Supreme Court Clarifies Mandatory Conciliation in Permanent Lok Adalat Cases: Canara Bank vs. G S Jayarama (2022)

Date of the Judgment: 19 May 2022

Citation: 2022 INSC 480

Judges: Dr Dhananjaya Y Chandrachud, J, Pamidighantam Sri Narasimha, J

Can a Permanent Lok Adalat proceed to decide a case on its merits if one party does not participate in conciliation proceedings? The Supreme Court of India recently addressed this question in a case involving Canara Bank and G S Jayarama. The core issue revolved around the interpretation of the Legal Services Authorities Act, 1987, specifically concerning the mandatory nature of conciliation before a Permanent Lok Adalat can adjudicate a dispute. This judgment clarifies the procedural requirements for Permanent Lok Adalats and underscores the importance of conciliation in dispute resolution. The judgment was authored by Dr. Dhananjaya Y Chandrachud, J, with Pamidighantam Sri Narasimha, J concurring.

Case Background

The case originated from a loan of Rs 2,40,583 availed by the respondent, G S Jayarama, from Syndicate Bank (now merged with Canara Bank). The bank alleged that despite multiple notices, the respondent failed to repay the loan, which had become due on 1 October 2012. Consequently, on 31 December 2012, the bank filed an application before the Permanent Lok Adalat at Mangalore under Section 22-C(1) of the Legal Services Authorities Act, 1987, seeking recovery of the loan amount with interest.

The Permanent Lok Adalat issued a notice to the respondent on 10 January 2013, which was allegedly not claimed. Subsequently, on 12 March 2013, the Lok Adalat deemed service to be complete and adjourned the case for settlement. Although a counsel appeared for the respondent on 22 August 2013 and another on 6 February 2014, no further participation was made by the respondent. The bank filed its final affidavit on 17 November 2014, and the Permanent Lok Adalat reserved the matter for its award. On 19 November 2014, the Permanent Lok Adalat, noting the absence of conciliation, ruled in favor of the bank, directing the respondent to pay the loan amount with interest.

The respondent challenged this award in a writ petition before the Karnataka High Court on 1 July 2019, which was allowed on 3 July 2019, setting aside the award. The High Court held that the Lok Adalat has no adjudicatory function. The bank’s execution petition was dismissed on 22 July 2019, and the bank then filed a writ appeal. The Division Bench of the Karnataka High Court dismissed the writ appeal on 6 March 2021, stating that the Permanent Lok Adalat did not follow the conciliation procedure and could not act as a regular civil court.

Timeline:

Course of Proceedings

The Single Judge of the Karnataka High Court allowed the respondent’s writ petition on 3 July 2019, setting aside the Permanent Lok Adalat’s award, stating that the Lok Adalat has no adjudicatory function. The Division Bench of the Karnataka High Court upheld this decision on 6 March 2021, emphasizing that the Permanent Lok Adalat did not follow the mandatory conciliation procedure under Section 22-C of the Legal Services Authorities Act, 1987, and could not act as a regular civil court in adjudicating the proceedings. The Division Bench concluded that the Permanent Lok Adalat should have attempted conciliation before adjudicating the matter. The High Court’s decision led to the appeal before the Supreme Court.

Legal Framework

The case is primarily governed by the Legal Services Authorities Act, 1987 (LSA Act), specifically Chapter VI on Lok Adalats and Chapter VI-A on Pre-Litigation Conciliation and Settlement.
✓ Section 19, LSA Act: Provides the framework for organizing Lok Adalats, stating they have jurisdiction to arrive at a compromise or settlement between parties.
✓ Section 20, LSA Act: Outlines the types of cases Lok Adalats can take cognizance of, emphasizing their role in facilitating settlements. It states that Lok Adalats shall attempt to arrive at a compromise or settlement between the parties.
✓ Section 21, LSA Act: States that the awards of Lok Adalats are deemed to be decrees of a civil court and are final and binding.
✓ Section 22, LSA Act: Defines the powers of Lok Adalats, granting them the same powers as a civil court under the Code of Civil Procedure, 1908, for the purposes of holding any determination under the LSA Act.
✓ Section 22-A, LSA Act: Defines “public utility service.”
✓ Section 22-B, LSA Act: Provides for the establishment of Permanent Lok Adalats for public utility services.
✓ Section 22-C, LSA Act: Specifies the procedure for Permanent Lok Adalats, including mandatory conciliation and the power to decide disputes if conciliation fails. It states that any party to a dispute may make an application to the Permanent Lok Adalat for settlement of the dispute.
✓ Section 22-D, LSA Act: States that Permanent Lok Adalats shall be guided by principles of natural justice and shall not be bound by the Code of Civil Procedure, 1908, and the Indian Evidence Act, 1872.
✓ Section 22-E, LSA Act: Stipulates that every award of the Permanent Lok Adalat shall be final and binding, deemed to be a decree of a civil court.

The introduction of Chapter VI-A through the Legal Services Authorities (Amendment) Act 2002 aimed to create a mechanism for pre-litigation conciliation and settlement, particularly for public utility services. The Act emphasizes that Permanent Lok Adalats should first attempt conciliation and only adjudicate if settlement fails.

Arguments

Appellant’s Submissions (Canara Bank):

• The High Court’s judgment is contrary to the LSA Act and the Supreme Court’s decision in Bar Council of India v. Union of India, as it incorrectly held that Permanent Lok Adalats have no adjudicatory function.
• The respondent was given sufficient opportunity to participate in conciliation proceedings.
• If parties fail to participate in conciliation, the Permanent Lok Adalat has no option but to proceed and decide the dispute under Section 22-C of the LSA Act.
• Under Section 22-E of the LSA Act, an award passed by the Permanent Lok Adalat is a deemed decree of a civil court and is final and cannot be questioned in any suit or proceedings.
• The purpose of Chapter VI-A of the LSA Act would be frustrated if Permanent Lok Adalats could not adjudicate a dispute when a party deliberately avoids participation, even after receiving notice and appearing through an advocate previously.
• The conclusion of conciliation proceedings is not a condition precedent to the exercise of Permanent Lok Adalat’s adjudicatory function if a party fails to appear for the conciliation proceedings.

Respondent’s Submissions:

The respondent did not appear before the Supreme Court. The High Court had held that Permanent Lok Adalat has no adjudicatory function and that the Permanent Lok Adalat did not follow the mandatory conciliation procedure.

[TABLE] Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether under Section 22-C of the LSA Act, conciliation proceedings are mandatory.
2. Whether the Permanent Lok Adalats have adjudicatory functions under the LSA Act.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

Cases Relied Upon by the Court:

• Bar Council of India v. Union of India, (2012) 8 SCC 243, Supreme Court: The Supreme Court upheld the constitutionality of Chapter VI-A of the LSA Act, which introduced Permanent Lok Adalats. The Court emphasized that Permanent Lok Adalats would proceed to adjudication only after attempting and failing to generate a settlement between the parties.
• United India Assurance Co. Ltd. v. Ajay Sinha & Ors., (2008) 7 SCC 454, Supreme Court: The Supreme Court held that Permanent Lok Adalats perform an adjudicatory role if conciliation fails. It clarified that the Permanent Lok Adalat has the right to decide a case and its decision is executable as a decree.
• Inter Globe Aviation v. N Satchidanand, (2011) 7 SCC 463, Supreme Court: The Supreme Court observed that the role of the Permanent Lok Adalat mutates from a conciliatory body to an adjudicatory body if the parties fail to reach an agreement.

Legal Provisions Considered by the Court:

• Section 19, Legal Services Authorities Act, 1987: This section provides the framework for organizing Lok Adalats and their jurisdiction to facilitate settlements.
• Section 20, Legal Services Authorities Act, 1987: This section outlines the types of cases Lok Adalats can take cognizance of, emphasizing their role in facilitating settlements.
• Section 21, Legal Services Authorities Act, 1987: This section states that the awards of Lok Adalats are deemed to be decrees of a civil court and are final and binding.
• Section 22, Legal Services Authorities Act, 1987: This section defines the powers of Lok Adalats, granting them the same powers as a civil court under the Code of Civil Procedure, 1908.
• Section 22-A, Legal Services Authorities Act, 1987: This section defines “public utility service.”
• Section 22-B, Legal Services Authorities Act, 1987: This section provides for the establishment of Permanent Lok Adalats for public utility services.
• Section 22-C, Legal Services Authorities Act, 1987: This section specifies the procedure for Permanent Lok Adalats, including mandatory conciliation and the power to decide disputes if conciliation fails.
• Section 22-D, Legal Services Authorities Act, 1987: This section states that Permanent Lok Adalats shall be guided by principles of natural justice and shall not be bound by the Code of Civil Procedure, 1908, and the Indian Evidence Act, 1872.
• Section 22-E, Legal Services Authorities Act, 1987: This section stipulates that every award of the Permanent Lok Adalat shall be final and binding, deemed to be a decree of a civil court.

[TABLE] Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed Bar Council of India v. Union of India, (2012) 8 SCC 243* to emphasize that Permanent Lok Adalats must attempt conciliation before adjudication.
• The Supreme Court followed United India Assurance Co. Ltd. v. Ajay Sinha & Ors., (2008) 7 SCC 454* to support the view that Permanent Lok Adalats have adjudicatory powers when conciliation fails.
• The Supreme Court followed Inter Globe Aviation v. N Satchidanand, (2011) 7 SCC 463* to support the view that the role of Permanent Lok Adalat mutates from conciliation to adjudication.
• The Supreme Court explained the provisions of the Legal Services Authorities Act, 1987, particularly Sections 19, 20, 21, 22, 22-A, 22-B, 22-C, 22-D and 22-E to clarify the functions of Lok Adalats and Permanent Lok Adalats.

What weighed in the mind of the Court?

The Supreme Court emphasized the mandatory nature of conciliation proceedings under Section 22-C of the LSA Act. The Court noted that the legislative intent behind the establishment of Permanent Lok Adalats was to first attempt conciliation and only adjudicate if settlement fails. The Court observed that the Permanent Lok Adalat in the present case failed to follow the mandatory conciliation proceedings. The Court also clarified that Permanent Lok Adalats do have adjudicatory powers, but such powers can only be exercised after the failure of conciliation proceedings. The Court reiterated the distinction between Lok Adalats and Permanent Lok Adalats. While Lok Adalats only have conciliatory powers, Permanent Lok Adalats have both conciliatory and adjudicatory powers.

[TABLE] Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning

The Court considered the argument that if the opposite party does not appear, the Permanent Lok Adalat can dispense with conciliation. However, the Court rejected this argument, holding that conciliation is mandatory, even if a party is absent. The Court emphasized that the main goal of the LSA Act was the conciliation and settlement of disputes, with a decision on merits being the last resort. The Court also considered the distinction between Lok Adalats and Permanent Lok Adalats and clarified that while Lok Adalats have only conciliatory powers, Permanent Lok Adalats have both conciliatory and adjudicatory powers.

The Supreme Court quoted the following from the judgment:

• “The Statement of Objects and Reasons indicates that Chapter VI-A was introduced to the LSA 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-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.”
• “We reiterate that 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.”

The Court’s decision was unanimous, with both judges concurring. The Court did not introduce any new doctrines or legal principles but clarified the existing legal framework.

Key Takeaways

• Conciliation proceedings under Section 22-C of the Legal Services Authorities Act, 1987, are mandatory for Permanent Lok Adalats.
• Permanent Lok Adalats have the power to adjudicate disputes on merits only after conciliation efforts have failed.
• The judgment reinforces the importance of conciliation as a primary method of dispute resolution, especially in public utility service matters.
• The Supreme Court clarified the distinction between Lok Adalats and Permanent Lok Adalats, with the latter having both conciliatory and adjudicatory powers.
• This case emphasizes the need for Permanent Lok Adalats to adhere strictly to the procedural requirements outlined in the Legal Services Authorities Act, 1987.

Final Order

The Supreme Court allowed the appeal, set aside the judgment of the Division Bench of the Karnataka High Court, and restored the award of the Permanent Lok Adalat. However, the Court remanded the matter back to the Permanent Lok Adalat to pass a fresh award after following the procedure under Section 22-C of the Legal Services Authorities Act, 1987. The Court directed the Permanent Lok Adalat to complete the conciliation proceedings and, if necessary, pass a fresh award within a period of six months from the date of the order.

Conclusion

The Supreme Court’s judgment in Canara Bank vs. G S Jayarama is a significant clarification on the procedural requirements for Permanent Lok Adalats under the Legal Services Authorities Act, 1987. The Court has unequivocally stated that conciliation is a mandatory step before a Permanent Lok Adalat can adjudicate a dispute. This judgment reinforces the legislative intent behind the establishment of Permanent Lok Adalats as primary dispute resolution bodies, emphasizing the importance of conciliation and settlement. It also clarifies the adjudicatory powers of Permanent Lok Adalats, which can be exercised only after conciliation efforts have failed. The judgment has significant implications for the functioning of Permanent Lok Adalats across the country, ensuring that they adhere to the prescribed procedures and fulfill their role in promoting alternative dispute resolution.