Afcons Infrastructure Ltd. v Cherian Varkey Construction Co. (P) Ltd.

Facts

• Cherian Varkey Construction filed a suit against Afcons Infrastructure for recovery of Rs. 2.1 crores (employer's debt plus 18% interest)
• The trial court referred the matter to arbitration under S.89 CPC
• Afcons objected that there was no arbitration agreement between the parties
• The question arose whether a court can compel arbitration under S.89 in the absence of an arbitration agreement

Issues

1. Whether a court can refer parties to arbitration under S.89 CPC without a valid arbitration agreement between the parties.
2. What is the correct procedure for referral under S.89 CPC?
3. Which categories of cases are suitable and unsuitable for ADR referral?

Held

• No compulsory arbitration: Court cannot refer parties to arbitration under S.89 without a valid arbitration agreement (S.7 of the A&C Act). Arbitration is a consensual mechanism requiring party agreement.
• Mediation/Conciliation can be directed: Court may refer parties to mediation or conciliation even without consent, in all cases except specified exclusions.
• No formulation of terms required: Court need not formulate detailed settlement terms before making a referral. The referral itself is sufficient.
• Cases suitable for ADR: All civil disputes, commercial disputes, matrimonial disputes (except divorce), labour disputes, motor accident claims, compoundable offences.
• Cases generally unsuitable: Criminal prosecution (non-compoundable), allegations of serious fraud, election disputes, tax matters with statutory appeal, writ petitions, cases requiring urgent equitable relief.

Ratio Decidendi

S.89 CPC empowers courts to refer disputes to appropriate ADR modes based on the nature of the dispute. Arbitration requires a valid agreement; mediation and conciliation can be directed without party consent. Courts should actively promote ADR but cannot compel a specific mode that requires consensual foundation.