Read Judgment: Canara Bank v. G S Jayarama
New Delhi, May 20, 2022: Reiterating that the powers of the Lok Adalat constituted u/s 19 of the Legal Services Authority Act, 1987 are to be distinguished from the nature of powers granted to a Permanent Lok Adalat established u/s 22-B, the Supreme Court has held that conciliation proceedings u/s 22-C are mandatory in nature.
The Division Bench of Justice Dhananjaya Y Chandrachud and Justice Pamidighantam Sri Narasimha held that 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.
The cause of dispute emerged from an application filed by the Syndicate Bank before the Permanent Lok Adalat Mangalore under Section 22- C(1). 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 this amount along with interest was not repaid and the appellant prayed for the recovery of the amount with interest. Consequently, notice was issued by the Permanent Lok Adalat to the respondent and it ultimately allowed the application filed by the appellant.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 assailing the award of Permanent Lok Adalat.
The same was allowed by the Single Judge and the appellant’s execution petition was dismissed. Thereafter, 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 Bench analyzed the mandatory nature of conciliation proceedings in order to address the first issue at hand and observed that only if the parties fail to reach an agreement, the Permanent Lok Adalat can decide the dispute on its merits. 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) 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. Noting that this was simply not the intention of the Parliament when it introduced the LSA Amendment Act, the Bench held that the conciliation proceedings under Section 22-C are mandatory in nature.
On the second issue regarding adjudicatory powers of the Permanent Lok Adalat, the Bench said, “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.”
Referring to the judgments of the Top Court in United India Assurance Co. Ltd. v. Ajay Sinha & Ors InterGlobe Aviation v. N Satchidanand, Bar Council of India vs. Union of India, the Court observed that the order passed by the Single Judge of the High Court stating that Permanent Lok Adalat had no adjudicatory authority which was upheld by the Division Bench, was 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.