Full Court Fee To Be Refunded If Case Referred To Mediation By Court Ends In Compromise Decree [Read Order]

Providing more clarity around the interpretation of Sections 16 and 16A of the Court Fees Act in cases which have been referred to mediation by the court at pre-evidence stage and a compromise decree is incorporated, the Delhi High Court on Friday held that an interpretation of the statute inuring to the litigant’s benefit should be preferred and if a plaintiff is able to demonstrate that the case falls within the requirements of Section 16 and a settlement has been arrived at, refund of the full amount of the court-fee ought to be granted.

Taking note of a division bench’s 2010 judgment in case titled Sayed Mohammed Rafey vs. Mumtaz Ahmad and Ors, the bench of Justice S Ravindra Bhat and Justice Prateek Jalan said if the elements of the provision are not satisfied, then refund in terms thereof cannot be granted and it may then be examined as to whether the conditions laid down in Section 16A have been fulfilled, so as to grant refund of 50% of the court fees paid.

The bench, however, made it clear that Section 16 cannot be given a literal interpretation as per which a plaintiff would be entitled to the refund of the court fees on a mere reference to Alternative Dispute Resolution (ADR) under Section 89 of the Code, regardless of whether the reference ended in a successful settlement or not.

“On a proper construction, therefore, this Court is of the considered view that Section 16 can be made applicable only when parties are able to reach a settlement after a reference to ADR under Section 89 of the Code,” it said.

Difficulty when cases referred by court to mediation/ conciliation

The bench said the cases of reference to arbitration or “judicial settlement” do not pose any great difficulty, as they do not fall within Section 16A of the Act at all, and are covered only under Section 89 of the CPC read with Section 16 of the Act. Similarly, a compromise entered out of court, whether resulting in a compromise decree, or in the suit being dismissed as settled out of court, is covered only by Section 16A and not by Section 16.

“A difficulty arises however, in the case of mediation/conciliation, initiated upon a reference by Court. These cases can potentially fall both within Section 16 and 16A 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 16A would also apply, as long as the mediation is at a 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 and Conciliation Rules, 2004. Rules 24 and 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 such a case, we are of the view that an interpretation of the statute inuring to the litigant’s benefit should be preferred. If a plaintiff is able to demonstrate that the case falls within the requirements of Section 16, refund of the full amount of the court-fee FAO ought to be granted,” said the court.

The court was hearing an appeal for refund of the entire court fees paid in the suit in terms of Section 16 of the Court Fees Act, 1870.

The appellant had filed the commercial suit against the respondents claiming infringement of certain intellectual property rights.

The suit was valued for purposes of court fees and jurisdiction at Rs. 1,10,00,000 and court fees of Rs. 1,10,000 to be paid thereon.

By an order dated 08.09.2017, the suit was referred for mediation before the Delhi High Court Mediation and Conciliation Centre which resulted in settlement of all the disputes and differences and recording of a Settlement Agreement dated 17.11.2017.

By an order dated 13.12.2017, the suit was consequently disposed of in terms of the Settlement Agreement, and it was directed that the plaintiff (appellant herein) would be entitled to refund of 50% of the court fee paid.

The appellant moved an application for modification of order dated 13.12.2017, contending that he was entitled to the refund of the entire court fees as per Section 16 of the Act read with Section 89 of the Code of Civil Procedure.

The single judge dismissed the application, saying: “This application is misconceived and dismissed because the provisions of Section 16 and 16-A of the Courts-fees Act, 1870 (as applicable to Delhi) have to be read together. Section 16-A of the Court-fees Act has been specifically added for Delhi and which provides that only 50% of the Court fee is refundable and that too if the case is compromised before the commencement of evidence in the suit. The compromise which is subject matter of Section 16-A of the Court-fees Act (as applicable to Delhi) will include compromise before the Mediation & Conciliation Centre and it cannot be that if a matter is compromised before the Mediation Centre, then, the entire court fee will be refunded as per Section 16. To take such an interpretation will be to wipe off Section 16- A from the statute book and which specifically is applicable for Delhi.”

While hearing the appeal against this single judge order, the bench of Justice Bhat and Justice Jalan noted that Section 16 of the Act and Section 89 of CPC were incorporated into the respective statutes by the Code of Civil Procedure (Amendment) Act, 1999, which was brought into effect on 01.07.2002. Section 16 of the Act was also inserted by the same amendment, apparently with the object of providing some incentive to resort to methods of Alternative Dispute Resolution.

“Interestingly, the Court-fees Act, 1870 as originally enacted did not contain any provision for refund of court fees in case of suits which did not result in final adjudication by the court. Although, such refunds were provided for in the earlier statute, viz. the Court Fees Act of 1867. With the increase in the burden on the courts in the intervening period, this position has undergone a change once again, and Parliament has intervened to encourage ADR including inter alia arbitration and mediation,” it noted.

The bench noted that if Section 16 is given a literal interpretation, a plaintiff would be entitled to the refund of the court fees on a mere reference to ADR, under Section 89 of the Code, regardless of whether the reference ended in a successful settlement or not.

But this interpretation had come in for criticism from the Law Commission of India in its 238th report in the year 2011.

The bench said it was in agreement with the “observations of the Commission regarding the incongruous and unreasonable consequences that would follow upon a literal interpretation of Section 16 of the Act. The purpose of refunding the court fees is to encourage parties to resort to means of dispute resolution, other than adjudication by the courts, even after the civil courts have been approached for relief”.

“The provision acknowledges that payment of court fees is meant to support the adjudication of disputes by the court in which proceedings have been instituted. It entitles litigants to a refund thereof in the event of the court’s process is not in fact used to arrive at a final resolution of the dispute, but is not intended to apply in the event that the matter does not attain finality in the settlement process. On a proper construction, therefore, this Court is of the considered view that Section 16 can be made applicable only when parties are able to reach a settlement after a reference to ADR under Section 89 of the Code”.

On Section 16A, the bench noted that the same was introduced by the Delhi government to “provide for some relief in cases which are not covered by Section 16, perhaps because Section 89 of the CPC had not been invoked. Section16A is conditional upon the suit being at a pre-evidence stage; then too, it provides for refund of only 50% of the court fees paid”.

The Counsel for the Delhi government drew court’s attention to case titled J K Forgings vs Essar Construction India Ltd & Ors wherein way back in year 2007, prior to Section 16A, a single judge had held that Section 16 of the Act is applicable in all circumstances in which parties arrive at a settlement, irrespective of the stage of proceedings. In that judgment, refund of court fees under Section 16 was permitted even in a case where settlement had been reached out of Court, and not by recourse to Section 89 of the Code.

The judgment in J.K. Forging case was explicitly overruled by the division bench in Sayed Mohammed Rafey vs. Mumtaz Ahmad and Ors. in 2010 wherein it was observed that, “For a party to be entitled to refund Court Fee it must fall within the circumstances envisaged by a statutory provision. However favourably the Court may want to ameliorate the plight of a litigant who has paid Court Fee, if a statutory provision specifically prohibits or does not permit such relief the Court is not empowered in granting the relief.”

Noting that in the instant case, the parties were referred to mediation by court and had arrived at a settlement, the appellant was entitled to refund of full court fee.