earlier reasoning in Salem Advocate Bar Assn. v. Union of India (2005), where “terms of settlement” were understood as a summary of disputes.

3. Consent Required for Arbitration and Conciliation

The Court clarified that unwilling parties cannot be forced into arbitration or conciliation under Section 89. Consent is essential.

4. Categories of Cases Suitable for ADR

The Court indicated that ADR is generally suitable for:

• Commercial and contractual disputes.
• Matrimonial disputes.
• Neighbourhood conflicts.
• Tort claims such as motor accident cases.
• Consumer disputes.

Representative suits and matters involving serious public interest may not be appropriate for ADR.

5. Stage of Referral

Referral should ordinarily occur after pleadings are complete and before framing of issues.

The Afcons judgment effectively rewrote Section 89 through purposive interpretation to ensure practicality.

Court Fee and Cost Concerns

Section 89 raised issues regarding:

• Refund of court fees under Section 16 of the Court Fees Act, 1870.
• Conflict with Section 21 of the Legal Services Authorities Act.
• Double burden where parties pay both court fee and mediator fees.

These inconsistencies created uncertainty in implementation.

In High Court of Judicature at Madras Rep. by its Registrar General v. M.C. Subramaniam (2021), the Supreme Court held that court fee refund may also be granted when parties privately settle disputes outside formal Section 89 reference. This expanded the understanding of settlement incentives.

Reform Through the Mediation Act, 2023

In 2023, Section 89 CPC was substituted by the Mediation Act.

The amended provision simplifies the structure:

• The court may refer disputes to arbitration.
• The court may refer parties to mediation under the Mediation Act, 2023.
• The court may refer disputes to Lok Adalat.
• The court may effect compromise through judicial settlement.

The new version removes the requirement of formulating settlement terms before referral and corrects the mediation/judicial settlement confusion.

It also aligns mediation references with the Mediation Act, 2023, providing a clearer statutory framework.

Relationship with Mandatory Pre-Litigation Mediation

In Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd. (2023), it was observed that the potential of Section 89 had remained largely untapped. The judgment highlighted the growing importance of pre-litigation mediation under Section 12-A of the Commercial Courts Act, 2015.

Unlike Section 89, which operates after institution of suit, Section 12-A mandates mediation before filing commercial suits. This indicates a broader policy shift toward ADR at earlier stages.

Conclusion

Section 89 of the CPC was introduced to transform the culture of civil litigation in India. Its goal was to embed ADR into the mainstream judicial process and promote settlement beyond courts. However, its original drafting created confusion regarding settlement formulation, consent, and classification of ADR processes.

The Supreme Court in Afcons Infrastructure corrected major defects through purposive interpretation. Subsequent reform under the Mediation Act, 2023 incorporated these judicial corrections and streamlined the provision.