Canara Bank vs G S Jayarama

Disposing of the appeal, the Court

HELD: 1.1 Section 22- C of the Legal Services Authorities Act 1987 provides a step-by-step scheme on how a matter is to proceed before the Permanent Lok Adalat. The first step is the filing of the application which ousts the jurisdiction of other civil courts, in accordance with sub-Sections (1) and (2). The second step is the parties filing requisite submissions and documents before the Permanent Lok Adalat, in accordance with sub-Section (3). On the completion of the third step to its satisfaction, the Permanent Lok Adalat can move to the fourth step of attempting conciliation between the parties, in accordance with sub-Sections (4), (5) and (6). Subsequently, in the fifth step in accordance with sub-Section (7), the Permanent Lok Adalat has to draw up terms of settlement on the basis of the conciliation proceedings, and propose them to the parties. If the parties agree, the Permanent Lok Adalat has to pass an award on the basis of the agreed upon terms of settlement. Only if the parties fail to reach an agreement on the fifth step, can the Permanent Lok Adalat proceed to the final step and decide the dispute on its merits. [Para 24][182-GH; 183-A-C]

1.2 The submission that if the opposite party does not appear before the Permanent Lok Adalat, it can dispense with the conciliation proceedings and straightaway adjudicate the dispute under Section 22-C(8), cannot be accepted. 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. Under Section 22-C(3), it would require the party before it to file their submissions and documents, and make the best efforts to communicate them to the opposite party for their response. If it is satisfied that no response is forthcoming from the absent opposite party, the Permanent Lok Adalat shall still attempt to settle the dispute through settlement under Section 22-C(4). It is important to remember that Section 22-C(5) imposes a duty upon the Permanent Lok Adalat to be independent and impartial in attempting to amicably settle the dispute, while Section 22C(6) imposes a duty upon the party present before the Permanent Lok Adalat to cooperate in good faith and assist the Permanent Lok Adalat. Thereafter, the Permanent Lok Adalat, based on the materials before it, shall propose terms of settlement and communicate them to both parties, regardless of whether they participated in the proceedings. If the party present before the Permanent Lok Adalat does not agree or if the absent party does not respond in a sufficient period of time, only then can the Permanent Lok Adalat adjudicate the dispute on its merits under Section 22-C(8). Keeping in mind the principles enshrined in Section 22-D, the Permanent Lok Adalat shall once again notify the absent party of its decision to adjudicate the dispute on its merits, in case it wishes to join the proceedings at that stage. [Para 26][184-D-H; 185-A]

1.3 Section 22-C (8) is amply clear that it only comes into effect once an agreement under Section 22-C (7) has failed. The corollary of this is that the proposed terms of settlement under Section 22-C (7), and the conciliation proceedings preceding it, are mandatory. 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. This was simply not the intention of the Parliament when it introduced the LSA Amendment Act. Its main goal was still the conciliation and settlement of disputes in relation to public utilities, with a decision on merits always being the last resort. Therefore, the conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature. [Para 27][185-B-D]

1.4 As highlighted in the Objects and Reasons accompanying the LSA Amendment Act, its introduction led to the creation of two different types of Lok Adalats. The first is a Lok Adalat constituted under Section 19 of the LSA Act, having no adjudicatory power, which can only conduct conciliatory proceedings. The second is a Permanent Lok Adalat, established under Section 22-B(1) of the LSA Act in respect of public utility services, which can carry out both conciliatory and adjudicatory functions, subject to the procedure to be followed under Section 22-C of the LSA Act. The scheme of the LSA Act makes clear the distinction between the two types of Lok Adalats. Section 20 of the LSA Act provides that the Lok Adalat shall aim to arrive at a compromise or settlement between the parties. If no such compromise or settlement is arrived at, then the record of the case is returned to the court from which the Lok Adalat had received the reference. The court would then proceed to adjudicate the dispute. On the other hand, Section 22-C of the LSA Act provides that a party to a dispute, prior to bringing a dispute before the court, i.e., at the pre-litigation stage, can make an application to a Permanent Lok Adalat for the settlement of a dispute. The Permanent Lok Adalat would first conduct conciliation proceedings and attempt to reach an amicable settlement of the dispute. However, if the parties fail to reach an agreement, it shall decide the dispute, as long as the dispute does not relate to an offence. Section 22-D further indicates that the Permanent Lok Adalat is empowered to decide the dispute between the parties on merits. The powers of the Lok Adalat constituted under Section 19 of the LSA Act are to be distinguished from the nature of powers granted to a Permanent Lok Adalat established under Section 22-B of the LSA Act. It is in the context of interpreting the jurisdiction of Lok Adalats constituted under Section 19 of the LSA Act, it is held that the Lok Adalat cannot perform any adjudicatory function in terms of Section 20 of the LSA Act. [Paras 28 and 31][185-E-H; 186-A-B; 188-D-E]

1.5 The Single Judge of the High Court observed that the Permanent Lok Adalat has no adjudicatory function. This finding of the Single Judge was upheld by the Division Bench of the High Court in its impugned judgement where it observed that the Permanent Lok Adalat cannot act as a regular civil court in adjudicating the dispute between the parties. Based on the analysis of the LSA Act and precedents of this Court, such an understanding is clearly incorrect. Therefore, these observations of the Single Judge and Division Bench of the High Court were incorrect. At the same time, the Division Bench in its impugned judgement also noted that the Permanent Lok Adalat failed to follow the mandatory conciliation proceedings in the instant case. This observation is correct since the award of the Permanent Lok Adalat does not indicate any attempt made by it to propose terms of settlement to the parties and their rejection. It states that once the respondent and his guarantor did not appear, it adjudicated the dispute on merits in favour of the respondent. For the reasons mentioned earlier in this judgment, the Permanent Lok Adalat could not have done so. Therefore, the final judgment of the Division Bench setting aside the award of the Permanent Lok Adalat is upheld. The observations of the Division Bench in the impugned judgment in respect of the adjudicatory powers of the Permanent Lok Adalats were incorrect, while upholding its ultimate conclusion since the Permanent Lok Adalat failed to follow the mandatory conciliation proceedings in the instant case. [Para 32, 33 & 34][188-F-G; 189-A-D] Bar Council of India v. Union of India (2012) 8 SCC

243 : [2012] 6 SCR 1094; United India Assurance Co. Ltd. v. Ajay Sinha & Ors. (2008) 7 SCC 454 : [2008] 8 SCR 509; Inter Globe Aviation v. N Satchidanand (2011)

7 SCC 463 : [2011] 6 SCR 1116; Life Insurance

Corporation of India v. Suresh Kumar (2011) 7 SCC 491; State of Punjab v. Jalour Singh & Ors. (2008) 2 SCC 660 : [2008] 1 SCR 922; Estate Officer v. Colonel HV Mankotia (2021) SCC OnLine SC 898; New Okhla Industrial Development Authority v. Yunus and Ors. (2022) SCC OnLine SC 138 – referred to.