Summary
Syndicate Bank (now Canara Bank) applied to the Permanent Lok Adalat under Section 22-C(1) of the Legal Services Authorities Act, 1987 to recover Rs. 2,40,583 from a borrower and his guarantor. The borrower appeared through counsel but did not participate; without any conciliation or proposed settlement terms, the Permanent Lok Adalat decided the claim on the bank's evidence by award dated 19.11.2014. In execution, the Karnataka High Court quashed the award, holding that a Lok Adalat has no adjudicatory function. The Supreme Court held the High Court wrong on the law — a Permanent Lok Adalat under Chapter VI-A, unlike a Lok Adalat under Section 19, can decide a dispute on merits under Section 22-C(8) — but upheld the setting aside of the award because the conciliation steps in Section 22-C(3) to (7) are mandatory and cannot be skipped because the opposite party is absent.
Issues
- Whether conciliation proceedings under Section 22-C of the Legal Services Authorities Act, 1987, including the formulation of terms of settlement under sub-section (7), are mandatory before a Permanent Lok Adalat may decide a dispute on merits under sub-section (8), and whether they may be dispensed with when the opposite party does not appear.
- Whether a Permanent Lok Adalat established under Section 22-B of the Act has adjudicatory functions, as distinct from a Lok Adalat constituted under Section 19.
Provisions considered
- Sections 22-A to 22-E (Chapter VI-A, Permanent Lok Adalats); Sections 19, 20, 21 and 22 (Lok Adalats), Legal Services Authorities Act, 1987Section 22-C lays down a sequential scheme — application ousting the civil court's jurisdiction, written statements and documents, conciliation with duties of impartiality and good-faith cooperation, formulation of settlement terms, and only on failure of agreement a decision on merits under sub-section (8); the award here, passed without any conciliation or proposed terms once the opposite parties stayed away, was invalid. Section 22-C(8), 22-D and 22-E, confer adjudicatory power on Permanent Lok Adalats, unlike Lok Adalats under Sections 19–21 which can only conciliate and must return the case if settlement fails. (¶¶ 15, 16, 18, 21, 22, 24, 26, 27, 28, 31, 33)
Held
- Section 22-C prescribes a step-by-step procedure: the application under sub-sections (1) and (2); written statements, documents and replies under sub-section (3); conciliation under sub-sections (4), (5) and (6); formulation of possible terms of settlement for the parties' observations under sub-section (7); and only if the parties fail to agree, a decision on merits under sub-section (8). Settlement remains the main theme of Chapter VI-A and adjudication is the last resort (Bar Council of India v. Union of India). (¶¶ 24, 25, 27)
- Even where the opposite party does not appear, the Permanent Lok Adalat must follow that procedure: require the party present to file its submissions and make best efforts to communicate them to the absent party, attempt conciliation, propose terms of settlement to both parties, and only if the party present disagrees or the absent party does not respond within a sufficient period may it decide the dispute on merits, after once again notifying the absent party of its decision to adjudicate. Allowing the conciliation step to be bypassed would permit ex parte decisions on merits producing final, binding awards deemed to be civil court decrees, which Parliament never intended; conciliation proceedings under Section 22-C are therefore mandatory. (¶¶ 26, 27)
- The 2002 Amendment created two distinct institutions: Lok Adalats under Section 19 which have no adjudicatory power and can only conciliate, returning the case to the court or advising the parties to approach a court if settlement fails; and Permanent Lok Adalats under Section 22-B, for public utility services, which parties may approach directly at the pre-litigation stage and which may both conciliate and, if settlement fails, decide the dispute on merits (United India Insurance v. Ajay Sinha; InterGlobe Aviation v. N. Satchidanand; Bar Council of India). Decisions holding that Lok Adalats cannot adjudicate concern Section 19 bodies only; the High Court's view that the Permanent Lok Adalat had no adjudicatory function was incorrect. (¶¶ 16, 22, 28, 29, 30, 31, 32)
- The award of 19.11.2014 recorded no attempt to propose terms of settlement and their rejection; the Permanent Lok Adalat simply adjudicated on merits once the borrower and guarantor did not appear, which it could not do. On that ground alone the Division Bench's setting aside of the award is upheld, its observations on adjudicatory power being disapproved; the merits of the dispute are left open. (¶¶ 33, 34)
Result
Appeal disposed of; the Karnataka High Court's judgment of 06.03.2021 in Writ Appeal No. 514 of 2020 setting aside the Permanent Lok Adalat's award of 19.11.2014 upheld on the ground that mandatory conciliation under Section 22-C was not followed, while its observations that Permanent Lok Adalats have no adjudicatory function are held incorrect; rights and contentions on merits kept open. No order as to costs.