Supreme Court of India in the case of Afcons Infrastructure Ltd. & Anr. vs. Cherian Varkey Construction Co. (P) Ltd. & Ors., give judicial interpretation of Section 89 of the Code of Civil Procedure (CPC) which specifically deals with Alternative Dispute Resolution (ADR) mechanisms.
Background:
- The Cochin Port Trust engaged with Afcons Infrastructure Ltd. (the appellants) for certain construction related projects.
- After that, Afcons Infrastructure Ltd (the appellants) subcontracted some portion of the work to Cherian Varkey Construction Co. (P) Ltd. (the first respondent).
- The subcontract agreement did not include any arbitration clause within its framework.
- Thereafter, a dispute arose over payments related to the work, leading the first respondent to file a suit for recovery of dues.
- During the proceedings, the first respondent sought a court order referring the matter to arbitration under Section 89 of the CPC.
- The appellants opposed this move, citing the absence of any arbitration clause within its agreement.
Supreme Court’s Findings:
Interpretation of Section 89: The Court explained that when the Court believes that there are components of a settlement in a given case, it is required by Section 89 to consider alternative dispute resolution (ADR) techniques, such as arbitration, conciliation, judicial settlement, and mediation, as specified in this specific Section. Yet, the Court underlined that both parties’ consent is necessary for arbitration and conciliation. On the other hand, the court may send the case for mediation and judicial settlement without this kind of consent.
Consent for Arbitration: The Court clarifies that arbitration, being a consensual process, requires a pre-existing arbitration agreement or mutual consent at the time of the dispute. Without such an agreement, a court cannot compel parties to arbitrate under Section 89 because this will vitiate the very purpose of this process.
Role of Courts: The ruling made clear that although courts should support alternative dispute resolution (ADR) to speed up the process of resolving disputes, they also need to honor the voluntary nature of conciliation and arbitration. Forcing parties to arbitrate without their consent would go against the core tenets of these procedures.
Conclusion:
The Supreme Court in this very judgement concluded that in the absence of any pre-existing arbitration agreement or mutual consent between the parties, courts do not have the authority under Section 89 of the CPC to refer parties to arbitration. This decision marked the boundaries of judicial intervention in promoting ADR mechanisms, ensuring that the voluntary essence of arbitration and conciliation is preserved while referring the matter inorder to prevent the miscarriage of processes.
