2022 (7) TMI 35 - SC - Indian Laws

Mandatory conciliation before Lok Adalat dispute resolution; court clarifies process

The Supreme Court held that conciliation proceedings under Section 22-C of the Legal Services Authorities Act are mandatory before a Permanent Lok Adalat ... Mandatory pre litigation conciliation under Section 22 C of the Legal Services Authorities Act - adjudicatory power of Permanent Lok Adalat as a statutory mechanism under Chapter VI A - award of Permanent Lok Adalat deemed to be a decree of a civil court and final - step wise statutory procedure for Permanent Lok Adalat proceedingsMandatory pre litigation conciliation under Section 22 C of the Legal Services Authorities Act - step wise statutory procedure for Permanent Lok Adalat proceedings - Conciliation proceedings prescribed by Section 22 C are mandatory before a Permanent Lok Adalat can decide a dispute on merits. - HELD THAT: - The Court construed Section 22 C as laying down a sequential procedure: (i) filing of application which ousts court jurisdiction; (ii) exchange of written statements and documents; (iii) conduct of conciliation proceedings; (iv) formulation and proposal of settlement terms; and (v) only upon failure of settlement under Sub section (7) can the Permanent Lok Adalat decide the dispute under Sub section (8). The statutory scheme and legislative history show that settlement is the principal objective of Chapter VI A and adjudication is a residuary last resort. Allowing the Permanent Lok Adalat to bypass the conciliation steps merely because a party is absent would permit ex parte adjudication producing final awards treated as decrees, contrary to the parliamentary scheme. Prior precedents of this Court were cited to support the mandatory character of the conciliation steps. [Paras 24, 25, 26, 27]Conciliation proceedings under Section 22 C are mandatory and must be attempted and settlement terms proposed (and rejected) before the Permanent Lok Adalat can adjudicate on merits.Adjudicatory power of Permanent Lok Adalat as a statutory mechanism under Chapter VI A - award of Permanent Lok Adalat deemed to be a decree of a civil court and final - Permanent Lok Adalats possess adjudicatory functions under the LSA Act, but subject to the mandatory conciliation procedure in Section 22 C. - HELD THAT: - The Court distinguished ordinary Lok Adalats (which only attempt settlement and return matters to courts if settlement fails) from Permanent Lok Adalats created by Chapter VI A. The legislative purpose, composition of Permanent Lok Adalats and the express provision in Section 22 C(8) demonstrate that, where conciliation fails, the Permanent Lok Adalat may decide disputes on merits (except offences and beyond pecuniary limits). Earlier decisions of this Court were cited to confirm the constitutionality and statutory adjudicatory role of Permanent Lok Adalats. However, that adjudicatory power is conditional upon compliance with the step by step conciliation process. [Paras 28, 29, 30, 31, 32]Permanent Lok Adalats have statutory adjudicatory power on merits, but such power is exercisable only after the mandatory conciliation process under Section 22 C is complied with.Award of Permanent Lok Adalat deemed to be a decree of a civil court and final - mandatory pre litigation conciliation under Section 22 C of the Legal Services Authorities Act - The award dated 19 November 2014 of the Permanent Lok Adalat was set aside for failure to follow the mandatory conciliation procedure. - HELD THAT: - Applying the principles that conciliation is mandatory and that adjudication by a Permanent Lok Adalat is permissible only after settlement efforts fail, the Court found that the impugned award contained no indication that terms of settlement were proposed to the parties and rejected. Instead, the Permanent Lok Adalat proceeded to decide the dispute on merits in the absence of the opposite party. That procedure was contrary to the statutory scheme and therefore the award was vulnerable and set aside. The Court expressly held earlier findings of the High Court that Permanent Lok Adalats lack adjudicatory power to be incorrect while upholding the High Court's ultimate order insofar as the award was invalid for procedural non compliance. [Paras 33, 34]The award dated 19 November 2014 is set aside because the Permanent Lok Adalat failed to follow the mandatory conciliation steps required by Section 22 C.Final Conclusion: The appeal clarifies two points: (a) Permanent Lok Adalats do have statutory adjudicatory power under Chapter VI A, but (b) the conciliation procedure prescribed by Section 22 C is mandatory and must be exhausted (including proposal of settlement terms) before adjudication on merits. Applying these principles, the Court set aside the Permanent Lok Adalat's award of 19 November 2014 for failure to follow the mandatory conciliation procedure; other rights and contentions remain open and no order as to costs was made. Issues Involved:1. Whether conciliation proceedings under Section 22-C of the Legal Services Authorities Act (LSA Act) are mandatory.2. Whether Permanent Lok Adalats have adjudicatory functions under the LSA Act.Issue-wise Detailed Analysis:1. Mandatory Nature of Conciliation Proceedings:The Supreme Court examined whether conciliation proceedings under Section 22-C of the LSA Act are mandatory before a Permanent Lok Adalat can decide a dispute on its merits. The Court noted that Section 22-C provides a step-by-step scheme, starting from the filing of an application, which ousts the jurisdiction of other civil courts. The subsequent steps involve parties filing submissions and documents, followed by conciliation proceedings. The Permanent Lok Adalat must propose terms of settlement based on the conciliation proceedings. If the parties fail to reach an agreement, only then can the Permanent Lok Adalat decide the dispute on its merits under Section 22-C(8).The Court emphasized that even if the opposite party does not appear, the Permanent Lok Adalat must still follow the procedure laid down in Section 22-C. This includes attempting to communicate submissions to the absent party and proposing terms of settlement. Only if these steps fail can the Permanent Lok Adalat adjudicate the dispute on its merits. The Court held that conciliation proceedings under Section 22-C are mandatory in nature.2. Adjudicatory Functions of Permanent Lok Adalats:The Court analyzed whether Permanent Lok Adalats have adjudicatory functions. The LSA Act distinguishes between Lok Adalats constituted under Section 19, which have no adjudicatory power and can only conduct conciliatory proceedings, and Permanent Lok Adalats established under Section 22-B, which can carry out both conciliatory and adjudicatory functions.The Court referred to the decision in Bar Council of India v. Union of India, which upheld the constitutionality of Chapter VI-A of the LSA Act, indicating that Permanent Lok Adalats can adjudicate disputes on merits if conciliation efforts fail. The Court also cited United India Assurance Co. Ltd. v. Ajay Sinha and Ors. and Inter Globe Aviation v. N. Satchidanand, which affirmed the adjudicatory role of Permanent Lok Adalats if conciliation fails.The Court concluded that Permanent Lok Adalats have adjudicatory functions, as they can decide disputes on merits if the parties fail to reach an agreement during conciliation.Conclusion:The Supreme Court held that the observations of the Karnataka High Court's Single Judge and Division Bench, stating that Permanent Lok Adalats have no adjudicatory function, were incorrect. However, the Court upheld the Division Bench's conclusion that the Permanent Lok Adalat failed to follow mandatory conciliation proceedings in the present case, as the award did not indicate any attempt to propose terms of settlement.The Supreme Court clarified that it did not make any observations on the merits of the dispute between the parties, keeping all rights and contentions open. There was no order as to costs, and any pending applications were disposed of.