CONCILIATION PROCEEDINGS UNER SECTION 22C OF LEGAL SERVICES AUTHORITIES ACT, 1987 ARE MANDATORY IN NATURE

[Mr. M. GOVINDARAJAN]

Lok Adalat

Lok Adalat is organized under the provisions of Chapter VI of the Legal Services Authorities Act, 1987 (‘Act’ for short).  Section 19 of the Act provides for the organization of Lok Adalats by every State Authority, District Authority, the Supreme Court Legal Services Committee, the High Court Legal Services Committee or Taluk Legal Services Committee. 

Section 19(5) of the Act provides that a Lok Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement between the parties to a dispute in respect of-

1. any case pending before; or
2. any matter which is falling within the jurisdiction of, and is not brought before any Court for which the Lok Adalat is organized.

Section 20 provides that where in any case referred to in clause (i) of sub-section (5) of section 19-

1. the parties thereof agree or one of the parties thereof makes an application to the Court for referring the case to the Lok Adalat for settlement and if such court is prima facie satisfied that there are chances of such settlement; or
2. the court is satisfied that the matter is an appropriate one to be taken cognizance of by the Lok Adalat,

the Court shall refer the case to the Lok Adalat.

Section 21 stipulates that the awards of Lok Adalats shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court. These awards shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award.   If no settlement is arrived at between the parties the Lok Adalat shall return the case to the original Civil Court to decide the dispute on merits.

Section 22 outlines the powers of the Lok Adalats and Permanent Lok Adalats.

Permanent Lok Adalat

Chapter VI-A was inserted in the Act vide the Legal Services Authorities (Amendment) Act, 2002.  According to the Statement and objects of the Amendment Act it was proposed to set up Permanent Lok Adalats for providing compulsory pre-litigative mechanism for conciliation and settlement of cases relating to public utility services.   Chapter VI-A was introduced to the Act to primarily create alternative dispute resolution bodies, in the form of Permanent Lok Adalats, to decide disputes on merits if the parties fail to arrive at a compromise or settlement.

Section 22-B of the Act provides for the establishment of Permanent Lok Adalats.   The Central or State Authority under the Act shall establish Permanent Lok Adalats in respect of one or more public utility services.

Procedure

Section 22C of the Act stipulates the instances in which Permanent Lok Adalats can take cognizance of cases. According to Section 22C-

• Any party to a dispute can approach the Permanent Lok Adalat before approaching a court.
• The dispute shall not be in respect of any matter relating to an offence not compoundable under any law.
• The value of the property in dispute shall not exceed Rs. 1 crore.
• Once an application is made to the Permanent Lok Adalat in respect of a dispute, no court shall have jurisdiction over it.
• The Permanent Lok Adalat shall conduct conciliation proceedings between parties in a manner it sees fit keeping in mind the nature of the dispute.
• During the conciliation proceedings under sub-Section (4), sub-Section (5) imposes a duty on the Permanent Lok Adalat to assist the parties in reaching an amicable resolution to their dispute in an independent and impartial manner.
• If the parties are agreeable to the terms of the settlement, the Permanent Lok Adalat shall pass an award incorporating those terms and provide a copy to each party.
• If the parties fail to reach an agreement the Permanent Lok Adalat can decide the dispute on merits if the dispute does not relate to any offence.
• While conducting conciliation proceedings or deciding the dispute on its merits, the Permanent Lok Adalat shall be guided by the principles of natural justice, objectivity, fair play, equity and other principles of justice‖ and shall not be bound by the Civil Procedure Code  and the Indian Evidence Act 1872.

Section 22-E stipulates that the award of the Permanent Lok Adalat, whether arising out of a settlement agreement or after deciding the merits of the dispute, shall be final and binding on all parties and any persons claiming under them.  The Permanent Lok Adalat may transmit an award made by it to a civil court having local jurisdiction, and such civil court shall execute the order as if it were a decree made by that court.  Appeal cannot be filed against the award.

Mandatory of conciliation proceedings

When a dispute is referred to the Permanent Lok Adalat it shall first conduct conciliation proceedings and try to arrive at a settlement between the parties to the dispute.  The Permanent Lok Adalat shall also help the parties to arrive at the settlement.  If no settlement is arrived at then the Permanent Lok Adalat shall adjudicate the dispute on merits. 

The Supreme Court in CANARA BANK VERSUS GS JAYARAMA [2022 (7) TMI 35 - SUPREME COURT] held that the conciliation proceedings is mandatory for a Permanent Lok Adalat before adjudicating the dispute on merit.

In this case the Syndicate Bank (now Canara Bank) granted credit facilities to the respondent to the tune of Rs. 2,40,583/-.  The respondent did not pay the said amount along with the interest despite multiple notices were issued by the bank to the respondent.  Therefore the Bank filed an application before the Permanent Lok Adalat, Mangalore on 31.12.2012 under Section 22C(1) of the Act against the respondent and the guarantor.  The prayer of Syndicate Bank before the Permanent Lok Adalat is for the recovery of Rs.2,40,583/- along with interest @ 15.75% and costs.

The Permanent Lok Adalat issued notices to the respondent and the guarantor.  The case was adjourned to sometimes due to absence of the respondent and due to some other reasons.  Since none was presented the Bank filed its final affidavit on 17.11.2014.  The Adalat passed an award on 19.11.2014 allowing the application since the respondent and guarantor did not participate in the proceedings before the Adalat and no conciliation was reported.  The award is passed based on the documents furnished by the bank.  The Adalat directed the respondent and guarantor to pay the bank an amount of Rs.2,40,583/- along with interest @ 9% till the date of realization.

The appellant bank filed a petition for the execution of the award of the Adalat before the Civil Judge and Judicial Magistrate First Class.  While this petition is pending the respondent filed a writ petition before the High Court on 01.07.2019 challenging the award passed by the Adalat on 19.11.2014.  The Single Judge allowed the writ petition without issuing notice to the appellant.  The Single Judge set aside the award of Adalat on the ground that the Adalat has no adjudicatory function.  Relying on this judgment the execution petition filed by the bank was dismissed. 

The Bank filed writ appeal against the judgment of Single Judge.  The Division Bench held that in case the parties reach at an agreement on the settlement of the dispute they shall sign the settlement agreement and the Permanent Lok Adalat shall pass an award in terms thereof and furnish a copy of the same to each of the parties concerned at the first instance and it is only after where the parties fail to reach at an agreement the Permanent Lok Adalat can pass an award keeping in view the facts and circumstances of the case. In the present case, no such procedure was followed at all. There was no conciliation proceeding between the parties.   The Lok Adalat could not have acted as a regular civil Court in adjudicating the proceedings.

Against the judgment of the Division Bench the Bank, the appellant, filed the present appeal before the Supreme Court.  The appellant submitted the following before the Supreme Court-

• The impugned judgment is contrary to the provisions of Chapter VI-A of the Act.
• The Permanent Lok Adalat is not having adjudicatory power.
• Reasonable opportunities were given to the respondents to participate in the conciliation proceedings.
• Since the respondent did not participate in the conciliation proceedings, there is no other except for the Permanent Lok Adalat to proceed to decide the dispute and pass an award.
• The award passed by the Permanent Lok Adalat is deemed to be a decree of a Civil Court and such award is final and cannot be questioned in any original suit, application or execution proceedings.
• Denying the power of adjudication to Permanent Lok Adalat will frustrate the purpose and object of introducing Chapter VI-A to the Act.
• The conclusion of conciliation proceedings is not a condition precedent to the exercise of adjudicating power of the Permanent Lok Adalat.

The Supreme Court analyzed the case.  The following two issues were arised for the consideration of the Supreme Court-

• Whether Section 22-C of the Act conciliation proceedings is mandatory? and
• Whether the Permanent Lok Adalats have adjudicatory functions under the Act?

The Supreme Court took the first issue to decide as to whether the conciliation proceedings before the Permanent Lok Adalats are mandatory before it can decide a dispute on its merits. The Supreme Court relied on its own judgment in BAR COUNCIL OF INDIA VERSUS UNION OF INDIA [2012 (9) TMI 666 - SUPREME COURT]  in which it was held that the Permanent Lok Adalat would proceed to adjudication of a dispute on merits only after attempting and failing to generate a settlement between the parties.

The Supreme Court opined that even if the opposite party does not appear, the Permanent Lok Adalat is still bound to follow the step-by-step procedure laid down by Section 22-C.  The Adjudication powers of the Permanent Lok Adalat comes only comes into effect once an agreement has failed. If Permanent Lok Adalats are allowed to bypass this step just because a party is absent, it would be tantamount to deciding disputes on their merit ex parte and issuing awards which will be final, binding and will be deemed to be decrees of civil courts.   It is not the intention of the Parliament when it introduced the Amendment Act. The Supreme Court, therefore, held that conciliation proceedings under Section 22-C of the Act are mandatory in nature.

Then the Supreme Court took up the second issue as to whether the Permanent Lok Adalat has any adjudicatory function.   The Supreme Court observed that the amendment Act created two types of Adalats.  The first type of Adalat constituted under section 19 of the Act is not having adjudicatory power.  It can conduct only conciliation proceedings.  The second type of Adalat is Permanent Lok Adalat constituted under section 22B of the Act in respect of public utility services.  This Permanent Lok Adalat can carry out both conciliatory and adjudicatory functions, subject to the procedure to be followed under Section 22-C of the Act. If no settlement is arrived at between the parties to the dispute the Permanent Lok Adalat shall decide the dispute on merits.

The Supreme Court upheld the findings of the Single Judge that the Permanent Lok Adalat has no adjudicatory function.  The Supreme Court also upheld the judgment of the Division Bench setting aside the award dated 19.11.2014.