Introduction

This landmark decision by the Supreme Court of India addresses a critical issue in civil procedure law—whether a civil court has the authority to refer a dispute to arbitration without the consent of all parties, under the ambit of Section 89 of the Code of Civil Procedure, 1908 (CPC). Section 89 was introduced to promote the use of Alternative Dispute Resolution (ADR) mechanisms and thereby reduce the pendency of cases before courts. However, ambiguities in its language and inconsistencies with the Arbitration and Conciliation Act, 1996, have led to conflicting interpretations, necessitating judicial clarification.

In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co., the Supreme Court not only settled the issue of mandatory consent in arbitration but also undertook a detailed examination of procedural anomalies and laid down practical guidelines for the implementation of Section 89 CPC.

Factual Background

The Cochin Port Trust had entered into a work contract with Afcons Infrastructure Ltd., the appellant, for the construction of roads and bridges. Afcons subcontracted a portion of this project to Cherian Varkey Construction Co. Pvt. Ltd., the respondent, under a separate agreement dated 1 August 2001. It was undisputed that this subcontract did not contain an arbitration clause or any express agreement for dispute resolution via arbitration.

When a dispute arose regarding payments, the respondent filed a suit for recovery of approximately ₹2.10 crores from the appellants. An order of attachment was initially granted in favour of the respondent. Thereafter, the respondent invoked Section 89 CPC by filing an application requesting the court to refer the matter to arbitration. The appellants opposed this application, clearly stating their unwillingness to participate in arbitration or any other ADR process.

Despite the absence of consent, the trial court accepted the respondent’s plea and referred the matter to arbitration, even formulating sixteen issues to guide the process. When the appellants approached the High Court in revision, the High Court upheld the trial court’s decision, interpreting Section 89 CPC to permit referral to arbitration even without mutual consent or a pre-existing arbitration agreement. The appellants then moved the Supreme Court in appeal.

Issues Before the Supreme Court

The case required the Supreme Court to address two fundamental questions:

1. What is the correct procedure that courts must follow under Section 89 of the CPC and Order 10 Rule 1A?
2. Can a civil court refer a matter to arbitration under Section 89 CPC without the express consent of all parties involved?

Submissions and Legal Interpretation

The appellants argued that arbitration, by its nature and under the Arbitration and Conciliation Act, 1996, requires a valid agreement between parties. They contended that Section 89 CPC does not and cannot override this fundamental requirement. The respondents, on the other hand, argued that the broader purpose of Section 89 is to promote ADR, and as such, courts should be empowered to refer cases to arbitration even in the absence of prior agreement, especially to reduce court congestion.

The Court undertook a detailed analysis of Section 89 CPC and its interplay with Order 10 Rules 1A, 1B, and 1C. It observed that although Section 89 was intended to foster ADR mechanisms, its drafting suffered from serious anomalies. Most notably, it had erroneously interchanged the definitions of “mediation” and “judicial settlement,” and it impractically required courts to “formulate and reformulate” settlement terms before referring a dispute to an ADR forum.

Referring to the earlier rulings in Salem Advocate Bar Association v. Union of India (2003 and 2005), the Court emphasized the need for a purposive and workable interpretation of Section 89. It clarified that courts should only be expected to prepare a summary of disputes—not detailed terms of settlement—prior to referral.

Decision and Reasoning

The Supreme Court held that consent is essential for referring disputes to arbitration or conciliation under Section 89 CPC. These processes are governed by the Arbitration and Conciliation Act, which clearly mandates that arbitration must arise from an agreement between parties. In the absence of such agreement, a court has no jurisdiction to compel arbitration.

However, the Court distinguished this requirement from other ADR processes—namely mediation, Lok Adalat, and judicial settlement—which are non-adjudicatory in nature and can proceed even without the parties’ consent. The reasoning was that these methods involve negotiation and facilitation rather than adjudication, and the court retains control over the proceedings.

The Court also corrected the confusion caused by legislative drafting errors in Section 89(2). By interchanging the definitions of “mediation” and “judicial settlement,” the Court brought clarity to the procedural framework and aligned the law with established ADR concepts. The interpretation was to remain effective until appropriate legislative amendments were made.

Importantly, the Court laid down a structured procedural roadmap for courts to follow when applying Section 89. This included:

• Conducting a preliminary assessment after pleadings are complete.
• Identifying whether the case is fit for ADR.
• Seeking consent for arbitration or conciliation.
• If no consent is given, selecting an appropriate non-adjudicatory ADR process.
• Monitoring the outcome and ensuring settlements are recorded in accordance with Order 23 Rule 3 CPC or relevant provisions of the Arbitration and Conciliation Act or Legal Services Authorities Act.

Conclusion

The Supreme Court allowed the appeal, setting aside the trial court’s decision to refer the matter to arbitration without mutual consent. The judgment reinforced the principle that arbitration is a consensual dispute resolution process, and courts cannot bypass this requirement using Section 89 CPC. At the same time, the Court strongly endorsed the use of non-consensual ADR mechanisms like mediation and Lok Adalat in appropriate cases, thus upholding the larger purpose of Section 89.

By clarifying legislative ambiguities, rectifying definitional inconsistencies, and prescribing a practical framework, this judgment serves as a foundational authority on ADR referrals in civil litigation. It strikes a critical balance between promoting speedy justice and respecting party autonomy, making it a cornerstone ruling in the evolution of ADR jurisprudence in India.

A copy of the decision can be downloaded here. This article is authored by Nikky Duggal, Case Manager at Webnyay. Webnyay is India’s leading Generative AI startup for lawyers, Courts and Tribunals, Government departments and businesses.