Introduction:

The Madras High Court has held that parties to a civil suit cannot claim a refund of court fees when the dispute is settled after evidence on the merits has already commenced and been recorded. Emphasising that the statutory restriction on refund after the recording of evidence must be respected, the Court observed that even a settlement reached between the parties at a later stage does not automatically create an entitlement to recover the court fee paid at the institution of the proceedings.

Justice P.B. Balaji delivered the ruling while deciding two civil revision petitions concerning the refund of court fees following settlements between the parties. The decision, reported as [2026 LiveLaw (Mad) 523], examined the scope of Sections 69 and 69A of the Tamil Nadu Court Fees and Suits Valuation Act, 1955, particularly after amendments introduced in 2017.

The two revision petitions arose from different orders passed by the respective trial courts. In one matter, the trial court had declined to refund the court fee after the parties settled their dispute. In the other, the trial court had directed a refund of 50 per cent of the court fee but deducted 5 per cent towards administrative expenses. Both matters raised questions concerning the extent to which litigants could claim reimbursement of court fees after resolving their disputes outside the formal adjudicatory process.

The petitioners relied on the Supreme Court’s decision in High Court of Judicature at Madras v. M.C. Subramaniam and Others, contending that the benefit of a full court fee refund should extend even to settlements negotiated privately between the parties. Their case was that the statutory objective of encouraging settlements should not be restricted merely because the compromise was reached outside a formal court-referred alternative dispute resolution process.

The Advocate General, however, brought another important Supreme Court decision to the Court’s attention: Afcons Infrastructure Ltd. and Another v. Cherian Varkey Construction Private Ltd. The submission was that earlier decisions concerning court fee refunds had not adequately considered the principles explained in Afcons Infrastructure, particularly regarding the stage at which a court may refer a dispute for settlement through alternative dispute resolution.

The dispute required the High Court to examine the relationship between two statutory provisions. Section 69 deals with the refund of court fees where a suit is dismissed as settled out of court before evidence on the merits is recorded. Section 69A, on the other hand, provides for a refund mechanism in cases involving disputes referred to alternative dispute resolution under Section 89 of the Code of Civil Procedure, 1908.

The legislative amendments introduced in 2017 had altered the refund framework. While Section 69 was amended to replace the earlier provision for a refund of half the court fee with a provision for refund of the full amount, the restriction concerning the stage of settlement remained. Section 69A was also amended to permit the refund process to begin when a dispute was referred to alternative dispute resolution, rather than requiring the parties to wait until the dispute was actually settled.

This amendment created a practical difficulty that Justice Balaji considered significant. If a party received a full refund immediately upon reference to alternative dispute resolution but the process ultimately failed, the legislation did not clearly explain whether the refunded amount had to be repaid before the suit could return to trial.

The High Court therefore considered not only the petitioners’ individual claims but also the broader implications of the statutory framework. It ultimately held that the commencement and recording of evidence on the merits prevented the parties from claiming a refund under the applicable provisions. The Court also suggested that Section 69A should be reconsidered to avoid uncertainty where an alternative dispute resolution process fails.

Arguments of the Parties:

The petitioners challenged the trial courts’ decisions concerning the refund of court fees after the disputes had been settled. Their principal reliance was on the Supreme Court’s judgment in High Court of Judicature at Madras v. M.C. Subramaniam and Others. They argued that the Supreme Court had recognised the entitlement to a full refund of court fees even where the parties arrived at an out-of-court settlement through private negotiations.

According to the petitioners, the benefit of the statutory refund mechanism should not depend exclusively on whether the settlement was reached following a formal reference by the court. They sought to extend the principle recognised in M.C. Subramaniam to settlements negotiated independently by the parties.

Their submissions were founded on the objective of encouraging amicable resolution of civil disputes. A settlement reduces the burden on courts, avoids the need for a full trial and enables parties to resolve their differences without requiring a final adjudication. From that perspective, the petitioners maintained that denying a refund merely because the settlement was privately negotiated would undermine the legislative purpose of encouraging settlements.

The petitioners also questioned the orders passed by the trial courts in the two matters. In the first case, the trial court had rejected the request for a refund altogether. In the second, although the trial court had allowed a refund of 50 per cent of the court fee, it had deducted 5 per cent towards administrative charges. The revision petitions therefore required the High Court to consider whether the petitioners could claim a more favourable refund under the statutory provisions and the Supreme Court’s interpretation.

The Advocate General, appearing in the proceedings as the State’s representative, opposed the broader interpretation advanced by the petitioners. He submitted that earlier decisions of the High Courts and the Supreme Court had not adequately considered the judgment in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Private Ltd.

The Advocate General relied on Afcons Infrastructure to draw attention to the procedural framework governing references to alternative dispute resolution under Section 89 of the Code of Civil Procedure. The judgment discusses the circumstances and stage at which a court may consider referring a dispute to one of the recognised alternative dispute resolution processes.

The State’s position was significant because the petitioners sought to rely on the refund principle without sufficiently addressing the statutory conditions governing the timing of settlement and the recording of evidence. The Advocate General’s submission invited the High Court to examine the refund provisions alongside the procedural requirements under Section 89 CPC, rather than treating every out-of-court settlement as automatically qualifying for a full refund.

The Advocate General’s reliance on Afcons Infrastructure also brought into focus the distinction between a settlement reached before the commencement of evidence and one achieved after the trial has substantially progressed. The statutory provisions, particularly Section 69, expressly preserve this distinction.

The Court therefore had to determine whether the Supreme Court’s decision in M.C. Subramaniam could be read as removing the statutory restriction applicable where evidence had already been recorded. It also had to consider whether the amendments to Sections 69 and 69A had altered the legal position in a manner that supported the petitioners’ claims.

Court’s Judgment:

Justice P.B. Balaji examined the language and legislative history of Sections 69 and 69A of the Tamil Nadu Court Fees and Suits Valuation Act, 1955. The Court focused particularly on the distinction between settlements reached before evidence is recorded and those concluded after the trial has entered the evidentiary stage.

The Court first considered Section 69 of the Act, which provides for a refund of court fees where a suit is dismissed as settled out of court before any evidence has been recorded on the merits of the claim. Under the earlier version of the provision, a party satisfying the statutory conditions was entitled to a refund of half the court fee paid.

In 2017, the legislature amended the provision by replacing the words relating to a refund of half the amount with a provision allowing a refund of the full court fee. The amendment therefore increased the financial benefit available to litigants who settled their disputes at the prescribed stage.

However, Justice Balaji emphasised that the legislature did not remove the condition requiring the settlement to take place before evidence on the merits had been recorded. The amendment changed the quantum of the refund but retained the restriction concerning the stage at which the settlement must occur.

The Court considered this legislative choice important. Had the legislature intended to permit refunds even after evidence had commenced, it could have amended or deleted the relevant restriction. Its decision to retain that condition indicated that the increased refund benefit was still subject to the requirement that the dispute be settled before evidence was recorded.

The Court therefore rejected an interpretation under which the amendment increasing the refund from 50 per cent to 100 per cent would also be understood as eliminating the restriction on the stage of settlement. The two aspects of the provision had to be read separately: the amendment enhanced the amount refundable, but it did not expand the category of cases eligible for a refund.

The Court then examined Section 69A, which provides a separate mechanism for refunding court fees in disputes referred to alternative dispute resolution. Under this provision, parties are entitled to receive a certificate authorising them to recover the full amount of court fees when a dispute referred by the court is settled.

The provision is connected with Section 89 of the Code of Civil Procedure, 1908. Section 89 enables courts to consider referring disputes for settlement through recognised alternative dispute resolution mechanisms where elements of a possible settlement exist.

Justice Balaji noted that Section 69A had also been amended in 2017. Before the amendment, the statutory framework contemplated the issuance of a certificate for refund when the dispute referred to alternative dispute resolution was actually settled. The amendment altered this position by permitting the refund entitlement to arise upon the reference of the dispute under Section 89 CPC, without requiring the parties to wait until a settlement had been reached.

The Court identified a serious practical difficulty arising from this amendment. A reference to alternative dispute resolution does not guarantee that the parties will arrive at a settlement. Mediation, conciliation or another settlement process may fail, leaving the parties with no option but to return to the civil court and continue the trial.

In such circumstances, a party may already have received a full refund of the court fee merely because the dispute was referred to an alternative dispute resolution process. If the settlement process subsequently fails, the litigation would resume, but the party would have retained the refunded amount.

The Court observed that Section 69A did not clearly provide what should happen in such a situation. It did not specify whether the party must repay the refunded court fee before proceeding with the trial or whether the refund would remain unaffected despite the failure of the settlement process.

Justice Balaji considered that this statutory silence could create an unintended financial advantage for litigants. A party could obtain a refund upon reference to alternative dispute resolution, fail to settle the dispute and then return to court to pursue the same litigation without any clear statutory obligation to restore the refunded amount.

The Court observed that there was no clear statutory provision or rule addressing the consequences of an unsuccessful reference. It considered this a matter requiring legislative attention.

In this context, the Court suggested that Section 69A could be restored to the position that existed before the 2017 amendment. Under the earlier arrangement, the party would receive a certificate authorising the refund, but the actual refund would take place only after the dispute had been successfully settled. If the alternative dispute resolution process failed, the certificate would not result in an actual payment of the court fee to the litigant.

Such an arrangement, according to the Court’s observations, would better align the refund mechanism with the purpose of encouraging successful settlements while avoiding complications where the litigation returns to trial.

The Court’s analysis also addressed the underlying purpose for which court fees are collected. It observed that court fees paid on plaints and counterclaims are not merely procedural charges imposed on litigants. They contribute to the State Exchequer and help meet the necessary and incidental expenses associated with the administration of justice.

These expenses include the provision and maintenance of court infrastructure, the conduct of trials, and the payment of salaries and allowances to the personnel involved in the judicial system. The Court therefore considered that the legislature had consciously restricted refunds where evidence on the merits had already been recorded.

Once the court has undertaken the process of recording evidence and the trial has progressed to that stage, the expenditure and institutional resources involved cannot be disregarded merely because the parties subsequently decide to settle their dispute. The statutory restriction reflects the legislature’s decision to distinguish between settlements reached before substantial judicial proceedings have taken place and settlements concluded after evidence has begun.

Justice Balaji accordingly rejected the argument that a later settlement, by itself, creates an entitlement to recover court fees. The Court observed that even if the evidence recorded was of limited value, the fact that evidence had been recorded remained relevant for determining the statutory entitlement.

The Court made its position clear by observing: “However, there is no doubt in my mind that a party is not entitled to any refund once evidence is recorded, if whatever little worth it may be.”

The Court then applied this interpretation to the two revision petitions. It found that the parties in both matters had settled their disputes only after evidence had commenced and had been recorded by the respective trial courts. Consequently, the statutory condition for claiming a refund under Section 69 was not satisfied.

The Court was therefore not inclined to interfere with the trial courts’ orders. The petitioners could not claim a refund merely because the disputes had eventually been settled. The fact that the settlement was reached after evidence had begun placed the cases outside the refund entitlement contemplated by the applicable statutory framework.

The ruling also clarifies the importance of reading the decisions in M.C. Subramaniam and Afcons Infrastructure in the context of the relevant statutory provisions. The petitioners relied on M.C. Subramaniam to argue for a full refund even in privately negotiated settlements. The Advocate General, however, urged the Court to consider the procedural principles explained in Afcons Infrastructure, particularly concerning references to alternative dispute resolution under Section 89 CPC.

The High Court’s decision turned on the statutory restriction governing the recording of evidence. It did not treat the principle favouring settlement as sufficient to override the express legislative condition. Nor did it hold that every private settlement is ineligible for a refund. Rather, the decisive consideration in these petitions was that evidence on the merits had already commenced and been recorded.

The Court also made an important observation concerning the need to revisit Section 69A. Its concerns arose from the possibility that a party could receive a refund immediately after a court reference to alternative dispute resolution, even though the settlement process might ultimately fail. The suggestion to restore the certificate-based mechanism was intended to ensure that the actual refund follows a successful settlement rather than the mere commencement of an unsuccessful settlement process.

Ultimately, the Madras High Court declined to interfere with the orders challenged in the civil revision petitions and held that the parties were not entitled to a refund after evidence had been recorded. The decision reinforces the statutory distinction between settlements reached before evidence begins and those concluded after the trial has progressed. It also draws attention to a legislative gap in Section 69A that may require reconsideration to prevent uncertainty when alternative dispute resolution proceedings fail.

The judgment thus underscores that the objective of encouraging amicable settlements must operate within the limits prescribed by the legislature. While the law provides incentives for parties who resolve disputes at an early stage, those incentives cannot be extended beyond the statutory conditions governing the refund of court fees.