Alternative Dispute Resolution (ADR);

Inconsistencies, Anomalies and

Suggestions for building a better ADR
mechanism.

Ajith Reddy D
BBA-LLB, SECTION-C 2016-1560
 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

Executive Summary:
The following paper discusses about whether the ADR mechanisms in India are serving the

purpose they have been enacted for; through intensive research, we found out that ADR has

not been contributing as much as it was intended to in clearing up the pending and new cases

in a cost and time effective manner; and the reasons to this range from inconsistencies in the

law to improper implementation which will be elaborated upon in the following parts of the

paper. This being the heart of the paper, it starts by discussing the origin of ADR, goes on to

explain the law relating to ADR, its inconsistencies and how the court tried to curb those

through its interpretation so that there is no confusion in implementing the law. In the later

parts, the paper discusses about the 238th Law Commission Report and how it thinks that the

current ADR law has failed and needs urgent relook and points out to various other anomalies

and inconsistencies. As every coin has two sides, the paper goes on to discuss about the

arguments of the other side. After addressing the issues raised in the previous part, the paper

moves the discussion to what could be done to better the situation i.e. to make the ADR

mechanisms in the country more efficient and effective.

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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

Introduction:
No matter how good a substantive law is, its’ efficiency depends on the proper implementation

of a procedural law. Enacted by the British in 1908, The Civil Procedure Code (Herein referred

to as code) has had its own set of deformities which the legislature has been trying to correct

with various amendments. With almost 3 crore cases pending across the nation1, it can be

concluded that whatever the government is trying to do is not bettering the situation. Even with

a high disposal rate of judges, civil litigations are taking forever to conclude2. With the findings

and suggestions of the 129th Law Commission Report (LCR) and the Malimath Committee, the

government realised that, other than improving the infrastructure, increasing the number of

judges or any other traditional approach, Alternative Dispute Resolution (ADR) would be more

effective and efficient in reducing this judicial lag and hence S.89 of the Code was resurrected

with the CPC (Amendment) Act, 1999 which was effective from 1/7/20023. The initial S.89

only had arbitration as a form of ADR and hence was removed when the Arbitration Act was

enacted in 1940 as there was a whole act governing the issue4. But as the years passed and

cases kept on piling, the government saw a need to lay emphasis on ADR and the CPC

(Amendment) Act, 1999 was passed with the objective of disposing as many cases as possible,

outside the court.

1
“The Economic Times”, Politics and Nation, December 7, 2014, available at
http://articles.economictimes.indiatimes.com/2014-12-07/news/56802830_1_120-cases-high-
courtsexpeditious-disposal
2
Law Commission of India, Report No. 238, December 2011
3
Alternate Dispute Resolution under the Code of Civil Procedure, February 5, 2015, available at
https://www.lawctopus.com/academike/alternate-dispute-resolution-code-civil-procedure/
4
Supra3
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

Section 89 in detail:
S.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 observation 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 had 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 Authority 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 Authority 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.]5

On a very basic level, the section says, if the court feels that there is any chance of

settlement between the parties then the court must formulate the terms of settlement and give

5
Civil Procedural Code, 1908
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

them to the parties for their observation and after receiving the observations from the parties,

the court may reformulate the terms of settlement and refer the case for any of the following:

 Arbitration
 Conciliation
 Judicial settlement including settlement through Lok Adalat; or
 Mediation.

The judge can either let the parties decide the form of settlement or decide what’s best

for the parties based on the facts and circumstances of the given case6. Now let us look

into each form of ADR in greater detail.

 Arbitration: Arbitration as per the Arbitration and Conciliation Act, 1996 (AC Act) can

only be opted for if the parties have a prior arbitration agreement but it can also be done

if both the parties to a suit agree for arbitration as a form of ADR. Once the case has

been transferred for arbitration, it moves outside the judicial realm7.

 Conciliation: Governed by the AC Act, conciliation is a form of ADR which can be

referred to by the court only with the express consent of the parties 8. Once the court

referres a matter to conciliation it does not move out of the judicial realm because of

the reason that if the parties are not able to come to a settlement then they can always

come back to the court. Adding to these, for the the settlement agreement signed under

6
ALTERNATIVE DISPUTE RESOLUTION UNDER SECTION 89 OF THE CODE OF CIVIL PROCEDURE, Available at
http://shodhganga.inflibnet.ac.in/bitstream/10603/26666/12/12_chapter%206.pdf
7
Supra 2
8
Supra 6
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

this, to be enforceable, has to be presented to the court for it to inspect the agreement

and pass the decree on the same to close the matter9.

 Lok Adalat: Governed by the Legal Services Authoritiy Act 1987 (LSA Act), Lok Adalats

become popular in the 1970s and 80s10. The consent of the parties is not required for a

judge to refer a matter to Lok Adalat if he/she thinks fit. The same rule applies about the

jurisdiction of court and court decree to enforce the settlement agreement signed under

this as that of conciliation11.

 Judicial settlement & Mediation: There is a pre and post stance for these forms, and the

latter will be discussed in greater detail in the following parts of the paper. Governed

by the same act as the Lok Adalats, Judicial settlement apart from what the section

suggests also stands on the same footing as Lok Adalats W.R.T consent of parties,

Jurisdiction of the court and a court decree to enforce the settlement agreement signed

under it. Indian Judicial settlement is different from what is recognized in the west (i.e.)

court mandated settlement by a judge who has not heard the parties before. But in India

as the section suggests the court refers the matter to an individual or institution for

settlement as it sees fit. Coming to mediation, it is a form of ADR under which the court

shall effect a compromise among the parties as per the rules prescribed either by higher

courts or government. It also is similar to Lok Adalats and Judicial settlement W.R.T

9
Supra 2
10
Supra 2
11
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

the basis discussed above (consent of parties, Jurisdiction of the court and a court

decree). Refer to the following table for better understanding12.

Basis of Arbitration Conciliation Judicial Mediation

difference Settlement

Consent of Required Required Not required Not required

parties

Jurisdiction of Outside Within Within Within

the court

Court decree to Not required Required Required Required

affirm the
settlement

Case of Afcons Infrastructure:

On the face of it, the section looks good and all set to take care of settlement of cases but once

we start breaking it down, it’s not the case. In order to understand this section fully, we need

to look at the cases of Salem Advocates Bar Association vs. UOI (2005, 6 SCC 344) and M/S.

Afcons Infra. Ltd. & Anr vs M/S Cherian Varkey (2010 8 SCC 24).

To start with, in this case, the supreme court said that S.89 was “A trial Judge’s nightmare” to

understand and interpret S.8913 and hence cleared the following questions about the section for

it to be implemented properly and achieve its objectives.

The first question is about whether it is the courts’ duty under S.89 to formulate terms

of settlement. In an attempt to resolve this anomaly, the court, in the case of Salem Advocates

12
Supra 6
13
M/S. Afcons Infra. Ltd. & Anr vs M/S Cherian Varkey, (2010 8 SCC 24)
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

Bar Association Case equated the words “Terms of settlement” to “Summary of disputes”14 but

did not further elaborate upon it. Due to which a concrete solution could not be devised to

address the question in hand. Later, the court in Afcons case built upon it by giving the

following reasoning: S.89 says that, if the court thinks fit that there is a possibility of a

settlement agreeable by parties, the section mandates the court to formulate terms of settlement

which are given to parties for their observation, once the court receives back these observations,

it may reformulate the terms of settlement and refer the case for any of the above-mentioned

forms of settlement. The section in saying so has just restated what was said in S.73 (1) of the

Arbitration and Reconciliation Act, 1996.

73. Settlement agreement.

1. When it appears to the conciliator that there exist elements of a settlement which may
be acceptable to the parties, he shall formulate the terms of a possible settlement and
submit them to the parties for their observations. After receiving the observations of the
parties, the conciliator may reformulate the terms of a possible settlement in the light
of such observations.15

It basically bundled the final step of any settlement proceeding and put it in S.8916. For anyone

be it a court or a conciliator, they can’t draw up the terms of settlement without understanding

in depth the facts and circumstances of the case. And in doing so, much of courts time is wasted

14
Salem Advocates Bar Association vs. UOI, (2005) 6 SCC 344
15
Arbitration and Conciliation Act, 1996
16
Supra 13
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

and the whole point of speedy justice through ADR is vitiated. Moreover, when the court is

referring a matter for ADR, it is illogical and impractical for the court to formulate the terms

of settlement first and then refer the matter to the respective forum because it is the job of the

people sitting in such forums to look into the matter, talk to the parties and come to a settlement.

The court in the Afcons case said the same and concluded by saying that S.89 must be read

together with Rule 1-A of Order 10 of the code17 which does not specify anything about the

terms of settlement. The supreme court directed the courts that before referring the case to any

of the forms of ADR it must record the nature of dispute in a couple of lines and then do the

same, there was no need of formulating any terms of settlement as it was the job of the

conciliators to do so.

The next question that was addressed by the Supreme Court was about a drafting error

which is rather obvious (i.e.) the mix up of the terms “judicial settlement” and “mediation” in

S.89 (2) [C] and S.89 (2) [D] respectively. S.89 (2) [C] W.R.T to Judicial settlement talks about

a settlement where the court refers the case to an appropriate person or authority and S.89 (2)

[D] W.R.T to Mediation talks about the court effecting a compromise between parties. As it

can be seen from the above that it does not make any sense to name something where the court

refers the case to an appropriate person or authority as Judicial settlement and it also does not

make any sense to term something which talks about the court effecting a compromise between

parties as Mediation. The court terms this as obvious draftsman’s error and the courts while

reading and interpreting the section should do it by interchanging the words18.

17
Supra 13
18
Supra 13
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

The last question the court addressed is whether the duty of the court referring a dispute

to ADR is mandatory or obligatory. Though by plain reading of S.89 (“Where it appears to the

court that”)19 and (“the Court may reformulate”) might give one an idea that the reference of a

dispute to ADR is on courts discretion and hence obligatory. In the Salem case, the court said

that, “The intention of the legislature behind enacting Section 89 is that where it appears to

the court that there exists an element of a settlement which may be acceptable to the parties,

they, at the instance of the court, shall be made to apply their mind so as to opt for one or the

other of the four ADR methods mentioned in the section and if the parties do not agree, the

court shall refer them to one or the other of the said modes.” And the use of the word may in

S.89 was only with respect to reformulation of terms of settlement and in no way related to the

heart of the section and went on to say that S.89 must be read together with Rule 1-A of Order

10 which uses the word ‘shall’20. From this we can draw that it is mandatory for courts to refer

cases to ADR. If not refer, the supreme court in the Afcons case adding to the Salem case, said

the courts should have a hearing about referring of the case to ADR and decide whether to

continue to adjudicate or refer the matter to ADR and record reasons for doing so21. To make

the courts’ work simpler and faster the supreme court categorized cases into two lists (i.e.)

whether to refer a matter to ADR or not; but it should be understood that the list is not

exhaustive and gives the courts power to deviate from it based on facts and circumstances of a

case.

19
Supra 5
20
Supra 14
21
Supra 2
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

The Supreme court through its specific guidelines on interpreting this section, did its

best to correct the inconsistencies of the section but there’s so much even the Supreme court

can do when the language of the section is filled with various anomalies and inconsistencies

with other sections. Sooner or later it must be amended, to understand this in greater detail we

need to look into the 238th LCR and its recommendations W.R.T S.89.

Recommendations by the 238th LCR:

The 238th LCR recommended on amending the section and have given out a brand-new section

which minimizes such inconsistencies to almost zero. The legislature has not done anything

about this, but the section could be found in the 238th LCR also it clubbed Rule 1-A and 1-B

of Order 10 and specified on what must be done if the parties don’t show up. It also

interchanged the terms mediation and judicial settlement as was specified under the Afcons

case. All these being said, two things which the LCR stressed upon which were not discussed

before are about the requirement of court decree after the parties agreeing on a settlement and

the anomaly of the court fees as spotted out by Justice RV Raveendran.

As of now, as per Rule 3 of Order 23 all the settlement agreements from all forms of

ADR (When referred to ADR after filing of the suit) except for arbitration can only be

implemented after submitting them to the court and the court passing a decree for the same.

This is because of the aforementioned reason that the matter does not go out of the jurisdiction

of the court in other forms except during arbitration. This becomes problematic because as per

AC Act, 1996 (S.74) and LSA Act, 1987 (S.21) settlement agreements signed under these acts

have the same same footing as a Civil Court decree. Adding to this, these acts are special

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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

enactments and Order 23, Rule 3 cannot supersede these enactments; Therefore, any settlement

agreement decided upon under these acts by either Lok Adalats or any other conciliators need

not be decreed by the court for them to be implemented. It is logical for a mandatory court

decree for mediation as it is non-statutory and there is a higher chance for failure of justice.

The 238th LCR tried to address by keeping alive the essence of Rule 3, Order 23 by proposing

to, make it mandatory for Lok Adalats and conciliators to submit a copy of settlement

agreement to make sure that there are no obvious errors which would save a substantial amount

of time as compared to the previous method (Passing of Decree). As far as mediation is

concerned, the parties once agreed upon a settlement need to come to the court to procure a

decree in order to make such settlement agreement binding, and Judicial settlements go about

as per the rules specified either by central or state legislatures or by Supreme or High courts.

Coming to the anomaly of the court fees, the CPC (Amendment) Act, 1999 also

introduced a S.16 to the Court-fees Act, 1870, to deal with the court fees paid by the plaintiffs

whose matter has been referred to some form of ADR.

S.16. Refund of fee.-Where the Court refers the parties to the suit to anyone of the mode of

settlement of dispute referred to in section 89 of the Code of Civil Procedure, 1908 (5 of 1908),

the plaintiff shall be entitled to a certificate from the Court authorising him to receive back

from the collector, the full amount of paid in respect of such plaint.22

Since the court is not looking into the dispute anymore, it is only right to refund the amount paid

and the section does the same but with a huge loop hole which the plaintiffs might exploit. The

22
THE COURT-FEES ACT,1870
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

section provided for refund of court fees right after the matter was referred outside the court but

what if the matter was not resolved by ADR and it came back to the court? There was no section

governing the aspect of court fees when such thing happened. This was pointed out by Justice RV

Raveendran. To this the Law Commission looked into the notes to clauses of the said

amendment which specifies that the section 16 of the Court Fees Act aims at dealing with

refund of court fees for matters settled outside the court and hence came the obvious

recommendation for this (i.e.) amending of the said section for it to mean that the court fees

would only be returned if the dispute was settled through ADR and not after mere reference to

ADR. The proposed section can be found in the 238th LCR.

Arguments for not making the Amendment:

An enquiry in some areas which included District Judges/Secretaries and Legal Service

Authorities it was found that through years of practise, most of these anomalies have been set

right with the help of directives given by the Supreme Court in the Salem and Afcons case. For

example: The procedure of passing of a decree is not followed in most of the cases where a

settlement has been struck by the parties to the suit in a Lok Adalat23. Though it is great to

know that the Judiciary is adapting according to the directions from the Supreme Court, we

also need to understand the fact that in a nation where fully functional sections with zero

anomalies are being exploited using various loop holes in the law, we can’t have a section filled

with so many inconsistencies and anomalies governing the whole ADR mechanism of our

23
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

country. To top it all off, this so-called enquiry was conducted with a limited test group which

can not possibly yield results that could be conclusive to be applied for the whole nation.

One more argument is about how the section does not need any amendment and it is

the people who should be made aware about ADR and its mechanisms. The first point does not

hold any water as the whole paper talks about the anomalies and inconsistencies in the section.

Coming to the second contention, it is true that awareness should be increased among the public

but how should the Judiciary/Legislature go about it? We’ll discuss about it in the following

parts of the paper.

Suggestions:
From, the LCR we can conclude that the section dealing with ADR needs an urgent relook as

the current law contains multiple anomalies and is inconsistent with various other laws which

is hampering the working of the ADR mechanisms. It is very important not only to amend the

section but also to create awareness among the people about ADR and build adequate

infrastructure to support the implementation of the section.

All this goes to waste if there is no awareness in the public about the availability of

ADR. This cannot be done by advertisements or awareness programmes (Rallies, Workshops

etc.) alone but the entire legal fraternity should come together towards achieving this objective,

from lawyers to Judges every individual should feel it as their duty to let the party know about

the availability of ADR mechanisms and even encourage them to take that approach for quicker

disposal of issues. Maybe the lawyers might not do it as it is not exactly in their best interest,

therefore the government or Supreme Court issues directives, making it mandatory for Judges

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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

not only to refer the cases to ADR (as the case is now) but also talk to the parties about the

benefits about choosing ADR (Quicker & Cheaper) and encouraging more and more parties to

settle disputes outside the court (Creating a dispute resolution culture).

Infrastructure does not only refer to buildings but also to availability of more qualified

personnel in those buildings and organising the work force properly. In the District Court of

Mathura on the National Lok Adalat day more than 4000 cases were settled24. All other courts

could take this as an inspiration and case study to organise themselves. According to the Law

Ministry, during the past three years an average of 50 Lakh cases have haven settled by

National Lok Adalat each year25 yet there are 3 crore pending cases in the nation. The reasons

for this are a whole other topic of discussion. Lets us focus on what more could be done WRT

the infrastructure of ADR to deal with cases that are being piled up.

 An association/organization similar to that of the Bar Council of India or Bar

Associations for lawyers could be formed by all the mediators and arbitrators of the

country to be easily accessible to everyone.

 The arbitration process in India is non-transparent and the arbitrators aren’t accountable

to anyone. In order to deal with these issues a professional code of conduct/ethics could

be drafted which are accepted across the globe so that these arbitrators can also indulge

in international arbitration.

24
Over 4000 Cases Settled In Single Day, Available at: https://www.ndtv.com/india-news/over-4000-cases-
settled-in-single-day-in-national-lok-adalat-judge-1841739
25
More than 50 lakh cases disposed on an average by National Lok Adalats, Available at:
http://timesofindia.indiatimes.com/articleshow/62921030.cms?utm_source=contentofinterest&utm_medium
=text&utm_campaign=cppst
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

 As we have already seen the Lok Adalats are contributing positively towards speedy

settlement of disputes and through research it was found out that institutional ADRs are

more effective and efficient than other forms26. Efforts could be made to establish such

institutional ADR mechanisms.

 Incorporating Information technology to stream line the process of ADR (Online ADR

sessions as the parties might not be available to sit face to face) and also having a

database of everything (ADR stages, settlement agreement etc.) in an official website

with adequate protection from cyber-crimes.

 In the recent years the cases settled through Lok Adalats has been falling i.e. 60 Lakhs

in 2015, 49 Lakhs in 2016 and 30 Lakhs in 201727, steps must be taken to take care of

these falling numbers or else the only ADR mechanism which is in its right path would

be disrupted.

 Adding to all these scholars and researches could be encouraged to undertake doctrinal

research about ADR so as to inspire policy makers to make amendments and keep

bettering the mechanisms to serve the changing needs of the society.

26
Alternative Dispute Resolution in India - ADR: status/effectiveness study, Available at:
https://www.ssoar.info/ssoar/bitstream/handle/document/41034/ssoar-2014-konoorayar_et_al-
Alternative_Dispute_Resolution_in_India.pdf?sequence=1
27
Supra 25
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

Conclusion:
One of the many foundations of the CPC, 1908 “Justice delayed is, Justice denied” means that

if a matter is resolved many years of being filed, it does not really benefit either party. Maybe

except for the lawyer. The only person benefitting out of this long wait for justice is probably

the lawyers of both the parties and that might probably be why many lawyers do not encourage

their clients to go for ADR and stick to traditional litigation. Though the government

established the required laws and infrastructure for ADR, the law being full of anomalies and

inconsistencies have cut down on its productivity and has not been up to the mark in achieving

its objectives28. It doesn’t mean that it hasn’t done anything, it has but majority of which is

reserved to metropolitan and tier 1 cities29. And in a country where the majority of the

population lives in rural and semi urban areas it is important for the government to spread

awareness about ADR and encourage people to opt for the same. Being tied up in litigation for

years together has led to many businesses dying and hence speedy settlement of disputes also

being in the economic interest of the nation. Supreme court upholding the constitutional

validity of this section in the Salem Case has not made much of an impact on the number of

people opting for ADR, this can be due to various reasons such as reluctance and lack of

knowledge of the parties.30

28
Supra 3
29
Supra 6
30
Supra 3
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 Alternative Dispute Resolution (ADR);
Inconsistencies, Anomalies and
Suggestions for building a better ADR mechanism.

From the above article though it seems that what has to be done is clear (i.e.) amend

the laws, spread awareness and improve the infrastructure it is not an easy task and needs a lot

of prior planning and implementation with proper checks and balances, else there is a high

chance of the new law to have as many inconsistencies as the current one. This particular law

commission report came out in the year 2011 and nothing has happened in 7 years. This might

be because of the Judges adapting as per the guidelines given in the Afcons case and the

legislature thinking that since that happened it does not really need to amend the law in

question. But when the law is about something as important as governing the ADR mechanism

of the country, it is never good to have a law full of anomalies and inconsistences and hence

the legislature should look into this and do the needful.

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