A.P.Societies Registration Act 2001 Introduction: Societies Registration Act 1860: An apartment owners association in any state may be registered under – the Societies Registration Act 1860. Societies Registration Act is a Central Act. Societies Registration Act was passed in 1860, though the Act is still in force, it has been specifically repealed in many States and those States have their own Acts. ======-====== A.P.Societies Registration Act 2001 extends to the whole of the state of Andhra Pradesh. Any seven or more persons forming a society which has for its object the promotion of art, fine art, charity,crafts, religion, sports (excluding games of chance), literature, culture, science , political education,philosophy or diffusion of any knowledge or any public purpose may be registered under this Act. Any apartment owners association in Hyderabad or societies situated in Andhra Pradesh can be registered under this Act. The Andhra Pradesh Societies Registration Act - 2001. Received the assent of the Governor on the 9th October, 2001 and the said assent is hereby first published on the 10th October, 2001 in the Andhra Pradesh Gazette, Part IV-B (Ext). 1. This Act may be called the Andhra Pradesh Societies Registration Act, 2001. 2. It extends to the whole of the State of Andhra Pradesh. 3. It shall come into force on such date as the Government may, by notification, in the Andhra Pradesh Gazette, appoint. According to Section-5 : Contents of bye-laws of society: - The bye-laws of a society shall contain provisions in respect of following matters: i. identity of the society which includes name and address particulars of the society; ii. activities of the society; iii. membership of the society ie., eligibility, admission, withdrawal and termination etc., iv. General body which contains the manner of meetings to be held or convened, quarum, functions and responsibilities etc., v. office bearers and their appointment/election/removal/recall and their responsibilities etc., vi. finances which includes types of funds to be raised, appointment of auditors, liability of members for discharge of debts etc., and vii. other matters which cover the internal matters of settelment of internal disputes, dissolution of the society etc. According to Section-6 : Societies not to be registered with undesirable names: - 1. No society shall be registered by a name which contravenes the provisions of the Emblems and Names (Prevention of the Improper use) Act, 1950 (Central Act 12 of 1950). 2. a. No society shall be registered in a District by a name, which is identical with that of another registered society in existence in the same District or so nearly resembling it so as to mislead except where the registered society in existence is in the course of being dissolved and signifies in writing its consent to such registration. b. Except with the previous sanction in writing of the Government, no society shall be registered by a name which contains any of the following words, namely: - 3. A society may, by a special resolution change it's name, with a previous intimation to the Registrar in writing. 4. The Change of name shall not affect any right or obligation of the society or any member thereof or render defective any action or other legal proceedings by or against it and any of the members, and any action or other legal proceedings which might have been continued or commenced by or against the society by its former name may be continued or commenced by or against the society by its new name. According to Section-7 : Registration of Societies: - 1. Where a society has complied with the provisions of the Act as to registration and on payment of such fees as may be notified under Section 29, the Registrar shall issue to that society a certificate of registration and such certificate shall be conclusive evidence that the society therein mentioned is duly registered. 2. The Registrar shall, after the issue of a certificate of registration to a society enter in a register which may include a register maintained through an electronic device like computer, the particulars specified in the memorandum, of that society filed and such other particulars as may be notified. 3. If the Registrar refuses to register a society, an appeal shall lie to the Registrar General within sixty days from the date of communication of the order of the Registrar refusing to register the society. Even such appeal shall be accompanied by a fee as may be notified by the Government from time to time. 4. If an application for registration of a society is presented before the Registrar complying with all the provisions of this Act is not disposed of within sixty days the society is deemed to have been registered and the Registrar shall issue a certificate to that effect. According to Section-8 : Amendment of memorandum and Bye-laws: - 1. By a "Special Resolution" a society may alter the provisions of the memorandum with respect to:- a. change of objectives of the society; b. to amalgate itself with any other society; or c. to divide itself into two or more societies, 2. Subject to provisions of this Act, and the conditions contained in its memorandum, a society may, by an order resollution passed by not less than 1/2 (half) of the members present and voting alter its bye-laws. 3. Any alteration of the memorandum of the society shall not be valid unless such alteration is registered under this Act. 4. If any alteration of the memorandum is filed with the Registrar and if they are not contrary to the provisions of this Act, he shall register the same and shall certify the registration of such alteration under his hand and seal within thirty days from the date of receipt of the resolution. The certificate shall be conclusive evidence that all the requirements of this Act with respect to the alteration and the certification thereof have been complied with and henceforth the memorandum as so altered shall be the memorandum of the society. 5. Every alteration in the bye-laws of the society should be sent to the Registrar and he shall take it on record if it is not contrary to the provisions of this Act. 9. According to Section-9 : Filing of annual list: - Every year the society shall, within fifteen days from the date on which the General Body meeting was held, furnish a list to the Registrar of Societies which shall contain the names and addresses of the member of the Managing Committee and Officers entrusted with the management of the affairs of the Society. CHAPTER III :: Management and Administration According to Section-10 : Registered Office of Society: - 1. A society shall, as from the day on which it begins functioning or as from the twenty-eighth day after the date of its registration whichever is earlier have a registered office at any place in the district in which it is registered and to which all communications and notices may be addressed. Notice of the location of the registered office and of every change therein shall be given within twenty-eight days after the date of its registration or after the date of the change, as the case may be, to the Registrar, who shall record the same in the certificate of registration. 2. Any change of its registered office to a place outside the district in which it is registered, shall be intimated to the Registrars of both the Districts. 3. Every society shall display its name outside its office premises in a conspicuous position in legible characters of the language in general use in that place. 4. Every society shall have its name engraved in legible characters on its seal. 11. According to Section-11 : Register of Members: - Every society shall keep a register of members and enter therein the following particulars, namely: - a. the name and address and the occupation, if any, of each member; b. the date on which the name of each person was entered in the register as member; c. the date on which any person ceased to be a member; and d. the specimen signatures of the members. According to Section-12 : Accounts and Records: - Every society shall keep at its office, the following accounts, records, and documents; namely: - a. a copy of this Act with up-to-date amendments incorporated; b. a copy of it's registered memorandum along with up-to-date bye-laws with amendments made from time to time; c. the minutes book; d. accounts of all sums of money received and expended by the society and their respective purposes; e. accounts of all purchases and sales of goods by the society; f. accounts of all assets and liabilities of the society; g. an up-to-date register and a list of all members with voting rights for the current year prepared within thirty days of the closure of the society's financial year; h. copies of the audit reports, and if any, and compliance reports thereon; and i. all such other accounts, records and documents as may be required by this Act. According to Section-13 : Inspection of Register of Members of a Society: - The Register of members shall be kept open during the business hours subject to such reasonable restrictions as the bye-laws of the society may specify. According to Section-14 : Committee of the Society: - 1. Every society shall elect a Committe, consisting of not less than three members of the society, by a resolution passed by a majority of the members present and entitled to vote at an annual general body meeting of the society held under Section 20. 2. The terms of the Committee or of its members so elected shall be a period as may be specified in the bye-laws; Provided that a member who has completed a term as an elected member is eligible for re-election as a member of Committee, if the bye-laws so permit. 3. Every society shall maintain a register showing the names, adresses and occupation of the persons, who are members of the Committee and shall file with the Registerar: - i. a copy of the register within a period of fourteen days from the date of election of the members of the first Committee; and ii. a notice of every change in the members of the Committee within a period of fourteen days from the date of such change. According to Section-15 : Disqualification of members of the Committee: - A person shall be disqualified for appointment as a member of the Committee of a society under this Act if, on the date of such appointment, he is,- a. not a major; b. of unsound mind and stands so declared by a competent Court; c. an applicant to be adjudicated as an insolvent or is an undischarged insolvent; d. convicted of an offence involving moran turpitude or sentenced by a criminal court to a fine of not less than rupees one thousand or to imprisonment for a period of not less than six months; and e. disqualified for such appointment by an order of a Court. According to Section-16 : Supply of copies of Bye-laws: - Every Society shall, deliver a copy of its Bye-laws, to each member of the society at the time of admission. According to Section-17 : Supply of copies of balance sheet etc.:-Every society shall supply to every member a copy of the balance sheet or a statement of accounts together with the auditor's report at its annual general body meeting, if not supplied in advance. According to Section-18 : Society to be a body corporate:-The registration of society shall render it a body corporate by the name under which it is registered having perpetual succession and a common seal. The society shall entitled to acquire, hold and dispose of property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all other things necessary for the furtherance of the aim for which it was constituted. According to Section-19 : Legal Proceedings:- 1. The Committee or any officer of the society authorised in this behalf by its bye-laws, may bring or defend any action or other legal proceeding touching or concerning any property or any right or claim of the society and may sue and to be sued in its name. 2. Any action or legal proceeding shall not abate or be discontinued by the death; resignation or removal from office of any member of the society after the commencement of the proceeding. According to Section-20 : Meetings:- 1. The bye-laws of the society shall specify the frequency and the manner in which the meetings of the Committee and General Body shall be held, so however that the Committee shall meet atleast once in every three months and the General Body shall meet atleast once in a year. 2. The Committee shall convene a General Body meeting within thrity days of receipt of a requisition for convening a meeting signed by atleast one third of the members of the society or as provided in the bye-laws and any such requisition shall contain the proposed agenda and the reasons for such meeting. 3. Every society shall record in the minutes book, the minutes of all proceedings of every General Body meeting and also every meeting of its Committee. 4. Such minutes shall be communicated to all the members invited for the meeting within thirty days of the conclusion of the meeting. 5. The minutes so recorded shall be signed by the person who chaired the said meeting. Tit-bit:’ May’ is National Electrical Safety Month

Distinction between Decree and Order

Q. Explain Decree, Order, and Judgment and distinguish between them.
What are the essential elements of a decree?
What are the kinds of decree? What are the consequences of non appearance of parties?
What is an ex parte decree?
Discuss the remedies available to a defendant against whom an ex parte decree has been passed.
All questions regarding execution of a decree shall be determined by the court executing the decree and not by a separate suit. Explain.

Decree
In a civil suit several facts might be alleged and the court may be required to rule on several claims. In simple terms, a decree is the ruling of the court regarding the claims of the parties of the suit. For example, in a suit between A and B, A may claim that a particular property P belongs A. After hearing all the arguments, the court will rule in the favor of either A or B. The final decision of the court regarding this claim i.e. whether the property belongs to A or B, is a decree.

As per Section 2(2), a decree is the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit. It can be final or preliminary.

From the above definition we can see the following essential elements of a decree -

1. There must be an adjudication - Adjudication means Judicial Determination of the matter in dispute. In other words, the court must have applied its mind on the facts of the case to resolve the matter in dispute. For example, dismissing a suite because of default in appearance of the plaintiff is not a decree. But dismissing a suite on merits of the case would be a decree.

2. There must be a suit - Decree can only be given in relation to a suit. Although CPC does not define what suit means, in Hansraj vs Dehradun Mussoorie Tramways Co. Ltd. AIR 1933, the Privy Council defined the term suit as "a civil proceeding instituted by the presentation of a plaint".

3. Rights of the parties - The adjudication must be about any or all of the matters in controversy in the suit. The word right means substantive rights and not merely procedural rights. For example, an order refusing leave to sue in forma pauperis (i.e. an order rejecting the application of a poor plaintiff to waive court costs) is not a decree because it does not determine the right of the party in regards to the matters alleged in the suit.

4. Conclusive Determination - The determination of the right must be conclusive. This means that the court will not entertain any argument to change the decision. I.e. as far as the court is concerned, the matter in issue stands resolved. For example, an order striking out defence of a tenant under a relevant Rent Act, or an order refusing an adjournment is not a decree as they do not determine the right of a party conclusively. On the other hand, out of several properties in issue in a suit, the court may make a conclusive determination about the ownership of a particular property. Such a conclusive determination would be a decree even though it does not dispose off the suit completely.

5. Formal expression - To be a decree, the court must formally express its decision in the manner provided by law. A mere comment of the judge cannot be a decree.

Examples of decisions which are Decrees - Dismissal of appeal as time barred, Dismissal or a suit or appeal for want of evidence or proof, Order holding appeal to be not maintainable.

Examples of decisions which are not Decrees - Dismissal of appeal for default, order of remand, order granting interim relief.

Order
As per Section 2 (14), The formal expression of any decision of a civil court which is not a Decree is Order. In a suit, a court may take certain decisions on objective considerations and those decisions must contain a discussion of the matters at issue in the suit and the reasons which led the court to pass the order. However, if those decisions fall short of a decree, they are orders.

Thus, there are several common elements between an order and a decree - both related to matter in controversy, both are decisions given by the court, both are adjudications, both are formal expressions. However, there are substantial differences between them -

Decree - S. 2(2) Order S. 2(14)
Can only be passed in a suit originated by the presentation of a plaint. Can be passed in a suit originated by the presentation of a plaint, application, or petition.
Contains Conclusive Determination of a right May or may not finally determine a right.
May be final, preliminary, or partly preliminary - partly final. Cannot be a preliminary order.
In general, there can only be one decree or at the most one preliminary and one final decree in a suit. There can be any number of orders in a suit.
Every decree is appealable unless an appeal is expressly barred. Only those orders which are specified as appealable in the code are appealable.
A second appeal may lie against a decree to a High Court on certain grounds. There is no second appeal for orders.

Judgement
As per Section 2 (9), "judgment" means the statement given by the judge of the grounds of a decree or order. Every judgment should contain - a concise statement of the case, the points for determination, the decision thereon, the reasons for the decision. In the case of Balraj Taneja vs Sunil Madan, AIR 1999, SC held that a Judge cannot merely say "Suit decreed" or "Suit dismissed". The whole process of reasoning has to be set out for deciding the case one way or the other.

As per Rule 6 A of Order 20 the last part of the judgment should precisely state tge relief granted. Thus, a judgment is a state prior to the passing of a decree or an order. After pronouncement of a judgment, a decree shall follow.


Kinds of Decree

Preliminary - Where an adjudication decides the rights of the parties with regard to all or any of the matters in controversy in the suit but does not completely dispose of the suit, it is a preliminary decree. It is passed when the court needs to adjudicate upon some matters before proceeding to adjudicate upon the rest.
In Shankar vs Chandrakant SCC 1995, SC stated that a preliminary decree is one which declares the rights and liabilities of the parties leaving the actual result to be worked out in further proceedings.
CPC provides for passing a preliminary decrees in several suits such as - suit for possession and mesne profits, administration suit, suits for pre-emption, dissolution of partnership, suits relating to mortgage. In Narayanan vs Laxmi Narayan AIR 1953, it was held that the list given in CPC is not exhaustive and a court may pass a preliminary decree in cases not expressly provided for in the code.

Final - When the decree disposes of the suit completely, so far as the court passing it is concerned, it is a final decree. A final decree settles all the issues and controversies in the suit.

Party preliminary and partly final - When a decree resolves some issues but leaves the rest open for further decision, such a decree is partly final and party preliminary. For example, in a suit for possession of immovable property with mesne profits, where the court decrees possession of the property and directs an enquiry into the mesne profits, the former part of the decree is final but the latter part is preliminary.

Deemed Decree - The word "deemed" usually implies a fiction whereby a thing is assumed to be something that it is ordinarily not. In this case, an adjudication that does not fulfill the requisites of S. 2 (2) cannot be said to be a decree. However, certain orders and determinations are deemed to be decrees under the code. For example, rejection of a plaint and the determination of questions under S. 144 (Restitution) are deemed decrees.


Consequences of Non appearance of parties (Order 9)
The general provisions of CPC are based on the principle that both the parties must be given an opportunity to be heard. The proceedings must not be held to the disadvantage of one party. Order 9 lays down rules regarding the appearance and the consequences of non appearance of a party in the hearing.

Rule 1 - Parties to appear on day fixed in summons for defendant to appear and answer— On the day fixed in the summons for the defendant to appear and answer, the parties shall be in attendance at the Court-house in person or by their respective pleaders, and the suit shall then be heard unless the hearing is adjourned to a future day fixed by the Court.

Dismissal of Suit

Rule 2 - Dismissal of suit where summons not served in consequence of plaintiffs failure to pay cost— Where on the day so fixed it is found that the summons has not been served upon the defendant in consequence of the failure of the plaintiff to pay the court-fee or postal charges (if any) chargeable for such service, or to present copies of the plaint or concise statements, as required by rule 9 of order VII, the Court may make an order that the suit be dismissed :
Provided that no such order shall be made, if, notwithstanding such failure the defendant attends in person (or by agent when he is allowed to appear by agent) on the day fixed for him to appear and answer.

Rule 3 - Where neither party appears, suit to be dismissed— Where neither party appears when the suit is called on for hearing, the Court may make an order that the suit be dismissed.

Rule 4 - Plaintiff may bring fresh suit or Court may restore suit to file— Where a suit is dismissed under rule 2 or rule 3, the plaintiff may (subject to the law of limitation) bring a fresh suit, or he may apply for an order to set the dismissal aside, and if he satisfies the Court that there was sufficient cause for such failure as is referred to in rule 2, or for his non-appearance, as the case may be, the Court shall make an order setting aside the dismissal and shall appoint a day for proceeding with the suit.

Rule 5 - Dismissal of suit where plaintiff after summons returned unserved, fails for one month to apply for fresh summons—
(1) Where after a summons has been issued to the defendant, or to one of several defendants, and returned unserved the plaintiff fails, for a periods of one month from the date of the return made to the Court by the officer ordinarily certifying to the Court returns made by the serving officers, to apply for the issue of a fresh summons the Court shall make an order that the suit be dismissed as against such defendant, unless the plaintiff has within the said period satisfied the Court that—
(a) he has failed after using his best endeavours to discover the residence of the defendant, who has not been served, or
(b) such defendant is avoiding service of process, or
(c) there is any other sufficient cause for extending the time, in which case the Court may extend the time for making such application for such period as it thinks fit.
(2) In such case the plaintiff may (subject to the law of limitation) bring a fresh suit.

Ex parte Proceedings

Rule 6 - Procedure when only plaintiff appears—
(1) Where the plaintiff appears and the defendant does not appear when the suit is called on for hearing, then—
(a) When summons duly served—if it is proved that the summons was duly served, the Court may make an order that the suit shall be heard ex parte.
(b) When summons not duly served—if it is not proved that the summons was duly serve, the Court shall direct a second summons to be issued and served on the defendant;
(c) When summons served but not in due time—if it is proved that the summons was served on the defendant, but not in sufficient time to enable him to appear and answer on the day fixed in the summons, the Court shall postpone the hearing of the suit to future day to be fixed by the Court, and shall direct notice of such day to be given to the defendant.
(2) Where it is owing to the plaintiffs' default that the summons was not duly served or was not served in sufficient time, the Court shall order the plaintiff to pay the costs occasioned by the postponement.

Rule 7 - Procedure where defendant appears on day of adjourned hearing and assigns good cause for previous non-appearance— Where the Court has adjourned the hearing of the suit ex-parte and the defendant, at or before such hearing, appears and assigns good cause for his previous non-appearance, he may, upon such terms as the Court directs as to costs or otherwise, be heard in answer to the suit as if he had appeared on the day, fixed for his appearance.

Absence of Plaintiff

Rule 8 - Procedure where defendant only appears— Where the defendant appears and the plaintiff does not appear when the suit is called on for hearing, the Court shall make an order that the suit be dismissed, unless the defendant admits the claim or part thereof, in which case the Court shall pass a decree against the defendant upon such admission, and, where part only of the claim has been admitted, shall dismiss the suit so far as it relates to the remainder.

Rule 9 - Decree against plaintiff by default bars fresh suit—
(1) Where a suit is wholly or partly dismissed under rule 8, the plaintiff shall be precluded from bringing a fresh suit in respect of the same cause of action. But he may apply for an order to set the dismissal aside, and if he satisfies the Court that there was sufficient cause for his non-appearance when the suit was called on for hearing, the Court shall make an order setting aside the dismissal upon such terms as to costs or otherwise as it thinks fit. and shall appoint a day for proceeding with suit.
(2) No order shall be made under this rule unless notice of the application has been served on the opposite party.

Multiple plaintiffs and/or Defendants

Rule 10 - Procedure in case of non-attendance of one or more of several plaintiffs— Where there are more plaintiffs than one, and one or more of them appear, and the others do not appear, the Court may, at the instance of the plaintiff or plaintiffs appearing, permit the suit to proceed in the same way as if all the plaintiffs had appeared, or make such order as it thinks fit.

Rule 11 - Procedure in case of non-attendance of one or more of several defendants— Where there are more defendants than one, and one or more of them appear, and the others do not appear, the suit shall proceed, and the Court shall, at the time of pronouncing judgment, make such order as it thinks fit with respect to the defendants who do not appear.

General Consequence of Non appearance

Rule 12 - Consequence of non-attendance, without sufficient cause shown, of party ordered to appear in person— Where a plaintiff or defendant, who has been ordered to appear in person, does not appear in person, or show sufficient cause to the satisfaction of the Court for failing so to appear, he shall be subject to all the provisions of the foregoing rules applicable to plaintiffs and defendants, respectively who do no appear.

This means either the suit will be dismissed or will be continued ex parte.

Ex parte Decree (Order 9)
As per Rule 6, if the defendant fails to appear before the court in spite of a proper service of the summons, the court may proceed ex-parte and may pass a decree in favor of the plaintiff. This is called an ex-parte decree. In the case of Hochest Company vs V S Chemical Company, SC explained that an ex parte decree is such decree in which defendant did not appear before court and the case is heard in the absence of the defendant from the very beginning.

Remedies available to the defendant against an ex parte decree

1. Application to set aside the ex parte decree - As per Order 9, Rule 13, a defendant may apply before the court that passed the decree to set it aside. If he satisfies the court that the summons was not duly served or he was prevented by any other sufficent cause from attending the hearding, the court shall make an order setting aside the decree. For example, bona fide mistake as to the date or hearing, late arrival of train, etc. are sufficient causes for absence of the defendant. Such an application for setting aside may be made within 30 days from the date of decree as per Section 123 of Limitation Act.

Setting aside decrees ex parte

Rule 13 - Setting aside decree BIex parte against defendant— In any case in which a decree is passed ex parte against a defendant, he may apply to the Court by which the decree was passed for an order to set it aside; and if he satisfies the Court that the summons was not duly served, or that he was prevented by any sufficient cause from appearing when the suit was called on for hearing, the Court shall make an order setting aside the decree as against him upon such terms as to costs, payment into Court or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit;
Provided that where the decree is of such a nature that it cannot be set aside as against such defendant only it may be set aside as against all or any of the other defendants also:
Provided further that no Court shall set aside a decree passed ex parte merely on the ground that there has been an irregularity in the service of summons, if it is satisfied that the defendant had notice of the date of hearing and had sufficient time to appear and answer the plaintiff's claim

Explanation.—Where there has been an appeal against a decree passed ex parte under this rule, and the appeal has been disposed of an any ground other than the ground that the appellant has withdrawn the appeal, no application shall lie under this rule for setting aside that ex parte decree.

Rule 14 - No decree to be set aside without notice to opposite party— No decree shall be set aside on any such application as aforesaid unless notice thereof has been served on the opposite party.

The court may impose conditions as it may deem fit on the defendant for setting asided the decree. It may ask the defendant to pay costs.

When an ex parte decree is set aside, the court should proceed to decide the suit as it stood before the decree. The trial should commence de novo and the evidence that had been recorded in the ex parte proceeding should not be taken into account.

This remedy is specifically meant for an ex parte decree.

2. Prefer an appeal against the decree under Section 96(2).

3. Apply for review under Order 47 Rule 1.

4. File a suit on the ground of fraud.

All the above remedies are concurrent and can be pursued concurrently.

Execution of a Decree

As per Section 38, a decree may be executed either by the court which passed it or the court to which it is sent for execution. While executing a decree, several questions and objections may arise as to the manner of execution. It would be impractical to institute new suits to resolves such matters. Thus, Section 47 lays down the general principal that any questions that arise in relation to the execution of the decree should be resolved in execution proceeding itself and not by a separate suit. Section 47 says thus -

47. Questions to be determined by the Court executing decree -
(1) All questions arising between the parties to the suit in which the decree was passed, or their representatives, and relating to the execution, discharge or satisfaction of the decree, shall be determined by the Court executing the decree and not by a separate suit.
(3) Where a question arises as to whether any person is or is not the representative of a party, such question shall, for the purposes of this section, be determined by the Court.
Explanation I.For the purposes of this section, a plaintiff whose suit has been dismissed and a defendant against whom a suit has been dismissed are parties to the suit.
Explanation II. (a) For the purposes of this section, a purchaser of property at a sale in execution of a decree shall be deemed to be a party to the suit in which the decree is passed; and
(b) all questions relating to the delivery of possession of such property to such purchaser or his representative shall be deemed to be questions relating to the execution, discharge or satisfaction of the decree within the meaning of this section.

The objective of this section is to provide cheap and fast remedy for the resolution of any questions arising at the time of execution. Institution of new suits would only increase the number of suits and would also be a burden on the parties.

The scope of this section is very wide. It confers exclusive jurisdiction to the court executing the decree in all the matters regarding the execution. It does not matter whether the matter has arisen before or after the execution of the decree. Thus, this section should be construed liberally.


Conditions -
1. The question must be one arising between the parties or their representatives to the suit in which the decree is passed.
2. The question must relate to the execution, discharge, or satisfaction of the decree.

As held in the case of Arokiaswamy vs Margaret AIR 1982, both the conditions must be satisfied cumulatively.

What is meant by execution, discharge and satisfaction of a decree -
This expression has not been defined in the code. However, the following questions are held to be relating to the execution, discharge and satisfaction of the decree -
whether a decree is executable, whether a property is liable to be solde in execution of a decree, whether the decree is fully satisfied, whether the execution of the decree was postponed.

The following questions have been held as not related - whether the decree is fraudulent or collusive, whether the decree has become inexecutable because of a compromise between the parties, a question about the territorial or pecuniary jurisdiction of the court passing the decree.

Appeal and Revision
Earlier, determination made under Section 47 was deemed to be a decree under Section 2(2). However, after the amendment in 1976, this is not so. Any determination made under an application under Section 47 is not considered a decree and is therefore not appealable under Section 96 or Section 100. Since it is no more a decree, a revision application under Section 115 is therefore maintainable provided the conditions stipulated in Section 115 are satisfied.

Returning Plaint-Civil Procedure Code

Returning Plaint-Civil Procedure Code
A suit starts with the presentation of plaint. It has to be instituted in a Court which have jurisdiction to try such suit. There are pecuniary and territorial divisions of jurisdiction. If a suit is instituted in a court and the Court finds that it has no jurisdiction to try such suit, the plaint will be returned to the plaintiff for presentation to proper Court.
Return of Plaint is stated in Order 7 Rule 10 of the Code of Civil Procedure, 1908. Corresponding provision is also stated in Civil Rules of Practise. Rule 32 says that any plaint, petition, memorandum of appeal or other proceedings which is insufficiently stamped or undervalued or which requires any amendment to conform to the procedure or practice of the Court shall be returned for being presented within a period of not exceeding 15 days of the order after curing the defects; or the pleader or the party may be required to cure the defects within a period not exceeding 15 days of the order.
Procedure to be followed while returning plaint.
The procedure is laid down in Order 7 Rule 10(2) which says that the Judge shall endorse on a returning plaint the date of its presentation and return, the name of the party presenting it, and also a brief statement of the reasons for returning it. Another provision is stated in Order 7 Rule 10A. This rule says that if the Court formed an opinion that the plaint should be returned and the defendant has already appeared, the decision to return shall be intimated to the plaintiff. The plaintiff has a right to make an application to the Court specifying the new Court in which he proposes to present the plaint after it is returned. He may also request by application that the Court may fix a date for the appearance of the parties in the said Court and that the notice of the date so fixed may be given to him and to the defendant. The Court then shall fix a date for appearance of parties in the proposed Court and give notice.
Consequence of Returning plaint
If an order made returning a plaint to be presented to the proper Court an appeal shall lie under Order 43 Rule 1(a) of the Code. The appellate Court can also direct parties to present before the proper Court. [Order 7 Rule 10B].However no appeal shall lie if Order 7 Rule 10A is followed. This is specifically stated in Order 7 Rule 10(5). Generally returning of a plaint is an appealable order.

jurisdictios - cpc

Introduction
The word Jurisdiction really has semblance with the meaning of word "Power". In Latin 'juris' means law. It is the authority granted to a legal body to speak on a particular legal issue. Each Court is having separate powers to deal with particular cases. The separation of power is provided by the legislation. This method is followed for convenience and for the ends of justice. Some sort of cases require special knowledge and experience. For the interests of justice those special cases should be heard by special forums. Likewise, small matters can be adjudged by those with basic knowledge and lesser experience and thereby the higher authorities are not overburdened.
Types of Jurisdiction of Courts
In Civil Procedure Code the word jurisdiction is not clearly defined. But several provisions in CPC speaks of different kinds of jurisdiction of civil courts viz Sections 6, 9, 15-20 etc. The various types of jurisdiction are as below:
Territorial Jurisdiction
Every Court has its own territorial limits of jurisdiction. This power is so vested for easy disposal of a matter. Extra territorial jurisdiction if granted will delay the process. Government fixes the local limits to be exercised by a Court. Every State has a High Court which is the higher judicial institution in the State. Every District
will have a District Court which will have overall control of courts and cases in that particular district. Every Sub-District Taluk, village etc may have various other lower Courts which will deal with the cases the cause of action of which arose in the particular locality assigned to it. Generally a Court which do not have the authority to try cases beyond its territorial jurisdiction.
Pecuniary Jurisdiction
Section 6 of the CPC says that no court will get jurisdiction over suits the amount or value of the subject-matter of which exceeds the pecuniary limits of its ordinary jurisdiction. The pecuniary limit of jurisdiction of a Munsiff Court is 1 lakh rupees(eg. in money suits or property disputes if the value of the property is or below 1 lakh). However the District Court and High Court do not have such pecuniary limits. But this does not mean that they can entertain all suits. There are other limitations in the code. These higher courts acts generally as Courts of Appeal.
Subject Matter Jurisdiction
Writ jurisdiction is only vested with High Court and Supreme Court. Other lower courts cannot adjudicate a matter concerning writs. Those are matter requiring high knowledge and experience. The District Court normally acts as an appellate Court to judgements passed by other lower courts. But it has ordinary original jurisdiction to entertain matters like copyright, insolvency, local fund audit, etc. The Munsiff Courts deal with various other matters.
Appellate Jurisdiction
As already stated the appeal from Munsiff Courts goes to higher Courts of jurisdiction. Appeal from appeals or original judgments from the District Courts will be filed in the High Court. Special cases will go for appeal in the Supreme Court also. In some matters there are review provided in the same court. But in some legislations only appeal to any order is provided. Supreme Court is the highest Court of Appeal in the country.
Conclusion
It is said that a judgement passed by a court without jurisdiction is ultravires or illegal which cannot be enforced. But in the interests of justice there are certain limitations prescribed in the CPC regarding appreciation of objection to jurisdiction in Section 21. But if the parties waived the right to object it will not be further allowed in any Court of appeal. But in certain cases if there is failure of justice, the objection is allowed by higher courts. Thus the general rule is that if the court rendering a judgment suffers from want of jurisdiction in respect of any one of the above matters its judgment is a nullity and may be ignored.

Remedies Against an Ex-Parte Decree

Remedies Against an Ex-Parte Decree

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Meaning: An ex parte decree is a decree passed in the absence of the defendant (in absenti). Where the plaintiff appears and the defendant does not appear when the suit is called out for hearing and if the defendant is duly served, the court may hear the suit ex parte and pass a decree against him. Such a decree is neither null and void nor inoperative but is merely voidable and unless and until it is annulled on legal and valid grounds, it is proper, lawful, operative and enforceable like a bi parte decree and it has all the force of a valid decree.

REMEDIES

The defendant, against whom an ex parte decree has been passed, has the following remedies available to him:

(1) Apply to the court by which such decree is passed to set it aside: Order 9 Rule 13; or

(2) Prefer an appeal against such decree: Section 96(2) (or to file a revision under Section 115 where no appeal lies);

(3) Apply for review: Order 47 Rule 1; or

(4) File a suit on the ground of fraud.

The above remedies are concurrent and they can be prosecuted simultaneously or concurrently. “Where two proceedings or two remedies are provided by a statute, one of them must not be taken as operating in derogation of the other.”

In Ajudhia Prasad v. Balmukund, it was also ruled that “where two proceedings or two remedies are provided by a statute, one of them should not be taken as operating in derogation of the other.”

In Sunderlal v. Nandramdas, it was observed that though the Act does not give any power of dismissal, it is axiomatic that no court or tribunal is supposed to continue a proceeding before it when the party who has moved it has not appeared nor cared to remain present. The dismissal, therefore, is an inherent power which every tribunal possesses. This was approved in Dr. P. Nalla Thampy v. Shankar. In New India Assurance v. Srinivasan, it was held that every court or judicial body or authority, which has a duty to decide a lis between two parties, inherently possesses the power to dismiss a case in default. Where a case is called up for hearing and the party is not present, the court or the judicial or quasi judicial body is under no obligation to keep the matter pending before it or to pursue the matter on behalf of the complainant who had instituted the proceedings. That is not the function of the court or, for that matter of a judicial or quasi judicial body. In the absence of the complainant, therefore, the court will be will within its jurisdiction to dismiss the complaint for non prosecution.

The case of Martin Burn Ltd. v. R.N. Banerjee, discussed the application filed before the Labour Appellate Tribunal for the discharge of employee – It further questioned whether the Tribunal had the jurisdiction to set aside ex parte order and restore application under the Code of Civil Procedure, 1908 – The Court ruled that the said Tribunal had jurisdiction to set aside ex parte order and restore the application to its file.

APPEAL

An appeal lies against an order rejecting an application to set aside ex parte decree. As stated above, an ex parte decree is a decree under section 96(2) of the Code. A controversial and somewhat complicated question of law is: whether in such cases the appellate court can only consider the decree passed by the lower court on merits as to whether there were sufficient to pass the decree or whether the appellate court can also consider whether there were sufficient reasons for the defendant for non appearance and the court is not justified in passing an ex parte decree against the defendant.

There is a conflict of judicial decisions on this point. One view is that the appellate court can only consider the question whether the decree was wrong in law while the other view is that the appellate court has the power to consider whether the lower court was justified in proceeding with the matter ex parte, and if the lower court was not right in doing so, to set aside the ex parte decree. It is submitted that the latter view is much more acceptable and preferable, particularly when appeal is continuation of suit and re hearing of the matter.

Appeal does not lie from an order granting an ex parte decree set aside.

REVISION

An order setting aside an ex parte is a “case decided” within the meaning of Sec.115 of the Code and is therefore, revisable. A High Court may also exercise supervisory jurisdiction under Art.227 of the Constitution in appropriate cases.

REVIEW

Since all the remedies against an ex parte decree are concurrent, an aggrieved party can also file an application for review if the condition laid down in Order 47 Rule 1 are satisfied.

SUIT

A suit to set aside an ex parte decree is not maintainable. But if an ex parte is alleged to have obtained by the plaintiff by fraud, the defendant can file a regular suit to set aside such decree. It is settled law that fraud vitiates the most solemn transactions. In such suits, the owner is on the party who alleges that the ex parte decree passed against him was fraudulent.

MISCELLANEOUS

Person claiming joint tenancy cannot maintain application to set aside ex parte decree against individual tenant. Where an application to set aside ex parte decree is dismissed and that is not challenged in the appeal then the appeal against the decree cannot be put forward. The question regarding the ex parte nature of decree cannot be agitated.

The ex parte decree of Small Cause Court can be set aside only if amount under judgment is deposited in Court or leave has been obtained to furnish security. Considering the averments made in the application to recall particularly, the ground of illness of advocate on record and illness of the son of the other Advocate whom he had requested to make a mention before the Court at the time calling of case, absence of lawyers was for reason beyond its control. It cannot be passed by the appellate court as a matter of course. Application under Order IX Rule 13, CPC cannot be remanded. It is the duty of the litigant to contact the Advocate. Plea that the Advocate did not inform him about ex parte decree is not ground to set aside the ex parte decree. Delay on the part of the Advocate in preparing and tendering application is a sufficient cause to set aside ex parte decree. No decree shall be set aside without notice to the opposite party.

CONCLUSION
In every civilized society there are two sets of laws, mainly substantive laws and procedural laws. Substantive laws determine the rights and obligations of citizens. Procedural laws prescribe the procedure for the enforcement of such rights and obligations. Of the two, substantive laws are no doubt more important. But the efficacy of substantive laws actually depends upon the quality of the procedural laws. Unless the procedure is simple, expeditious and inexpensive, the substantive laws, however good, are bound to fail in their purpose and object.
The Civil Procedure Code is an indispensable instrument of the country today to tackle the problems in procedure regarding civil judicial administration. The Code has served the country in more ways than anticipated by its makers. There have been several amendments and there is scope for new amendments in the Code. The concept of appearance and non-appearance of parties have been given space in the Code respecting the principles of natural justice, fair play etc. Each party gets his rightful chance to defend himself and present his case before the court. The doctrine of fair hearing is also implied in this topic. Audi alteram partem which literally means “hear the other side” has everything to do with this portion of the Civil Procedure Code, 1908.
The defendant is served the summons to appear before the court and submit to the jurisdiction of the court. The summons is a way of informing the defendant about the complaint by the plaintiff and the date of hearing of the suit. The defendant is bound by the summons to appear in court either personally or through his legal representatives on the date prescribed in the summons. If the defendant fails to appear he should prove that there was “sufficient cause” for his non-appearance. There is no standard rule laid down for judging what is ‘sufficient’ and what is not. It depends on the facts and circumstances of each case. Order IX elaborates on the procedure to be adopted by the court and the course of law to be followed in different situations which have been dealt with in detail in this project. The concept of ex parte decree belongs particularly to Order IX of Civil Procedure Code, 1908 only.

On rent control -security application etc

Code of Civil Procedure, 1908/Provincial Small Cause Courts Act, 1887- Order 9 Rule 13/Section 17(1)/Proviso-
Ex-parte decree by Court of Small Causes for deposit of arrears of rent and eviction-Application by respondent to set aside the decree-Failure by respondent to deposit decretal amount or make a previous application seeking permission to furnish security-Application to furnish security filed subsequently and after delay- Maintainability of the main application-Held, the law is mandatory and not directory for deposit of decretal amount or filing a previous application- Hence, application for setting aside decree not maintainable on account of failure to comply with proviso. Appellant-landlord filed a suit before a Court of Small Causes for recovery of arrears of rent and for eviction against respondent-tenants under Section 20 of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972. The suit was decreed ex-parte for recovery of arrears of rent and eviction. The appellant executed the decree and obtained possession of the premises with police help. The respondents filed an application before the trial court seeking setting aside of the ex-parte decree under Order 9 Rule 13 of CPC. Along with the application, the respondents neither deposited the decretal amount before the trial court nor filed an application seeking permission to furnish security of the decretal amount. During the course of hearing, the appellant contended that the application filed by the respondents was not maintainable and liable to be dismissed for non-compliance with the proviso to section 17 of the Provincial Small Cause Courts Act, 1887 (PSCC Act). The respondents then filed an application before the trial court seeking permission to furnish security for the decretal amount the trial court dismissed both the applications. The Court of Additional District Judge, in a revision preferred by the respondents, condoned the delay and directed the trial court to accept security and decide the application filed under Order 9 Rule 13 CPC on merits. A Writ Petition filed before High Court by the appellant was dismissed. In appeal to this Court, the appellant contended that the proviso to section 17 of the PSCC Act is mandatory and hence the non-compliance therewith cannot be condoned; and that, even assuming the court has power to condone the delay, no sufficient cause was made by the respondents. =Allowing the appeal, the Court HELD : 1.1. The object behind establishing the Courts of Small Causes conferred with jurisdiction to try summarily such specified category of cases which need to be and are capable of being disposed of by adopting summary procedure of trial is to secure an expeditious disposal and to curtail the lengthy procedure of litigation. The jurisdiction to entertain and hear an application to set aside a decree passed ex-parte or for a review of judgment by Courts of small Causes is sought to be qualified and narrowed down by imposing condition as to deposit or giving security for performance or compliance by enacting proviso to section 17(1) of the Provincial Small Cause Courts Act, 1887 (PSCC Act). [149-G; 150-A] 1.2. A bare reading of the provision shows that the legislature has chosen to couch the language of the proviso in a mandatory form and there is no reason to interpret, construe and hold the nature of the proviso as directory. An application seeking to set aside an ex-parte decree passed by a Court of Small Causes or for a review of its judgment must be accompanied by a deposit in the court of the amount due from the applicant under the decree or in pursuance of the judgment. The proviso as to deposit can be dispensed with by the court in its discretion subject to a previous application by the applicant seeking direction of the court for leave to furnish security and the nature thereof. The proviso does not provide for the extent of time by which such application for dispensation may be filed. It may be filed at any time up to the time of presentation of application for setting aside ex-parte decree or for review and the Court may treat it as a previous application. The obligation of the applicant is to move a previous application for dispensation. It is then for the court to make a prompt order. The delay on the part of the court in passing an appropriate order would not be held against the applicant because none can be made to suffer for the fault of the court. [151-B-D] 1.3. The application for setting aside ex-parte decree was not accompanied by the deposit in the court of the amount due and payable by the applicant under the decree. The applicant also did not move any application for dispensing with deposit and seeking leave of the court for furnishing such security for the performance of the decree as the court may have directed. The application for setting aside the decree was therefore incompetent. [151-F] Mohammad Ramzan Khan v. Khubi Khan, AIR (1938) Lahore 18 (DB); Murari Lal v. Mohammad Yasin, AIR (1939) Allahabad 46; Mt. Shikhani v. Bishambhar Nath, AIR (1941) Oudh 103; Jagdamba Prasad and Ors., v. Ram Das Singh and Anr., AIR (1943) Allahabad 288; Roshan Lal v. Brij Lal Amba Lal Shah, AIR (1944) Oudh 104; Vembu Amal v. Esakkia Pillai, AIR (1949) Madras 419; Khetra Dolai v. Mohan Bissovi, AIR (1961) Orissa 37; Dhanna v. Arjun Lal, AIR (1963) Rajasthan 240; Krishan Kumar v. Hakim Mohd. (1978) ALJ 738; Sharif v. Suresh Chand and Ors., (1979) AWC 256; Roop Basant v. Durga Prasad and Anr., (1983) 1 ARC 565; Mohd. Islam v. Faquir Mohammed, (1985) 1 ARC 54; Krishan Chandra Seth v. Dr. K.P. Agarwal and Anr.,(1988) 1 ARC 310; Mamta Sharma v. Hari Shankar Srivastava and Ors., (1988) 1 ARC 31; Mohd Yasin v. Jai Prakash, (1988) 2 ARC 575; Purshottam v. Special Additional Sessions Judge, Mathura and Ors. (1991) 2 ARC 129; Ram Chandra (deceased L.Rs.) and Ors. v. IXth Additional Distric Judge, Varanasi and Ors., AIR (1991) Allahabad 223; Sagir Khan v. The District Judge, Farrukhabad and Ors., (1996) 27 ALR 540; Mohammad Nasem v. Third Additional District Judge, Faizabad and Ors., AIR (1998) Allahabad 125; Beena Khare v. Vllth Additional District Judge, Allahabad and Anr, (2000) 2 ARC 616; Surendra Nath Mittal v. Dayanand Swarup and Anr., AIR (1987) Allahabad 132; Chigurupalli Suryanarayana v. The Amadalayalasa Co-operative Agricultural Industrial Society Ltd., AIR (1975) A.P. 196 and Tarachand Hirachand Porwal v. Durapa Tavanappa Patravali, AIR (1943) Bombay 237, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5109 of 1999.

Arbitration important things by legal blog

Definition of Arbitration Agreement : Supreme Court


Justice Swatanter Kumar :Supreme Court of India

The Supreme Court in Powertech World Wide Ltd. v. Delvin International General Trading LLC has examined the definition of an 'arbitration agreement' in the light of various judicial pronouncements. The question posed to the Court in this case was whether the clause in the agreement between the parties constituted a valid and binding arbitration agreement or not? While answering the question in the affirmative, the Supreme Court held as under;

9. When the matter was being heard, a question had been raised as to whether the arbitration agreement as contained in the Purchase Contract and reproduced supra, was a binding arbitration agreement enforceable in terms of Section 11(6) of the Act?

10. The learned counsel appearing for the petitioner contended that from the language of the arbitration clause itself, it is unambiguously clear that there is a binding arbitration agreement between the parties. The respondent having failed to act despite notice, the petitioner is entitled to the relief prayed for. It is further the contention of the petitioner that the words `shall' and `or' appearing in the arbitration clause have to be given their true meaning. The expression `shall' has to be construed mandatorily while the expression `or' has to be read as disjunctive. Upon taking this as the correct approach, the arbitration agreement would be binding upon the parties as the expression `settled amicably between both the parties' cannot be construed as a condition precedent to the invocation of the arbitration agreement and the reference to arbitration being an alternative and agreed remedy, the petitioner may unequivocally be allowed to invoke the arbitration agreement.

11. The aforesaid contentions have been raised by the advocates for the petitioner in view of the judgment of this Court in the case of Jagdish Chander v. Ramesh Chander & Ors. [(2007) 5 SCC 719] wherein this Court had taken the view that such an arbitration clause would not have satisfied the pre-requisites of a valid arbitration reference. In that case, this Court was concerned with Clause 16 of the contract between the parties that read as under:
(16) If during the continuance of the partnership or at any time afterwards any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine. (emphasis supplied)
12. The Court felt that the main attribute of an arbitration agreement, namely, consensus ad idem to refer the disputes to arbitration, is missing in Clause 16 relating to settlement of disputes. Therefore, it is not an arbitration agreement as defined under Section 7 of the Act. In absence of an arbitration agreement, the question of exercising power under Section 11 of the Act to appoint an arbitrator does not arise.

13. A similar view was expressed by this Court in the case of Wellington Associates Ltd. v. Kirit Mehta [AIR 2000 SC 1379] though the arbitration clause in that case was different.

14. Now, I may refer to the pre-requisites of a valid and binding arbitration agreement leading to an appropriate reference under the Act. Section 2(1)(b) defines `arbitration agreement' to be an agreement referred to in Section 7. Section 7 of the Act states that an `arbitration agreement' is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and shall be an agreement in writing. An arbitration agreement is in writing if it is contained in any of the clauses i.e. clauses (a) to (c) of Sub-section (4) of Section 7 of the Act. Once these ingredients are satisfied, there would be a binding arbitration agreement between the parties and the aggrieved party would be in a capacity to invoke the jurisdiction of this Court under Section 11(6) of the Act.

15. In the case of K.K. Modi v. K.N. Modi & Ors. [(1998) 3 SCC 573], this Court, while differentiating an `arbitration agreement' from a `reference to an expert' for decision, contained in an MOU recording a family settlement, enumerated the essential attributes of a valid arbitration agreement:

1. The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,

2. that the jurisdiction of the tribunal to decide the rights of parties must be derived either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration,

3. the agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal,

4. that the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,

5. that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly,

6. the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

16. Also in the case of Smita Conductors Ltd. v. Euro Alloys Ltd. [(2001) 7 SCC 728], where no contract, letter or telegram confirming the contract containing the arbitration clause as such was there, but certain correspondences which indicated a reference to the contract containing arbitration clause for opening the letter of credit addressed to the bank, were there. There was also no correspondence between the parties disagreeing either with the terms of the contract or the arbitration clause. The two contracts also stood affirmed by reason of their conduct as indicated in the letters exchanged between the parties. This Court construed it to be an arbitration agreement in writing between the parties and referred to Article II Para 2 of the New York Convention, which is pari materia to Section 7 of the Act and observed as under: "what needs to be understood in this context is that the agreement to submit to arbitration must be in writing. What is an agreement in writing is explained by Para 2 of Article II. If we break down Para 2 into elementary parts, it consists of four aspects. It includes an arbitral Clause (1) in a contract containing an arbitration clause signed by the parties, (2) an arbitration agreement signed by the parties, (3) an arbitral clause in a contract contained in exchange of letters or telegrams, and (4) an arbitral agreement contained in exchange of letters or telegrams. If an arbitration clause falls in any one of these four categories, it must be treated as an agreement in writing.

17. This Court, in the case of Bihar State Mineral Development Corporation v. Encon Builders[(2003) 7 SCC 418] has also taken the view that the parties must agree in writing to be bound by the decision of such Tribunal and they must be ad idem.

18. The next question that falls for consideration is what should be the approach of the Court while construing a contract between the parties containing an arbitration agreement. In the case of Rickmers Verwaltung GMBH v. Indian Oil Corp. Ltd. [(1999) 1 SCC 1], this Court took the view that `it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of minds between the parties, which could create a binding contract between them. Unless from the correspondence, it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspondence.' Still in the case of Unissi (India) Pvt. Ltd. v. Post Graduate Institute of Medical Education and Research [(2009) 1 SCC 107], where the appellant had given his tender offer which was accepted by the respondent and the tender contained an arbitration clause, this Court, considering the facts of the case, the provisions of Section 7 of the Act and the principles laid down by it, took the view that though no formal agreement was executed but in view of the tender documents containing the arbitration clause, the reference to arbitration was proper. In the case of Shakti Bhog Foods Ltd. v. Kola Shipping Ltd. [(2009) 2 SCC 134], this Court held that from the provisions made under Section 7 of the Act, the existence of an arbitration agreement can be inferred from a document signed by the parties or exchange of e-mails, letters, telex, telegram or other means of telecommunication, which provide a record of the agreement.

19. In a recent judgment of this Court in the case of VISA International Ltd. v. Continental Resources (USA) Ltd. [(2009) 2 SCC 55], this Court was concerned with an arbitration clause contained in the memorandum of understanding that read as under:
Any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996.
20. The disputes having arisen between the parties, the respondent, instead of challenging the existence of a valid arbitration clause, took the stand that the arbitration would not be cost effective and will be pre-mature. In view of the facts, this Court held that there was an arbitration agreement between the parties and the petitioner was entitled to a reference under Section 11 of the Act and observed:
No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and the material on record, including surrounding circumstances.
21. It is in light of these provisions, one has to construe whether the clause in the present case, reproduced above, in Para 1, constitutes a valid and binding agreement. It is clear from a reading of the said clause that the parties were ad idem to amicably settle their disputes or settle the disputes through an arbitrator in India/UAE. There was apparently some ambiguity caused by the language of the arbitration clause. If the clause was read by itself without reference to the correspondence between the parties and the attendant circumstances, may be the case would clearly fall within the judgment of this Court in the case of Jagdish Chander (supra). But once the correspondence between the parties and attendant circumstances are read conjointly with the petition of the petitioner and with particular reference to the purchase contract, it becomes evident that the parties had an agreement in writing and were ad idem in their intention to refer these matters to an arbitrator in accordance with the provisions of the Act. Vide their letter dated 30th March, 2008, the respondent had raised certain claims upon the petitioner and had also repelled the threat extended by the petitioner to take steps before the ECGC. This notice had been responded to by the petitioner vide letter dated 4th April, 2008 wherein it had raised its claims demanding payment of money within seven days and also stated that any default thereto would constrain it to take legal action. Finally, vide letter dated 30th May, 2008, the petitioner had invoked arbitration clause between the parties and, in fact, had even nominated an arbitrator calling upon the respondent to concur to the said appointment. Replying to this letter vide letter dated 27th June, 2008, the respondent had neither denied the existence nor the binding nature of the arbitration clause. On the contrary, it had requested the petitioner not to take any legal action for appointment of an arbitrator, as they wanted to suggest some other name as an arbitrator, that too, subject to consent of the petitioner. This letter conclusively proves that the respondent had admitted the existence of an arbitration agreement between the parties and consented to the idea of appointing a common/sole arbitrator to determine the disputes between the parties. However, thereafter there had been complete silence from its side, necessitating the filing of present petition under Section 11(6) of the Act by the petitioner. Thus, any ambiguity in the arbitration clause contained in the purchase contract stood extinct by the correspondence between the parties and the consensus ad idem in relation to the existence of an arbitration agreement and settlement of disputes through arbitration became crystal clear. The parties obviously had committed to settle their disputes by arbitration, which they could not settle, as claims and counter claims had been raised in the correspondence exchanged between them. In view of the above, even the pre- condition for invocation of an arbitration agreement stands satisfied. The arbitration agreement does not provide for any specific mode/methodology to be adopted while appointing an arbitrator. The learned counsel appearing for the petitioner contended that keeping in view the extent of claims, it will be highly expensive if an Arbitral Tribunal consisting of two arbitrators and a presiding arbitrator is constituted. He further contented that the parties in their correspondence have already agreed to the appointment of a sole arbitrator. He prayed for appointment of a sole arbitrator as both the parties in their respective letters had agreed to appoint an arbitrator with common concurrence. Thus, in the afore- mentioned circumstances, this petition is allowed and Mr. Justice D.R. Dhanuka (Retired) Judge, Bombay High Court, is appointed as Sole Arbitrator to adjudicate upon the disputes. The parties are at liberty to file claims/counter claims before the appointed Arbitrator, which shall be decided in accordance with law.










Objections to Award & Limitation : The Law


Justice RM Lodha
Supreme Court of India
The Supreme Court in Assam Urban Water Supply & Sew. Board Vs. Subash Projects & Marketing Ltd. was faced with the question whether the appellants were entitled to extension of time under Section 4 of the Limitation Act Act. While answering the question in negative, the Supreme Court has recapitulated the law relating to limitation for filing objections to an award under Section 34 of the Arbitration and Conciliation Act, 1996. We have dealt with a similar post earlier where Justice Aftab Alam has dealt with the law relating to limitation in filing objections under Section 34 of the Act.

7. Section 34(3) of the 1996 Act provides that an application for setting aside an award may be made within three months of the receipt of the arbitral award. The proviso that follows sub- section (3) of Section 34 provides that on sufficient cause being shown, the court may entertain the application for setting aside the award after the period of three months and within a further period of 30 days but not thereafter.

8. In Popular Construction Co. (supra), this Court has held that an application for setting aside an award filed beyond the period mentioned in Section 34(3) would not be an application "in accordance with sub-section (3) as required under Section 34(1) of the 1996 Act" and Section 5 of the 1963 Act has no application to such application. In para 12 of the report, it was held in Popular Construction Co. (supra) thus:-
"12. As far as the language of Section 34 of the 1996 Act is concerned, the crucial words are "but not thereafter" used in the proviso to sub-section (3). In our opinion, this phrase would amount to an express exclusion within the meaning of Section 29(2) of the Limitation Act, and would therefore bar the application of Section 5 of the Act. Parliament did not need to go further. To hold that the court could entertain an application to set aside the award beyond the extended period under the proviso, would render the phrase "but not thereafter" wholly otiose. No principle of interpretation would justify such a result".
9. Recently, in the State of Maharashtra Vs. Hindustan Construction Company Limited, (2010) 4 SCC 518, a two Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) emphasised the mandatory nature of the limit to the extension of the period provided in proviso to Section 34(3) and held that an application for setting aside arbitral award under Section 34 of the 1996 Act has to be made within the time prescribed under sub-section (3) of Section 34, i.e., within three months and a further period of 30 days on sufficient cause being shown and not thereafter.

10. Section 43(1) of the 1996 Act provides that the 1963 Act shall apply to arbitrations as it applies to proceedings in court. The 1963 Act is thus applicable to the matters of arbitration covered by the 1996 Act save and except to the extent its applicability has been excluded by virtue of the express provision contained in Section 34(3) of the 1996 Act.

11. The facts in the present case are peculiar. The arbitral awards were received by the appellants on August 26, 2003. No application for setting aside the arbitral awards was made by the appellants before elapse of three months from the receipt thereof. As a matter of fact, three months from the date of the receipt of the arbitral award by the appellants expired on November 26, 2003. The District Court had Christmas vacation for the period from December 25, 2003 to January 1, 2004. On reopening of the court, i.e., on January 2, 2004, admittedly, the appellants made applications for setting aside those awards under Section 34 of the 1996 Act. If the period during which the District Court, Kamrup, Guwahati, remained closed during Christmas vacation, 2003 is extended and the appellants get benefit of that period over and above the cap of thirty days as provided in Section 34(3), then the view of the High Court and the District Judge cannot be sustained. But this would depend on the applicability of Section 4 of the 1963 Act. The question, therefore, that falls for our determination is - whether the appellants are entitled to extension of time under Section 4 of the 1963 Act in the above facts.

12. Section 4 of the 1963 Act reads as under :-
"4. Expiry of prescribed period when court is closed.-Where the prescribed period for any suit, appeal or application expires on a day when the court is closed, the suit, appeal or application may be instituted, preferred or made on the day when the court reopens. Explanation.-A court shall be deemed to be closed on any day within the meaning of this section if during any part of its normal working hours it remains closed on that day."
13. The above Section enables a party to institute a suit, prefer an appeal or make an application on the day court reopens where the prescribed period for any suit, appeal or application expires on the day when the court is closed. The crucial words in Section 4 of the 1963 Act are 'prescribed period'. What is the meaning of these words? Section 2(j) of the 1963 Act defines 'period of limitation' which means the period of limitation prescribed for any suit, appeal or application by the Schedule, and 'prescribed period' means the period of limitation computed in accordance with the provisions of this Act. Section 2(j) of the 1963 Act when read in the context of Section 34(3) of the 1996 Act, it becomes amply clear that the prescribed period for making an application for setting aside arbitral award is three months. The period of 30 days mentioned in proviso that follows sub-section (3) of Section 34 of the 1996 Act is not the 'period of limitation' and, therefore, not 'prescribed period' for the purposes of making the application for setting aside the arbitral award. The period of 30 days beyond three months which the court may extend on sufficient cause being shown under the proviso appended to sub-section (3) of Section 34 of the 1996 Act being not the 'period of limitation' or, in other words, 'prescribed period', in our opinion, Section 4 of the 1963 Act is not, at all, attracted to the facts of the present case.

14. Seen thus, the applications made by the appellants on January 2, 2004, for setting aside the arbitral award dated August 26, 2003 were liable to be dismissed and have rightly been dismissed by the District Judge, Kamrup, Guwahati, as time barred.

Related Post :

Challenge to Arbitration Award & Limitation : The Law
Appointment of Arbitrator under Section 11 (6) of the Arbitration & Conciliation Act, 1996 - Failure to appoint within 30 days - Effect



Justice S. Muralidhar

The Delhi High Court in Intuitive Tech Solutions Pvt. Ltd. v. DLF Ltd. has recapitulated the legal position in cases where a party fails to appoint an arbitrator despite a request to do so by the other party, within the statutory period as prescribed in the Arbitration & Conciliation Act, 1996. While following the dicta laid down by the Hon'ble Supreme Court in Datar Switchgears Limited v. Tata Finance Limited, the Delhi High Court held as under;


11. The question whether the Respondent has forfeited its right to appoint an Arbitrator can be answered on an analysis of the facts of the present case. The documents placed on record show that the Petitioner's legal notice dated 14th September 2011 invoking the arbitration clause was received by the Respondent on 16th September 2011. However, the said notice was not in conformity with the arbitration clause since the Petitioner proposed that the appointment of an Arbitrator be done by the Respondent 'in consultation' with the Petitioner. This was contrary to the express wording of Clause 32 (b) of the Agreement. Even assuming that the notice invoking the arbitration clause was received by the Respondent on 16th September 2011, the date of appointment of the Arbitrator by the Respondent is significant. Although the letter of counsel for the Respondent informing the Petitioner of the Arbitrator is dated 17th October 2011, and dispatched on 20th October 2011, the actual decision to appoint the Arbitrator must have been taken some time prior to the said letter dated 17th October 2011.

12. In Datar Switchgears Limited v. Tata Finance Limited in para 19 it was observed as under:
"19. So far as cases falling under Section 11(6) are conceded such as the one before us no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed Under Section 11(4) and Section11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited." (emphasis supplied)
13. The above decision was reiterated in Punj Lloyd Limited v. Petronet MHB Limited and in a recent decision dated 9th January 2012 of the Supreme Court in Arbitration Petition No. 11 of 2011 [Denel (Proprietary Limited) v. Government of India, Ministry of Defence]. Consequently, for the purposes of Section 11, it requires to be seen is whether the appointment of the Arbitrator by the Respondent has taken place prior to the filing of the present petition on 19th October 2011.

14. It was contended by learned counsel for the Petitioner that since the notice dated 17th October 2011 was dispatched only on 20th October 2011 the appointment of the Arbitrator took place after the filing of the present petition on 19th October 2011. The above submission fails to appreciate that the actual date of appointment of the Arbitrator by the Respondent had to be prior to the notice dated 17th October 2011. The date of dispatch of the letter intimating the appointment cannot `postpone' the date of appointment. It is not possible, on the basis of the documents placed on record, to hold that the appointment of the Arbitrator by the Respondent took place after the filing of the present petition. In accordance with the law explained by the Supreme Court in Datar Switchgears Limited v. Tata Finance Limited, it is held that the Respondent did not forfeit its right to appoint an Arbitrator in terms of Clause 32 (b) of the Agreement.



Exemplary Costs on Frivolous Litigation : Supreme Court


Justice Raveendran
Supreme Court of India
The Supreme Court in Sanjeev Kumar Jain Vs. Raghubir Saran Charitable Trust has dealt with the relevant provisions under the Code of Civil Procedure, 1908 for award of compensatory and punitive costs in favour of the successful party. The Supreme Court in this landmark judgment has suggested a hike in the quantum of costs on persons indulging in frivolous and vexatious litigations, which are clogging up the justice delivery system in the country. The relevant extracts are reproduced hereinbelow;

Relevant provisions of the Code

6. Section 35 of the Code of Civil Procedure, 1908, (for short 'the Code') relates to costs and is extracted below:
"35. Costs. (1) Subject to such conditions and limitations as may be prescribed, and to the provisions of law for the time being in force, the costs of and incident to all suits shall be in the discretion of the Court, and the Court shall have full power to determine by whom or out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid. The fact that the Court has no jurisdiction to try the suit shall be no bar to the exercise of such powers. (2) Where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing."
6.1. Section 35A relates to compensatory costs in respect of false or vexatious claims and is extracted below:
"35A. Compensatory costs in respect of false or vexatious claims or defenses (1) If any suit or other proceedings including an execution proceedings but excluding an appeal or a revision any party objects to the claim of defence on the ground that the claim or defence or any part of it is, as against the objector, false or vexatious to the knowledge of the party by whom it has been put forward, and if thereafter, as against the objector, such claim or defence is disallowed, abandoned or withdrawn in whole or in part, the Court if it so thinks fit, may, after recording its reasons for holding such claim or defence to be false or vexatious, make an order for the payment to the object or by the party by whom such claim or defence has been put forward, of cost by way of compensation. (2) No Court shall make any such order for the payment of an amount exceeding three thousand rupees or exceeding the limits of it pecuniary jurisdiction, whichever amount is less: Provided that where the pecuniary limits of the jurisdiction of any Court exercising the jurisdiction of a Court of Small Causes under the Provincial Small Cause Courts Act, 1887 (9 of 1887) or under a corresponding law in force in any part of India to which the said Act does not extend and not being a Court constituted under such Act or law, are less than two hundred and fifty rupees, the High Court may empower such Court to award as costs under this section any amount not exceeding two hundred and fifty rupees and not exceeding those limits by more than one hundred rupees : Provided, further, that the High Court may limit the amount or class of Courts is empowered to award as costs under this Section. (3) No person against whom an order has been made under this section shall, by reason thereof, be exempted from any criminal liability in respect of any claim or defence made by him. (4) The amount of any compensation awarded under this section in respect of a false or vexatious claim or defence shall be taken into account in any subsequent suit for damages or compensation in respect of such claim or defence."
6.2. Section 35B relates to costs for causing delay and is extracted below : "35B. Costs for causing delay. –

(1) If, on any date fixed for the hearing of a suit or for taking any step therein, a party to the suit—

(a) fails to take the step which he was required by or under this Code to take on that date, or

(b) obtains an adjournment for taking such step or for producing evidence or on any other ground, the Court may, for reasons to be recorded, make an order requiring such party to pay to the other party such costs as would, in the opinion of the Court, be reasonably sufficient to reimburse the other party in respect of the expenses incurred by him in attending the Court on that date, and payment of such costs, on the date next following the date of such order, shall be a condition precedent to the further prosecution of--

(a) the suit by the plaintiff, where the plaintiff was ordered to pay such costs,

(b) the defence by the defendant, where the defendant was ordered to pay such costs. Explanation.--Where separate defences have been raised by the defendants or groups of defendants, payment of such costs shall be a condition precedent to the further prosecution of the defence by such defendants or groups of defendants as have been ordered by the Court to pay such costs.

(2) The costs, ordered to be paid under sub-section (1), shall not, if paid, be included in the costs awarded in the decree passed in the suit; but, if such costs are not paid, a separate order shall be drawn up indicating the amount of such costs and the names and addresses of the persons by whom such costs are payable and the order so drawn up shall be executable against such persons."

6.3. Order XXA of the Code provides for costs being awarded in regard to the following six items enumerated in Rule 1:

"1. Provisions relating to certain items.- Without prejudice to the generality of the provisions of this Code relating to cots, the Court may award costs in respect of, -

(a) expenditure incurred for the giving of any notice required to be given by law before the institution of the suit;

(b) expenditure incurred on any notice which, though not required to be given by law, has been given by any party to the suit to any other party before the institution of the suit;

(c) expenditure incurred on the typing, writing or printing of pleadings filed by any party;

(d) charges paid by a party for inspection of the records of the court for the purposes of the suit;

(e) expenditure incurred by a party for producing witnesses, even though not summoned through courts; and

(f) in the case of appeals, charges incurred by a party for obtaining any copies of judgments and decrees which are required to be filed along with the memorandum of appeal."

Rule 2 of Order XXA provides that award of costs under this Rule shall be in accordance with such rules as the High Court may make in this behalf.

Decisions dealing with costs

7. Sections 35 and 35A have been considered recently by this Court in Salem Advocates Bar Association v. Union of India [2005 (6) SCC 344], Ashok Kumar Mittal Vs. Ram Kumar Gupta & Anr. [2009 (2) SCC 656] and Vinod Seth Vs. Devender Bajaj & Anr. [2010 (8) SCC 1]. Before referring to them, we may refer to the principle underlying award of costs stated in Manindra Chandra Nandi vs. Aswini Kumar Acharjya [ILR (1921) 48 Ca. 427] :
"....We must remember that whatever the origin of costs might have been, they are now awarded, not as a punishment of the defeated party but as a recompense to the successful party for the expenses to which he had been subjected, or, as Lord Coke puts it, for whatever appears to the Court to be the legal expenses incurred by the party in prosecuting his suit or his defence. * * * The theory on which costs are now awarded to a plaintiff is that default of the defendant made it necessary to sue him, and to a defendant is that the plaintiff sued him without cause; costs are thus in the nature of incidental damages allowed to indemnify a party against the expense of successfully vindicating his rights in court and consequently the party to blame pays costs to the party without fault. These principles apply, not merely in the award of costs, but also in the award of extra allowance or special costs. Courts are authorized to allow such special allowances, not to inflict a penalty on the un-successful party, but to indemnify the successful litigant for actual expenses necessarily or reasonably incurred in what are designated as important cases or difficult and extraordinary cases."
7.1. In Salem Advocates Bar Association, this Court held:
"Judicial notice can be taken of the fact that many unscrupulous parties take advantage of the fact that either the costs are not awarded or nominal costs are awarded on the unsuccessful party. Unfortunately, it has become a practice to direct parties to bear their own costs. In large number of cases, such an order is passed despite Section 35(2) of the Code. Such a practice also encourages filing of frivolous suits. It also leads to taking up of frivolous defences. Further wherever costs are awarded, ordinarily the same are not realistic and are nominal. When Section 35(2) provides for cost to follow the event, it is implicit that the costs have to be those which are reasonably incurred by a successful party except in those cases where the Court in its discretion may direct otherwise by recording reasons thereof. The costs have to be actual reasonable costs including the cost of the time spent by the successful party, the transportation and lodging, if any, or any other incidental cost besides the payment of the court fee, lawyer's fee, typing and other cost in relation to the litigation. It is for the High Courts to examine these aspects and wherever necessary make requisite rules, regulations or practice direction so as to provide appropriate guidelines for the subordinate courts to follow."
7.2. In Ashok Kumar Mittal, this Court pointed out that present system of levying meagre costs in civil matters (or no costs in some matters), is wholly unsatisfactory and does not act as a deterrent to vexatious or luxury litigation borne out of ego or greed, or resorted to as a `buying-time' tactic and that a more realistic approach relating to costs may be the need of the hour. This Court had also observed that the question whether we should adopt suitably, the western models of awarding actual and more realistic costs is a matter that requires to be debated and that should engage the attention of Law Commission of India. This Court also observed:
"One view has been that the provisions of Sections 35 and 35A CPC do not in any way affect the wide discretion vested in by High Court in exercise of its inherent power to award costs in the interests of justice in appropriate civil cases. The more sound view however is that though award of costs is within the discretion of the court, it is subject to such conditions and limitations as may be prescribed and subject to the provisions of any law for the time being in force; and where the issue is governed and regulated by Sections 35 and 35A of the Code, there is no question of exercising inherent power contrary to the specific provisions of the Code. Further, the provisions of Section 35A seems to suggest that even where a suit or litigation is vexatious, the outer limit of exemplary costs that can be awarded in addition to regular costs, shall not exceed Rs. 3000/-. It is also to be noted that huge costs of the order of Rs. Fifty thousand or Rs. One lakh, are normally awarded only in writ proceedings and public interest litigations, and not in civil litigation to which Sections 35 and 35A are applicable. The principles and practices relating to levy of costs in administrative law matters cannot be imported mechanically in relation to civil litigation governed by the Code."
7.3. In Vinod Seth, this Court observed as under:
"48. The provision for costs is intended to achieve the following goals:
(a) It should act as a deterrent to vexatious, frivolous and speculative litigations or defences. The spectre of being made liable to pay actual costs should be such, as to make every litigant think twice before putting forth a vexatious, frivolous or speculative claim or defence.
(b) Costs should ensure that the provisions of the Code, Evidence Act and other laws governing procedure are scrupulously and strictly complied with and that parties do not adopt delaying tactics or mislead the court.
(c) Costs should provide adequate indemnity to the successful litigant for the expenditure incurred by him for the litigation. This necessitates the award of actual costs of litigation as contrasted from nominal or fixed or unrealistic costs.
(d) The provision for costs should be an incentive for each litigant to adopt alternative dispute resolution (ADR) processes and arrive at a settlement before the trial commences in most of the cases. In many other jurisdictions, in view of the existence of appropriate and adequate provisions for costs, the litigants are persuaded to settle nearly 90% of the civil suits before they come up to trial.
(e) The provisions relating to costs should not however obstruct access to courts and justice. Under no circumstances the costs should be a deterrent, to a citizen with a genuine or bonafide claim, or to any person belonging to the weaker sections whose rights have been affected, from approaching the courts. At present these goals are sought to be achieved mainly by sections 35,35A and 35B read with the relevant civil rules of practice relating to taxing of costs.
49. Section 35 of the Code vests the discretion to award costs in the courts. It provides that normally the costs should follow the event and court shall have full power to determine by whom or out of what property, and to what extent such costs are to be paid. Most of the costs taxing rules, including the rules in force in Delhi provide each party should file a bill of cost immediately after the judgment is delivered setting out:

(a) the court fee paid; (b) process fee spent; (c) expenses of witnesses; (d) advocate's fee; and

(e) such other amount as may be allowable under the rules or as may be directed by the court as costs.

We are informed that in Delhi, the advocate's fee in regard to suits the value of which exceeds Rs.5 lakhs is : Rs.14,500/- plus 1% of the amount in excess of Rs.5 lakhs subject to a ceiling of Rs.50,000/-. The prevalent view among litigants and members of the bar is that the costs provided for in the Code and awarded by courts neither compensate nor indemnify the litigant fully in regard to the expenses incurred by him.

50. The English Civil Procedure Rules provide that a court in deciding what order, if any, to make in exercising its discretion about costs should have regard to the following circumstances:

(a) the conduct of all the parties; (b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and (c) any payment made into court or admissible offer to settle made by a party which is drawn to the courts attention. 'Conduct of the parties' that should be taken note by the court includes: (a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the relevant pre-action protocol; (b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue; and (d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim. Similar provisions, with appropriate modifications may enable proper and more realistic costs being awarded.

51. As Section 35 of the Code does not impose any ceiling the desired object can be achieved by the following: (i) courts levying costs, following the result, in all cases (non-levy of costs should be supported by reasons); and (ii) appropriate amendment to Civil Rules of Practice relating to taxation of costs, to make it more realistic in commercial litigation.

52. The provision relating to compensatory costs (Section 35A of the Code) in respect of false or vexatious claims or defences has become virtually infructuous and ineffective, on account of inflation. Under the said section, award of compensatory costs in false and vexatious litigation, is subject to a ceiling of Rs.3,000/-. This requires a realistic revision keeping in view, the observations in Salem Advocates Bar Association (supra). Section 35B providing for costs for causing delay is seldom invoked. It should be regularly employed, to reduce delay.

53. The lack of appropriate provisions relating to costs has resulted in a steady increase in malicious, vexatious, false, frivolous and speculative suits, apart from rendering Section 89 of the Code ineffective. Any attempt to reduce the pendency or encourage alternative dispute resolution processes or to streamline the civil justice system will fail in the absence of appropriate provisions relating to costs. There is therefore an urgent need for the legislature and the Law Commission of India to re-visit the provisions relating to costs and compensatory costs contained in Section 35 and 35A of the Code."

8. Though, Section 35 does not impose a ceiling on the costs that could be levied and gives discretion to the Court in the matter, it should be noted that Section 35 starts with the words "subject to such conditions and limitations as may be prescribed, and to the provisions of law for the time being in force". Therefore, if there are any conditions or limitations prescribed in the Code or in any rules, the Court, obviously, cannot ignore them in awarding costs.

9. Chapter 11 Part C of the Delhi High Court Rules (`Rules' for short) deals with award of costs in civil suits. Chapter XXIII of the said Rules deals with taxation of costs. Rule 1 relates to appointment of Taxing Officer. Rule 6 provides that advocate's fee should be taxed on the basis of a certificate filed under Rule 2 Chapter 5 but not exceeding the scale prescribed in the schedule to Chapter XXIII. Therefore, the Court could not have awarded costs exceeding the scale that was prescribed in the schedule to the Rules. Doing so would be contrary to the Rules. If it was contrary to the Rules, it was also contrary to Section 35 also which makes it subject to the conditions and limitations as may be prescribed and the provisions of law for the time being in force. Therefore, we are of the view that merely by seeking a consent of the parties to award litigation expenses as costs, the High Court could not have adopted the procedure of awarding what it assumed to be the `actual costs' nor could it proceed to award a sum of Rs.45,28,000/- as costs in an appeal relating to an interim order in a civil suit. While we would like to encourage award of realistic costs, that should be in accordance with law. If the law does not permit award of actual costs, obviously courts cannot award actual costs. When this Court observed that it is in favour of award of actual realistic costs, it means that the relevant Rules should be amended to provide for actual realistic costs. As the law presently stands, there is no provision for award of `actual costs' and the award of costs will have to be within the limitation prescribed by section 35.

10. Learned counsel for the respondents submitted that in awarding actual costs, the High Court was merely following the decision of a three-Judge Bench of this court in Salem Advocates Bar Association. He drew our attention to para 37 of the said decision (which is extracted in the judgment of the High Court), in particular, the observation that "costs have to be actual reasonable costs including the cost of time spent by the successful party, the transportation and lodging, if any, and any other incidental costs besides the payment of the court fee, lawyer's fee, typing and other costs in relation to the litigation." The High Court has also assumed that the above observations of this Court in Salem Advocates Bar Association enabled it to award "actual" costs. The High Court has opened its order with the following words: "The importance of this decision lies not in any substantial question of law having been decided - indeed, no question of law was urged before us, only issues touching upon facts. The importance lies in the nature of the dispute between the parties, which is a purely commercial dispute in which litigation expenses have touched the sky. In our opinion, the only way in which a successful litigant can be compensated financially is by awarding actual costs incurred by him in the litigation. The Supreme Court has recommended this course of action and we think the time has come to give more than serious weight and respect to the views of the Supreme Court. We have endeavoured to do just that in this appeal by awarding to the respondents the actual litigation expenses incurred by them, which is a staggering Rs.45,00,000/."

We are afraid that the respondents and the High Court have misread the observations of this Court in Salem Advocates Bar Association. All that this Court stated was that the actual reasonable cost has to be provided for in the rules by appropriate amendment. In fact, the very next sentence in para 37 of the decision of this Court is that the High Courts should examine these aspects and wherever necessary, make requisite rules, regulations or practice directions. What has been observed by this court about actual realistic costs is an observation requiring the High Courts to amend their rules and regulations to provide for actual realistic costs, where they are not so provided. We have noticed that section 35 does not impose a restriction on actual realistic costs. Such restriction is generally imposed by the rules made by the High Court. The observation in Salem Advocates Bar Association is a direction to amend the rules so as to provide for actual realistic costs and not to ignore the existing rules. The decision in Salem Advocates Bar Association is therefore of no assistance to justify the award of such costs. The Rules permit costs to the awarded only as per the schedule. Therefore, as the Rules presently stand. Whatever may be the `actual' expenditure incurred by a party, what could be awarded as costs is what is provided in the Rules.

11. There is one more aspect which requires serious consideration. What is the meaning of the words `actual realistic costs' assuming that costs could be awarded on such basis? Whether it can be said that ` 45,28,000/- said to have been incurred (made up of ` 29,73,000/- paid to Mr. S, Senior Advocate, ` 14,41,000/- paid to Mr. G, Senior Advocate, ` 85,500/- paid to Mr. M, Advocate, ` 16,750/- paid to Mr. V, Advocate and ` 11,750/- incurred as miscellaneous expenses) was the `actual realistic cost' of an appeal against an interim order in a suit for injunction? The actual realistic cost should have a correlation to costs which are realistic and practical. It cannot obviously refer to fanciful and whimsical expenditure by parties who have the luxury of engaging a battery of high-charging lawyers. If the logic adopted by the High Court is to be accepted, then the losing party should pay the costs, not with reference to the subject matter of the suit, but with reference to the fee paying capacity of the other side. Let us take the example of a suit for recovery of ` One lakh. If a rich plaintiff wants to put forth his case most effectively, engages a counsel who charges ` One lakh per hearing and the matter involves 30 hearings, should the defendant be made to pay costs of 30 lakhs, in a suit for recovery of ` One lakh merely because it is a commercial dispute? In a matter relating to temporary injunction, merely because the court adjourns the matter several times and one side engages a counsel by paying more than a lakh per hearing, should the other side be made to bear such costs? The costs memo filed by the respondents show that ` 45,28,000/- was paid to four counsel? If a rich litigant engages four counsel instead of one, should the defendant pay the fee of four counsel? If a party engages five senior Advocates and five ordinary counsel because he is capable, should the losing party pay the fees of all these counsel? The appeal came up on several occasions, but the final hearing of the appeal was only on a few days and other days were mere appearances. Should the losing party pay for such appearances? If respondents had engaged two senior counsel who charged ` Two lakhs per appearance, should the other side be made liable to pay ` 1.5 crore as costs?

Even if actual costs have to be awarded, it should be realistic which means what a "normal" advocate in a "normal" case of such nature would charge normally in such a case. Mechanically ordering the losing party to pay costs of ` 45,28,000/- in an appeal against grant of a temporary injunction in a pending suit for permanent injunction was unwarranted and contrary to law. It cannot be sustained.

12. Though this takes care of the actual dispute between the parties, it is also necessary to refer to the larger question of costs in civil suits. For this purpose, during the hearing, this Court requested Dr. Arun Mohan, learned senior counsel to assist as an Amicus Curiae in the matter. In pursuance of it, Dr. Arun Mohan collected and made available considerable material with reference to practices relating to levy of costs in several other jurisdictions. We find that the schemes/processes for assessment of costs in some of the western countries may not be appropriate with reference to Indian conditions. The process of taxation of costs has developed into a detailed and complex procedure in developed countries and instances are not wanting where the costs awarded has been more than the amount involved in the litigation itself. Having regard to Indian conditions, it is not possible or practical to spend the amount of time that is required for determination of `actual costs' as done in those countries, when we do not have time even to dispose of cases on merits. If the Courts have to set apart the time required for the elaborate procedure of assessment of costs, it may even lead to an increase in the pendency of cases. Therefore, we requested Dr. Arun Mohan to suggest ways and means of simplifying costs procedures to suit Indian conditions so that appropriate suggestions could be made to the Government. He has put forth several suggestions. Law Commission of India has also intervened and made several valuable suggestions. Notices were issued to the High Courts to ascertain the Rules and procedures in force in regard to costs. For convenience, we will refer to Delhi High Court Rules as the present matter arises from Delhi.

Strict enforcement of Section 35(2) of the Code

13. The discretion vested in the courts in the matter of award of costs is subject to two conditions, as is evident from section 35 of the Code:

(i) The discretion of the court is subject to such conditions and limitations as may be prescribed and to the provisions of law for he time being in force (vide sub-section (1)]

(ii) Where the court does not direct that costs shall follow the event, it shall state the reasons in writing [vide sub-section (2)].

The mandate of sub-section (2) of Section 35 of the Code that "where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing" is seldom followed in practice by courts. Many courts either do not make any order as to costs or direct the parties to bear their respective costs without assigning or recording the reasons for giving such exemption from costs. Unless the Courts develop the practice of awarding costs in accordance with Section 35 (that is, costs following the event) and also give reasons where costs are not awarded, the object of the provision for costs would be defeated. Prosecution and defence of cases is a time consuming and costly process. A plaintiff/petition/ appellant who is driven to the court, by the illegal acts of the defendant/respondent, or denial of a right to which he is entitled, if he succeeds, to be reimbursed of his expenses in accordance with law. Similarly a defendant/respondent who is dragged to court unnecessarily or vexatiously, if he succeeds, should be reimbursed of his expenses in accordance with law. Further, it is also well recognised that levy of costs and compensatory costs is one of the effective ways of curbing false or vexatious litigations.

Section 35A of the Code - Exemplary costs.

14. Section 35A refers to compensatory costs in respect of false or vexatious claims or defenses. The maximum amount that could be levied as compensatory costs for false and vexatious claims used to be ` 1,000/-. In the year 1977, this was amended and increased to ` 3,000/-. At present, the maximum that can be awarded as compensatory costs in regard to false and vexatious claims is ` 3,000/-. Unless the compensatory costs is brought to a realistic level, the present provision authorizing levy of an absurdly small sum by present day standards may, instead of discouraging such litigation, encourage false and vexatious claims. At present Courts have virtually given up awarding any compensatory costs as award of such a small sum of ` 3,000/- would not make much difference. We are of the view that the ceiling in regard to compensatory costs should be at least `1,00,000/-.

15. We may also note that the description of the costs awardable under Section 35A "as compensatory costs" gives an indication that is restitutive rather than punitive. The costs awarded for false or vexatious claims should be punitive and not merely compensatory. In fact, compensatory costs is something that is contemplated in Section 35B and Section 35 itself. Therefore, the Legislature may consider award of 'punitive costs' under section 35A.

Court fees

16. Though there is a general impression that the court fee regarding litigation is high, in fact, it is not so. Except in the case of few categories of suits (that is money suits, specific performance suits etc., and appeals therefrom), where court fee is ad volerem, in majority of the suits/petitions and appeals arising therefrom, the court fee is a fixed nominal fee. The fixed fees that are payable, prescribed decades ago have not undergone a change and in many cases, the fixed fee is not worth the cost of collection thereof.

There is therefore a need for a periodical revision of fixed court fees, that is payable in regard to suits/petitions/appeals filed in civil courts, High Court, Tribunals and Supreme Court. For example, in Supreme Court, the maximum court fee payable is only ` 250/-, whether it is a suit or special leave petition or appeal.

17. A time has come when at least in certain type of litigations, like commercial litigations, the costs should be commensurate with the time spent by the courts. Arbitration matters, company matters, tax matters, for example, may involve huge amounts. There is no reason why a nominal fixed fee should be collected in regard to such cases. While we are not advocating an ad valorem fee with reference to value in such matters, at least the fixed fee should be sufficiently high to have some kind of quid- pro-quo to the cost involved. Be that as it may.

Award of Realistic Costs

18. In Salem Advocates Bar Association, this Court suggested to the High Courts that they should examine the Model Case Flow Management Rules and consider making rules in terms of it, with or without modification so that a step forward is taken to provide to the litigating public a fair, speedy and inexpensive justice. The relevant rules therein relating to costs are extracted below:
"Re: Trial Courts So far as awarding of costs at the time of judgment is concerned, awarding of costs must be treated generally as mandatory in as much as the liberal attitude of the Courts in directing the parties to bear their own costs had led parties to file a number of frivolous cases in the Courts or to raise frivolous and unnecessary issues. Costs should invariably follow the event. Where a party succeeds ultimately on one issue or point but loses on num- ber of other issues or points which were unnecessarily raised, costs must be appropriately apportioned. Special reasons must be assigned if costs are not being awarded. Costs should be assessed according to rules in force. If any of the parties has unreasonably protracted the proceedings, the Judge should consider exercising discretion to impose exemplary costs after tak- ing into account the expense incurred for the purpose of attendance on the adjourned dates. Re: Appellate Courts Awarding of costs must be treated generally as mandatory in as much as it is the liberal attitude if the Courts in not awarding costs that has led to frivolous points being raised in appeals or frivolous appeals being filed in the courts. Costs should invariably follow the event and reasons must be assigned by the appellate Court for not awarding costs. If any of the parties have unreasonably protracted the proceedings, the Judge shall have the discretion to impose exemplary costs after taking into account the costs that may have been imposed at the time of adjournments."
19. The costs in regard to a litigation include (a) the court fee and process fee; (b) the advocate's fee; (c) expenses of witnesses; and (d) other expenses allowable under the Rules. We have already referred to the need to revise and streamline the court fee. Equally urgent is the need to revise the advocate's fee provided in the Schedule to the Rules, most of which are outdated and have no correlation with the prevailing rates of fees. In regard to money suits, specific performance suits and other suits where ad valorem court fee is payable, the Advocate's fee is also usually ad valorem. We are more concerned with the other matters, which constitute the majority of the litigation, where fixed Advocates' fees are prescribed. In Delhi in regard to any proceedings (other than suits where the ad valorem court fee is payable), the maximum fee that could be awarded is stated to be ` 2000 and for appeals of the scale if that is payable to original suits.

20. The Supreme Court Rules (Second Schedule) prescribes a fee of `2400/- for leading counsel and `1200/- for Associate Advocate in regard to defended appeals and suits or writ petitions. For special leave petitions, it is `800/- for leading counsel and `400/- for Advocate-on-Record. It is of some interest to note that the fee paid to amicus curiae in criminal appeals in Supreme Court and to the Legal Aid counsel appointed by Supreme Court Legal Services Committee is much higher than the above scale of fees. There is need to provide for awarding realistic advocates' fee by amending the relevant rules periodically. This Court, of course, in several cases has directed payment of realistic costs. But this Court could do so, either because of the discretion vested under the Supreme Court Rules, 1966 or having regard to Article 142 of the Constitution under which this Court has the power to make such orders as are necessary to do complete justice between the parties.

21. A serious fallout of not levying actual realistic costs should be noted. A litigant, who starts the litigation, after sometime, being unable to bear the delay and mounting costs, gives up and surrenders to the other side or agrees to settlement which is something akin to creditor who is not able to recover the debt, writing off the debt. This happens when the costs keep mounting and he realizes that even if he succeeds he will not get the actual costs. If this happens frequently, the citizens will lose confidence in the civil justice system. When a civil litigant is denied effective relief in Courts, he tries to take his grievances to `extra judicial' enforcers (that is goons, musclemen, underworld) for enforcing his claims/right thereby criminalising the civil society. This has serious repercussions on the institution of democracy.

22. We therefore, suggest that the Rules be amended to provide for `actual realistic costs'. The object is to streamline the award of costs and simplify the process of assessment, while making the cost `actual and realistic'. While ascertainment of actuals in necessary in regard to expenditure incurred (as for example travel expenses of witnesses, cost of obtaining certified copies etc.) in so far as advocates' fee is concerned, the emphasis should be on `realistic' rather than `actual'. The courts are not concerned with the number of lawyers engaged or the high rate of day fee paid to them. For the present, the Advocate fee should be a realistic normal single fee.

Costs in Arbitration matters

23. We have referred to the effect of absence of provisions for award of actual costs, on civil litigation. At the other end of the spectrum is an area where award of actual but unrealistic costs and delay in disposal is affecting the credibility of an alternative dispute resolution process. We are referring to arbitration proceedings where usually huge costs are awarded (with reference to actual unregulated fees of Arbitrators and Advocates).

24. Clause (a) of section 31(8) of Arbitration and Conciliation At, 1996 (`Act' for short) deals with costs. It provides that unless otherwise agreed by the parties, the costs of an arbitration shall be fixed by the arbitral tribunal. The explanation to sub-section (8) of section 31 makes it clear that `costs' means reasonable costs relating to (i) the fees and expenses of the arbitrators and witnesses, (ii) legal fees and expenses, (iii) any administration fees of the institution supervising the arbitration, and (iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award. Clause (b) of section 31(8) of the Act provides that unless otherwise agreed by parties, the arbitral tribunal shall specify (i) the party entitled to costs, (ii) the party who shall pay the costs, (iii) the amount of costs or method of determining the amount, and (iv) the manner in which the costs shall be paid. This shows that what is awardable is not `actual' expenditure but `reasonable' costs.

25. Arbitrators can be appointed by the parties directly without the intervention of the court, or by an Institution specified in the arbitration agreement. Where there is no consensus in regard to appointment of arbitrator/s, or if the specified institution fails to perform its functions, the party who seeks arbitration can file an application under section 11 of the Act for appointment of arbitrators. Section 11 speaks of Chief Justice or his Designate `appointing' an arbitrator. The word `appoint' means not only nominating or designating the person who will act as an arbitrator, but is wide enough to include the stipulating the terms on which he is appointed. For example when we refer to an employer issuing a letter of appointment, it not only refers to the actual act of appointment, but includes the stipulation of the terms subject to which such appointment is made. The word `appoint' in section 11 of the Act, therefore refers not only to the actual designation or nomination as an arbitrator, but includes specifying the terms and conditions, which the Chief Justice or Designate may lay down on the facts and circumstances of the case. Whenever the Chief Justice or his Designate appoint arbitrator/s, it will be open to him to stipulate the fees payable to the arbitrator/s, after hearing the parties and if necessary after ascertaining the fee structure from the prospective Arbitrator/s. This will avoid the embarrassment of parties having to negotiate with the Arbitrators, the fee payable to them, after their appointment.

26. This Court in Union of India v. Singh Builders Syndicate - 2009 (4) SCC 523, dealt with the complaints about the arbitration cost in India:
"20. Another aspect referred to by the appellant, however requires serious consideration. When the arbitration is by a Tribunal consisting of serving officers, the cost of arbitration is very low. On the other hand, the cost of arbitration can be high if the Arbitral Tribunal consists of retired Judge/s.
21. When a retired Judge is appointed as Arbitrator in place of serving officers, the government is forced to bear the high cost of Arbitration by way of private arbitrator's fee even though it had not consented for the appointment of such non-technical non-serving persons as Arbitrator/s. There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judge/s are Arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award.
22. When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees is suggested by the Arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the Arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee.
23. It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has provided a solution as the Arbitrators' fees is not fixed by the Arbitrators themselves on case to case basis, but is governed by a uniform rate prescribed by the institution under whose aegis the Arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Third is for the retired Judges offering to serve as Arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will have the choice of selecting an Arbitrator whose fees are in their `range' having regard to the stakes involved.
24. What is found to be objectionable is parties being forced to go to an arbitrator appointed by the court and then being forced to agree for a fee fixed by such Arbitrator. It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial interruptions at different stages are seriously hampering the growth of arbitration as an effective dispute resolution process. Delay and high cost are two areas where the Arbitrators by self regulation can bring about marked improvement."
(emphasis supplied)
27. There is a general feeling among consumers of arbitration (parties settling disputes by arbitration) that ad-hoc arbitrations in India - either international or domestic, are time consuming and disproportionately expensive. Frequent complaints are made about two sessions in a day being treated as two hearings for purpose of charging fee; or about a sessions for two hours being treated as full sessions for purposes of fee; or about non- productive sittings being treated as fully chargeable hearings. It is pointed out that if there is an arbitral tribunal with three arbitrators and if the arbitrators are from different cities and the arbitrations are to be held and the Arbitrators are accommodated in five star hotels, the cost per hearing, (Arbitrator's fee, lawyer's fee, cost of travel, cost of accommodation etc.) may easily run into Rupees One Million to One and half Million per sitting. Where the stakes are very high, that kind of expenditure is not commented upon. But if the number of hearings become too many, the cost factor and efficiency/effectiveness factor is commented. That is why this Court in Singh Builders Syndicate observed that the arbitration will have to be saved from the arbitration cost.

28. Though what is stated above about arbitrations in India, may appear rather harsh, or as an universalisation of stray aberrations, we have ventured to refer to these aspects in the interest of ensuring that arbitration survives in India as an effective alternative forum for disputes resolution in India. Examples are not wanting where arbitrations are being shifted to neighbouring Singapore, Kuala Lumpur etc., on the ground that more professionalized or institutionalized arbitrations, which get concluded expeditiously at a lesser cost, are available there. The remedy for healthy development of arbitration in India is to disclose the fees structure before the appointment of Arbitrators so that any party who is unwilling to bear such expenses can express his unwillingness. Another remedy is Institutional Arbitration where the Arbitrator's fee is pre- fixed. The third is for each High Court to have a scale of Arbitrator's fee suitably calibrated with reference to the amount involved in the dispute. This will also avoid different designates prescribing different fee structures. By these methods, there may be a reasonable check on the fees and the cost of arbitration, thereby making arbitration, both national and international, attractive to the litigant public. Reasonableness and certainty about total costs are the key to the development of arbitration. Be that as it may.



Alternate Dispute Resolution under Section 89 of the Code of Civil Procedure : Guidelines


Justice R.V. Raveendran
Supreme Court of India
The Supreme Court in Afcons Infrastructure Ltd. Vs. Cherian Varkey Construction Co. (P) Ltd. has discussed, in great detail, the provisions of Section 89 of the Code of Civil Procedure, 1908 which casts a duty on the courts to encourage parties for settlement of their disputes by means of alternate dispute resolution. The Court while examining the various aspects of the said provision has laid down guidelines for courts to follow for the effective implementation of Section 89 of the Code. The relevant extracts from the judgment are reproduced hereinbelow;

5. On the contentions urged, two questions arise for consideration:

(i) What is the procedure to be followed by a court in implementing section 89 and Order 10 Rule 1A of the Code?

(ii) Whether consent of all parties to the suit is necessary for reference to arbitration under section 89 of the Code?

6. To find answers to the said questions, we have to analyse the object, purpose, scope and tenor of the said provisions. The said provisions are extracted below:

"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 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) where 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."

Order 10 Rule 1A. Direction of the Court to opt for any one mode of alternative dispute resolution.--After recording the admissions and denials, the Court shall direct the parties to the suit to opt either mode of the settlement outside the Court as specified in sub- section (1) of section 89. On the option of the parties, the Court shall fix the date of appearance before such forum or authority as may be opted by the parties. Order 10 Rule 1B. Appearance before the conciliatory forum or authority.--Where a suit is referred under rule 1A, the parties shall appear before such forum or authority for conciliation of the suit. Order 10 Rule 1C. Appearance before the Court consequent to the failure of efforts of conciliation.--Where a suit is referred under rule 1A and the presiding officer of conciliation forum or authority is satisfied that it would not be proper in the interest of justice to proceed with the matter further, then, it shall refer the matter again to the Court and direct the parties to appear before the Court on the date fixed by it."

7. If section 89 is to be read and required to be implemented in its literal sense, it will be a Trial Judge's nightmare. It puts the cart before the horse and lays down an impractical, if not impossible, procedure in sub-section (1). It has mixed up the definitions in sub-section (2). In spite of these defects, the object behind section 89 is laudable and sound. Resort to alternative disputes resolution (for short `ADR') processes is necessary to give speedy and effective relief to the litigants and to reduce the pendency in and burden upon the courts. As ADR processes were not being resorted to with the desired frequency, Parliament thought it fit to introduce Section 89 and Rules 1-A to 1-C in Order X in the Code, to ensure that ADR process was resorted to before the commencement of trial in suits. In view of its laudable object, the validity of section 89, with all its imperfections, was upheld in Salem Advocate Bar Association v. Union of India reported in [2003 (1) SCC 49 - for short, Salem Bar - (I)] but referred to a Committee, as it was hoped that section 89 could be implemented by ironing the creases. In Salem Advocate Bar Association v. Union of India [2005 (6) SCC 344 - for short, Salem Bar-(II)], this Court applied the principle of purposive construction in an attempt to make it workable. What is wrong with section 89 of the Code?

8. The first anomaly is the mixing up of the definitions of `mediation' and `judicial settlement' under clauses (c) and (d) of sub-section (2) of section 89 of the Code. Clause (c) says that for "judicial settlement", the court shall refer the same to a suitable institution or person who shall be deemed to be a Lok Adalat. Clause (d) provides that where the reference is to "mediation", the court shall effect a compromise between the parties by following such procedure as may be prescribed. It makes no sense to call a compromise effected by a court, as "mediation", as is done in clause (d). Nor does it make any sense to describe a reference made by a court to a suitable institution or person for arriving at a settlement as "judicial settlement", as is done in clause (c). "Judicial settlement" is a term in vogue in USA referring to a settlement of a civil case with the help of a judge who is not assigned to adjudicate upon the dispute. "Mediation" is also a well known term and it refers to a method of non-binding dispute resolution with the assistance of a neutral third party who tries to help the disputing parties to arrive at a negotiated settlement. It is also synonym of the term `conciliation'. (See: Black's Law Dictionary, 7th Edition, Pages 1377 and 996). When words are universally understood in a particular sense, and assigned a particular meaning in common parlance, the definitions of those words in section 89 with interchanged meanings has led to confusion, complications and difficulties in implementation. The mix-up of definitions of the terms "judicial settlement" and "mediation" in Section 89 is apparently due to a clerical or typographical error in drafting, resulting in the two words being interchanged in clauses (c) and (d) of Section 89(2). If the word "mediation" in clause (d) and the words "judicial settlement" in clause (c) are interchanged, we find that the said clauses make perfect sense.

9. The second anomaly is that sub-section (1) of section 89 imports the final stage of conciliation referred to in section 73(1) of the AC Act into the pre-ADR reference stage under section 89 of the Code. Sub-section (1) of section 89 requires the court to formulate the terms of settlement and give them to the parties for their observation and then reformulate the terms of a possible settlement and then refer the same for any one of the ADR processes. If sub-section (1) of Section 89 is to be literally followed, every Trial Judge before framing issues, is required to ascertain whether there exists any elements of settlement which may be acceptable to the parties, formulate the terms of settlement, give them to parties for observations and then reformulate the terms of a possible settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat or mediation. There is nothing that is left to be done by the alternative dispute resolution forum. If all these have to be done by the trial court before referring the parties to alternative dispute resolution processes, the court itself may as well proceed to record the settlement as nothing more is required to be done, as a Judge cannot do these unless he acts as a conciliator or mediator and holds detailed discussions and negotiations running into hours.

10. Section 73 of AC Act shows that formulation and reformulation of terms of settlement is a process carried out at the final stage of a conciliation process, when the settlement is being arrived at. What is required to be done at the final stage of conciliation by a conciliator is borrowed lock, stock and barrel into section 89 and the court is wrongly required to formulate the terms of settlement and reformulate them at a stage prior to reference to an ADR process. This becomes evident by a comparison of the wording of the two provisions. Section 73(1) of Arbitration and Conciliation Section 89(1) of Code of Civil Procedure Act, 1996 relating to the final stage of relating to a stage before reference to an settlement process in conciliation. ADR process. When it appears to the conciliator that there Where it appears to the Court that there exist elements of a settlement which may exist elements of a settlement which may be acceptable to the parties, he shall be acceptable to the parties, the Court shall formulate the terms of a possible settlement formulate the terms of settlement and give and submit them to the parties for their them to the parties for their observations observations. After receiving the and after receiving the observations of the observations of the parties, the conciliator parties, the Court may reformulate the may reformulate the terms of a possible terms of a possible settlement and refer the settlement in the light of such observations. same for (a) arbitration; (b) conciliation; (c) judicial settlement including settlement through Lok Adalat; or (d) mediation. Formulation and re-formulation of terms of settlement by the court is therefore wholly out of place at the stage of pre ADR reference. It is not possible for courts to perform these acts at a preliminary hearing to decide whether a case should be referred to an ADR process and, if so, which ADR process.

11. If the reference is to be made to arbitration, the terms of settlement formulated by the court will be of no use, as what is referred to arbitration is the dispute and not the terms of settlement; and the Arbitrator will adjudicate upon the dispute and give his decision by way of award. If the reference is to conciliation/mediation/Lok Adalat, then drawing up the terms of the settlement or reformulating them is the job of the conciliator or the mediator or the Lok Adalat, after going through the entire process of conciliation/ mediation. Thus, the terms of settlement drawn up by the court will be totally useless in any subsequent ADR process. Why then the courts should be burdened with the onerous and virtually impossible, but redundant, task of formulating terms of settlement at pre-reference stage?

12. It will not be possible for a court to formulate the terms of the settlement, unless the judge discusses the matter in detail with both parties. The court formulating the terms of settlement merely on the basis of pleadings is neither feasible nor possible. The requirement that the court should formulate the terms of settlement is therefore a great hindrance to courts in implementing section 89 of the Code. This Court therefore diluted this anomaly in Salem Bar (II) by equating "terms of settlement" to a "summary of disputes" meaning thereby that the court is only required to formulate a `summary of disputes' and not `terms of settlement'. How should section 89 be interpreted?

13. The principles of statutory interpretation are well settled. Where the words of the statute are clear and unambiguous, the provision should be given its plain and normal meaning, without adding or rejecting any words. Departure from the literal rule, by making structural changes or substituting words in a clear statutory provision, under the guise of interpretation will pose a great risk as the changes may not be what the Legislature intended or desired. Legislative wisdom cannot be replaced by the Judge's views. As observed by this Court in somewhat different context:
"When a procedure is prescribed by the Legislature, it is not for the court to substitute a different one according to its notion of justice. When the Legislature has spoken, the Judges cannot afford to be wiser." (See: Shri Mandir Sita Ramji vs. Lt. Governor of Delhi - (1975) 4 SCC 298).
There is however an exception to this general rule. Where the words used in the statutory provision are vague and ambiguous or where the plain and normal meaning of its words or grammatical construction thereof would lead to confusion, absurdity, repugnancy with other provisions, the courts may, instead of adopting the plain and grammatical construction, use the interpretative tools to set right the situation, by adding or omitting or substituting the words in the Statute. When faced with an apparently defective provision in a statute, courts prefer to assume that the draftsman had committed a mistake rather than concluding that the Legislature has deliberately introduced an absurd or irrational statutory provision. Departure from the literal rule of plain and straight reading can however be only in exceptional cases, where the anomalies make the literal compliance of a provision impossible, or absurd or so impractical as to defeat the very object of the provision. We may also mention purposive interpretation to avoid absurdity and irrationality is more readily and easily employed in relation to procedural provisions than with reference to substantive provisions.

(13.1) Maxwell on Interpretation of Statutes (12th Edn., page 228), under the caption `modification of the language to meet the intention' in the chapter dealing with `Exceptional Construction' states the position succinctly:
"Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used."
This Court in Tirath Singh v. Bachittar Singh [AIR 1955 SC 830] approved and adopted the said approach.

(13.2) In Shamrao V.Parulekar v. District Magistrate, Thana, Bombay [AIR 1952 SC 324], this Court reiterated the principle from Maxwell:
".....if one construction will lead to an absurdity while another will give effect to what commonsense would show was obviously intended, the construction which would defeat the ends of the Act must be rejected even if the same words used in the same section, and even the same sentence, have to be construed differently. Indeed, the law goes so far as to require the Courts sometimes even to modify the grammatical and ordinary sense of the words if by doing so absurdity and inconsistency can be avoided."
(13.3) In Molar Mal vs. Kay Iron Works (P) Ltd. - 2004 (4) SCC 285, this Court while reiterating that courts will have to follow the rule of literal construction, which enjoins the court to take the words as used by the Legislature and to give it the meaning which naturally implies, held that there is an exception to that rule. This Court observed:
"That exception comes into play when application of literal construction of the words in the statute leads to absurdity, inconsistency or when it is shown that the legal context in which the words are used or by reading the statute as a whole, it requires a different meaning."
(13.4) In Mangin v. Inland Revenue Commission [1971 (1) All.ER 179], the Privy Council held:
"......The object of the construction of a statute, be it to ascertain the will of the legislature, it may be presumed that neither injustice nor absurdity was intended. If, therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted."
(13.5) A classic example of correcting an error committed by the draftsman in legislative drafting is the substitution of the words `defendant's witnesses' by this Court for the words `plaintiff's witnesses' occurring in Order VII Rule 14(4) of the Code, in Salem Bar- II. We extract below the relevant portion of the said decision:
"Order VII relates to the production of documents by the plaintiff whereas Order VIII relates to production of documents by the defendant. Under Order VIII Rule 1A(4) a document not produced by defendant can be confronted to the plaintiff's witness during cross-examination. Similarly, the plaintiff can also confront the defendant's witness with a document during cross-examination. By mistake, instead of 'defendant's witnesses', the words 'plaintiff's witnesses' have been mentioned in Order VII Rule (4). To avoid any confusion, we direct that till the legislature corrects the mistake, the words 'plaintiff's witnesses, would be read as 'defendant's witnesses' in Order VII Rule 4. We, however, hope that the mistake would be expeditiously corrected by the legislature."
(13.6) Justice G.P. Singh extracts four conditions that should be present to justify departure from the plain words of the Statute, in his treatise "Principles of Statutory Interpretation" (12th Edn. - 2010, Lexis Nexis - page 144) from the decision of the House of Lords in Stock v. Frank Jones (Tipton) Ltd., [1978 (1) All ER 948] :
"......a court would only be justified in departing from the plain words of the statute when it is satisfied that (1) there is clear and gross balance of anomaly; (2) Parliament, the legislative promoters and the draftsman could not have envisaged such anomaly and could not have been prepared to accept it in the interest of a supervening legislative objective; (3) the anomaly can be obviated without detriment to such a legislative objective; and (4) the language of the statute is susceptible of the modification required to obviate the anomaly."
14. All the aforesaid four conditions justifying departure from the literal rule, exist with reference to section 89 of the Code. Therefore, in Salem Bar -II, by judicial interpretation the entire process of formulating the terms of settlement, giving them to the parties for their observation and reformulating the terms of possible settlement after receiving the observations, contained in sub- section (1) of section 89, is excluded or done away with by stating that the said provision merely requires formulating a summary of disputes. Further, this Court in Salem Bar-II, adopted the following definition of `mediation' suggested in the model mediation rules, in spite of a different definition in section 89(2)(d) :
"Settlement by `mediation' means the process by which a mediator appointed by parties or by the Court, as the case may be, mediates the dispute between the parties to the suit by the application of the provisions of the Mediation Rules, 2003 in Part II, and in particular, by facilitating discussion between parties directly or by communicating with each other through the mediator, by assisting parties in identifying issues, reducing misunderstandings, clarifying priorities, exploring areas of compromise, generating options in an attempt to solve the dispute and emphasizing that it is the parties' own responsibility for making decisions which affect them."
All over the country the courts have been referring cases under section 89 to mediation by assuming and understanding `mediation' to mean a dispute resolution process by negotiated settlement with the assistance of a neutral third party. Judicial settlement is understood as referring to a compromise entered by the parties with the assistance of the court adjudicating the matter, or another Judge to whom the court had referred the dispute.

15. Section 89 has to be read with Rule 1-A of Order 10 which requires the court to direct the parties to opt for any of the five modes of alternative dispute resolution processes and on their option refer the matter. The said rule does not require the court to either formulate the terms of settlement or make available such terms of settlement to the parties to reformulate the terms of possible settlement after receiving the observations of the parties. Therefore the only practical way of reading Section 89 and Order 10, Rule 1-A is that after the pleadings are complete and after seeking admission/denials wherever required, and before framing issues, the court will have recourse to section 89 of the Code. Such recourse requires the court to consider and record the nature of the dispute, inform the parties about the five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes.

16. In view of the foregoing, it has to be concluded that proper interpretation of section 89 of the Code requires two changes from a plain and literal reading of the section. Firstly, it is not necessary for the court, before referring the parties to an ADR process to formulate or re- formulate the terms of a possible settlement. It is sufficient if the court merely describes the nature of dispute (in a sentence or two) and makes the reference. Secondly, the definitions of `judicial settlement' and `mediation' in clauses (c) and (d) of section 89(2) shall have to be interchanged to correct the draftsman's error. Clauses (c) and (d) of section 89(2) of the Code will read as under when the two terms are interchanged: (c) for "mediation", 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 "judicial settlement", the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed. The above changes made by interpretative process shall remain in force till the legislature corrects the mistakes, so that section 89 is not rendered meaningless and infructuous. Whether the reference to ADR Process is mandatory?

17. Section 89 starts with the words "where it appears to the court that there exist elements of a settlement". This clearly shows that cases which are not suited for ADR process should not be referred under section 89 of the Code. The court has to form an opinion that a case is one that is capable of being referred to and settled through ADR process. Having regard to the tenor of the provisions of Rule 1A of Order 10 of the Code, the civil court should invariably refer cases to ADR process. Only in certain recognized excluded categories of cases, it may choose not to refer to an ADR process. Where the case is unsuited for reference to any of the ADR process, the court will have to briefly record the reasons for not resorting to any of the settlement procedures prescribed under section 89 of the Code. Therefore, having a hearing after completion of pleadings, to consider recourse to ADR process under section 89 of the Code, is mandatory. But actual reference to an ADR process in all cases is not mandatory. Where the case falls under an excluded category there need not be reference to ADR process. In all other case reference to ADR process is a must.

18. 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.

19. 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. The above enumeration of `suitable' and `unsuitable' categorization of cases is not intended to be exhaustive or rigid. They are illustrative, which can be subjected to just exceptions or additions by the court/Tribunal exercising its jurisdiction/discretion in referring a dispute/case to an ADR process. How to decide the appropriate ADR process under section 89?

20. Section 89 refers to five types of ADR procedures, made up of one adjudicatory process (arbitration) and four negotiatory (non adjudicatory) processes - conciliation, mediation, judicial settlement and Lok Adalat settlement. The object of section 89 of the Code is that settlement should be attempted by adopting an appropriate ADR process before the case proceeds to trial. Neither section 89 nor Rule 1A of Order 10 of the Code is intended to supersede or modify the provisions of the Arbitration and Conciliation Act, 1996 or the Legal Services Authorities Act, 1987. On the other hand, section 89 of the Code makes it clear that two of the ADR processes - Arbitration and Conciliation, will be governed by the provisions of the AC Act and two other ADR Processes - Lok Adalat Settlement and Mediation (See : amended definition in para 18 above), will be governed by the Legal Services Authorities Act. As for the last of the ADR processes - judicial settlement (See : amended definition in para 18 above), section 89 makes it clear that it is not governed by any enactment and the court will follow such procedure as may be prescribed (by appropriate rules).

21. Rule 1A of Order 10 requires the court to give the option to the parties, to choose any of the ADR processes. This does not mean an individual option, but a joint option or consensus about the choice of the ADR process. On the other hand, section 89 vests the choice of reference to the court. There is of course no inconsistency. Section 89 of the Code gives the jurisdiction to refer to ADR process and Rules 1A to IC of Order 10 lay down the manner in which the said jurisdiction is to be exercised. The scheme is that the court explains the choices available regarding ADR process to the parties, permits them to opt for a process by consensus, and if there is no consensus, proceeds to choose the process.

22. Let us next consider which of the ADR processes require mutual consent of the parties and which of them do not require the consent of parties.

Arbitration

23. Arbitration is an adjudicatory dispute resolution process by a private forum, governed by the provisions of the AC Act. The said Act makes it clear that there can be reference to arbitration only if there is an `arbitration agreement' between the parties. If there was a pre-existing arbitration agreement between the parties, in all probability, even before the suit reaches the stage governed by Order 10 of the Code, the matter would have stood referred to arbitration either by invoking section 8 or section 11 of the AC Act, and there would be no need to have recourse to arbitration under section 89 of the Code. Section 89 therefore pre-supposes that there is no pre- existing arbitration agreement. Even if there was no pre-existing arbitration agreement, the parties to the suit can agree for arbitration when the choice of ADR processes is offered to them by the court under section 89 of the Code. Such agreement can be by means of a joint memo or joint application or a joint affidavit before the court, or by record of the agreement by the court in the ordersheet signed by the parties. Once there is such an agreement in writing signed by parties, the matter can be referred to arbitration under section 89 of the Code; and on such reference, the provisions of AC Act will apply to the arbitration, and as noticed in Salem Bar-I, the case will go outside the stream of the court permanently and will not come back to the court.

24. If there is no agreement between the parties for reference to arbitration, the court cannot refer the matter to arbitration under section 89 of the Code. This is evident from the provisions of AC Act. A court has no power, authority or jurisdiction to refer unwilling parties to arbitration, if there is no arbitration agreement. This Court has consistently held that though section 89 of the Code mandates reference to ADR processes, reference to arbitration under section 89 of the Code could only be with the consent of both sides and not otherwise.

(24.1) In Salem Bar (I), this Court held :
"It is quite obvious that the reason why Section 89 has been inserted is to try and see that all the cases which are filed in court need not necessarily be decided by the court itself. Keeping in mind the law's delays and the limited number of Judges which are available, it has now become imperative that resort should be had to alternative dispute resolution mechanism with a view to bring to an end litigation between the parties at an early date. The alternative dispute resolution (ADR) mechanism as contemplated by Section 89 is arbitration or conciliation or judicial settlement including settlement through Lok Adalat or mediation. x x x x x If the parties agree to arbitration, then the provisions of the Arbitration and Conciliation Act, 1996 will apply and that case will go outside the stream of the court but resorting to conciliation or judicial settlement or mediation with a view to settle the dispute would not ipso facto take the case outside the judicial system. All that this means is that effort has to be made to bring about an amicable settlement between the parties but if conciliation or mediation or judicial settlement is not possible, despite efforts being made, the case will ultimately go to trial."
(Emphasis supplied)

(24.2) In Salem Bar - (II), this Court held :
"Some doubt as to a possible conflict has been expressed in view of used of the word "may" in Section 89 when it stipulates that "the court may reformulate the terms of a possible settlement and refer the same for" and use of the word "shall" in Order 10 Rule 1-A when it states that "the court shall direct the parties to the suit to opt either mode of the settlement outside the court as specified in sub- section (1) of Section 89".
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. Section 89 uses both the words "shall" and "may" whereas Order 10 Rule 1-A uses the word "shall" but on harmonious reading of these provisions it becomes clear that the use of the word "may" in Section 89 only governs the aspect of reformulation of the terms of a possible settlement and its reference to one of ADR methods. There is no conflict. It is evident that what is referred to one of the ADR modes is the dispute which is summarized in the terms of settlement formulated or reformulated in terms of Section 89. One of the modes to which the dispute can be referred is "arbitration". Section 89(2) provides that where a dispute has been referred for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (for short "the 1996 Act") shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of the 1996 Act. Section 8 of the 1996 Act deals with the power to refer parties to arbitration where there is arbitration agreement. As held in P.Anand Gajapathi Raju v. P.V.G. Raju [2000 (4) SCC 539] the 1996 Act governs a case where arbitration is agreed upon before or pending a suit by all the parties. The 1996 Act, however, does not contemplate a situation as in Section 89 of the Code where the court asks the parties to choose one or other ADRs including arbitration and the parties choose arbitration as their option. Of course, the parties have to agree for arbitration." (Emphasis supplied)

(24.3) The position was reiterated by this Court in Jagdish Chander v. Ramesh Chander [2007 (5) SCC 719] thus :
"It should not also be overlooked that even though Section 89 mandates courts to refer pending suits to any of the several alternative dispute resolution processes mentioned therein, there cannot be a reference to arbitration even under Section 89 CPC, unless there is a mutual consent of all parties, for such reference."
(Emphasis supplied)

(24.4) Therefore, where there is no pre-existing arbitration agreement between the parties, the consent of all the parties to the suit will be necessary, for referring the subject matter of the suit to arbitration under section 89 of the Code. Conciliation

25. Conciliation is a non-adjudicatory ADR process, which is also governed by the provisions of AC Act. There can be a valid reference to conciliation only if both parties to the dispute agree to have negotiations with the help of a third party or third parties either by an agreement or by the process of invitation and acceptance provided in section 62 of AC Act followed by appointment of conciliator/s as provided in section 64 of AC Act. If both parties do not agree for conciliation, there can be no `conciliation'. As a consequence, as in the case of arbitration, the court cannot refer the parties to conciliation under section 89, in the absence of consent by all parties. As contrasted from arbitration, when a matter is referred to conciliation, the matter does not go out of the stream of court process permanently. If there is no settlement, the matter is returned to the court for framing issues and proceeding with the trial. The other three ADR Processes

26. If the parties are not agreeable for either arbitration or conciliation, both of which require consent of all parties, the court has to consider which of the other three ADR processes (Lok Adalat, Mediation and Judicial Settlement) which do not require the consent of parties for reference, is suitable and appropriate and refer the parties to such ADR process. If mediation process is not available (for want of a mediation centre or qualified mediators), necessarily the court will have to choose between reference to Lok Adalat or judicial settlement. If facility of mediation is available, then the choice becomes wider. It the suit is complicated or lengthy, mediation will be the recognized choice. If the suit is not complicated and the disputes are easily sortable or could be settled by applying clear cut legal principles, Lok Adalat will be the preferred choice. If the court feels that a suggestion or guidance by a Judge would be appropriate, it can refer it to another Judge for dispute resolution. The court has used its discretion in choosing the ADR process judiciously, keeping in view the nature of disputes, interests of parties and expedition in dispute resolution. Whether the settlement in an ADR process is binding in itself?

27. When the court refers the matter to arbitration under Section 89 of the Act, as already noticed, the case goes out of the stream of the court and becomes an independent proceeding before the arbitral tribunal. Arbitration being an adjudicatory process, it always ends in a decision. There is also no question of failure of ADR process or the matter being returned to the court with a failure report. The award of the arbitrators is binding on the parties and is executable/ enforceable as if a decree of a court, having regard to Section 36 of the AC Act. If any settlement is reached in the arbitration proceedings, then the award passed by the Arbitral Tribunal on such settlement, will also be binding and executable/enforceable as if a decree of a court, under Section 30 of the AC Act.

28. The other four ADR processes are non-adjudicatory and the case does not go out of the stream of the court when a reference is made to such a non- adjudicatory ADR forum. The court retains its control and jurisdiction over the case, even when the matter is before the ADR forum. When a matter is settled through conciliation, the Settlement Agreement is enforceable as if it is a decree of the court having regard to Section 74 read with Section 30 of the AC Act. Similarly, when a settlement takes place before the Lok Adalat, the Lok Adalat award is also deemed to be a decree of the civil court and executable as such under Section 21 of the Legal Services Authorities Act, 1987. Though the settlement agreement in a conciliation or a settlement award of a Lok Adalat may not require the seal of approval of the court for its enforcement when they are made in a direct reference by parties without the intervention of court, the position will be different if they are made on a reference by a court in a pending suit/proceedings. As the court continues to retain control and jurisdiction over the cases which it refers to conciliations, or Lok Adalats, the settlement agreement in conciliation or the Lok Adalat award will have to be placed before the court for recording it and disposal in its terms. Where the reference is to a neutral third party (`mediation' as defined above) on a court reference, though it will be deemed to be reference to Lok Adalat, as court retains its control and jurisdiction over the matter, the mediation settlement will have to be placed before the court for recording the settlement and disposal. Where the matter is referred to another Judge and settlement is arrived at before him, such settlement agreement will also have to be placed before the court which referred the matter and that court will make a decree in terms of it. Whenever such settlements reached before non-adjudicatory ADR Fora are placed before the court, the court should apply the principles of Order 23 Rule 3 of the Code and make a decree/order in terms of the settlement, in regard to the subject matter of the suit/proceeding. In regard to matters/disputes which are not the subject matter of the suit/proceedings, the court will have to direct that the settlement shall be governed by Section 74 of AC Act (in respect of conciliation settlements) or Section 21 of the Legal Services Authorities Act, 1987 (in respect of settlements by a Lok Adalat or a Mediator). Only then such settlements will be effective.

Summation

29. Having regard to the provisions of Section 89 and Rule 1-A of Order 10, the stage at which the court should explore whether the matter should be referred to ADR processes, is after the pleadings are complete, and before framing the issues, when the matter is taken up for preliminary hearing for examination of parties under Order 10 of the Code. However, if for any reason, the court had missed the opportunity to consider and refer the matter to ADR processes under Section 89 before framing issues, nothing prevents the court from resorting to Section 89 even after framing issues. But once evidence is commenced, the court will be reluctant to refer the matter to the ADR processes lest it becomes a tool for protracting the trial.

30. Though in civil suits, the appropriate stage for considering reference to ADR processes is after the completion of pleadings, in family disputes or matrimonial cases, the position can be slightly different. In those cases, the relationship becomes hostile on account of the various allegations in the petition against the spouse. The hostility will be further aggravated by the counter-allegations made by the respondent in his or her written statement or objections. Therefore, as far as Family Courts are concerned, the ideal stage for mediation will be immediately after service of respondent and before the respondent files objections/written statements. Be that as it may.

31. We may summarize 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 agreeble 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.

32. The Court should also bear in mind the following consequential aspects, while giving effect to Section 89 of the Code :

(i) 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.

(ii) 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.

(iii) 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.

(iv) 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.

(v) 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.

(vi) 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.

33. The procedure and consequential aspects referred to in the earlier two paragraphs are intended to be general guidelines subject to such changes as the concerned court may deem fit with reference to the special circumstances of a case. We have referred to the procedure and process rather elaborately as we find that section 89 has been a non-starter with many courts. Though the process under Section 89 appears to be lengthy and complicated, in practice the process is simple: know the dispute; exclude `unfit' cases; ascertain consent for arbitration or conciliation; if there is no consent, select Lok Adalat for simple cases and mediation for all other cases, reserving reference to a Judge assisted settlement only in exceptional or special cases.

Conclusion

34. Coming back to this case, we may refer to the decision in Sukanya Holdings relied upon by the respondents, to contend that for a reference to arbitration under section 89 of the Code, consent of parties is not required. The High Court assumed that Sukanya Holdings has held that section 89 enables the civil court to refer a case to arbitration even in the absence of an arbitration agreement. Sukanya Holdings does not lay down any such proposition. In that decision, this Court was considering the question as to whether an application under section 8 of the AC Act could be maintained even where a part of the subject matter of the suit was not covered by an arbitration agreement. The only observations in the decision relating to Section 89 are as under:

"Reliance was placed on Section 89 CPC in support of the argument that the matter should have been referred to arbitration. In our view, Section 89 CPC cannot be resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would be applicable even in cases where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the court has to apply its mind to the condition contemplated under Section 89 CPC and even if application under Section 8 of the Act is rejected, the court is required to follow the procedure prescribed under the said section."

The observations only mean that even when there is no existing arbitration agreement enabling filing of an application under section 8 of the Act, there can be a reference under section 89 to arbitration if parties agree to arbitration. The observations in Sukanya Holdings do not assist the first respondent as they were made in the context of considering a question as to whether section 89 of the Code could be invoked for seeking a reference under section 8 of the AC Act in a suit, where only a part of the subject- matter of the suit was covered by arbitration agreement and other parts were not covered by arbitration agreement. The first respondent next contended that the effect of the decision in Sukanya Holdings is that "section 89 of CPC would be applicable even in cases where there is no arbitration agreement for referring the dispute to arbitration." There can be no dispute in regard to the said proposition as Section 89 deals, not only with arbitration but also four other modes of non-adjudicatory resolution processes and existence of an arbitration agreement is not a condition precedent for exercising power under Section 89 of the Code in regard to the said four ADR processes.