A Division Bench of Justice Dr Dhananjaya Y Chandrachud and Justice Pamidighantam Sri Narasimha observed that conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature and in view of the same disposed of the present appeal instituted against the impugned judgement wherein the observations made by the Single Judge of the Karnataka High Court were upheld and the award granted by the Permanent Lok Adalat was set aside.
The present appeal was preferred against the judgment dated March 6, 2021 by a Division Bench of Karnataka. The Single Judge by a judgment dated July 3, 2019 allowed the writ petition instituted by the respondent and set aside an award of the Permanent Lok Adalat dated November 19, 2014. The Division Bench dismissed the appeal and upheld the judgment of the Single Judge. Hence, the present appeal.
The cause of dispute emerged from an application filed by the Syndicate Bank on December 31, 2012 before the Permanent Lok Adalat Mangalore under Section 22- C(1) of the Legal Services Authorities Act 1987. The application was filed against the respondent and his guarantor, in regard to credit facilities in the value of Rs 2,40,583 availed by the respondent from the appellant. The appellant alleged that the amount of Rs 2, 40,583 along with interest had become due on 1 October 2012, but the respondent had not repaid it, in spite of multiple notices and requests. Hence, the appellant prayed for the recovery of Rs 2, 40,583 with interest at the rate of 15.75 per cent and costs from the respondent and his guarantor.
Consequently notice was issued by the Permanent Lok Adalat to the respondent on January 10, 2013. After the constant marathon of the case being adjourned, the Permanent Lok Adalat ultimately allowed the application filed by the appellant based on the documentary evidence. Thereafter, the appellant filed the petition for execution of the award.
While the execution petition was lying sub judice, and upon issuance of the arrest notice, the respondent instituted a writ petition under Article 226 of the Constitution of India before Karnataka High Court on July 1, 2019 assailing the award of Permanent Lok Adalat dated November 19, 2014.
The same was allowed by the Single Judge by a judgment dated July 3, 2019, without issuing notice to the appellant. In view of the same, the appellant’s execution petition was dismissed on July 22, 2019. Thereafter, by the impugned judgment dated March 6, 2021, the Division Bench of the Karnataka High Court also dismissed the writ appeal instituted by the appellant. It was this impugned judgment that was assailed by the appellant before the present Court.
The questions that were posed before the Apex Court for consideration were Whether under Section 22-C of the LSA Act conciliation proceedings are mandatory; and whether the Permanent Lok Adalats have adjudicatory functions under the LSA Act.
To answer the same, the Court dealt with the legislative frame of Legal Services Act 1987. It further delves into the Statement of Objects and Reasons of the LSA amendment Act. In view of the same, the Court observed that the amendment was proposed to set up Permanent Lok Adalat for providing compulsory pre- litigation mechanism for conciliation and settlement of cases relating to public utility services. It would basically function as an alternative dispute resolution body to adjudicate disputes on merits if the parties fail to arrive at a compromise or settlement, the Court noted.
Next, the Court analyzed the mandatory nature of conciliation proceedings in order to address the first issue at hand. In pursuance of the same the Court observed that a simple reading of Section 22-C stipulates a step by step process as to how a matter is proceeded before the Permanent Lok Adalat.
The Court further referred to sub section (7), wherein it is stated that the Permanent Lok Adalat has to draw up terms on the basis of conciliation proceedings and propose them to the parties. Only, if the parties fail to reach an agreement, the Permanent Lok Adalat can decide the dispute on its merits. In
furtherance to this, the Court observed that the appellant’s contention 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) was not acceptable, the Court stated.
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. 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, the Court noted.
Thus, the Court opined that Section 22-C(8) is amply clear that it only comes into effect once an agreement under Section 22-C(7) 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. 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, the Court observed. Therefore, we hold that conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature, the Apex Court observed.
The second contention questioning as to whether Permanent Lok Adalat possess adjudicatory powers, the Court with respect to the same observed that it is highlighted in the Objects and Reasons accompanying the LSA Amendment Act, that Permanent Lok Adalat was established 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.
Further, the Court referred to Section 22- C of the LSA Act which states 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 Court noted in respect to the aforesaid Section.
Further reliance was placed on the case United India Assurance Co. Ltd. v. Ajay Sinha & Ors wherein this Court held that the Permanent Lok Adalat performs an adjudicatory role if the conciliation between the parties fails.
Similarly, the case of InterGlobe Aviation v. N Satchidanand was preferred wherein, this Court observed that the Permanent Lok Adalat’s role mutates from that of a conciliatory body to an adjudicatory body, if the parties fail to reach an agreement, where it can decide the dispute between the parties.
Another case of Bar Council of India vs. Union of India was considered wherein this Court held that the power of the Permanent Lok Adalat to adjudicate disputes at a pre-litigation stage in terms of Section 22-C(8) is constitutional.
Thus in light of the aforesaid observations, the Court observed that the order passed by the Single Judge of the Karnataka High Court stating that Permanent Lok Adalat had no adjudicatory authority and the same finding was upheld by the Division Bench of the Karnataka High Court in its impugned judgment wherein it was held that the Permanent Lok Adalat cannot act as a regular civil court in adjudicating the dispute between the parties, were incorrect.
However, the finding of the Division Bench that Permanent Lok Adalat did not follow the mandatory conciliation proceedings in the present case was correct and the judgment of the Division Bench was upheld only to the same extent.
Case name: CANARA BANK Vs. GS JAYARAMA
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