A CASE ANALYSIS

AFCONS INFRASTRUCTURE LTD. & ANR. V. CHERIAN VARKAY CONSTRUCTION

CO. P. LTD. AND ORS. [2010 (8) SCC 24]

SUBMITTED FOR THE FULFILMENT OF THE COURSE TITLED

“ALTERNATIVE DISPUTE RESOLUTION [LW 367]” FOR THE COMPLETION OF

B.A.LL.B COURSE

SUBMITTED BY:

AVANTIKA SRIVASTAVA

ENROLLMENT NUMBER: 2000100951; 6TH SEMESTER

SUBMITTED TO

DR. MIRZA JUNAID BEG

ASSISTANT PROFESSOR OF FACULTY OF LAW,

INTEGRAL UNIVERSITY
 ACKNOWLEDGEMENT

I hereby thank the Faculty of Law, Integral University, Lucknow and I would like to express my special thanks
of gratitude to my teacher Dr. Mirza Junaid Beg, who gave me the opportunity and resources needed to
complete this study; and for his exemplary guidance, monitoring and constant encouragement throughout the
course of this case analysis. I would also like to express my gratitude to the library staff for helping me
whenever I needed This case analysis helped me in doing a lot of research, and I came to know about so many
new things; I am thankful to him.

Lastly, I thank almighty, and my friends; their constant encouragement helped me a lot in finalizing this case
analysis within the limited time frame and I profusely thank all those who have lent a helping hand.

Avantika Srivastava
 INDEX OF AUTHORITIES

1. INVOLVED CASES
a) Sukanya Holdings Pvt. Ltd. V. Jayesh H. Pandya & Anr. 2003(5) SCC 531
b) Salem Advocate Bar Association V. Union of India (2005) 6 SCC 344

2. SECTION
a) Section 89 of The Code of Civil Procedure,1908.

3. STATUTES
a) The Code of Civil Procedure,1908
b) Arbitration and Conciliation Act,1996

4. BOOKS
a) Dr. Avtar Singh (2018); Law of Arbitration and Conciliation and Alternative Dispute
Resolution System(11th ed.);Eastern Book Company.
b) Madabhushi Sridhar (2010); Text Book on Alternative Dispute Resolution
Negotiation and Mediation.(1st edition); Lexis Nexis.
c) C.K. Takwani (2020); Civil Procedure with Limitation Act,1963(8 th ed.); Eastern
Book Company.
 ABOUT THE CASE

JUDGEMENT COUSE TITLE

CITATION
2010 (8) SCC 24

COURT
SUPREME COURT OF INDIA

DATE OF JUDGEMENT
26TH JULY 2010

BENCH
JUSTICE R.V RAVEENDRAN, JUSTICE J.M PANCHAL

PARTIES

APPELLANTS
M/S AFCONS INFRASTRUCTURE LTD. &ANR.
v.
RESPONDENT
M/S CHERIAN VARKEY CONSTRUCTION CO.(P) LTD.&ORS
 INTRODUCTION

Generally, it is noticed that Procedural Laws are static in nature and we never notice much ups and downs while
determining procedural matter. But introduction of Section 89 of the Code of Civil Procedure, 1908 1 emerged as
“Trial Nightmare” for quite long period. This nightmare gripped the mind of the Indian judicial system till the
recent judgment of Afcons Infrastructure and Others v. Cherian Varkay Construction and Others 2.I think this
judgment has finally end up the chapter of dynamism of the Alternate Dispute Resolution which is pro bono for
the Indian Judicial System. Section 89 of CPC, 1908, its need and the revolutionary changes has brought in
terms of ADR practices in India. The mixture in role of Legislature in promoting ADR practices and approach
of judiciary in this context is rightly pointed out in this particular case. The 238 th Report of Law Commission
dated December, 2011 with regard to amending section 89 of the code of civil procedure provides clear
understanding of the existing process of Alternate Dispute resolution and how the dynamism of Section 89
could be stopped.

I have tried to focus completely on the interpretation of the Section 89 of the Code of Civil Procedure and its
usage as an Alternate Dispute Mechanism through critically analyzing Afcons Infrastructure case.

1
The Code of Civil Procedure,1908, § 89, No. 5, Act of Parliament,1908 (India).
2
Afcons Infrastructure Ltd. & Anr. v. Cherian Varkay Construction Co. P. Ltd. And Ors., (2010) 8 SCC 24.
 FACTS OF THE CASE

The Cochin Port Trust (2nd Respondent) entrusted the work of construction of certain bridges and roads to the
Afcons Infrastructure and Ors. (Appellants) under an agreement dated 20.04.2001. The Afcons Infrastructure
and Ors. Sub-contracted a part of the said work to Cherian Varkay Construction (1 st Respondent) under an
agreement dated 1.8.2001.

Cherian Varkay Construction filed a suit against the Afcons Infrastructure and Ors. For recovery of
Rs.210,70,881 which includes the amount due to the appellants from the employer with interest at 18% per
annum. In the same suit an order of attachment was made on 15.09.2004 in regard to the sum of Rs. 2.25
crores. Thereafter, In March 2005, Cherian Varkay Construction filed an application under section 89 of CPC
before the trial court praying that the court may formulate the terms of settlement and refer the matter to
arbitration.

Afcons infrastructure and Ors. filed a counter dated 24.10.2005 to the application submitting that they were not
agreeable for referring the matter to arbitration or any of the other ADR 3 processes under section 89 of the Code
of Civil Procedure.

In the meanwhile, the High Court of Kerala by order dated 8.9.2005, 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 of Civil Procedure.

The trial court after hearing the parties allowed the said application under section 89 of the code. Then, the
Appellants filed the review petition against the order of the trial court.

3
Sahejpal kapoor, Alternative Dispute Resolution Through Section 89 Code of civil procedure,1908, Legal
Service India(29th May,2023, 8:00 PM) https://www.legalserviceindia.com/
The High Court by the impugned order dated 11.10.2006 dismissed the revision petition holding that the
apparent tenor of section 89 of the Code of Civil Procedure permitted the court, in appropriate cases, to refer
even unwilling parties to arbitration. This order was challenged in the Supreme Court as an Appeal.

LEGAL ASPECTS

The trial court heard the said application under section 89 the Code of Civil Procedure. It recorded the fact that
first respondent (plaintiff) was agreeable for arbitration and appellants (defendants 1 and 2) were not agreeable
for arbitration. The trial court allowed the said application under section 89 by a reasoned order dated
26.10.2005 and held that as the claim of the plaintiff in the suit related to a work contract, it was appropriate
that the dispute should be settled by arbitration. It formulated sixteen issues and referred the matter to
arbitration.

The appellants filed a revision against the order of the trial court. The High Court by the impugned order dated
11.10.2006 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 arbitration. The High Court also held that the
concept of pre – existing arbitration agreement which was necessary for reference to arbitration under the
provisions of the Arbitration & Conciliation Act, 19964 was inapplicable to references under section 89 of the
Code, having regard to the decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya & Anr. 5 The said order is
challenged in this appeal.

ISSUES DISCUSSED

Keeping in view the contentions of both the parties, the apex court formulated two issues which were later on
discussed in this particular case:

1.PROCEDURE TO BE FOLLOWED BY A COURT IN IMPLEMENTING SECTION 89 AND

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

4
The Arbitration and Conciliation Act,1996, §, No. 26, Act of Parliament,1996(India).
5
Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya & Anrs, (2003) 5 SCC 531.
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.

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.

2.CONSENT OF ALL PARTIES TO THE SUIT IS NECESSARY FOR REFERENCE TO

The Court considered the interpretation made in the Salem Bar Association Case 6 which considered the aspect
of advert conflict between the language of section 89 and Order 10 Rule 1-A of the code.

JUDGEMENT

The Apex court depended upon the ratio of Sukanya Holdings Pvt. Ltd vs Jayesh H. Pandya & Anr wherein it
was observed that to argue in favor of conducting an arbitration under S.89 of the Code, the parties’ consent
isn’t a prerequisite. The court, in that case, had been debating on whether an inquiry under S.8 of the Arbitration
and Conciliation Act could be sustained even where a section of the subject matter of the case wasn’t
encompassed under an arbitration under the agreement.

The Bench observed that S.89 of the Code can’t be referred to for deciphering S.8 of the Arbitration and
Conciliation Act as it exists on an alternate footing and it can be applied in situations where no arbitration
agreement to which the dispute may be referred. It also inferred that absence of an arbitration agreement can’t
bar the parties to opt for an ADR session provided they all consent to it.

Consequently, the supreme court issued a landmark judgment stating that:

6
Salem Advocate Bar Association v. Union of India, (2005) 6 SCC 344.
  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.

 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.

ANALYSIS

a) Arbitration Agreement is a compulsory pre-requisite to procure before conduction of dispute resolution

b) Parties involved in a suit may consent to an arbitration agreement at any phase of the trial as per the
Court’s authorization.

c) Referring to S.89 of the CPC, regardless of whether the civil court presumes that the essence of the
matter is such that it could be settled through arbitration, the parties can’t be compelled to be subject to
arbitration without their explicit consent. Consent of all parties in a suit is compulsory for subjection to
arbitration under S.89 of the CPC.

d) At the end of an arbitration session, the arbitrator renders an award (judgment) that results in an award
that is obligatory and binding on the parties just as any other decree or order given by the courts.

e) Arbitration occurs, only after the consent of the parties is obtained, and effectively resolves the issue at
hand. However, with regard to rendering an award that binds the parties legally, the Arbitrators needn’t
seek the consent of the partiers unlike conciliators engaged in the process of conciliation.

Therefore, in light of the aforementioned observations, the emphasis attached by the Legislature to the
requirement of the parties’ consent during the phase of being subjected to arbitration is perspicuous.

RECOMMENDATIONS

One of the main reason behind the incorporation of section 89 in the Civil Procedure Code was to help in
reducing the burden on the Courts by encouraging out of court settlements. However, the section suffers from
some anomalies as observed by the Supreme Court in the Afcons Case. It needs to be amended in order to
accommodate the changes as suggested by the court and also by the Law Commission in its 238th Report 7.

The ADR movement needs to be carried forward with greater speed. There is a need to make more and more
people aware of the available options and encourage them to settle through the various ADR mechanisms.
Hence, the provision under Section 89 is right in its essence but its purpose is defeated due to legal intricacies,
draftsmen’s error and lack of awareness among individuals.

CONCLUSION

It was red letter day in the history of the procedural law when section 89 was introduced in the code of civil
procedure, 1908. Section 89 emerged with the mechanism of settling dispute outside the purview of the existing
court. The idea behind introducing this mechanism is to provide parties a chance to settle dispute on their own
so as to reduce burden of the court in trivial matters as well. This mechanism tries to reduce the long lasting
litigation and go for compromise decree in fewer expenses and in a short span of time.

Inference that can be drawn from this judgment is that consent is always given priority in seeking remedies. The
Court aptly stated that there must be free consent of both the parties before exercising ADR Processes under
section 89 of the code of Civil Procedure.

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 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. Ministry of Petroleum set the prices of diesel on fortnightly basis. I appreciate this is not the
case with the legal provisions in India.

7
Indian kanoon, https://indiankanoon.org/ (29th May, 2023).