Afcons Infrastructure Ltd.

v Cherian
Varkey Construction Co. P. Ltd. (2010) 8
SCC 24
 Arbitration Law BlogsCase Briefs
 Aishwarya Agrawal
 December 27, 2024

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The case of Afcons Infrastructure Ltd. v. Cherian Varkey
Construction Co. P. Ltd. stands as a cornerstone in the development
and interpretation of Alternative Dispute Resolution (ADR)
mechanisms in India. The Supreme Court’s decision clarified
ambiguities in Section 89 of the Code of Civil Procedure, 1908 (CPC),
providing a definitive framework for its application. Below is a
detailed discussion of the case.
Contents hide
1. Facts of Afcons Infrastructure Ltd. v Cherian Varkey Construction Co. P.
Ltd.
2. Issues Before the Court
3. Observations of the Court in Afcons Infrastructure Ltd. v Cherian Varkey
Construction Co. P. Ltd.
3.1. Interpretation of Section 89
3.2. Consent for Arbitration
3.3. Mandatory Consideration of ADR
3.4. Correcting Drafting Errors in Section 89
3.5. Binding Nature of ADR Outcomes
4. Afcons Infrastructure Ltd. v Cherian Varkey Construction Co. P. Ltd.
Judgement
5. Procedure for Implementing Section 89
6. Conclusion
Facts of Afcons Infrastructure Ltd. v Cherian
Varkey Construction Co. P. Ltd.
The dispute arose from a contractual relationship between the
parties. The Cochin Port Trust engaged Afcons Infrastructure Ltd.
(the appellant) to undertake certain construction projects, including
bridges and roads. Afcons subsequently subcontracted a portion of
the work to Cherian Varkey Construction Co. (the first respondent).
Cherian Varkey alleged non-payment for the work performed under
the subcontract and filed a suit claiming Rs. 210,70,881 along with
interest. The subcontract did not include an arbitration clause. In
March 2005, Cherian Varkey filed an application under Section 89 of
the CPC, requesting the trial court to formulate settlement terms
and refer the matter to arbitration. Afcons opposed this, arguing
that arbitration could not proceed without mutual consent.
The trial court allowed the application under Section 89, prompting
Afcons to appeal to the Kerala High Court. The High Court upheld
the trial court’s decision, stating that Section 89 did not require a
pre-existing arbitration agreement. Dissatisfied, Afcons escalated
the matter to the Supreme Court.

Issues Before the Court

The Supreme Court in Afcons Infrastructure Ltd. v. Cherian Varkey
Construction Co. P. Ltd. addressed the following critical issues in
this case:
 Whether Section 89 of the CPC permits the court to refer
disputes to arbitration without the mutual consent of the
parties.
 What is the appropriate procedure for implementing Section 89
and Order 10 Rule 1A of the CPC?
 Whether settlements reached through ADR processes are
binding in themselves.
 Is it mandatory for courts to consider referral to ADR processes
in all cases?
Observations of the Court in Afcons
Infrastructure Ltd. v Cherian Varkey
Construction Co. P. Ltd.
Interpretation of Section 89
The Supreme Court in Afcons Infrastructure Ltd. versus Cherian
Varkey Construction Co. P. Ltd emphasised that the language of
Section 89 must be read plainly and logically. The provision starts
with the words, “Where it appears to the court that there exist
elements of a settlement,” signalling that the court must first
evaluate whether ADR is appropriate for the case at hand.
Consent for Arbitration
The court clarified that arbitration and conciliation require mutual
consent, as these processes are governed by the Arbitration and
Conciliation Act, 1996. Without such consent, courts cannot refer a
matter to arbitration under Section 89. However, mediation, judicial
settlement, and Lok Adalat do not require consent.
Mandatory Consideration of ADR
The court observed that while courts must consider ADR in every
case, referral is not mandatory for disputes falling under excluded
categories, such as fraud, minors, and probate cases. When ADR is
deemed unsuitable, the court must briefly record the reasons for not
referring the matter to an alternative forum.
Correcting Drafting Errors in Section 89
The definitions of “Judicial Settlement” and “Mediation” in Section
89(2) clauses (c) and (d) were interchanged to rectify a drafting
error. Judicial Settlement involves dispute resolution facilitated by a
judge not presiding over the case, while Mediation involves non-
binding facilitation by a neutral third party.
Binding Nature of ADR Outcomes
The court differentiated between adjudicatory and non-adjudicatory
ADR mechanisms. Arbitration results in binding awards independent
of court proceedings, whereas non-adjudicatory processes like
mediation allow courts to retain supervisory control.
Afcons Infrastructure Ltd. v Cherian Varkey
Construction Co. P. Ltd. Judgement
The Supreme Court in Afcons Infrastructure Ltd. v Cherian Varkey
Construction Co. P. Ltd. ruled that the trial court had not followed
the correct procedure in implementing Section 89. The trial court
erred in waiting for an application under Section 89 instead of
invoking the provision suo moto after the pleadings were completed.
Key highlights of the Afcons Infrastructure Ltd. v Cherian Varkey
Construction Co. P. Ltd judgement include:
 A civil court cannot refer a case to arbitration under Section 89
without mutual consent.
 Courts must mandatorily consider ADR for all cases unless they
fall under specific excluded categories.
 ADR mechanisms, except arbitration and conciliation, do not
require mutual consent.
The court provided a detailed procedural framework to ensure
uniformity in applying Section 89.
Procedure for Implementing Section 89
The Supreme Court in Afcons Infrastructure Ltd. v Cherian Varkey
Construction Co. P. Ltd laid down specific guidelines for courts to
follow while applying Section 89:
1. Timing of ADR Consideration: Courts must evaluate ADR
suitability post-pleadings, after admission/denial of documents,
and before framing issues under Order 10 Rule 1A.
2. Formulating Terms of Settlement: Courts need not draft
detailed settlement terms but must briefly describe the dispute
and select the appropriate ADR mechanism.
 3. Role of Judges in Judicial Settlement: Judges facilitating
settlement discussions must not adjudicate the case if
negotiations fail, to avoid bias.
4. Recording Consent: For arbitration or conciliation, the court
must explicitly record mutual consent.
5. Reasons for Non-Referral: If ADR is unsuitable, courts must
briefly explain their rationale for not referring the dispute.
Conclusion
The Supreme Court’s decision in Afcons Infrastructure Ltd. v Cherian
Varkey Construction Co. P. Ltd. is a milestone in the evolution of
ADR in India. It provides much-needed clarity on the interpretation
of Section 89, particularly in the context of arbitration, consent
requirements, and procedural implementation.
By addressing ambiguities and setting guidelines, the judgement
paves the way for more effective utilisation of ADR processes in
India’s judicial system. It underscores the critical role of ADR in
alleviating the burden on courts while ensuring fair and equitable
resolution of disputes.
Statutory Interpretation – Detailed Exam
Notes (Mīmāṁsā Doctrines + Foreign
Parallels)

1. Sārthak Kyāta (Doctrine of Meaningfulness)

 Definition: Every word, phrase, and provision in a statute is presumed to have a
meaning. Courts cannot treat any word as redundant or surplus; each must be given
effect.
 Reasoning: Legislative language is deliberate; ignoring words distorts intent. Helps
avoid judicial rewriting of statutes.
 Indian Case:
o Aswini Kumar Ghose v. Arabinda Bose, AIR 1952 SC 369
 Facts: Interpretation of the Supreme Court Advocates (Practice in
High Courts) Act, 1951 — “notwithstanding” and “subject to” clauses
used.
 Held: Both clauses have distinct legal effect; no word can be ignored.
 Foreign Parallel:
o Doctrine against surplusage (U.S./UK) – Montclair v. Ramsdell (1883)
 Principle: Legislature does not use words without purpose; every term
matters.
 Practical Takeaway: Avoid interpretations that make any part of statute
meaningless; ensures full legislative intent is realised.

2. Lāgbhag (Doctrine of Approximation / Substantial

Compliance)
 Definition: Literal perfection is not always required. If exact compliance is
impossible or impractical, substantial compliance suffices.
 Reasoning: Statutory provisions should be workable and not lead to injustice due to
minor procedural defects.
 Indian Cases:
o State of Haryana v. Raghubir Dayal, (1995) 1 SCC 133 – Minor delay in
filing appeal excused; substantial compliance recognised.
o Commissioner of Central Excise v. Hari Chand Shri Gopal (2010) –
Substantial compliance allowed in excise matters.
 Foreign Parallel:
o Substantial compliance doctrine (U.S./UK) – Equitable Life Assurance v.
Helvering, 321 U.S. 560 (1944)
 Courts accept substantial compliance in tax and procedural law; literal
strictness not required.
  Practical Takeaway: Focus on effect rather than mere formality; law does not
compel the impossible (lex non cogit ad impossibilia).

3. Arthai Āpva (Doctrine of Implication / Necessary

Implication)
 Definition: Provisions, powers, or consequences not explicitly stated but necessary to
make statute effective may be implied by law.
 Reasoning: Prevents statutory provisions from being unworkable or absurd; ensures
legislative purpose is achieved.
 Indian Case:
o State of Karnataka v. Vishwabharathi House Building Coop. Society, (2003) 2
SCC 412
 Facts: Consumer forums’ enforcement powers were not expressly
mentioned.
 Held: Such powers are implied; otherwise, the statute’s consumer-
protection purpose would be frustrated.
 Foreign Parallel:
o UK – Attorney General v. Great Eastern Railway Co., (1880) 5 App Cas 473
(HL)
 Powers reasonably incidental to statutory objectives are implied.
 Practical Takeaway: Courts may read necessary implications to ensure law works
effectively; avoids loopholes and absurdity.

4. Guṇapradhān (Doctrine of Principal & Accessory)

 Definition: When a statutory provision contains principal and accessory elements, the
principal prevails. Accessory provisions are subordinate and interpreted in aid of the
principal purpose.
 Reasoning: Ensures the dominant legislative intention is not overridden by incidental
clauses.
 Indian Cases:
o K.P. Varghese v. ITO, (1981) 4 SCC 173 – Main object of Section 52 (prevent
tax evasion) prevails; incidental wording cannot affect honest transactions.
o CIT v. B.M. Kharwar, (1969) 72 ITR 1 (SC) – Accessory provisions must
follow principal intent.
 Foreign Parallel:
o Main purpose rule (UK) – Gorris v. Scott, (1874) LR 9 Ex 125
 Regulations confined to main purpose; accessory consequences cannot
distort intent.
 Practical Takeaway: Dominant legislative objective governs interpretation;
accessory clauses cannot override it.
5. Sāmānya Jñās (General vs. Special Rule)
 Definition: Specific provisions prevail over general provisions in case of conflict
(generalia specialibus non derogant).
 Reasoning: Avoids inconsistency, ensures special laws operate effectively even if
general laws exist.
 Indian Cases:
o J.K. Cotton Spinning & Weaving Mills v. State of U.P., AIR 1961 SC 1170 –
Special Industrial Disputes Act prevails over general Factories Act.
o Life Insurance Corp. v. D.J. Bahadur, AIR 1981 SC 1472 – Specific
provisions govern subject matter in preference to general ones.
 Foreign Parallel:
o UK – Seward v. Vera Cruz, 10 App Cas 59 (1884) – Special law overrides
general law.
o U.S. – Specific statutory schemes override general law.
 Practical Takeaway: Where conflict arises, the special law governs; ensures
legislative clarity and avoids overlap.

6. Vikalpa (Doctrine of Choice / Alternative Construction)

 Definition: Where two interpretations are possible, courts adopt the one that furthers
justice, equity, and legislative intent.
 Reasoning: Ensures statutory interpretation promotes substantive justice rather than
technical rigidity.
 Indian Cases:
o Tirath Singh v. Bachittar Singh, AIR 1955 SC 830 – Election petition upheld
despite procedural defect; interpretation advancing justice preferred.
o State of Bihar v. Hira Lal Kejriwal, AIR 1960 SC 1234 – Court favoured
interpretation that avoided absurd results.
 Foreign Parallel:
o Mischief rule (UK) – Heydon’s Case, 1584
 Courts adopt construction that suppresses mischief and advances
remedy.
o U.S. – “Charming Betsy” principle: statutes construed to avoid
injustice/conflict.
 Practical Takeaway: Choose the interpretation that achieves legislative purpose,
avoids absurdity, and promotes justice.

✅ Revision Table (Expanded)

Key
Doctrine Meaning Indian Case (Fact + Held) Foreign Parallel
Takeaway
Sārthak Words must be Aswini Kumar Ghose Doctrine against Avoid
Kyāta meaningful (1952): Both surplusage – redundancy
 Key
Doctrine Meaning Indian Case (Fact + Held) Foreign Parallel
Takeaway
“notwithstanding” &
Montclair v.
“subject to” clauses
Ramsdell (1883)
effective
Substantial
Substantial Practical effect
Raghubir Dayal (1995): compliance –
Lāgbhag compliance > literal
Minor delay excused Equitable Life
allowed perfection
Assurance (1944)
Necessary
Vishwabharathi HBCS
Powers implied implication – Statute must
Arthai Āpva (2003): Consumer forum
if necessary Great Eastern be workable
powers implied
Railway (1880)
Main purpose rule Accessory
Principal K.P. Varghese (1981):
Guṇapradhān – Gorris v. Scott follows
prevails Dominant purpose prevails
(1874) principal
J.K. Cotton Mills (1961): Special > General
Sāmānya Special > Specific >
Industrial Disputes Act – Seward v. Vera
Jñās General general
prevails Cruz (1884)
Choose Mischief rule – Favor justice
Tirath Singh (1955):
Vikalpa interpretation Heydon’s Case & legislative
Uphold election petition
favoring justice (1584) intent