Hon’ble Supreme Court Of India in Afcons Infrastructure Ltd. & Anr. Vs. Cherian Varkey Construction Co. (P) Ltd. & Ors. (2010) 8 SCC 24 summarized the procedure to be adopted by a court under section 89 of the Code as under :
a) When the pleadings are complete, before framing issues, the court shall fix a preliminary hearing for appearance of parties. The court should acquaint itself with the facts of the case and the nature of the dispute between the parties.

b) The court should first consider whether the case falls under any of the category of the cases which are required to be tried by courts and not fit to be referred to any ADR processes. If it finds the case falls under any excluded category, it should record a brief order referring to the nature of the case and why it is not fit for reference to ADR processes. It will then proceed with the framing of issues and trial.

c) In other cases (that is, in cases which can be referred to ADR processes) the court should explain the choice of five ADR processes to the parties to enable them to exercise their option.

d) The court should first ascertain whether the parties are willing for arbitration. The court should inform the parties that arbitration is an adjudicatory process by a chosen private forum and reference to arbitration will permanently take the suit outside the ambit of the court. The parties should also be informed that the cost of arbitration will have to be borne by them. Only if both parties agree for arbitration, and also agree upon the arbitrator, the matter should be referred to arbitration.

e) If the parties are not agreeable for arbitration, the court should ascertain whether the parties are agreeable for reference to conciliation which will be governed by the provisions of the AC Act. If all the parties agree for reference to conciliation and agree upon the conciliator/s, the court can refer the matter to conciliation in accordance with section 64 of the AC Act.

f) If parties are not agreeable for arbitration and conciliation, which is likely to happen in most of the cases for want of consensus, the court should, keeping in view the preferences/options of parties, refer the matter to any one of the other three other ADR processes : (a) Lok Adalat; (b) mediation by a neutral third party facilitator or mediator; and (c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.

(g) If the case is simple which may be completed in a single sitting, or cases relating to a matter where the legal principles are clearly settled and there is no personal animosity between the parties (as in the case of motor accident claims), the court may refer the matter to Lok Adalat. In case where the questions are complicated or cases which may require several rounds of negotiations, the court may refer the matter to mediation. Where the facility of mediation is not available or where the parties opt for the guidance of a Judge to arrive at a settlement, the court may refer the matter to another Judge for attempting settlement.

(h) If the reference to the ADR process fails, on receipt of the Report of the ADR Forum, the court shall proceed with hearing of the suit. If there is a settlement, the court shall examine the settlement and make a decree in terms of it, keeping the principles of Order 23 Rule 3 of the Code in mind.

(i) If the settlement includes disputes which are not the subject matter of the suit, the court may direct that the same will be governed by Section 74 of the AC Act (if it is a Conciliation Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if it is a settlement by a Lok Adalat or by mediation which is a deemed Lok Adalat). This will be necessary as many settlement agreements deal with not only the disputes which are the subject matter of the suit or proceeding in which the reference is made, but also other disputes which are not the subject matter of the suit.

(j) If any term of the settlement is ex facie illegal or unforceable, the court should draw the attention of parties thereto to avoid further litigations and disputes about executability.


It was also observed that the Court should also bear in mind the following consequential aspects, while giving effect to Section 89 of the Code :

  • If the reference is to arbitration or conciliation, the court has to record that the reference is by mutual consent. Nothing further need be stated in the order sheet.
  • If the reference is to any other ADR process, the court should briefly record that having regard to the nature of dispute, the case deserves to be referred to Lok Adalat, or mediation or judicial settlement, as the case may be. There is no need for an elaborate order for making the reference.
  • The requirement in Section 89(1) that the court should formulate or reformulate the terms of settlement would only mean that court has to briefly refer to the nature of dispute and decide upon the appropriate ADR process.
  • If the Judge in charge of the case assists the parties and if settlement negotiations fail, he should not deal with the adjudication of the matter, to avoid apprehensions of bias and prejudice. It is therefore advisable to refer cases proposed for Judicial Settlement to another Judge.
  • If the court refers the matter to an ADR process (other than Arbitration), it should keep track of the matter by fixing a hearing date for the ADR Report. The period allotted for the ADR process can normally vary from a week to two months (which may be extended in exceptional cases, depending upon the availability of the alternative forum, the nature of case etc.). Under no circumstances the court should allow the ADR process to become a tool in the hands of an unscrupulous litigant intent upon dragging on the proceedings.
  • Normally the court should not send the original record of the case when referring the matter for an ADR forum. It should make available only copies of relevant papers to the ADR forum. (For this purpose, when pleadings are filed the court may insist upon filing of an extra copy). However if the case is referred to a Court annexed Mediation Centre which is under the exclusive control and supervision of a Judicial Officer, the original file may be made available wherever necessary.

The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature :
(i) Representative suits under Order 1 Rule 8 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).

(ii) 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.).
(iii) Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration.
(iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc.
(v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against government.
(vi) Cases involving prosecution for criminal offences.
All other suits and cases of civil nature in particular the following categories of cases (whether pending in civil courts or other special Tribunals/Forums) are normally suitable for ADR processes :
(i) All cases relating to trade, commerce and contracts, including
- disputes arising out of contracts (including all money claims);

  • disputes relating to specific performance;
    - disputes between suppliers and customers;
    - disputes between bankers and customers;
  • - disputes between developers/builders and customers;
    - disputes between landlords and tenants/licensor and licensees;
    - disputes between insurer and insured;
    (ii) 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/co- parceners/co-owners; and
  • - disputes relating to partnership among partners.
  • (iii) 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;

    (iv) All cases relating to tortious liability including - claims for compensation in motor accidents/other accidents; and

    (v) All consumer disputes including
    - disputes where a trader/supplier/manufacturer/service provider is keen to maintain his business/professional reputation and credibility or ‘product popularity.

Thus a wide nature of disputes, including Matrimonial, Labour, Motor Accident Claims, eviction matters between landlord and tenants, Complaints under Section 138 of Negotiable Instrument Act, Petitions under Section 125 Cr. P.C. or any compoundable offence can be referred for mediation. If only one of the parties makes a request and the other party is not averse to the idea of mediation, the dispute can still be referred. Any court can otherwise make a reference of a dispute as provided under Section 89 of Code of Civil Procedure. Lawyers can assist the parties in the mediation proceedings. Rather, it has been found that wherever the parties are assisted by their advocates, a settlement is arrived at a bit early, for the lawyers can explain the weakness and strength of their respective cases and the time factor which might be taken in litigation. Since the proceedings before a mediator are informal the parties can even bring any of their relations to assist them.