Permanent Lok Adalats Can Decide A Dispute On Merits; But Conciliation Proceedings Preceding It Are Mandatory: Supreme Court

The Supreme Court observed that the Permanent Lok Adalats have adjudicatory functions under the Legal Services Act,1987 and thus empowered to decide a dispute before it on merits.

The bench comprising Justices DY Chandrachud and PS Narasimha held that conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature. Even if the opposite party does not appear, the Permanent Lok Adalat is still bound to follow the step-by-step procedure.

The court observed that the main goal is conciliation and settlement of disputes in relation to public utilities, with a decision on merits always being the last resort.

Background

Canara Bank had approached the Apex Court challenging the judgment of the Division Bench of Karnataka High Court which had dismissed his writ appeal holding (1) that the procedure for conciliation under Section 22-C of the LSA Act was not followed, and hence, the award under Section 22-C(8) was a nullity; and (2) the Permanent Lok Adalat could not have acted as a regular civil court in adjudicating the proceedings.

Issues 

Therefore, the issues raised before the Apex Court in appeal was (i) Whether under Section 22-C of the LSA Act conciliation proceedings are mandatory; and (ii) Whether the Permanent Lok Adalats have adjudicatory functions under the LSA Act.?

Step-by-step procedure 

Regarding the first issue, the bench referred to Section 22C of the LSA Act and noted that it 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. 

Even if the opposite party does not appear, the Permanent Lok Adalat is still bound to follow the step-by-step procedure 

The appellant's contention in this regard was 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). Disagreeing with this, the bench observed:

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 22-C(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.

Decision on merits always being the last resort

The court therefore held that the proposed terms of settlement under Section 22-C(7), and the conciliation proceedings preceding it, are mandatory. The court said:

"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, we hold that conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature."

Two different types of Lok Adalats.

The court noted that the LSA Act envisages two different types of Lok Adalats.

(1) Lok Adalat constituted under Section 19 of the LSA Act, having no adjudicatory power, which can only conduct conciliatory proceedings.

(2) 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. 

Powers of the Lok Adalat are to be distinguished from the nature of powers granted to a Permanent Lok Adalat

On the difference between these two types of Lok Adalats the bench made the following observations:

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, that this Court has held that the Lok Adalat cannot perform any adjudicatory function in terms of Section 20 of the LSA Act

The court, while disposing the appeal, held that the observations of the Division Bench in respect of the adjudicatory powers of the Permanent Lok Adalats were incorrect. However, it upheld its ultimate conclusion since the Permanent Lok Adalat failed to follow the mandatory conciliation proceedings in the present case.

Case details

Canara Bank vs GS Jayarama | 2022 LiveLaw (SC) 499 | CA 3872 of 2022 | 19 May 2022

Coram: Justices DY Chandrachud and PS Narasimha

Counsel: Adv Rajesh Kumar Gautam for appellant

Headnotes

Legal Services Act,1987 ; Section 22C,22D - Permanent Lok Adalat has adjudicatory functions and is empowered to decide the dispute between the parties on merits - Conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature - Even if the opposite party does not appear, the Permanent Lok Adalat is still bound to follow the step-by-step procedure - Main goal is conciliation and settlement of disputes in relation to public utilities, with a decision on merits always being the last resort. (Para 26-28)

Legal Services Act,1987 ; Sections 19 - 22E - Similarities between Lok Adalats and Permanent Lok Adalats - (i) they can both attempt conciliation proceedings with the parties before them, and can pass awards recording the terms of settlement agreed upon by the parties (Section 20(3) and 22- C(7)); (ii) in doing do, they are both bound by principles of justice, equity, fair play and other legal principles (Section 20(4) and 22-D); and (iii) their awards, deemed to be decrees of courts, will be final and cannot be challenged in an appeal (Section 21 and 22-E). - Permanent Lok Adalat is limited to disputes regarding public utility services, crucially, its powers are wider than the Lok Adalat in many respects. (Para 21- 22)

Legal Services Act,1987 ; Sections 19 - 22E - Two different types of Lok Adalats - (1) Lok Adalat constituted under Section 19 of the LSA Act, having no adjudicatory power, which can only conduct conciliatory proceedings (2) 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. (Para 28-31)

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