The CPC (Amendment) Act, 1999: S.

89, Settlement of
disputes outside the Court

1) Where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the
court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the
observation of the parties, the court may reformulate the terms of a possible settlement and refer the same for-
a) arbitration;
b) conciliation
c) judicial settlement including settlement through Lok Adalat; or
d) mediation.
2) Where a dispute had been referred
a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 shall apply …
b) to Lok Adalat, the court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of
section 20 of the Legal Services Authority Act, 1987 and all other provisions of that Act shall apply …
c) for judicial settlement, the court shall refer the same to a suitable institution or person and such institution or person
shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 shall apply …
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.
 Afcons Infrastructure Ltd. and Anr. Vs. Cherian
Varkey Construction Co. (P) Ltd.
and Ors (2010)
• In this case, the Court considered the scope of S. 89 and whether the said section empowers
the court to refer the parties to a suit to arbitration without the consent of both parties.
• Facts: C had filed a case against A for recovery of certain amount for the construction work
undertaken by them. Thereafter, C filed an application u/S.89 but A refused to resort to
arbitration. However, trial court allowed the application which was now appealed in the High
Court by A. High Court dismissed the appeal by stating that Section 89 of the Code permitted
the court, in appropriate cases, to refer even unwilling parties to arbitration. It also stated that
the mandate to have a pre-existing arbitration agreement is not applicable to S. 89 but only
under the Arbitration and Conciliation Act.
• In appeal before the SC, there were two questions for consideration:
• 1) What is the procedure to be followed by a court in implementing Section 89 and Order 10
Rule 1A of the Code?
• 2) Whether consent of all parties to the suit is necessary for reference to arbitration under
Section 89 of the Code?
 • Arbitration
• No pre-existing arbitration agreement+ consent of
all the parties to the suit (necessary) =Reference to
arbitration under Section 89 of CPC.

Afcons
• Conciliation
Infrastructure
• Both parties do not agree for conciliation= No
vs. Cherian 'conciliation'.
Verkey Pvt.
Company Ltd
(2010) 8 SCC • Lok Adalat, Mediation and Judicial Settlement
24 • Agreeable neither for arbitration nor conciliation=
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.
Afcons
Infrastruct 1) When the pleadings are complete, before framing issues, the court shall fix a preliminary hearing for
ure vs. appearance of parties. The court should acquaint itself with the facts of the case and the nature of the
dispute between the parties.
Cherian V
erkey Pvt. 2) The court should first consider whether the case falls under any of the category of the cases which
Company 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
Ltd: The is not fit for reference to ADR processes. It will then proceed with the framing of issues and trial.

procedure
to be 3) 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.
adopted
by a court 4) The court should first ascertain whether the parties are willing for arbitration. The court should
under S. 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
89 of the 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.
CPC
Afcons 5)If the parties are not agreeable for arbitration, the court should ascertain whether the parties are agreeable
for reference to conciliation which will be governed by the provisions of the AC Act. If agreed, the court can
Infrastructu refer the matter to conciliation in accordance with S.64 of the AC Act.

re vs.
Cherian Ver 6) If parties are not agreeable for arbitration and conciliation, which is likely to happen in most of the cases
key Pvt. Co for want of mututal 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
mpany third party facilitator or mediator; and (c) a judicial settlement, where a Judge assists the parties to arrive at
a settlement.
Ltd: The
procedure 7)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
to be 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
adopted by the facility of mediation is not available or where the parties opt for the guidance of a Judge to arrive at a
a court settlement, the court may refer the matter to another Judge for attempting settlement.

under S. 89
of the CPC 8)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.
Afcons Infrastructure vs. Cherian Verkey Pvt. Comp
any Ltd

Non- arbitrable disputes:

• Representative suits under Order 1 Rule 8 CPC which involve public interest or interest of
numerous persons who are not parties before the court.
• Disputes relating to election to public offices.
• Cases involving grant of authority by the court after enquiry, as for
• example, suits for grant of probate or letters of administration.
• Cases involving serious and specific allegations of fraud, fabrication
• of documents, forgery, impersonation, coercion etc.
• Cases requiring protection of courts, as for example, claims against minors, deities and
mentally challenged and suits for declaration of title against government.
• Cases involving prosecution for criminal offences.
Afcons Infrastructure vs. Cherian Verkey Pvt. Comp
any Ltd
• Then the court enlists following matters as arbitrable:
a. 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;
• b. 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/coparceners/co-owners; and
• - disputes relating to partnership among partners.
Afcons Infrastructure vs. Cherian Verkey Pvt. Comp
any Ltd

• 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;
• All cases relating to tortious liability including claims for compensation in motor
accidents/other accidents; and
• 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 term "arbitrability" is not defined in the
1996 Act.
• Arbitrability connotes the notion that a dispute,
by its very nature, that is capable of being
Arbitrabil adjudicated beyond public fora, through a
private tribunal chosen by parties. However, the
ity idea has a wide connotation, giving rise
to different meanings in different contexts.
of Disput • Conventionally, concerns over arbitrability of
e disputes have posed a continuous challenge to
Arbitration in India.
• Indian courts have evolved the scope of arbitrab
le disputes through judicial interpretations.
Booz Allen & Hamilton v. SBI Home Finance (2011)
The three facets of arbitrability relating to the jurisdiction of Arbitral
Tribunal are:

Whether the disputes are capable of adjudication and settlement by arbitration i.e. whether
the ‘nature’ of dispute is such that a private forum (Arbitral Tribunal) chosen by the parties can
decide or public forum will have exclusive jurisdiction?

Whether disputes are covered by the Arbitration Agreement?

Whether the parties have referred the dispute to arbitration i.e. even if the dispute is capable of
being decided by the arbitral tribunal, and is envisaged in the Arbitration Agreement, is it
enumerated in the joint list of disputes referred to arbitration or forms part of the disputes raised
in the pleadings before the arbitral tribunal?
• General rule: Every civil or commercial dispute, either contractual or
noncontractual, which can be decided by a court, is arbitrable. Rights in rem, i.e.
those rights which are exercisable against the world at large are nonarbitrable.
Rights in personam, i.e. rights against specific individuals can be resolved by
arbitration. However,this is rule not rigid and inflexible.
• Disputes relating to subordinate rights in personam arising from rights in rem
have been considered arbitrable.
• Ss. 34 (2)(b) and 48 (2) provides that the Court may set aside the award if it finds
that the subject matter is incapable of settlement by arbitration i.e. if non-
arbitrable dispute is arbitrated.
 Examples of non-arbitrable disputes:

Booz Allen & • Disputes relating to rights and

liabilities which give rise to or arise out

Hamilton v. of criminal offences;

• Matrimonial disputes relating to

SBI Home divorce, judicial separation, restitution

of conjugal rights, child custody;

Finance • Guardianship matters;

• Insolvency matters;
(2011) 5 SCC • Winding up matters;
• Testamentary matters;
532 • Eviction or tenancy matters governed
by special statutes.
 Arbitrability of Copyright disputes
Eros International v Telemax (Bom HC)

• The Court held that since an arbitration clause was included in the agreement, parties should ordinarily be referred
to arbitration. Section 62(1) of the Copyrights Act, 1957 did not put a bar on the arbitrability of copyrights. Dealing
with the issue at hand, the Court said that Eros was exerting their right in personam which as such was arbitrable.
This was because any relief claimed would be valid only against Telemax and not any other party, making it only a
right to be exercised against Telemax by Eros.
• Further, the arbitrator was capable of granting the remedy sought by Eros. Thus, since the Court laid down that the
relief sought by Eros was for a right against Telemax only, that is, in personam, the dispute between them
was arbitrable.
• This case was a huge victory for the issue of arbitrability in case of intellectual property disputes. Intellectual
property rights are largely a right in rem, that is, against the world at large, but when disputes are of a contractual
nature, that is, when the rights involved regarding the intellectual property can be exercised against a particular
person, then those rights are arbitrable as those are rights in personam. Therefore, even though intellectual
property rights are inherently non-arbitrable, rights in personam that arise from such property rights are arbitrable.
 Arbitrability of Copyright disputes

IPRS v. Entertainment Network (India) Limited MANU/MH/1597/2016

• The dispute between IPRS and Entertainment Network arose out of EN’s alleged breach of
the license agreements with IPRS, which gave EN the right to broadcast IPRS's sound recordings
through EN's FM Radio Channels in exchange of payment of royalty.
• EN invoked arbitration clause contending it was not liable to obtain license from IPRS or pay royalty
for broadcasting sound recordings as those were not IPRS's original music work. Award was
rendered in EN's favor.
• Award set aside by Bom HC holding that IPRS's rights as a licensor were destructed in the impugned
award not only against EN, but also against the world at large.
• Court went on to provide that rights in IP arising from infringement of copyrights, the remedies of
injunctions, damages and others may only be conferred by a Court and would not, therefore, be
arbitrable. And hence, Section 62(1) of the Copyrights Act, 1957 mandatorily requires every suit or
civil proceeding instituted in respect of copyright infringements would only be in a district court
having jurisdiction.
Arbitrabilit
Swiss Timing Ltd. vs. Organizing Committee, Commonwealth
y of Games 2010 Delhi (Arbitration Petition No. 34 of 2013)
• Allegations of fraud and other malpractices are arbitrable.
• Contention of substantive contract being void / voidable is not a bar to
arbitration and the court must follow the policy of least interference
• Arbitration and criminal proceedings may continue simultaneously
A. Ayyasamy v. A. Paramasivam [(2016) 10 SCC 386]
• Disputes involving allegations of fraud arising out of contracts bearing
an arbitration clause shall be referred to arbitration. The working
tests:-
(i) does the plea permeate the entire contract and, above all, the
agreement of arbitration, rendering it void, or
(ii) whether the allegations of fraud touch upon the internal affairs of the
parties inter se or have an implication in the public domain.