M/S Afcons Infra Ltd & Anr Vs M/S Cherian Varkey Construction & Ors (2010): A Party To A Civil Suit Cannot Refer A Suit To Arbitration Without The Mutual Consent Of All The Parties U/S 89 Of CPC

DATE OF JUDGEMENT:
26th July 2010

BENCH:
Justice R.V Raveendran
Justice J.M Panchal

PARTIES
Appellants - M/s Afcons Infrastructure Ltd. &Anr.
Respondent- M/s Cherian Varkey Construction Co.(p) Ltd.&Ors

SUBJECT

Mutual agreement of all the parties to a suit for its reference to arbitration.

OVERVIEW

• Cochin Port Trust (second respondent) entrusted the work of construction of certain bridges and roads to the appellants under an agreement. The appellants sub-contracted a part of the said work to the first respondent under an agreement. The respondent did not formulate any provision for reference of the disputes to arbitration
• The first respondent filed a suit against the appellants for recovery ofRs.210,70,881from the appellants and their assets and the amounts due to the appellants from the employer, with interest at 18% per annum.
• The first respondent applied section 89 of the Code of Civil Procedure,1908 before the trial court praying that the court may formulate the terms of settlement and refer the matter to arbitration.
• The appellants filed a counter application submitting that they were not agreeable for referring the matter to arbitration or any of the other ADR processes under section 89 of the Code.
• In the meanwhile, the High Court of Kerala allowed the appeal filed by the appellants against the order of attachment and raised the attachment granted by the trial court subject to certain conditions. While doing so, the High Court also directed the trial court to consider and dispose of the application filed by the first respondent under section 89 of the Code.
• The Trial court after hearing the parties allowed the said application under section 89 of the code. Then, the Appellants filed the revision petition against the order of the Trial court.
• The High Court dismissed the revision petition holding that the apparent tenor of section 89 of the Code permitted the court, in appropriate cases, to refer even unwilling parties to the arbitration. This order was challenged in the Supreme Court as an Appeal.

LEGAL PROVISIONS

• Section 89 Of Code of Civil Procedure : Settlement of disputes outside the Court
• Rule-1A under Order 10 of the CPC: Direction of the Court to opt for any one mode of alternative dispute resolution.

ISSUE

• What is the procedure to be followed by a court in implementingS.89and Order 10 Rule 1A of the CPC?
• Whether consent of both sides to the suit is mandatory for reference to arbitration as a process under S.89 of the CPC?

JUDGEMENT ANALYSIS

• Firstly, the observation given by the court is that section 89 has to be read with Rule 1-A of Order 10 which requires to direct the parties to opt for any five modes of alternative dispute resolution processes and on their option refer the matter.
• In addition to that, the said rule does not require the court to either formulate or reformulate the terms of the settlement. After the observation the practical way to reading section 89 and order 10, Rule1-A is that after pleadings are complete and after seeking admission/denials. The Court will have recourse to section 89 of the code.
• Further, the court described it as sufficient to describe the nature of the dispute (in a sentence or two) and make the reference. Secondly, the definition of “judicial settlement” and “mediation” in clauses (c) and (d) of section 89(2) shall have to be interchanged. The Apex Court observed it has a poorly drafted provision of law.
• The Supreme Court held that if there is no agreement between the parties for reference to arbitration, the court cannot refer the matter to arbitration under Section 89 and that the same is clear from the provisions of the Arbitration and Conciliation Act.
• The court observed that a court has no power, authority, or jurisdiction to refer unwilling parties to arbitration if there is no arbitration agreement. Albeit the legal position in India has consistently been that Section 89 mandates reference to alternative dispute resolution processes, reference to arbitration under Section 89 can be made only with the consent of both sides.
• The Court drew out inference that even in the absence of Arbitration agreement, Parties can go for ADR process through Mutual Consent and finally the Supreme court enlightened in this matter by delivering landmark judgment stating that:

1. The trial court did not adopt the proper procedure while enforcing Section 89 of the Code. Failure to invoke Section 89 suo moto after completion of pleadings and considering it only after an application under Section 89 was filed, is erroneous.
2. A civil court exercising power under Section 89 of the Code cannot refer a suit to arbitration unless all the parties to the suit agree for such reference.

CONCLUSION

The Apex Court decided the appeal filed by the appellant was allowed. The order of the trial court referring the matter to arbitration and the order of the High Court was set aside. The court refers the matter to the trial court to consider and decide on a non-adjudicatory ADR process.

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