Court’s Decision
The Karnataka High Court, presided over by Justice S.R. Krishna Kumar, disposed of a Regular First Appeal under Section 96 of the Code of Civil Procedure, 1908, following a full and final amicable settlement reached between the parties under Section 89 CPC read with Rules 24 and 25 of the Karnataka Civil Procedure (Mediation) Rules, 2005.
The Court modified the impugned decree of the Trial Court in terms of the Memorandum of Settlement dated 23/24 September 2025 and directed refund of court fees to both parties while also ordering closure of execution proceedings.
Justice Krishna Kumar appreciated the parties for adopting mediation and observed that the Court’s intervention in terms of the settlement would give “final quietus to prolonged litigation.”
“In view of the fact and circumstances and the settlement arrived at between the parties, the appeal deserves to be disposed of in terms of the Memorandum of Settlement.”
Facts
The dispute originated from a commercial transaction between two industrial entities. The respondent-plaintiff had supplied certain materials and services to the appellant-defendant, for which payments allegedly remained unpaid. Consequently, a money recovery suit (O.S. No. 3719/2017) was filed before the VIII Additional City Civil and Sessions Judge, Bengaluru (CCH-15).
After evaluating the documentary and oral evidence, the Trial Court decreed the suit, directing the defendant to pay ₹4,67,672 along with interest at 15% per annum from 17 October 2016 till realization.
Aggrieved, the defendant filed the Regular First Appeal in 2021 before the High Court of Karnataka, contesting both the principal amount and the rate of interest. The matter was subsequently referred to mediation under Section 89 CPC to explore an amicable resolution.
Issues
- Whether the decree passed by the Trial Court warranted interference in light of the parties’ subsequent agreement.
- Whether the High Court should record and enforce the terms of the compromise as per the Memorandum of Settlement under the Mediation Rules.
- Whether refund of court fees and closure of execution proceedings were legally permissible upon settlement.
Petitioner’s Arguments
The appellant-defendant contended that the Trial Court had erred in calculating interest at a high rate of 15% per annum, which was disproportionate to prevailing commercial rates. It was submitted that, in light of the uncertainty of litigation outcomes and the time and cost involved, the appellant had chosen to amicably resolve the dispute through mediation.
The appellant agreed to pay ₹3,75,000 as a full and final settlement of all claims, inclusive of interest and costs, acknowledging that the prolonged litigation was not commercially viable. It was further stated that the appellant had already deposited ₹4,03,368 before the High Court on 17 August 2021, and consented to the respondent withdrawing the said amount.
The appellant’s counsel also prayed for refund of court fees of ₹56,745 paid on the memorandum of appeal, emphasizing that Section 89 CPC encourages settlement and mandates such refunds when cases conclude through mediation.
Respondent’s Arguments
The respondent-plaintiff, represented through counsel, confirmed the settlement and expressed satisfaction with the agreed sum of ₹3,75,000. It was stated that the compromise amount covered all dues, costs, and interest, and that no further claim would be raised against the appellant in the future.
The respondent acknowledged receipt of the post-dated cheque bearing No. 083027 dated 30 October 2025 for ₹3,75,000 drawn on the State Bank of India, Raghuvanahalli Branch.
The respondent’s counsel also consented to refund of court fees and closure of execution proceedings (E.P. No. 484/2021) pending before the Executing Court, confirming that all obligations under the settlement were voluntarily undertaken without coercion or influence.
Analysis of the Law
The Court’s analysis was guided by Section 89 CPC, which enables courts to refer matters for alternative dispute resolution (ADR), including mediation, arbitration, and conciliation. The Karnataka Civil Procedure (Mediation) Rules, 2005 — specifically Rules 24 and 25 — authorize recording of settlements arrived at during mediation as binding judicial decrees.
Justice Krishna Kumar observed that mediation serves a dual purpose — it resolves disputes efficiently while preserving commercial relationships. The Court reiterated that settlements reached through mediation are judicially enforceable, having the same sanctity as decrees passed on merits.
The judgment also underscored the public policy rationale behind refund of court fees in settled matters, drawing from Section 69-A of the Karnataka Court Fees and Suits Valuation Act, 1958, which permits refund upon successful settlement through ADR mechanisms.
Precedent Analysis
The Court’s reasoning aligns with earlier precedents emphasizing the binding nature of mediated settlements:
- Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24 — The Supreme Court held that once a dispute is referred to mediation under Section 89 CPC, the resulting settlement carries the force of a decree.
- Salem Advocate Bar Association (II) v. Union of India, (2005) 6 SCC 344 — Upheld the constitutionality of Section 89 CPC and clarified that settlements under ADR have binding effect equivalent to a court’s adjudicated order.
- Karnataka State Legal Services Authority v. State of Karnataka, 2019 SCC OnLine Kar 1382 — The Karnataka High Court reaffirmed that mediated settlements save judicial time and promote expeditious justice in commercial disputes.
By applying these principles, the High Court ensured that the compromise recorded through mediation was legally recognized and enforceable as a modified decree.
Court’s Reasoning
Justice Krishna Kumar observed that the parties had entered into settlement voluntarily and that both sides had identified their signatures on the Memorandum of Settlement dated 23/24 September 2025. The Court found no impediment in accepting the same as it complied with procedural and statutory requirements.
The Court further directed the Registry of the High Court to:
- Disburse the entire deposited amount of ₹4,03,368 with accrued interest to the respondent-plaintiff immediately;
- Refund the full court fees of ₹56,745 to the appellant and ₹34,700 to the respondent; and
- Notify the Executing Court to close E.P. No. 484/2021 in light of the settlement.
By recording the settlement, the Court ensured that all execution proceedings and pending claims were extinguished, granting a complete resolution of the dispute.
Conclusion
The Karnataka High Court disposed of the appeal in accordance with the Memorandum of Settlement, thereby modifying the Trial Court’s decree to reflect the mutually agreed terms. Both parties were directed to comply with the settlement, and all pending proceedings were ordered to be closed.
The judgment represents an exemplary instance of the judiciary’s commitment to promoting mediation as a viable mechanism for resolving commercial disputes, reinforcing that voluntary settlements carry the same enforceability as judicial decrees.
“Both parties state that they have entered into this agreement on their own and there is no coercion or force from anyone,” the Court recorded while endorsing the settlement.
Implications
This decision is a significant affirmation of mediation’s growing role in the Indian judicial system. It highlights that:
- Settlements recorded under Section 89 CPC and the Mediation Rules are binding and executable as decrees.
- Parties can recover court fees after successful mediation, promoting ADR adoption.
- Courts will ensure closure of all related proceedings to prevent further litigation once disputes are amicably resolved.
The case reinforces judicial encouragement for commercial entities to pursue mediation as a cost-effective, time-saving, and relationship-preserving means of dispute resolution.
Judgments Referred
- Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24 — Affirmed enforceability of settlements under Section 89 CPC.
- Salem Advocate Bar Association (II) v. Union of India, (2005) 6 SCC 344 — Validated ADR mechanisms under Section 89 CPC.
- Karnataka State Legal Services Authority v. State of Karnataka, 2019 SCC OnLine Kar 1382 — Emphasized efficiency and finality of mediation.
FAQs
Q1. What is the legal status of settlements reached through mediation under Section 89 CPC?
Such settlements, when recorded by the Court, are final and binding and have the same effect as a decree passed on merits.
Q2. Are parties entitled to refund of court fees after settlement through mediation?
Yes. Under Section 69-A of the Karnataka Court Fees and Suits Valuation Act, court fees are refundable upon successful mediation.
Q3. Does a mediated settlement automatically terminate execution proceedings?
Yes. Once the Court records a settlement and modifies the decree accordingly, all execution proceedings stand closed.
