Chandhiok & Mahajan, Advocates and Solicitors | View firm profile
The Indian judiciary’s perennial struggle with mounting case pendency remains a cause for concern.
As per the National Judicial Data Grid (“NJDG”), over 6.23 million cases are pending before High Courts, with civil matters alone constituting 4.41 million. According to the most recent NJDG update, the Supreme Court has 81,306 pending cases, of which 63,790 are civil matters.
To mitigate judicial pendency, several initiatives have been undertaken, with a significant focus on encouraging the settlement of disputes. A notable step in this direction is the Mediation Act, 2023, which promotes mediated settlements between parties. Similarly, the Commercial Courts Act, 2015 incorporates a mandatory pre-litigation mediation provision. As held in M.S. Patil Automation Pvt. Ltd. & Ors. v. Rakheja Engineers Pvt. Ltd.[1], any suit instituted without exhausting the possibility of mediation under the Commercial Courts Act, 2015 is subject to rejection under Order VII, Rule 11 of the Code of Civil Procedure, 1908 (“CPC”).
Additionally, Section 89 of the CPC mandates courts to endeavor settlement of disputes by referring parties to Alternative Dispute Resolution (“ADR”) mechanisms, namely: (a) Arbitration, (b) Conciliation, (c) Judicial settlement, (d) Settlement through Lok Adalat, and (e) Mediation. This provision was introduced pursuant to the Code of Civil Procedure (Amendment) Act, 1999 following the recommendations of the Malimath Committee and the 129th Law Commission Report, aiming to reduce pendency in litigation and facilitate speedy disposal of cases.
Notably, the Court Fees Act, 1870 (“CFA”) was also amended through the Amendment Act, introducing Section 16, which entitles a plaintiff to claim a refund of court fees if the dispute is settled through any of the ADR modes prescribed under Section 89 of the CPC. In Nutan Batra v. M/S Buniyaad Associates[2], the Delhi High Court emphasized that Section 16 promotes ADR even after court proceedings commence. The provision acknowledges that while court fees facilitate judicial processes, litigants should not be unduly burdened when disputes are resolved outside the court’s adjudicatory framework. Accordingly, Section 16 permits refund of court fee when judicial intervention is ultimately not availed for dispute resolution.
The objective of Section 16 of the CFA is also evident from the Notes on Clauses in the Code of Civil Procedure (Amendment) Bill, 1997, which states:
“The proposed amendment is consequential to the new section 89 in the Code of Civil Procedure, 1908, proposed to be inserted vide clause 7 of the Bill so as to enable the party to claim refund of court-fee in case the matter in dispute is settled outside the court.”
In fact, a division bench of the Supreme Court in High Court of Judicature at Madras v. M.C. Subramaniam (“M.C. Subramaniam”)[3], examined Section 69A of the Tamil Nadu Court Fees and Suit Valuation Act, 1955, which is pari materia to Section 16 of the CFA. The Court held that the refund of court fees is not contingent on settlement being exclusively through the modes prescribed under Section 89 CPC. It clarified that Section 89 CPC is not a sine qua non for Section 16 of the CFA, and courts are not required to formally refer parties to ADR for a refund to be granted. The judgment affirmed that private settlements are inherent to Section 89 of the CPC and entitles a party to seek refund of court fees under Section 16 of the CFA.
Despite this settled position, recently a division bench of the Supreme Court in Jage Ram v. Ved Kumar & Ors. (“Jage Ram”)[4] dismissed an SLP challenging the Punjab and Haryana High Court’s order which had rejected the petitioner’s plea for a refund of court fees. The Supreme Court held that a refund under Section 16 of the CFA is not permissible if parties settle privately, outside the mechanisms prescribed in Section 89 of the CPC.
The decision in “Jage Ram” departs from the settled law in “M.C. Subramaniam” by narrowly interpreting Section 16 of the CFA, effectively distinguishing between court-assisted settlements and private settlements.
This approach in “Jage Ram” creates an arbitrary classification between litigants who resolve disputes through court-facilitated ADR and those who privately settle, despite both groups equally contributing to reducing judicial workload.
A purposive interpretation of Section 16 of the CFA is essential to avoid an unjust outcome. The Supreme Court has consistently recognized that statutory interpretation must further legislative intent and avoid unfair classifications.[5] A narrow interpretation of Section 89 CPC and Section 16 CFA would create an inequitable situation where:
- Parties referred to mediation by the court are entitled to a full refund of court fees.
- Parties who settle privately, without burdening the court’s resources, are denied the same benefit.
This would lead to anomalous situation, contradicting the very objective of Sections 89 CPC and 16 CFA, i.e., to encourage settlements and reduce litigation. Such an interpretation cannot be countenanced.
Furthermore, both “M.C. Subramaniam” and “Jage Ram” were decided by coordinate benches of the Supreme Court. Under the doctrine of per incuriam, a decision rendered in ignorance of binding precedent lacks authority.[6] It is well-established that a coordinate bench is bound by prior decisions of equal strength, unless the matter is referred to a larger bench.[7]
It appears that while deciding “Jage Ram”, the Court was not made aware of the ruling in “M.C. Subramaniam” which had interpreted Section 69A of the Tamil Nadu Court Fees and Suit Valuation Act, 1955 (pari materia to Section 16 of the CFA) purposively to include private settlements within the scope of court fee refunds. In contrast, “Jage Ram” restricts refunds solely to settlements facilitated under Section 89 CPC, creating a doctrinal conflict without addressing the prior ruling in “M.C. Subramaniam”. Unfortunately, this omission renders “Jage Ram” per incuriam.
Moreover, the reasoning in “Jage Ram” appears limited. The Court briefly concluded that Section 16 of the CFA confines court fee refunds to settlements under Section 89 CPC, without examining the underlying legislative intent. Given the judgment’s potential ramifications for private settlements, a more nuanced and comprehensive analysis would have afforded greater jurisprudential clarity. As of today, “Jage Ram” seems to disincentivize private settlements.
Conclusion
The decision in “Jage Ram” is an unfortunate misstep. If the Court had been made aware of the precedent in “M.C. Subramaniam”, the ensuing legal uncertainty could have been averted.
“M.C. Subramaniam” correctly interprets Section 16 of the CFA to incentivize dispute resolution through both court-referred and private settlements. Encouraging out-of-court settlements significantly reduces judicial burden, aligns with legislative intent, and ensures fair treatment of litigants who proactively resolve disputes without requiring court intervention. In contrast, “Jage Ram” limits the refund of court fees, creating an unfair distinction between different modes of settlement.
However, the critical question persists: should refunds under Section 16 of the CFA apply equally to private settlements as they do to settlements under Section 89 CPC? Given the policy implications of the CFA and the conflicting judicial pronouncements, the issue warrants examination by a larger bench of the Supreme Court to conclusively settle the law. A conclusive ruling is necessary to ensure a consistent, fair, and purposive interpretation of the law and reinforce the broader objective of promoting dispute resolution through all legitimate means. It remains to be seen if and when the Supreme Court will refer this question to a larger bench and resolve the ambiguity once and for all.
Footnotes
[1] 2022 SCC OnLine SC 1028
[2] AIR Online 2018 DEL 2602
[3] (2021) 3 SCC 560
[4] SLP (C) No. 723/2023
[5] 2018 (9) SCC 691
[6] (2015) 2 SCC 189
[7] (2016) 15 SCC 289