REFUND OF ENTIRE COURT FEE BASED ON OUT OF COURT SETTLEMENT

 

Refund of entire court fee based on out of court Settlement

The suit or claim instituted by a party to the lis is to be valued in accordance with Suit Valuation Act and as per Court Fee Act, 1870 the court fee shall be payable. If the money value is sought to be recovered then ad valorem court fee shall be payable. However, during the pendency of the suit, the parties may settle the disputes. Earlier, there was no provision for refund of court fee in such cases.  Now, under the auspices of court mediation process, the court fee paid is liable to be refunded, if settlement is arrived at during the pendency of the case. The court fee shall also be refunded in case out of court settlement is reached between the parties as well.

In terms of Section 16 or 16 A of Court Fee Act 1870 based on settlement and pursuant thereto if the judgment is passed and decree is drawn, the court fee is liable to be returned to the plaintiff. However, before analyzing it further, Section 89 of Code of Civil Procedure shall also be of relevance in the context. 

Section 16:- Refund of fee.—

Where the Court refers the parties to the suit to any one of the mode of settlement of dispute referred to in section 89 of the Code of Civil Procedure, 1908 (5 of 1908), the plaintiff shall be entitled to a certificate from the Court authorising him to receive back from the collector, the full amount of the fee paid in respect of such plaint.] 

Section 16 A of Court Fee Act 1870:

Refund of Court Fees on settlement before hearing: Whenever by agreement of parties –

(i)            Any suit is dismissed as settled out of court before any evidence has been recorded on the merits of the claim; or

(ii)          Any suit is compromised ending in a compromise decree before any evidence has been recorded on the  merits of the claim; or

(iii)         Any appeal is disposed of before the commencement of hearing of such appeal; half the amount of all fees paid in respect of the claim or claims in the suit or appeal shall be ordered by the Court to be refunded to the parties by whom the same have been respectively paid.

(The section 16 A was provided for vide Court Fee (Delhi Amended) Act 2010 and assent of President was accorded on 17.01.2011)

From the foregoing provision of Section 16 A and as per the object of the Act, it appears that the legislature intended to provide for refund in a situation, where, the parties settle their disputes out of court and even without recourse to section 89 of the Code. Though, section 16 A is conditional and is to apply only in a settlement arrived at in pre-evidence stage and then too, it provides for 50% of refund of court fee only.

Section 89 of Code of Civil procedure

Section 89:Settlement of disputes outside the Court —

(1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for:–

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat: or

(d) mediation.

(2) Were 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;

(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 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.”

HISTORY

The Section 16 of the Court fee Act 1870 and Section 89 of Code of Civil Procedure were inserted in the statute book by Code of Civil Procedure ( Amendment) Act 1999 which was made effective on 01.07.2002. It was also highlighted that in order to implement 129^th Report of Law Commission of India and also to make conciliation scheme effective, it should be made obligatory to the Court to refer the disputes after framing of issues for settlement either by arbitration, conciliation, mediation, judicial settlement or through Lok Adalat. In case parties are failed to resolve the issues between them even after such alternate process as narrated above, that the matter should be proceeded with in Court in which the claim/suit is filed.

The hon’ble Supreme Court had the occasion to interpret Section 89 of CPC in a judgment reported as Afcons Infrastructure Limited Vs Cherian Varkey Construction Company Private Limited & Ors III (2010) CLT 351:

“7. If Section 89 is to be read and required to be implemented in its literal sense, it will be a Trial Judge's nightmare. It puts the cart before the horse and lays down an impractical, if not impossible, procedure in sub-section (1). It has mixed up the definitions in sub-section (2). In spite of these defects, the object behind Section 89 is laudable and sound. Resort to alternative disputes resolution (for short `ADR') processes is necessary to give speedy and effective relief to the litigants and to reduce the pendency in and burden upon the courts. As ADR processes were not being resorted to with the desired frequency, Parliament thought it fit to introduce Section 89 and Rules 1-A to 1-C in Order X in the Code, to ensure that ADR process was resorted to before the commencement of trial in suits. In view of its laudable object, the validity of Section 89, with all its imperfections, was upheld in Salem Advocate Bar Association Vs Union of India reported in [2003 (1) SCC 49 - for short, Salem Bar - (I)]  but referred to a Committee, as it was hoped that Section 89 could be implemented by ironing the ceases. In Salem Advocate Bar Association  Vs Union of India  [2005 (6) SCC 344 - for short, Salem Bar-(II)], this Court applied the principle of purposive construction in an attempt to make it workable”.

Section 16 of the Court Fee Act 1870 was also inserted vide the very same amendment, probably with a view to incentivize alternate dispute redressal mechanism.

The insertion of section 16 of the Court fee Act 1870 was carried out by an amendment and is consequential to the new section 89 of the CPC so as to enable the parties to claim refund of court fee in case the matter in dispute is settled outside the Court. It is of significance that Court fee Act 1870, as enacted did not have provisions of refund of court fee in suits in case of its earlier resolution or in case final adjudication was not required. Though, it is pertinent to mention that in Court Fee Act 1867 analogous provisions were there.

The Division bench of Delhi High Court has held in a matter reported as Nutan Batra Vs M/s Buniyaad Associates 255 (2018) DLT696 (DB). The hon’ble Division Bench has held in para no. 11 that:

“. On a literal reading of  Section 16, a plaintiff would be entitled to the refund of the Court fees on a mere reference to Alternate Dispute Resolution (ADR) under Section 89 of the Code of Civil procedure regardless of whether the reference ended in a successful settlement or not…..”

The 238^th Law Commission Report submitted in December 2011 and the Law Commission was critical of the drafting error which gives rose to conflict with section 21 of Legal Services Authorities Act (LSA) 1987 in as much as it is provided in LSA that in cases placed for resolution through Lok Adalat shall be refunded in a manner as provided under Court Fees Cat 1870, only if compromise or settlement has been arrived at between the parties. However, Section 16 of Court fees Act 1870 shall as per the plain language indicates that court fee shall be refundable merely on the reference to alternate dispute redressal mechanism, irrespective of its outcome. It implies that failed process of settlement and continuation of proceedings in court for adjudication shall also entitle a party refund of court fee.  It means that in most of the cases court fee shall be refunded to the parties on mere reference of seeking settlement. If this is to be understood, then every suit could be contested for free. It was never the object and intention of the Court Fee Act.

It may be noted that actual wording of the section and intention of legislature are in conflict. Clause 35 to the Amendment of Court fee Act 1870 clearly reflected that the proposed amendment is consequential to section 89 of CPC and court fee could be refunded upon settlement of disputes outside the Section.

There is clear conflict in what is contained in Section 16 of Court fees Act 1870 and Section 21 of LSA Act. It is certainly not a conscious departure, but confusion has emanated from the improper drafting. The Law Commission has recommended that provisions of The Court Fees Act 1870  should be amended to make it in sync with Section 21 of LSA 1987 so that court fee could be refundable only if the ADR resulted into settlement as that is the avowed object.

Though, validity of Section 89 of CPC despite its imperfection has been upheld in  Salem Advocate Bar Association (1) Vs Union of India (2003) 1 SCC 49, but while referring to a Committee it was hoped that anomaly of Section 89 of CPC shall be dealt with and ironed out.

The Division bench of Delhi High Court has agreed with the 238^th Law Commission Report in Nutan Batra (Supra) and it is further held that purpose of return of Court fee is only with a view to encourage a party to settle the disputes between them rather than to await for the adjudication in courts. However, in case the settlement process is failed, then, there could be no occasion or purpose to refund court fee. This is contrary to the intent of the legislation and therefore the anomaly is required to be done away with. In the interregnum, however, section 16 of The Court fee Act 1872 is invoked only in case of resolution of disputes between parties through the alternate dispute resolution process only and not otherwise. Clearly, that is the object of the amendment.

 In the above said context, the relevant precedents are in J.K Forgings Vs Essar Construction India Ltd & Ors in IA No. 9711/2009 in CS (OS) 156/2009 wherein Delhi High Court has held Section 16 of Court Fee Act 1870 shall be applicable in all circumstances in which parties arrived at settlement irrespective of stage of proceedings. In the said judgment the refund of court fee was permitted under section 16 of the Act even when out of court settlement was arrived at and not by recourse to Section 89 of Code of Civil Procedure. It was prior to the insertion of Section 16 A of the Code. Similarly, in Sayed Mohammed Rafey Vs Mumtaz Ahmed & Ors in FAO (OS) 343/2010 & in CM  9014/2010. The J.K Forging (Supra) was overruled by the Division Bench of Delhi High Court and it was held that if a statutary provision prohibits refund then no refund could be permitted. Of course, both J.K Forging (Supra) and Sayed Mohammed (Supra) was rendered before the insertion of Section 16 A by the Delhi amendment.

The Nutan Batra (Supra) judgment rendered by hon’ble Division bench has settled at rest the issue of refund of court fee in very clear term. The para 19 of the judgment is worth reference:

“19. A difficulty arises however, in the case of mediation/conciliation, initiated upon a reference by Court ( as understood in the light of Afcons (supra). These case can potentially fail both within Section 16 and Section 16 A of the Act. On a plain reading, Section 16 would apply as the parties are referred to mediation by an order of Court. However, Section 16 A would also apply, as long as the mediation is at pre-evidence stage of the suit, and the settlement agreement has been incorporated in a compromise decree. This court has framed Rules  under Part X and Section 89 (2)(d) of the CPC, entitled the Mediation & Conciliation Rules 2004. Rules 24 & 25 of the said Rules require an agreement between the parties to be reduced into writing and signed by them, which would be forwarded to the Court in which the suit or proceeding is pending. On receipt of the settlement agreement , the Court upon its satisfaction is required to pass a decree in terms thereof, that the parties have settled their disputes.

 In para 20 it is further held:

“In such a case, we are of the view that an interpretation of the statute inuring to the litigant’s benefit should be preferred. If plaintiff is able to demonstrate that the case falls within the requirement of Section 16, refund of the full amount of the Court fee ought to be granted.. However, as held by the Division Bench of this Court in Sayed Mohd Rafey (Supra), if the elements of the provision are not satisfied, then refund in terms thereof cannot be granted. It may then be examined as to whether the condition laid down in section 16 A have been fulfilled, so as to grant refund of 50% of the Court Fee paid.” 

CONCLUSION

From the broad analysis of the foregoing what is borne out is that The Court Fee Act 1870 originally did not contain the provision of refund of Court Fee. The same has been brought to the statute book for the first time in 1999, when Code of Civil Procedure was amended and Section 89 of CPC was made part of the Code and Section 16 was made part of The Court Fee Cat 1870, thereby making provision of refund of court fee. Though, In Court Fee Act 1867, the provision was there, but the same was done away with in Court Fee Act 1870. Since parliament has encouraged the process of mediation and settlement outside the court and as an incentive thereto, the provisions of refund of court fee in litigations such as suits is envisaged. Though, mere reading of section 16 shall entail as if mere reference to alternate dispute redressal (ADR) shall in itself, entitle a party to refund, irrespective of the outcome. That cannot be the intent of the legislature. No wonder, thus, that, the Law Commission of India in its 238^th Report had criticized it. The courts has recognized the anomaly and held that literal meaning of Section 16 of Court Fee Act 1870 shall lead to incongruous and unreasonable consequences. The provisions of Section 16 and Section 16 A of Court Fee Act, 1870 were to be harmonized and with a view to encourage out of court settlement not only through the mode of ADR i.e alternate mode of redressal of disputes, but in case of out of court settlement  arrived at by parties of disputes themselves. The judgment/precedents as reported in Nutan Batra( Supra) has settled the issue finally and for good measure with a view to encourage out of court settlement and also with a view to encourage settlement through alternate mode of redressal of disputes.

                                  -----------

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com