Binding nature of Mediation: A discussion by Rakesh Kumar Singh

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Binding nature of mediation: a discussion by Rakesh Kumar Singh 1

Binding nature of Mediation: A discussion by Rakesh Kumar Singh

Concept of mediation has though been very effective since its introduction, instances are also available where it has been used only as tactics to defeat the purpose of speedy disposal. The reason appears to be the fact that mediation settlements are not treated as binding unless the court records statement of parties and passes a decree thereon. The present paper will try to project a proposition that mediation settlement is final, binding and a deemed decree without any further approval of court.

2. For convenience, we can formulate following points of determination for a proper discussion:

i. The manner in which Mediation Rules 2004 were framed in Delhi.

ii. Does Affcons judgment affect the above position?

iii. Can Rule-25 be justified under general rule making power?

iv. When will an Institution or person become Lok Adalat?

v. What are the relevant provisions of LSA Act applicable to mediation?

vi. Can it be said that provisions of LSA Act will not apply to mediation?

vii. Section-89(2)(c) is an illustration of legislation by reference.

viii. Whether contrary observation of Affcons is a binding precedent.

ix. Observations of second Salem Bar case regarding visible record of mediation.

x. Affcons vs second Sale Bar case: a legal dichotomy.

xi. Rules vs statutory enactment: which one will prevail?

xii. Validity of Rule-25 of Mediation Rules 2004.

xiii. Can mediation rules talking about procedure of pre referral court related matter be justified?

xiv. Can mediation rules related to actual mediation be justified to some extent?

xv. Can criminal compoundable cases be sent for mediation?

xvi. The furture..............

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The manner in which Mediation Rules 2004 were framed in Delhi:

3. We have to first understand as to how the Mediation Rules were framed by the Hon’ble High Court of Delhi. Preamble of the Rules reads as:

“In exercise of the rule making power under Part X of the Code of Civil Procedure, 1908 (5 of 1908) and clause (d) of sub-section (2) of Section 89 of the said Code and all other powers enabling it in this behalf, the High Court of Delhi hereby makes the following rules”

3.1. The above clearly shows that the Hon’ble High Court has primarily used its power available under Part-X of CPC and Section-89(2)(d) CPC. We can therefore first scan the anatomy of Part-X. This part of CPC deals with the rule making power of Hon’ble High Courts and takes in its fold Section-121 to 131. Section-122 and 128 are relevant for the present purpose. Section-122 reads as under:

“Power of certain High Courts to make rules–High Courts (not being the Court of a Judicial Commissioner may, from time to time after previous publication, make rules regulating their own procedure and the procedure of the Civil Courts subject to their superintendence, and may be such rules annual, alter or add to all or any of the rules in the First Schedule.”

3.2. Section-128 has two sub-sections. Sub-section-(2) talks about specific instances of rule making but does not include mediation and therefore the same is not relevant for the present purpose. Sub-section-(1) is general in nature and reads as under:

“Such rules shall be not inconsistent with the provisions in the body of this Code, but, subject thereto, may provide for any matters relating to the procedure of Civil Courts.”

3.3. What immediately becomes very clear is that the above indicated provisions empower the Hon’ble High Court to frame rules to regulate the “procedure of civil courts” and the rules so made must not be inconsistent with the provisions of body of the Code, obviously means the part containing the sections. Do these provisions say that Hon’ble High Court can frame a rule for a procedure which is to be followed by

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another institution? Answer is simply NO. Reason is obvious. Both the provisions indicated above talk about the power of Hon’ble High Court to frame rules to regulate the procedure of civil courts and not the procedure of any other institution.

3.4. The next provision used in the preamble of Mediation Rules is Section-889(2)(d) of CPC and the same reads as under:

“(2)Where a dispute has been referred- ……………………………(d) for mediation, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.”

3.5. It simply shows that whenever the parties choose mediation as an option under Section-89(1), the court shall effect a compromise. Meaning thereby that it is the court which has to do the activity for compromise. Now, the CPC does not provide as to how the court will act or proceed to effect a compromise. Therefore, the Section itself gives the answer also in the wordings “and shall follow such procedure as may be prescribed”. So, the court has to follow such procedure as may be prescribed.

3.6. Who will prescribe the procedure is the next question. The expression “prescribed” has a definite indication in modern legislative enactments. Section-2(16) CPC reads as under:

“2(16) “prescribed” means prescribed by rules.”

3.7. Clearly, the procedure to be followed under Section-89(2)(d) has to be prescribed by rules. The expression “Rules” is also a defined term under Section-2(18) of CPC which reads as under:

“2(18) “rules” means rules and forms contained in the First Schedule or made under section 122 or section 125.”

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3.8. So, Rules can either be as contained in first schedule or as framed by the Hon’ble High Court. First schedule does not contain any rule of procedure to be followed for mediation. Section-125 does not apply to Hon’ble Delhi High Court. As indicated above, Section-122 talks about rules to regulate procedure of civil courts. Section-89(2)(d) obliges the court to effect compromise in case of mediation and procedure to be followed by court is to be prescribed by rules made under Section-122. So, with all certainty Hon’ble Delhi High Court could have made rules to regulate the procedure of civil court even for effecting compromise through mediation. As such, Mediation Rules 2004 could have been framed.

4. The foundational basis of Mediation Rules 2004 was the first Salem Bar case (2003) 1 SCC 49. Some extracts therefrom are relevant which is reproduced as under:

"Sub-section (2) of Section 89 refers to different Acts in relation to arbitration, conciliation or settlement through Lok Adalat, but with regard to mediation Section 89(2)(d) provides that the parties shall follow the procedure as may be prescribed. Section 89(2)(d), therefore, contemplates appropriate rules being framed with regard to mediation"

*****

"The Model rules, with or without modification, which are formulated may be adopted by the High Court concerned for giving effect to Section 89(2)(d)"

4.1. However, in second Salem Bar case (2005) 6 SCC 344, it was observed:

“In fact, the court is not involved in the actual mediation/conciliation. Clause (d) of Section 89(2) only means that when mediation succeeds and parties agree to the terms of settlement, the mediator will report to the court and the court, after giving notice and hearing the parties, 'effect' the compromise and pass a decree in accordance with the terms of settlement accepted by the parties.”

4.2. If this was the position, the Rules framed under Section-128 read with Section-122 could only have provided for the procedure to be followed before the court and not before the mediator as both the Sections empower to make Rules only to regulate “procedure before civil court” and not before any other institution. What could fall

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under such procedure can now be considered. There may be three stages. First, before referral i.e. as to how to choose for mediation and how to refer the dispute to mediation. Second, the actual mediation. Third, procedure after return of the settlement before the court i.e. how to dispose off the case. Clearly, first and third situations are related to court and therefore procedure can be prescribed by making rules under Section-128 read with Section-122. Mediation Rules 2004 contain Rule- 25 which relate to the third stage indicated above and reads as:

“Rule 25 : Court to fix a date for Recording settlement and passing decree: (a) On receipt of any settlement, the Court shall fix a date of hearing normally within seven days but in any case not beyond a period of fourteen days. On such date of hearing, if the Court is satisfied that the parties have settled their dispute(s), it shall pass a decree in accordance with terms thereof. (b) If the settlement dispose of only certain issues arising in the suit or proceeding, on the basis of which any decree is passed as stated in Clause (a), the Court shall proceed further to decide remaining issues.”

4.3. The above rule clearly shows that unless satisfaction is recorded and decree is passed, the mediation settlement by itself has no legal sanctity. This is the provision which is primarily responsible for problem. Despite settlement in mediation, one of the parties may choose not to give statement in the court and thereby defeat the very purpose. But unfortunately, the court cannot go beyond this rule as it has to follow such procedure as may be prescribed which means prescribed by rules and the above procedure has been prescribed by rules.

Does Affcons judgment affect the above position?

5. Hon’ble Supreme Court through a judicial legislation has amended Section-89(2) of the CPC. Earlier, Section-89(2) CPC was as under:

“(2) where a dispute has been referred –

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;

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(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 (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;

(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 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.”

5.1. In Affcons, it was held as under:

“the definitions of ‘judicial settlement’ and ‘mediation’ in clauses

(c) and (d) of section 89(2) shall have to be interchanged to correct the draftsman’s error.”

5.2. Clearly, after the above changes made by the Hon’ble Supreme Court, Section-89(2) CPC to the relevant extant will read as under:

“(c) for “mediation”, 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 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

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(d) for “judicial settlement”, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.”

5.3. The Hon’ble Supreme Court then issued a clear direction as under:

“The above changes made by interpretative process shall remain

in force till the legislature corrects the mistakes, so that section 89 is not rendered meaningless and infructuous.”

5.4. We have already noted that the base of mediation rules was first Salem Bar case. The relevant extracts therefrom are:

"Section 89(2)(d), therefore, contemplates appropriate rules being framed with regard to mediation"

*****

The Model rules, with or without modification, which are formulated may be adopted by the High Court concerned for giving effect to Section 89(2)(d)"

5.5. Why it was so? Because, Section-89(2)(d) has used an expression “procedure as may be prescribed” and the word “prescribed” means, as we know, prescribed by rules.

5.6. But now, according to the amended definition, Section-89(2)(d) does not talk about mediation at all which can be seen from a bare perusal of the section itself (as amended by Affcons):

“89(2)(d) for “judicial settlement”, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.”

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5.7. There is thus no mention of mediation in the aforesaid provision. Now, the above section says that if the parties have chosen to go for judicial settlement, then the court will effect compromise and follow such procedure as may be prescribed. If the rules are made to give effect to Section-89(2)(d), then it can only apply for a judicial settlement and not for mediation unlike the situation before amendment. Meaning thereby that the Rule-25 of Mediation Rules which were made to give effect to Section-89(2)(d) cannot be treated as valid after the amendment as Section-89(2)(d) itself is now not applicable to the mediation. (I will talk about other rules in later part of this journey).

Can Rule-25 be justified under general rule making power?

6. We have seen that due to amendment made, Section-89(2)(d) cannot justify Rule-25 of Mediation Rules 2004. We have also seen that the Rule falls within third category of situation which is related to a court procedure. Now, in terms of Section-122 and 128, the Hon’ble High Court is empowered to frame any rule to regulate the “procedure of civil court”. Does this general power justify the making of Rule-25 is now the prime question.

6.1. We have to again go through both the sections which to the relevant extant read as under:

“122. Power of certain High Courts to make rules-High Courts (not being the Court of a Judicial Commissioner may, from time to time after previous publication, make rules regulating their own procedure and the procedure of the Civil Courts subject to their superintendence, and may be such rules annual, alter or add to all or any of the rules in the First Schedule.”

“128(1). Such rules shall be not inconsistent with the provisions in the body of this Code, but, subject thereto, may provide for any matters relating to the procedure of Civil Courts.”

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6.2. No doubt, the general power of rule making does contemplate that the procedure before the court may be regulated by the rules but with certainty it bars making of any rule which is inconsistent with the body of the code. Needless to say that body of the code means part of CPC which contains the sections (for obvious reasons, first schedule cannot be included as the rules can even alter/annul the first schedule). One of the sections in body of the code is Section-89(2)(c) which after the amendment through Affcons reads as under:

“(c) for “mediation”, 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 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act”.

6.3. The above provision contemplates three stages. First, referring the dispute to a suitable institution or person. Second, creation of deeming fiction for such institution or person. And third, applicability of law to such institution or person.

6.4. First stage is the activity covered before the civil court i.e. the court that is referring the matter and there is nothing in the CPC or any other law which provides any procedure to be followed by the court at this stage. Therefore, rules may be made under general rule making power of the Hon’ble High Court. Second stage is clearly a creation of Parliament. It creates a Lok Adalat by a deeming fiction. There remains nothing for anyone to do anything at this stage. Reason is obvious. In all circumstances, once the referral stage is over, the institution or person to whom matter has been referred will become a Lok Adalat in itself without anything more. Next is the third stage of applicability of law. Again by a deeming fiction created by the Parliament, the law governing the procedure has been provided i.e. the provisions of Legal Services Authority Act, 1987. Meaning thereby that procedure for mediation has been provided by a deeming fiction created under Section-89(2)(c). Section-128(1) says that Rules shall not be inconsistent with the body of the code and further that subject to the provisions available in the body of the code, rules may be made to regulate the procedure of court. So, not only the rules should not be inconsistent to Section-89(2)(c) but such rules shall also be subject to Section-89(2)(c). Once, Section-89(2)(c) provides that provisions of Legal Services Authority Act shall apply, there cannot be any question of framing any other rule in this regard. The mediation has to be governed by the provisions of Legal Services Authority Act (as if the matter has been referred under relevant provisions of LSA Act) once the matter is received by the institution or person to whom the same has been referred.

When an Institution or person will become Lok Adalat:

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7. One thing is however very significant. Even amended Section-89(2)(c) does not make the mediation institute or person a Lok Adalat. What it says is simply this: whenever the dispute is referred for mediation to any suitable institution or person, such institution or person shall be deemed to be a Lok Adalat. Obviously, to deem “A” as “B” the pre-existence of “A” is a necessity. Means, unless the “A” already exits, it cannot be deemed to be “B” through a fiction. Here, “A” is a suitable institution or person. Can we say that if an institution by the name of mediation centre or a person by the name of mediator exists in Delhi, therefore the same shall be deemed to be Lok Adalat? Answer is bound to be in the negative. The Section has used “institution or person” at two places. It has used an indefinite article “a” at the first place denoting that it may be any institution or person to whom matter may be referred for mediation. But at the second place, the Section has used “such” before “institution or person”. As is well settled, expression “such” is used to denote that the forthcoming expression has already been used earlier.

The earlier use of “institution or person” has been available in the Section only with reference to an institution or person to whom matter has been referred. Meaning thereby that only an institution or a person to whom a particular matter has been referred to can be considered for the second stage i.e. for deeming fiction. Further, the section does not create and rather cannot create a Lok Adalat of a permanent character. Even LSA Act provides for constitution of Lok Adalat for a particular purpose only as distinct from Permanent Lok Adalat which is established for utility services and does not contemplate court referred matter. So, it cannot be said that once a matter is referred to a mediation centre or person, the same shall become Lok Adalat for all future matters. In other words, if a matter is referred to an institution or a person, only thereafter such institution or such person can be deemed to be Lok Adalat and that too only for that referred matter.

What are the relevant provisions of LSA Act applicable to mediation:

8. We should go through the provisions of LSA Act to ascertain as to what are the provisions which can apply to the mediation. Section-3 to 18 talks about constitution of different authorities, provisions for legal aid and finances. Therefore, these sections are not material for mediation. Chapter-VIA talks about permanent Lok Adalat which does not contemplate court referred matters and therefore the same is also not material for mediation. Chapter-VII talks about rule making power of government and legal services authorities, removal of difficulties, exemption from prosecution etc. and therefore is not material for our purpose except section-25 which gives overriding effect. Then remains Section-19 to 22 which read as under:

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“19. (1) Every State Authority or District Authority or the Supreme Court Legal Services Committee or every High Court Legal Services Committee or, as the case may be, Taluk Legal Services Committee may organize Lok Adalats at such intervals and places and for exercising such jurisdiction and for such areas as it thinks fit.

(2) Every Lok Adalat organized for an area shall consist of such number of- (a) serving or retired judicial officers; and (b) other persons, of the area as may be specified by the State Authority or the District Authority or the Supreme Court Legal Services Committee or the High Court Legal Services Committee or, as the case may be, the Taluk Legal Services Committee, organizing such Lok Adalat.

(3) The experience and qualifications of other persons referred to in clause (b) of sub-section (2) for Lok Adalats organized by the Supreme Court Legal Services Committee shall be such as may be prescribed by the Central Government in consultation with the Chief Justice of India.

(4) The experience and qualifications of other persons referred to in clause (b) of sub-section (2) for Lok Adalats other than referred to in sub-section (3) shall be such as may be prescribed by the State Government in consultation with the Chief Justice of the High Court.

(5) A Lok Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement between the parties to a dispute in respect of-- (i) any case pending before; or (ii) any matter which is falling within the jurisdiction of and is not brought before, any court for which the Lok Adalat is organized: Provided that the Lok Adalat shall have no jurisdiction in respect of any case or matter relating to an offence not compoundable under any law.

20. (1) Where in case referred to in clause (i) of sub-section (5) of section 19. (i) (a) the parties thereof agree; or (b) one of the parties thereof makes an application to the court, for referring the case to the Lok Adalat for settlement and if such court is prima facie satisfied that there are chances of such settlement; or (ii) the court is satisfied that the matter is an appropriate one to be taken cognizance of by the Lok Adalat, the court shall refer the case to the Lok Adalat : Provided that no case shall be referred to the Lok Adalat under sub-clause (b) of clause (i) or clause (ii) by such court except after giving a reasonable opportunity of being heard to the parties.

(2) Notwithstanding anything contained in any other law for the time being in force, the Authority or Committee organizing the Lok Adalat under sub-section (1) of section 19 may, on receipt of an application from any one of the parties to any matter referred to in clause (ii) of sub-section (5) of section 19 that such matter needs to be determined

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by a Lok Adalat, refer such matter to the Lok Adalat, for determination: Provided that no matter shall be referred to the Lok Adalat except after giving a reasonable opportunity of being heard to the other party.

(3) Where any case is referred to a Lok Adalat under sub-section (1) or where a reference has been made to it under sub-section (2), the Lok Adalat shall proceed to dispose of the case or matter and arrive at a compromise or settlement between the parties.

(4) Every Lok Adalat shall, while determining any reference before it under this Act, act with utmost expedition to arrive at a compromise or settlement between the parties and shall be guided by the principles of justice, equity fair play and other legal principles.

(5) Where no award is made by the Lok Adalat on the ground that no compromise or settlement could be arrived at between the parties, the record of the case shall be returned by it to the court, from which the reference has been received under sub-section (1) for disposal in accordance with law.

(6) Where no award is made by the Lok Adalat on the ground that no compromise or settlement could be arrived at between the parties, in a matter referred to in sub-section (2), that Lok Adalat shall advice the parties to seek remedy in a court.

(7) Where the record of the case is returned under sub-section (5) to the court, such court shall proceed to deal with such case from the stage which was reached before such reference under sub-section (1).

21. (1) Every award of the Lok Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court and where a compromise or settlement has been arrived at by a Lok Adalat in a case referred to it under sub-section (1) of section 20, the court-fee paid in such case shall be refunded in the manner provided under the Court-fees Act, 1870.

(2) Every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award.

22. (1) The Lok Adalat “or Permanent Lok Adalat” shall, for the purposes of holding any determination under this Act, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely:- (a) the summoning and enforcing the attendance of any witness and examining him on oath; (b) the discovery and production of any document; (c) the reception of evidence on

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affidavits; (d) the requisitioning of any public record or document or copy of such record or document from any court or office; and (e) such other matters as may be prescribed.

(2) Without prejudice to the generality of the powers contained in sub-section (1), every Lok Adalat “or Permanent Lok Adalat” shall have the requisite powers to specify its own procedure for the determination of any dispute coming before it.

(3) All proceedings before a Lok Adalat “or Permanent Lok Adalat” shall be deemed to be judicial proceedings within the meaning of sections 193, 219 and 228 of the Indian Penal Code and every Lok Adalat shall be deemed to be a civil court for the purpose of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.”

8.1. Section-19 empowers the legal services authorities to constitute a Lok Adalat, to provide for number of members thereof or their qualification. It is only Section-19(5) which talks about the matters which can be dealt with by the Lok Adalat. However, even this sub-section has no relevance for the present purpose as the deemed Lok Adalat under Section-89(2)(c) can deal with only the matter which has the basis of its creation through the deeming fiction i.e. the matter specifically referred to it there-under.

8.2. Section-20(1) and 20(2) talk about who can refer a matter and how. But in the case of mediation under Section-89(2)(c), the matter has already been referred and therefore, these sub-sections cannot have any relevance for the present purpose.

8.3. Section-20(3) to Section-20(7) talk about the circumstances after the matter referred is received by the Lok Adalat. Section-21 talks about effect of award. Section-22 talks about powers of Lok Adalat. Clearly, from this stage the provisions will be applicable to the deemed Lok Adalat under Section-89(2)(c). These provisions therefore will require a closure scrutiny.

8.4. Section-20(6) is related to pre-litigative stage and therefore is not material for the present purpose. Section-20(5) says that if matter is not settled, the same shall be returned to the concerned court. Section-20(7) says that whenever the court receives the matter unsettled, it will continue from the stage at which the matter was referred for Lok Adalat. Clearly, therefore, Section-20(5) & (7) will apply to failed mediation. No separate rule is therefore required to be made and atleast no inconsistent rule can be made.

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8.5. Section-20(4) and Section-22 are required to be considered together. Section-20(4) indicates that Lok Adalat shall be guided by natural principles. Section-22(1) gives the Lok Adalat some of the powers of civil court. It is however Section-22(2) which provides for some additional avenue to lay down procedure which may, by way of some farfetched interpretation, be utilized for procedure before mediator (I will deal with this concept in later part of this opinion). But even this provision cannot be invoked for providing any procedure either before the referral or after return of the matter unsettled or after settlement of the matter.

8.6. Section-20(3) and Section-21 are significant. Section-21 reads as under:

“21. (1) Every award of the Lok Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court and where a compromise or settlement has been arrived at by a Lok Adalat in a case referred to it under sub-section (1) of section 20, the court-fee paid in such case shall be refunded in the manner provided under the Court-fees Act, 1870.

(2) Every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award.”

8.7. Following situations immediately become clear:

Award shall be deemed to be a decree;

Award shall be final;

Award shall be binding on parties;

No appeal shall lie against award to any court.

8.8. By virtue of deeming fiction available in Section-89(2)(c) of CPC, the aforesaid provision has to apply to the matter sent for mediation to any institution or person. If we are to hold that unless the parties give their statement and the court passes a decree, the award shall have no value, or that unless that happens, the award shall not be final or binding, such proposition will run counter to the parliamentary dictate

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available in Section-21. The proposition will also go against Section-20(3) which reads as under:

“(3) Where any case is referred to a Lok Adalat under sub-section (1) or where a reference has been made to it under sub-section (2), the Lok Adalat shall proceed to dispose of the case or matter and arrive at a compromise or settlement between the parties.”

8.9. It clearly says that upon settlement the case has to be disposed of. The term “case” has been defined in Section-2(a) of LSA Act which reads as under:

“2(a) “case” includes a suit or any proceeding before a court”.

8.10. A suit pending before a civil court is clearly a “case” for the purpose of Section-20(3) of LSA Act and therefore it has to be disposed of by the Lok Adalat and the same procedure has to be applied by the mediator in terms of Section-89(2)(c). Once the matter is settled, the case (i.e. the suit) has to be disposed of by the Lok Adalat (even by deemed Lok Adalat) and therefore there remains nothing for the court to do with the suit. Even the LSA Act talks about return of matter in cases of no-settlement but does not provide for return in case of settlement. Therefore, there cannot be any question of returning the case to the civil court after settlement. Consequently, the aforesaid proposition cannot be adopted.

8.11. Interestingly, Section-20(5) and 20(6) talk about dispute referred to by a court and a dispute which has not been referred to by a court and provide for different consequences in case of non-settlement. Whereas Section-21 does not differentiate between an award made upon reference of court and an award made in the matter not referred by court. Expression used in both the sub-sections of Section-21 is “every award” and therefore it will take widest possible meaning and include in its fold all the awards made by a Lok Adalat irrespective of the referral position i.e. who referred the dispute or how it has been referred. Similarly, Section-20(3) has used “disposed of” in respect of case/matter if settlement is arrived at and there is no distinction between dispute referred by a court and a dispute not referred by a court. The only distinction made by the LSA Act is between consequence of settlement and no-settlement. If settlement happens, one particular line of action will ensue whereas if dispute is not settled, the other line of action will ensue. Nothing more. Clearly, when the Parliament wanted to differentiate between consequences of two modes of referral, it has done so specifically but for award & disposal, it has not made any

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differentiation. We cannot adopt any proposition which goes contrary to plain language of the statutory provisions.

Can it be said that provisions of LSA Act will not apply to mediation?:

9. Section-89(2)(c) says “all the provisions of the Legal Services Authority

Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act”. The only provision of LSA Act which provides for reference by a court is Section-20(1). Therefore, once the court sends the dispute for mediation, the mediator shall be deemed to be a Lok Adalat and the dispute shall be treated as if it has been referred to under Section-20(1). Once it is treated as referred under Section-20(1), all the provisions consequent thereto shall automatically become applicable. Section-20(3), 20(5), 20(7) clearly talk about dispute referred under Section-20(1). So these provisions will apply to the matters referred to mediation (deemed Lok Adalat) and consequently, case has to be disposed of if settlement is arrived at and in the situation of no-settlement, the case has to be returned to concerned court which shall continue with the trial. Section-20(4), 21, 22 talk about any reference, every award, any determination. So, these provisions will apply without any discrimination. Consequently, the same shall also apply to the matters referred to mediation in terms of deeming fiction created under Section-89(2)(c) CPC.

Section-89(2)(c) is an illustration of legislation by reference:

10. A constitution bench of Hon’ble Supreme Court in Girnar Traders vs State of Maharashtra & Ors. dated 11.01.2011 has commented upon the doctrine of legislation by reference in following manner:

“When there is general reference in the Act in question to some earlier Act but there is no specific mention of the provisions of the former Act, then it is clearly considered as legislation by reference. In the case of legislation by reference, the amending laws of the former Act would normally become applicable to the later Act; but, when the provisions of an Act are specifically referred and incorporated in the later statute, then those provisions alone are applicable and the amending provisions of the former Act would not become part of the later Act. This principle is generally called legislation by incorporation. General reference, ordinarily, will imply exclusion of specific reference and this is precisely the fine line of distinction between these two doctrines. Both are referential legislations, one merely by way of

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reference and the other by incorporation. It, normally, will depend on the language used in the later law and other relevant considerations. While the principle of legislation by incorporation has well defined exceptions, the law enunciated as of now provides for no exceptions to the principle of legislation by reference.

***

In the case of legislation by reference, it is fictionally made a part of the later law.

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When the later law depends on the former law for procedural/substantive provisions or is to draw its strength from the provisions of the former Act, the later Act is termed as the supplemental to the former law.”

10.1. Meaning thereby that Section-89(2)(c) has made the provisions of LSA Act as part of CPC by fiction whenever a dispute is referred for mediation. If this is the position, no rule can be made which is inconsistent or if a rule is to be made the same will be subject to sections of CPC as laid down in Section-128. (And of course, provisions of LSA Act will fictionally be treated as being made part of Section-89(2)(c) in view of doctrine of legislation by reference).

10.2. Further, if provisions of LSA Act (including Section-20 and 21) are fictionally treated as being made in Section-89(2)(c) of CPC, how one will be able to say that those provisions cannot apply to matter settled in mediation.

Whether contrary observation of Affcons is a binding precedent:

11. Hon’ble Supreme Court in Affcons has made some interesting observations in following manner:

“Though the settlement agreement in a conciliation or a settlement award of a Lok Adalat may not require the seal of approval of the court for its enforcement when they are made in a direct reference by parties without the intervention of court, the position will be different

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if they are made on a reference by a court in a pending suit/proceedings.

**

As the court continues to retain control and jurisdiction over the cases which it refers to conciliations, or Lok Adalats, the settlement agreement in conciliation or the Lok Adalat award will have to be placed before the court for recording it and disposal in its terms. Where the reference is to a neutral third party (‘mediation’ as defined above) on a court reference, though it will be deemed to be reference to Lok Adalat, as court retains its control and jurisdiction over the matter, the mediation settlement will have to be placed before the court for recording the settlement and disposal.

***

Whenever such settlements reached before non-adjudicatory ADR Fora are placed before the court, the court should apply the principles of Order 23 Rule 3 of the Code and make a decree/order in terms of the settlement, in regard to the subject matter of the suit/proceeding. In regard to matters/disputes which are not the subject matter of the suit/proceedings, the court will have to direct that the settlement shall be governed by Section 74 of AC Act (in respect of conciliation settlements) or Section 21 of the Legal Services Authorities Act, 1987 (in respect of settlements by a Lok Adalat or a Mediator). Only then such settlements will be effective.”

11.1. The above quoted portions show that three proposition were contemplated. First, there is a difference between settlement on court reference and settlement of matter without being referred by a court. Second, since court retains the control, the settlement has to be vetted by it. Third, court related subject matter shall be governed by Order 23 Rule 3 whereas subject matter not forming part of case before court shall be directed to be governed by relevant statutory provisions even if the same is incorporated in a single award.

11.2. All the three propositions, in my humble view, cannot be said to be the binding ratio of the judgment. Order 23 Rule 3 covers the matters beyond the subject matter of a suit. Neither the Arbitration and Conciliation Act nor LSA Act differentiates between any settlement arrived at in a matter referred by the court and a settlement of a matter which is not referred by court. We have seen in detail the Section-21 of LSA Act. Conciliation Act is not different. Through Section-74 it contemplates the applicability of Section-30 thereof which in turn says that award on settlement shall have same status & effect as is available with any other arbitral award. Consequently,

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finality & binding clause and deeming decree provisions of Section-35 & 36 will become applicable to the settlement in conciliation. If due to Section-35 & 36, an arbitral award is treated as final, binding and deemed to be a decree and not requiring any approval even if the same is arrived at in a matter referred by a court, there is no reason as to why conciliation award, mediation settlement, lok adalat award having the same provisions will not have the same value only because it has been arrived at in a matter referred by a court.

None of the statutory provisions require any approval of the court for treating such settlement as final, binding and a deemed decree. Affcons also appears to premise it on an assumption that being an adjudicatory procedure, arbitration goes out of the stream of court system whereas other four ADR being non-adjudicatory, remain in the court system. However, this remains an assumption as neither Conciliation Act nor LSA Act and nor even CPC, differentiates between ADRs on adjudicatory or non-adjudicatory basis. So far as first proposition is concerned, none of the statutory provisions of LSA Act or Arbitration & Conciliation Act makes a distinction between settlement on court reference and settlement of matter without being referred by a court.

11.3. Does the observations in Affcons bind the courts and refrain deviation? Answer is simply No. Reason is obvious. A judgment which goes contrary to statutory provisions cannot be treated as a binding precedent. Fortunately, I am not obliged to say so as a Constitution bench of Hon’ble Supreme Court has already commented upon this issue in CBI vs Keshub Mahindra dated 11.05.2011 in following manner:

“No decision by any court, this Court not excluded, can be read in a manner as to nullify the express provisions of an Act or the Code…….”

11.4. Authorities may be multiplied as the same are in abundance so far as concept of precedent is concerned but will only be a formality. The observations in Affcons cannot be read as binding. Statutory provision of LSA Act and Arbitration & Conciliation Act will have to be followed.

Observations of second Salem Bar case regarding public record of mediation:

12. Then there are some observations regarding visible records for mediation in the second Salem Bar case (2005) 6 SCC 344 which reads as:

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“When the parties come to a settlement upon a reference made by the Court for mediation, as suggested by the Committee that there has to be some public record of the manner in which the suit is disposed of and, therefore, the Court has to first record the settlement and pass a decree in terms thereof and if necessary proceed to execute it in accordance with law. It cannot be accepted that such a procedure would be unnecessary. If the settlement is not filed in the Court for the purpose of passing of a decree, there will be no public record of the settlement. It is, however, a different matter if the parties do not want the court to record a settlement and pass a decree and feel that the settlement can be implemented even without decree. In such eventuality, nothing prevents them in informing the Court that the suit may be dismissed as a dispute has been settled between the parties outside the Court.”

12.1. The above extract clearly shows that Rule-25 was its byproduct. Since at that point of time there was no procedure available for showing disposal of case referred to mediation, the committee suggested the aforesaid procedure and the Hon’ble Supreme Court accepted the same. It would be somewhat interesting to note that no such procedure for visible record was suggested or made in the said judgment for other modes of ADR. Reason was obvious. They were to be governed by relevant statutory provisions of 1996 Act and 1987 Act. (see the observation “Section 89

makes applicable 1996 Act and 1987 Act from the stage after exercise of options and making of reference” in the aforesaid judgment). This also strengthen the view that the observation of Affcons about vetting by court for Conciliation and Lok Adalat would be contrary to the second Salem Bar Case which otherwise has to be given preference being rendered by a three judges bench whereas Affcons is two judges bench decision.

12.2. Be that as it may. Affcons has made a judicial amendment in Section-89 CPC whereby it brings the mediation in Section-89(2)(c) and therefore now, a visible procedure is available for disposal of the case in terms of LSA Act being the governing statute by deeming fiction. Now, the Award even for mediation is to be treated as a decree in terms of Section-21 LSA Act and therefore a public record is available like other ADR such as Arbitration, Conciliation, Lok Adalat. As such, there cannot be any need of placing the mediation settlement before the court and then passing of decree by the court as Section-21 of LSA Act will take care of everything even for mediation. The observations made in second Salem Bar case regarding mediation therefore become insignificant in the like manner where any observation becomes insignificant when a particular law is amended by the Parliament.

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Affcons vs second Sale Bar case: a legal dichotomy:

13. This is somewhat interesting. Some fertile mind may say that at one point of time I am accepting some observation of second Salem Bar case regarding applicability of 1996 Act & 1987 Act in preference to Affcons on the ground that former is rendered by a bench larger than the later whereas I am accepting later in respect of the amendment made. Why this dichotomy? Answer is obvious. Second Salem Bar case interpretated the provisions as were available and therefore that interpretation cannot be treated as overruled by a two judges bench decision. But a judicial decision can always read down/quash any provision at any point of time unless the same has been upheld by any earlier bench of equal strength or larger strength.

The recent example of a judicial change of statute was Satyawati Sharma (Dead) by L.Rs v. Union of India and another 2008 (5) SCC 287 where by deleting some offending portions, Section-14(1)(e) of Delhi Rent Control Act 1958 was made applicable to all type of tenancies. The concept of amendment made by the Affcons was never the subject matter of consideration in the second Salem Bar case and therefore, no precedent exists on this point prior to Affcons. As such, amending proposition of Affcons has to be followed as a law declared under Article-141 of the Constitution. Needless to say therefore that both the judgments have to be followed for what is not contrary to the statutory provisions or any earlier precedents.

Rules vs statutory enactment: which one will prevail?:

14. There cannot be any problem. Rule has to give way to the statutory provisions.

14.1. In State Of Karnataka And Anr vs H. Ganesh Kamath Etc AIR 1983 SC 550, it has been observed as under:

“Though the substituted clause (aa) inserted in sub-section (2) of section 21 confers power upon a State Government to make rules providing for the minimum qualifications of persons to whom licences to drive a transport vehicle are issued, such power cannot include within its scope the power to make a rule contrary to the provisions of the Act conferring the rule-making power. It is a well settled principle of interpretation of statutes that the conferment of rule-making power by an Act does not enable the rule-making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent there with or repugnant thereto.”

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14.2. In General Officer vs Subhash Chandra Yadav AIR 1988 SC 876, it has been observed as under:

“This contention is unsound. It is well settled that rules framed under the provisions of a statute form part of the statute. In other words, rules have statutory force. But before a rule can have the effect of a statutory provision, two conditions must be fulfilled, namely, (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void.”

14.3. In Kerala Samsthana Chethu vs State Of Kerala & Ors on 24 March, 2006, Hon’ble Supreme Court observed as under:

“A rule is not only required to be made in conformity with the provisions of the Act whereunder it is made, but the same must be in conformity with the provisions of any other Act, as a subordinate legislation cannot be violative of any plenary legislation made by the Parliament or the State Legislature.

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Its power, therefore, was to make rules only for the purpose of carrying out the purposes of the Act and not de'hors the same. In other words, rules cannot be framed in matters that are not contemplated under the Act.”

14.4. In Ashok Lanka and Another vs Rishi Dixit and Others (2005) 5 SCC 598, it was held:

“We are not oblivious of the fact that framing of rules is not an executive act but a legislative act; but there cannot be any doubt whatsoever that such subordinate legislation must be framed strictly in consonance with the legislative intent as reflected in the rule-making power contained in Section 62 of the Act.”

14.5. Authorities are therefore clear to the effect that rules being a subordinate legislation have not only to give way to the substantive provisions of the statute under which they have been made but also of the other statutes as Rules are example of subordinate legislation. And if the rules are violative, they would be void.

Validity of Rule-25 of Mediation Rules 2004:

15. Rule-25 talks about satisfaction of court after settlement in mediation, passing of decree by court etc. Rule-24 shows that mediator will not do anything after

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recording of settlement and only forward the settlement to the court and then Rule-25 shows that the court will record its satisfaction about settlement, and then the court will pass a decree. All these procedures are clearly contrary to Section-20 and 21 of LSA Act and therefore is also contrary to Section-89(2)(c) which makes the LSA Act as part of itself by fiction (see also the doctrine of legislation by reference). Rules made by a Hon’ble High Court have to be subject to provisions of the section part of CPC and also should not be inconsistent therewith in terms of Section-128. As such, Rule-25 cannot continue to exist after the amendment made by Affcons.

Can mediation rules talking about procedure of pre referral court related matter be justified?:

16. Section-122 and 128 CPC, we have seen, provide for the rules which may be made to regulate the procedure before the court. Therefore, how a pre-referral procedure will be governed can certainly be provided by the rules made under aforesaid provisions.

16.1. This also finds support from the second Salem Bar case (2005) 6 SCC 344 which observes:

“As already noticed, for the purposes of Section 89 and Order X, Rule 1A, 1B and 1C, the relevant Sections in Part X of the Code enable the High Court to frame rules. If reference is made to Arbitration under Section 89 of the Code, 1996 Act would apply only from the stage after reference and not before the stage of reference when options under Section 89 are given by the Court and chosen by the parties. On the same analogy, 1996 Act in relation to Conciliation would apply only after the stage of reference to Conciliation. The 1996 Act does not deal with a situation where after suit is filed, the court requires a party to choose one or other ADRs including Conciliation. Thus, for Conciliation also rules can be made under Part X of the Code for purposes of procedure for opting for 'Conciliation' and upto the stage of reference to Conciliation. Thus, there is no impediment in the ADR rules being framed in relation to Civil Court as contemplated in Section 89 upto the stage of reference to ADR. The 1996 Act comes into play only after the stage of reference upto the award. Applying the same analogy, the Legal Services Authority Act, 1987 (for short '1987 Act') or the Rules framed thereunder by the State Governments cannot act as impediment in the High Court making rules under Part X of the Code covering the manner in which option to Lok Adalat can be made being one of the modes provided in Section 89. The 1987 Act also does not deal with the aspect of exercising option to one of four ADR

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methods mentioned in Section 89. Section 89 makes applicable 1996 Act and 1987 Act from the stage after exercise of options and making of reference.”

16.2. The above observation clearly shows that the procedure for pre-referral stage can be provided by rules made under Part-X which basically contains Section-122 & 128 CPC. And the governing statutes i.e. 1996 Act and 1987 Act will cover the post referral stage.

16.3. Some fertile mind will immediately ask question as to why the above extract does not refer to mediation and some other observation has been made in the said case regarding mediation. The answer is simple. In the year 2005 when second Salem Bar case was decided, mediation was part of Section-89(2)(d) which was not governed by 1987 Act whereas in present times, mediation is part of Section-8992)(c) which is governed by 1987 Act and therefore the observation regarding 1987 Act in aforesaid extract will apply to the mediation also.

16.4. Be that as it may, the Mediation Rules which provide for procedure of pre-referral stage can be justified under Part-X CPC.

Can mediation rules related to actual mediation be justified to some extent?:

17. Mediation centre and mediators are basically creation of Hon’ble High Court. The courts in Delhi practically are not choosing a suitable person under Section-89(2)(c) but they are choosing a suitable institution i.e. mediation centre and such institution is deciding as to who shall be the mediator. Naturally, such institution would be deemed to be a Lok Adalat for the purpose of specific matter referred to it. We have seen that to such deemed Lok Adalat, the provisions of LSA Act will apply.

17.1. Section-20(4) provides that Lok Adalat shall follow the natural principles. Section-22(1) gives some powers of civil court. It is Section-22(2) which is very significant and empowers the Lok Adalat to lay down its own procedure. It is this provision which can be utilized. The mediation centre on becoming deemed Lok Adalat can certainly lay down its own procedure for determining the dispute which is before it i.e. the specific referred matter. The procedure can be in writing. There can be no bar if the mediation centre says each time when it becomes deemed Lok Adalat that it will follow the same procedure. As such a written procedure may exist which the mediation centre after becoming deemed Lok Adalat can say that it will follow.

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Such written procedure may be prepared by anyone but the only rider is that the mediation centre has to say in every case when it becomes deemed Lok Adalt that it is going to follow that procedure as its own.

17.2. Even the Mediation Rules, 2004 may be treated as such written procedure so far as actual mediation is concerned and the mediation centre on becoming a deemed Lok Adalat for every matter can say that it will follow the said procedure. By this farfetched reasoning, the Mediation Rules, 2004 governing the actual mediation may be justified so far as they are not inconsistent with the express provisions of LSA Act.

Can criminal compoundable cases be sent for mediation?:

18. Though the present case is of civil nature, some observation regarding criminal compoundable cases being sent for mediation is also required to be made. It is a common knowledge that criminal compoundable cases are being sent for mediation and Mediation Rules, 2004 (including Rule-25) are used and normally even for those cases mediators are proposing vide the settlement communications that statement of parties be recorded. This appears to be presumably done as per Rule-25. (Though obviously, in such cases, Courts are not passing any decree). In such circumstances, before seeking the invalidity of Rule-25, it is found appropriate to make some observations on this count. A very innovative proposition is normally made i.e. since mediation is a deemed Lok Adalat and as per LSA Act criminal compoundable cases can be referred, such cases can be referred to mediation.

The proposition though looks to be innovative is clearly fallacious. It assumes that mediation is Lok Adalat or the mediator is a Lok Adalat or the mediation centre is a Lok Adalat. This assumption is wrong. They are not the Lok Adalat. They will become a Lok Adalat by virtue of a deeming fiction created by Parliament when a matter is referred to them under Section-89(2)(c) of CPC. Unless this happens, they do not become Lok Adalat. Lok Adalat is a creature of Section-19 of LSA Act or a deeming creature of Section-89 of CPC. Neither the mediation centre nor a mediator is a creature of LSA Act. So far as Section-89 CPC is concerned, the deeming fiction will come into play only when a matter is referred and not before that. (for detail, see paragraph-7 of the present discussion).

Now, under CPC, a criminal case cannot be referred and this position cannot be disputed as CPC is a governing law of civil disputes. Borrowing a phrase from the Affcons, the aforesaid proposition “puts the cart before the horse”. It is clear that unless a matter is referred to an institution or person u/s-89(2)(c), the same will not become deemed Lok Adalat. Despite that the above proposition without referring the matter first assumes that such institution or person has become deemed Lok Adalat.

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This is the fallacy inherent in the above proposition. With all due certainty, it can be said that a criminal compoundable case cannot be sent to mediation centre at present.

The future..........

19. For the civil matter, It would be appropriate if the mediation rules are re-framed in consonance with the provisions of LSA Act and till then, the courts should follow the statutory dictate.

19.1. If the system wants disposal of criminal compoundable cases through mediation, the appropriate way is to frame rules under some specific provisions if available. Section-477 CrPC governs the framing of rules and gives power to the Hon’ble High Court. It reads as under:

“(1) Every High Court may, with the previous approval of the State Government, make rules—

(a) as to the persons who may be permitted to act as petition-writers in the Criminal Courts subordinate to it;

(b) regulating the issue of licences to such persons, the conduct of business by them, and the scale of fees to be charged by them.

(c) providing a penalty for a contravention of any of the rules so made and determining the authority by which such contravention may be investigated and the penalties imposed;

(d) any other matter which is required to be, may be, prescribed.

(2) All rules made under this section shall be published in the Official Gazette.”

19.2. Though on a superficial reading one may say that the above section does not provide any power to make rules for mediation in a criminal matter, a purposive reading will show otherwise. Clause-(d) supra is a residuary clause and includes everything which is required. CrPC otherwise does not prescribe any mode or manner in which a settlement between parties can be arrived at for the purposes of compounding. Since legislation is silent, the rules may be made to supplement it.

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The mode and manner of settlement for compounding may be required and therefore the same may be prescribed also. Section-2(t) of CrPC provides the meaning of prescribed as “means prescribed by rules made under this Code”. Therefore, rules may be made to prescribe the mode and manner of settlement which is required. This mode and manner can certainly include a system which may facilitate the parties in arriving at a settlement and such system may be anything including mediation.

19.3. Needless to say that unless there are some contrary statutory provisions for compounding under statutes other than IPC, the provisions of CrPC have to be followed in terms of Section-4 thereof. It is hard to find compoundable offences for which any statutory provisions exist for the mode & manner of settlement in court system. As such, the above proposed rules may also apply to all compoundable offences.

For convenient reading:

20. In the present discussion, some expressions have been used in short to maintain the flow. Therefore, the same are clarified as under:

CrPC: Code of Criminal Procdeure, 1973

CPC: Code of Civil Procedure, 1908

IPC: Indian Penal Code, 1860

Affcons: M/S. Afcons Infra. Ltd. & Anr vs M/S Cherian Varkey (2010) 8 SCC 24

First Salem Bar: Salem Advocate Bar Association vs Union of India (2003) 1 SCC 49

Second Salem Bar: Salem Advocate Bar Association vs Union of India (2005) 6 SCC 344

1996 Act or Conciliation Act: Arbitration and Conciliation Act, 1996

1987 Act or LSA Act: Legal Service Authority Act, 1987

Mediation Rules: Mediation and Conciliation Rules, 2004 framed by Hon’ble Delhi High Court.

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Binding nature of Mediation: A discussion by Rakesh Kumar Singh

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