Authority & Competence of a Lawyer appointed by a Party to Conduct a Suit on its behalf to Settle the Suit Claim before a Lok Adalat [CASE LAW]

Legal Services Authorities Act, 1987 - S.19 - Authority and competence of a lawyer appointed by a party to conduct a suit on its behalf to settle the suit claim before a Lok Adalat.

Held:- There was no reference of the subject matter of the suit to the Lok Adalat in terms of Section 19 of the Legal Services Act. The settlement dated 6th December, 2014 was not for the benefit of the respondent Bank and caused huge loss to it. The counsel for the respondent in entering into the settlement has not acted either in good faith or for the benefit of the client and implied power to enter into the settlement, the counsel also therefore, failed. There was more than sufficient time and opportunity for the counsel to inform the respondent-bank of the proposed referral to the Lok Adalat and to take its consent with regard to matters which were noted by the trial court in its order dated 28th November 2014. Even if it could be held that the advocate for the bank had implied authority to enter into the settlement, in the instant case, while entering into the settlement on 6th December 2014, there was no exigency or circumstances demanding immediate settlement of the suit by a compromise on 6th December 2014, precluding obtaining instructions from the respondentbank or signature of the person authorized by the bank to enter into a settlement. The learned Single Judge had rightly held that the consent of the respondent-bank for arriving at the compromise before the Lok Adalat which was the sine-qua-non for making of the award before the Lok Adalat was lacking and, therefore, no sanctity could be attached to the award dated 6 th December 2014 passed by the Lok Adalat. In the result, the challenge to the judgment dated 19th March, 2018 is devoid of any merit. The appeal is, therefore, dismissed.

HIGH COURT OF JAMMU AND KASHMIR AT JAMMU

Coram: HON’BLE THE CHIEF JUSTICE HON’BLE MR. JUSTICE TASHI RABSTAN, JUDGE

LPA No.28/2018, IA No.01/2018

Date of order: 31st .12.2018

M/S Singh Hospitality And Resorts and Ors. vs. Punjab And Sind Bank Bank And Anr.

Appearance: For the petitioner/appellant (s) : Mr. Abhinav Sharma, Advocate. For the Respondent(s) : Mr. Sandeep Singh, Advocate.

Gita Mittal CJ:

1. The instant appeal has been filed by the appellants assailing the order dated 19th March, 2018 passed by the learned Single Judge accepting OWP No.1965/2014 filed by the Punjab And Sind Bank, respondent No.1 herein.

2. By way of the writ petition, the Punjab & Sind Bank, Udhampur challenged an order dated 06th December, 2014 passed by the Lok Adalat, Udhampur permitting a settlement proposed before it.

3. The facts giving rise to the present appeal fall within a narrow compass and to the extent necessary, we note the factual background hereafter.

Factual background

4. M/S Singh Hospitality & Resorts Ltd (the appellant No.1 before us) had sought and been authorized financial facilities by the Punjab and Sind Bank (respondent No.1 herein). Daljit Singh-appellant No.2 and Sarbjeet Singh- the appellant No.3 are the Directors of the appellant No.1.The facilities which were sanctioned in 2011 to the respondent No.1 herein included an ODP limit of Rupees Twenty lakhs; and three term loans. To secure these facilities, the appellant mortgaged several properties in favour of the Punjab & Sind Bank-the respondent No.1 (the „Bank‟ hereafter).

5. Default in abiding with the financial discipline lead to the filing of a civil suit by the Bank against the appellants before the District Judge, Udhampur for the recovery. In the plaint filed by the respondent No.1, reference was made to several demands, requests as well as the notice dated 16th January, 2014 issued under the SARFEASI Act, 2002 served upon the appellants herein which were not complied with necessitating the filing of the suit on 03rd June, 2014. The suit was filed for recovery of the following amounts:

Principal Amount: Rs.6,83,72,664/-

Interest : Rs. 96, 44,217/-

Total : Rs.7,80,16,881/-.

The respondent No.1-Bank also sought pendentelite and future interest at the rate of 15.25 per cent per annum with monthly rests on the above amount from 01st May, 2014.

6. The suit was listed before the court on 28th November, 2014 when the following order came to be recorded:

“Counsel for the parties present. During hearing of the case and submissions of the parties in order to settle the case in National Lok Adalat, following reference point is made with regard to which parties may deliberate and also inform their respective higher competent authority or head office and put up their respective stand before this court by or before 06.12.2014 date of scheduled National Lok Adalat.

In case the principal amount is agreed to be paid in lumpsum what shall be the rate of interest which the parties will agree to pay.

It is mentioned that while putting forth the stand by respective parties nothing shall be taken into account for disposal of the said case on merits nor any stand or submission during negotiations shall prejudice either of the parties for final determination of the suit. Put up the case on 06.12.2014.”

(Emphasis by us)

7. On the 06th December, 2014, instead of the case being listed before the court, the suit was also placed in the National Lok Adalat. The proceedings of the Lok Adalat as placed before us record the presence of the counsel for the plaintiff Mr. Sohan Lal, Advocate; Daljit Singh; defendant and the defendant‟s counsel- Mr. Ajay Bendral, Advocate before it.

8. It appears that the Presiding Officer of the trial Court was appointed as one of the two members of the National Lok Adalat along with Shri Ch. M Shafi, Advocate. The proceedings of the Lok Adalat and the Award which came to be passed on 06th December, 2014 are self-speaking and also deserve to be extracted in extenso. The same reads as follows:

“Award

The suit has been taken in National Lok Adalat in presence of the Counsel for the plaintiff Mr. Sohan Lal Advocate and defendant Daljit Singh and defendant’s counsel Mr. Ajay Bendral Advocate.

The parties and their counsels have agreed to settle the present suit and defendants have agreed to liquidate the original principal amount and the plaintiff bank waived the interest on the condition that the amount shall be paid to the plaintiff bank within one year from today.

The plaintiff bank has also agreed to release the property mortgaged with Bank except Hotel Singh Axis situated at M. H., within one month from today.

Parties have also agreed that in case the amount is not paid within one year as aforesaid the defendant shall be liable and plaintiff shall be entitled to recover whole of the suit amount alongwith interest rate agreed between the parties at the time of loan as mentioned in suit in one go.

The above terms and conditions are acceptable to the parties who have fixed their signatures.

1. Bank Counsel Sohan Advocate Members (R K Wattal)

2. Defendant Daljit Singh

3. Ajay Bendral Advocate (Ch. Shafi Adv.)”

(Emphasis by us)

9. When the above settlement was brought to its notice, the respondent No.1-Bank challenged the same and sought its quashing by way of a writ petition which was registered as OWP No.1965/2014.

10. Our attention has been drawn to the order dated 13th October, 2017 in the writ petition when the appellants had sought time to file a reply to the writ petition and were granted three weeks‟ time to file objections. This was not done.

11. Again on 07th November, 2017, the respondents had sought and were granted a week‟s further time to file objections. On this date, Mr. Sandeep Singh, learned counsel for the Bank had sought time to lay a motion for impleadment, being CMA No.2554/2014, of Legal Services Authority as party respondent in the writ petition.

12. On the next date of hearing, i.e. 08th December, 2017, the counsel for the appellants had prayed for and were granted eight weeks‟ time by way of “last and final opportunity for filing objections/reply, failing which right to file shall stand closed and the writ petition shall be heard without response”. This order was not complied with.

13. It appears that on 19th March, 2018, a stand was taken on behalf of the appellants that they did not file objections for the reason that the Bank had filed an application seeking amendment of the petition. This stand was not accepted by the learned Single Judge who noted the pronouncement of the Supreme Court reported at (1996) 3 SCC 435, State of Orissa vs. Sharad Chandra Sahu. It was observed by the learned Single Judge that the respondents in such a situation ought to have filed an application seeking extension of time to file objections and consequently the order dated 08th December, 2017 bound the parties.

So far as the application for amendment of the petition was concerned, the respondent-Bank had sought a prayer to implead the Presiding Officer of the Lok Adalat which was not permissible. The application was also, therefore, rejected.

14. In this background, the writ petition was admitted for hearing and with the consent of the counsel for the parties, the same was heard finally on the available pleadings and allowed on 19th March, 2018 quashing the order dated 06th December, 2014 passed by the Lok Adalat.

15. The learned Single Judge noted that there was no rebuttal to the stand taken by the petitioner. The order dated 19th of March, 2018 was premised on the finding by the learned Single Judge to the effect that there was no consent of the respondent No.1-Bank before making a concession waiving the complete interest liability of the appellant to the respondent-Bank. It was observed that since the consent of the respondent No.1 was lacking, which was the sine qua non for making of an award before the Lok Adalat, therefore, no sanctity could be attached to such an award passed by the Lok Adalat in the eye of law which was consequently quashed and the suit remitted to the District Judge, Udhampur for adjudication.

Appellants contentions

16. The primary ground on which the appellants assail the order dated 19th March, 2018 of the learned Single Judge is that before the Lok Adalat, the respondent-Bank was represented by its counsel. It is submitted that Mr. Sohan Lal was the appellants‟ advocate before the trial court who appeared before the Lok Adalat on 06th December, 2014 was a duly authorized advocate of the respondent-Bank, and therefore had full authority to enter into the settlement and bind the respondent-Bank by the same.

17. It is contended by Mr. Sharma that Sohan Lal had been duly engaged by the Bank to file and conduct its suit and, therefore, a presumption arose that he must have obtained consent of the petitioner.

18. Mr. Abhinav Sharma, has also placed reliance on the pronouncement of the Supreme Court reported at AIR 1975 SC 2202, Jamil Abdar Kadar vs. Shankarlal Gulabchand(Para 22); and AIR 1991 SC 2234, Byram Pesotnji Gariwala v. Union Bank of India and others and contended that the principles laid down in these two judgments apply to the present case and the settlement reached before the Lok Adalat and that its award dated 06th December, 2014 binds the respondent No.1- Bank and that it cannot be permitted to wriggle out of the same. In support of the same proposition, Mr. Abhinav Sharma, learned counsel for the appellants has also placed reliance on the judgment of the learned Single Judge of this court reported at 2008 (2) JKJ 492 [HC], Ram Ji and Another v. New India Assurance C. Ltd. & Ors.

Respondents contentions

19. On the other hand, Mr. Sandeep Singh, learned counsel for the respondent-Bank has drawn our attention to Section 18(4) and Section 19 of the Legal Services Act, 1997. Mr. Singh has also placed the order dated 28th November, 2004 recorded by the learned Principal District Judge, Udampur in the civil suit. It is Mr. Singh‟s submission that in the instant matter, as a matter of fact, there was no order of reference made by the learned District Judge referring the dispute for consideration before the National Lok Adalat. In the absence of referral order, on 06th December, 2014, the Lok Adalat could not have taken cognizance of the disputes between the parties and, therefore, no award could have been passed settling the disputes between the parties. In support of this submission, apart from the reliance on the above noted statutory provisions, Mr. Sandeep Singh has placed reliance on the judgment dated 14th November, 2011 deciding OWP No.210/2008, Bachan Kour and Others vs. Mega Lok Adalat and Others, etc.

20. Mr. Singh would further submit that in the writ petition, the Bank has delineated the tremendous loss which resulted to the respondent-Bank by the settlement and that as on present, the appellant owes a liability of Rs. Ten crore to the respondent-Bank.

21. Our attention is also drawn to the statement made by the counsel for the appellant before the learned Single Judge on 19th March, 2018 to the effect that he would submit a proposal to the Bank under the “One Time Settlement Scheme” within one month from the date of receipt of copy of the order.

The counsel for the Bank had informed the learned Single Judge that in case such a proposal is submitted by the appellants herein, the same shall be considered in accordance with law. On these submissions, the learned Single Judge had issued time bound directions that in case a proposal under the One Time Settlement Scheme, the competent authority shall deal with the proposal of the appellants in accordance with law within a period of four weeks of its receipt.

22. Mr. Sandeep Singh, learned counsel for the respondent has submitted that the appellants have even backed out of this proposal.

Discussion

23. The basic issue which has to be considered in the present matter is the authority and competence of a lawyer appointed by a party to conduct a suit on its behalf to settle the suit claim before a Lok Adalat.

24. In support of the submission that a counsel is legally competent to enter into a binding settlement with the other party, Mr. Abhinav Sharma, learned counsel would place reliance on Section 2(15), Rules 1, 2, 4(1) of Order 3 and Rule 3 of Order 23 of Code of Civil Procedure, 1977 as it applies to Jammu and Kashmir which read thus:

Sec. 2(15): “Pleader” means any person entitled to appear and plead for another in Court, and includes an advocate, a vakil and [ any attorney of the High Court].

Order III:

(1) Appearances, etc., may be in person, by recognized agent or by pleader Any appearance, application or act in or to any Court, required or authorised by law to be made or done by a party in such Court, may, except where otherwise expressly provided by any law for the time being in force, be made or done by the party in person, or by his recognized agent, or by a pleader duly appointed to act on his behalf: Provided that any such appearance shall, if the Court so directs, be made by the party in person.

Order III:

(2) Recognized agents

The recognized agents of parties by whom such appearances, applications and acts may be made or done are-

(a) persons holding powers-of-attorney, authorizing them to make and do such appearances, applications and acts on behalf of such parties;

(b) persons carrying on trade or business for and in the names of parties not resident within the local limits of the jurisdiction of the Court within which limits the appearance, application or act is made or done, in matters connected with such trade or business only, where no other agent is expressly authorized to make and do such appearances, applications and acts.

Appointment of pleader

4(1) The appointment of a pleader to make or do any appearance, application or act for any person shall be in writing, and shall be signed by such person or by his recognized agent or by some other person duly authorized by power-of-attorney to act in this behalf.

xxxxxxx

Order XXIII:

Compromise of suit

(3) Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise, [in writing and signed by the parties] or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject-matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith so far it relates to the parties to the suit whether or not the subject-matter of the agreement, compromise or satisfaction is the same as the subject-matter of the suit:

[Provided that where it is alleged by one party and denied by the other that an adjustment or satisfaction has been arrived at, the Court shall decide the question; but no adjournment shall be granted for the purpose of deciding the question, unless the Court, for reasons to be recorded, thinks fit to grant such adjournment.]

[Explanation. — An agreement or compromise which is void or voidable under the Contract Act, Svt. 1977, shall not be deemed to be lawful within the meaning of this rule.]

25. Before considering the submissions, let us consider the principles laid down in the judicial precedents placed before us. So far as the first judicial pronouncement reported at AIR 1975 SC 2202, Jamil Abdar Kadar v. Shankar Gulabchand placed by the appellants before us is concerned, it would be useful to extract the relevant portion thereof in extenso, which reads as follows:

“22. While we are not prepared to consider in this case whether an Advocate or pleader is liable to legal action in case of deviance or negligence, we must uphold the actual, though implied, authority of a pleader (which is a generic expression including all legal practitioners as indicated in s. 2(15), C.P.C.) to act by way of compromising a case in which he is engaged even without specific consent from his client, subject undoubtedly to two over-riding considerations : (i) He must act in good faith and for the benefit of his client ; otherwise the power fails (2) it is prudent and proper to consult his client and take his consent if there is time and opportunity. In any case, if there is any instruction to the contrary or withdrawal of authority, the implicit power to compromise in the pleader will fall to the ground. We need hardly emphasise that the bar must sternly screen to extirpate the black-sheep among them, for Caesar's wife must be above suspicion, if the profession is to command the confidence of the community and the court.”

(Emphasis by us)

26. The second pronouncement placed before us by the appellants stands reported at as AIR 1991 SC 2234, Byram Pestonji Gariwala v. Union of India and others. Para 37 of this pronouncement on which reliance is placed is extracted below as:

“37. We may, however, hasten to add that it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immediate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay. In these days of easier and quicker communication, such contingency may seldom arise. A wise and careful counsel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingencies in order that neither his authority nor integrity is ever doubted. This essential precaution will safeguard the personal reputation of counsel as well as uphold the prestige and dignity of the legal profession.”

(Emphasis by us)

27. Lastly, the judicial pronouncement of a learned Single Judge of this Court reported at 2008 (2) JKJ 492[HC], Ram ji and another V. New India Assurance C. Ltd and Ors has been placed. Mr. Sharma has relied on Paras 16 and 17 of the pronouncement which read as follows:

16. A Single Bench judgment of this court rendered in Kesar Singh v. Balbir Singh and another, 2004 (1) SLJ, 189, on the issue can also be read with advantage. In the said case, the claim petition arising out of an accident was compromised in Lok Adalat by the counsel for the claimant and an appeal was filed impugning the award on the ground that the counsel should have obtained consent of the claimant and as such he had mis-conducted himself. This Court while dismissing the appeal of the claimant/appellant, held that it is settled preposition of law that no appeal would lie against the consent decree. However, it can definitely be interfered with, if the same is the result of fraud and misrepresentation or such like factor. It was further held that the compromise entered into between the parties is binding and it is only under exceptional circumstances that the court may interfere with the same. The court did not find any exceptional circumstances in the aforesaid case. The grievance shown by the appellant in the present appeals is of not taking of consent from them by their counsel before entering into the settlement and that the second grievance is with regard to the amount of compensation being on lower side. No fraud, misrepresentation or such like objections have been pleaded in the appeals. Therefore, pleas taken herein cannot be considered as exceptional circumstances for interfering with the consent decree and, as such, no appeal would lie in such like factual backdrop. To be fair to Mr. Bhatia, I would like to mention here that question of maintainability of appeals was not the issue in Kamlesha Devi’s case (supra) relied by Mr. Bhatia.

17. Although on the point of maintainability, the present three appeals merit dismissal in the light of the aforesaid discussion, yet I intend to comment upon the second issue also on which Mr. Bhatia is relying upon very heavily. According to him, the compromise effected before Lok Adalat is in violation of Order XXIII Rule 3 of the Code of Civil Procedure. In my view, this plea is also not sustainable in view of the judgment rendered by Apex Court in Byram Pestonji Gariwala’s case (supra), in which their Lordships have held that the expression “in writing and signed by the parties” includes counsel and agent of the party. In the said judgment, while discussing various other judgments, it was observed that it has always been universally understood that a party can always act by his duly authorized representative and if a power of attorney holder can enter an agreement or compromise on behalf of his principal, so can his counsel possessed of the requisite authorization by Vakalatnam can act on behalf of his client. It was further observed that not to recognize such capacity is not only to cause much inconvenience and loss to the parties personally, but also to delay the progress of proceedings in Court and if the legislature had intended to make such a fundamental change, even at the risk of delay, inconvenience and needless expenditure, it would have expressly so stated.”

(Emphasis by us)

28. The provisions of the Code of Civil Procedure which have been placed before us are clear and need no further elaboration. By virtue of sub-section 15 of section 2 of the CPC, an advocate is covered under the definition of a Pleader in Court. Rule 1 of Order III enables such advocate who has been duly appointed to appear, make an application or act in any court.

29. Rule 2 of Order III is concerned with the acts of “recognized agents of parties by whom certain acts can be undertaken on behalf of the parties to the litigation”. Clause (a) of Rule 2 of Order III refers “ persons holding power of attorney”.

30. So far appointment of a pleader i.e. advocate is concerned, the same is provided in sub-rule (1) of rule 4 of Order III of the CPC. The same mandates that a pleader would be appointed by act for any person by document in writing which has been signed by the person or by his recognized agent or by another person duly authorized by a power of attorney.

31. In the instant case, the act of the advocate which has been challenged by the party who may represent it does not relate to an act “in court” but his act of settling the matter before the Lok Adalat. What has to be therefore seen is as to whether Order III mandates that a party is bound by acts of his advocate appointed by him in terms of Order III to represent him in case before a court or would it bind him in proceedings before the Lok Adalat?

32. In the instant case, the respondent excepts Shri Sohan Lal, Advocate was authorized to file and conduct the suit before the trial court. Unfortunately, the Vakalatnama has not been placed before us.

33. In a judgment of a learned Single Judge reported 2014 (2) JKJ 344, Ishpal Singh v. Lok Adalat, a learned Single Judge of this Court referred to the Vakalatnama on record in the suit and noted that the petitioner thereby authorized the counsel inter alia to compromise the said cause. In view of this authority, it was held that the petitioner therein could not be heard to say that his counsel was not authorized to enter into a settlement before the Lok Adalat.

34. This judgment is distinguishable on facts from the present case, inasmuch as the reference to the Lok Adalat in the case was at the instance of the petitioner, who was instructed to be present before the Lok Adalat. He chose not to appear and in the circumstances, his counsel has signed the settlement deed. It was, therefore, held that the counsel stood authorized to enter into the settlement and, therefore, no fault could be found that the impugned award “unless the petitioner demonstrates that the case is not acted bonafidely”.

Inasmuch as, we are taking a view on the later part on the issue of bonafides, we are not dwelling on the question of authorization under the Vakalatnama. This is also for the reason that the Vakalatnama itself has not been placed before us. We, accordingly, refrain from further inquiry on this aspect of the matter. Whether the requirement of the Legal Services Authorities Act had been satisfied?

35. We examine this issue a little later. Let us briefly also examine the nature of the proceedings before the Lok Adalat which stand created under Chapter V of the Jammu and Kashmir Legal Services Authorities Act, 1997 (hereinafter called „Legal Services Act‟).

36. We may usefully extract the relevant portion of Sections 18, 19, 20 as well as 21 of the Legal Services Act, which stand placed by Mr. Sandeep Singh, Advocate before us. These sections read thus:

18. Organization of Lok Adalats.—(1) The State Authority or District Authority or the High Court Legal Services Committee, or as the case may be, Tehsil Legal Services Committee may organize Lok Adalats as such intervals and places and for exercising such jurisdiction and for such areas as it thinks fit.

(2) Every Lok Adalat organised for an area shall consist of such number of— (a) serving or retired judicial officers ; and (b) other persons, 14 of the area as may be specified by the State Authority or the District Authority or the High Court Legal Services Committee, or as the case may be, the Tehsil Legal Services Committee, organising such Lok Adalats.

(3) The experience and qualification of persons referred to in clause (b) of sub-section (2) for Lok Adalats shall be such as may be prescribed by the Government in consultation with the Chief Justice of the High Court.

(4) Lok Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement between the parties to a dispute in respect of— (i) any case pending before ; or (ii) any matter which is falling within the jurisdiction of and is not brought before, any court for which the Lok Adalat is organised : Provided that the Lok Adalat shall have no jurisdiction in respect of any case of matter relating to an offence not compoundable under any Law.

19. Cognizance of cases by Lok Adalats.—(1) Wherein any case referred to in clause (1) of sub-section (4) of section 18,—

(i) (a) the parties thereof agree ; or

(b) one of the parties thereof makes an application to the Court for referring the case to the Lok Adalat for settlement and if such court prima facie satisfied that there are chances of such settlement ; or

(ii) the court is satisfied that the matter as an appropriate one to be taken cognizance of by the Lok Adalat, the court shall refer the case to the Lok Adalat :

Provided that no case shall be referred to the Lok Adalat under sub-clause (b) of clause (i) or clause (ii) by such court except after giving a reasonable opportunity of being heard to the parties.

(2) Notwithstanding anything contained in any other law for the time being in force, the Authority or Committee organising the Lok Adalat under sub-section (I) of section 18 may, on receipt of an application from anyone of the parties to any matter referred to in clause (ii) of sub-section (4) of section 18 that such matter needs to be determined by a Lok Adalat refer such matter to the Lok Adalat, for determination :

Provided that no matter shall be referred to the Lok Adalat except after giving a reasonable opportunity of being heard to the other party.

(3) Where any case is referred to the Lok Adalat under subsection (1) or where a reference has been made to it under sub-section (2), the Lok Adalat shall proceed to dispose of the case or matter and arrive at a compromise or settlement between the parties.

(4) Every Lok Adalat shall, while determining any reference before it under this Act, with utmost expedition to arrive at a compromise or settlement between the parties and shall be guided by the principles of justice, equity, fair play and other legal principles.

20. Award of Lok Adalat.–(1) Every award of the Lok Adalat shall be deemed to be a decree of a civil or, as the case may be an order of any other court and where a compromise or settlement 16 has been arrived at, by a Lok Adalat in a case referred to it under sub-section (1) of section 19, the Court fee paid in such case shall be refunded in the manner provided under the Court Fees Act, Samvat 1977.

(2) Every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award.

21. Powers of Lok Adalats.—(1) The Lok Adalat shall, for the purposes of holding any determination under this Act, have the same powers as are vested in a civil court under the Code of Civil Procedure, Samvat 1977, while trying a suit in respect of the following matters, namely :—

(a) the summoning and enforcing the attendance of any witness and examining him on oath ;

(b) the discovery and production of any document ;

(c) the reception of evidence on affidavits ;

(d) the requisitioning of any public record or document or copy of such record or document from any court or office ; and

(e) such other matters as may be prescribed. (2) Without prejudice to the generality of the powers contained in sub-section (1), every Lok Adalat shall have the requisite powers to specify its own procedure for the determination of any dispute coming before it.

(3) All proceedings before a Lok Adalat shall be deemed to be judicial proceedings within the meaning of sections 193, 219 and 228 of the Ranbir Penal Code, Samvat 1989 and every Lok Adalat shall be deemed to be a civil court for the purpose of section 195 and Chapter XXXV of the Code of Criminal Procedure, Samvat 1989.”

(Emphasis by us)

37. So far as the proceedings before the Lok Adalat are concerned, the same would commence when any case is referred to a Lok Adalat in terms of Section 19. Sub section(1) (a) of the section 19 mandates an agreement of the parties to a case for referring the matter to the Lok Adalat. In case only one of the parties is desirous in referring the case to the Lok Adalat for settlement, the court has to proceed in accordance with Section 19(1b) of the Legal Services Act.

38. A case can be referred to the Lok Adalat by the Court in accordance with Section 19(2), if it is satisfied that the matter is an appropriate one to be taken cognizance of by the Lok Adalat. However, this suo moto power is guided by the proviso which mandates that no case shall be referred to the Lok Adalat under sub clause (b) of Clause (1) or sub section (2) of Section 19 of the Legal Services Act by the Court “except after giving reasonable opportunity of being heard to the parties”.

39. Sub section (2) enables parties to also approach the authority or Committee organizing the Lok Adalat to make an application that the matter needs to be determined by the Lok Adalat. Such Committee or Authority may also refer the matter to the Lok Adalat for determination again subject to the stipulation as contained in the proviso to Section 19(2) that “no matter shall be referred to the Lok Adalat except after giving reasonable opportunity of being heard to the other party”.

40. It is evident from the legislative mandate that a party to a case has the right to oppose its reference to the Lok Adalat for settlement. Though the legislation enables any one of the parties to seek reference of the matter to the Lok Adalat, either by the Court or by the Authority, constituting the Lok Adalat, such reference however can be made only after prior hearing accorded to the other side.

41. We have extracted hereinabove the order dated 28th November, 2014 of the trial court wherein the issue of reference of the matter to the Lok Adalat had been for the first time mooted by the court. The Trial Judge has clearly reminded the parties that they may “deliberate and also inform their respective higher competent authority or head office and put up their respective stand “before this Court by or before 06th December, 2014”. The issues on which the parties were required to deliberate has also been noted in the order dated 28th November, 2014 which was that, in case the principal amount is agreed to be paid in the lumpsum, what shall be the rate of interest which the party would agree to pay. It is clear from this order that no hearing on the question of reference to the Lok Adalat in terms of Section 19 of the Act was conducted on 28th November, 2014. This hearing itself was postponed to 6th December, 2014.

42. The order dated 28th November, 2014 also shows that the learned trial Judge was cognizant of the fact that the litigation involved a party which may require consent from “higher competent authority or head office” and also consideration of the “rate of interest”. The order dated 28th November, 2014 thus by no stretch can be construed to be an order of reference of the disputes between the parties to the Lok Adalat.

43. We are unable to comprehend as to how the case even came to be placed before the Lok Adalat on the 6th December, 2014. It had clearly not been so directed by the trial Judge. The proceedings before the Lok Adalat thus were in complete violation of the provisions of the Legal Services Authorities Act.

Legality and bindness of the settlement and award recorded on 06th December, 2014 by the Lok Adalat.

44. Be that as it may, given the detailed submissions made by Mr. Abhinav Sharma, learned counsel for the appellants, we may test these submissions in the light of the law placed by Mr. Sharma before us.

45. Applying the principles laid down by the Supreme Court in AIR 1975 SC 2202, Jamil Abdar Kadar vs. Shankarlal Gulabchand, even if we were to hold that Shri Sohan Lal had the authority of a pleader under Section 2(15) CPC to act by way of compromising before the Lok Adalat the claim in the suit pending in the court even without specific consent from his client, in Para 22 of the pronouncement, the Supreme Court has categorically stated that such pleader “must act in good faith and for the benefit of his client; otherwise the power fails”. The Supreme Court has also declared the manner in which the pleader should proceed observing that “it is prudent and proper to consult his client and take his consent if there is time and opportunity”. In the present case, as is evident from the above narration, the learned trial Judge had on the 28th November, 2014 recorded the order in the presence of the pleader of the Bank suggesting a reference to the Lok Adalat and calling upon the parties to deliberate. This was not the duty of the learned trial Judge. Yet, he had cautiously reminded the counsels that they could “inform their respective higher competent authority or head office”. The Trial Court had even suggested deliberation on the rate of interest which the parties would agree to pay. The suit was posted on 06th December, 2014. Shri Sohan Lal, Advocate, therefore, not only stood notified of the proposal by the trial Judge and that he ought to consult his client but was given more than sufficient time to inform his client and to seek proper instructions. Clearly he has acted imprudently and improperly and failed to consult his client.

Whether there was consent of the respondent-Bank to the terms of the settlement ?

46. We are next called upon to examine the challenge to the finding of the learned single Judge that the respondent No.1-Bank had not given its consent to any settlement, more specifically to the waiver of the complete interest liability of the appellant to it. Significantly, specific assertions to this effect made in the writ petition by the Punjab and Sind Bank which were not repudiated by the respondents. In Paras 4 and 5 of the writ petition, OWP No.1965/2014, the respondent Bank has clearly stated that the lawyer appeared without authority and in Para 6 of the writ petition, it is reiterated that even a show-cause notice stand issued to the Advocate. Despite repeated opportunities and even last opportunity to do so having been granted, the appellants had failed to file objections or counter affidavit challenging the assertion of fact by the Bank.

47. So far as issue of “good faith” and “benefit of his client” is concerned, the respondent-Bank in its writ petition has made the following assertions:

“ (7) That the said Advocate Sh. Sohan Lal has settled the case on the principles original amount and whole of the interest part has been waived out. It may be further pointed out that as on dated i.e. 30.12.2014 the principle amount to be recovered by the petitioner bank is Rs.6,29,84,134.23 paise and interest component to be recovered is Rs.2,07,78,084/-. Thus total amount of Rs.8,37,62,218.23 is recoverable. The said Advocate Sh. Sohan Lal without any authority from the bank has waived the interest of amount of Rs.2,07,78,084/-. The said waiver of interest cannot be granted by the Manager of the bank, nor the zonal officer of the bank, but the same can be considered only by the Board of Directors for which a proper motion is required to be made. The detail with regard to the total Principle amount and memoranda of interest is enclosed as annexure P-6 for the kind perusal of this Hon’ble court. It may be further pointed out that Law circular No.226 dt. 22.5.2013 issued by the Punjab and Sind Bank clearly delegates the power to the functionary and other executives for grant of notional concession. The Chairman and the Managing Director of the Bank has power to remit the interest part only upto Rs. One crore and any amount above to Rs. One crore is to be placed before the Managing Committee of the Members who has powers to remit the same but in the present case Sh. Sohan Lal Advocate has exercised the powers of the Managing Committee of the Board and has remitted the interest of Rs.2,07,78,084/- which is beyond his Authority and as such the award dt. 6.12.2014 is bad in law and is required to be quashed. The copy of the said circular is enclosed herewith as annexure P -7 for the kind perusal of this Hon’ble Court.

xxxxx

(10). That in case the above said award dt. 6.12.2014 is not quashed the petitioner bank will suffer a loss to the tune of Rs.2,07,78,084/- plus further interest till the realization which cannot be compensated by way of cost.”

(emphasis supplied)

48. So far as the settlements are concerned, in Para 8 of the writ petition, a reference has been made to a Bank Circular in the following terms:

“8. That the said Advocate Sh. Sohan Lal without the consent of the petitioner bank has granted consent of the payment within a period of one year but the law circular further states that in case of settlement the whole payment is to be paid within a period of 90 days failing which the interest rate on that amount is required to be charged. Moreover, at the time of the settlement as per the law circular, 25 % of the settled amount is required to be deposited by the borrower. All these circular were in the knowledge of the said Advocate but inspite of that without information to the bank and without any authority from the bank to settle the case has given his consent before the Lok Adalat bench and has settled the case for only principal amount and has waived of the interest Component”.

(Emphasis supplied)

49. The award dated 06th December, 2014 notes that mortgaged property would stand released within a month. On the issue of power of releasing of mortgaged property in Para 9 of the writ petition, it has been stated as follows:

“9. That the said Advocate has further agreed to release the property mortgaged with the bank within a period of one month which also beyond his jurisdiction and authority given to the said Advocate. The said Advocate was not having any authority to say anything with regard to the remission of the interest and release of the property. The same lies only with the higher authorities which is the Managing Committee of the Bank and without their approval nothing can be settled by the said advocate of the petitioner bank and as such the award dt. 6.12.2014 is required to be quashed.

(emphasis supplied)

50. None of these specific pleadings have been controverted. The rear averments of the Bank, therefore, stoop up repudiated.

51. It must be satisfied that the advocate has acted in good faith and for the benefit of respondent-bank. Otherwise the implied authority of the advocate to compromise the case has to fail.

52. So far as the settlement which was reached on 6th December 2014 is concerned, the advocate agreed to settle the suit claim for only the principal amount of Rs. 6,83,72,664/- and completely waived the entire interest liability i.e., the amount of Rs. 96,44,217/- upto the date of the filing of the suit as well as the pendentelite interest on the total amount.

53. The settlement does not stop at this. While agreeing to receive only the principal amount, the advocate gave his consent that even this principal amount could be paid to the Bank within one year from the date of the settlement. No down payment at all was sought nor was any security for even this amount obtained. Instead the advocate agreed that the property mortgaged with the bank except one hotel would be released by the bank “within one month from today”. Thus, the advocate agreed to release of property which had been mortgaged to the bank without receiving a penny‟s payment. No effort was made to ascertain as to whether the Hotel Singh Axis (which was agreed to remain mortgaged with the Bank) was enough to secure the amount which was payable by the appellants in terms of this settlement. Even the default clause which was incorporated in the settlement refers only to payment of monetary amount. It makes not a remotest suggestion to the fate of the mortgaged property in case of the default.

54. The agreement to waive an amount of over Rs. 96,44,217/- certainly cannot be held to be for the benefit of the respondent-bank. The agreement to release valuable mortgaged property which was held by the bank as security for securing the amounts due and payable by the appellant is equally against the interest of the respondent-bank. In case of breach of payment by the appellants the bank would have little to recover the amount.

55. The agreement to permit the appellants to pay even the principal amount within one year, that too without any interest is against the benefit of the client. It needs no elaboration that the Punjab and Sindh Bank is dealing with public funds and is accountable to the other account holders. It is not open for any bank to arbitrarily confer special treatment to any of its clients, more so, when benefits running into lakhs of rupees are concerned. In this case, it would seem the benefit which the appellant reaps, runs into crores of rupees.

56. On the suit claim, the bank had paid court fee of Rs.75,000/-. No amount towards the cost incurred by the Bank in initiating the litigation and pursuing the same is forthcoming on the record.

57. We find that not only the complete interest, for which the Bank had paid court fees of Rs.75,000/- on the suit filed by it, being completely waived but also the mortgaged property has been released.

58. We are informed by Mr. Sandeep Singh, learned counsel, that the liability of the appellants to the Bank, when calculated on the terms of the financial facilities and documentation executed between the parties, as on date, is well over Rs. Ten Crore.

59. The settlement is by no stretch of imagination is for the benefit of the bank. In view of the above, it is undisputed that the counsel has caused substantial loss to the respondent-Bank . It therefore has to be held that the advocate has neither acted in good faith nor for the benefit of his client. Therefore, on application of the principles laid down by the Supreme Court in Jamil Abdar Kadar vs. Shankarlal Gulabchand, the compromise must fail.

Consequently, even implied authority, if any, in the counsel engaged for prosecuting the suit, to compromise the case before the Lok Adalat, completely fails.

60. Even on application of the principles laid down by the Supreme Court in Byram Pesotnji Gariwala (supra), the appellant is unable to show any “exigency or circumstances demanding immediate adjustment of suit by agreement or compromise”.

61. The order dated 28th November, 2014 was passed in the presence of the counsel.

62. The mala fide of the appellants is also writ large on the face of record inasmuch a statement was made before the writ court that it would opt for a one time settlement. The filing of the appeal manifests that the respondents have backed out from the same.

63. The trial court had specifically directed the advocate that in case it was agreed that the principal amount would be paid in lumpsum, then instructions needed to be obtained as to “what shall be the rate of interest which the parties will agree to pay”. Such instructions were to be obtained from the “ his/her competent authority or head office.” Yet, there is no dispute at all that despite the clear mandate of the order dated 28th November 2014 and the directions of the trial court, the advocate failed to even inform the respondent-bank, let alone any higher competent authority or its head office, with regard to the proposal to refer the suit claim to the National Lok Adalat.

64. We find that there is nothing on record to suggest that the consent or signature of the competent authority of the Bank could not be obtained without undue delay.

The advocate acted in complete breach of this clear direction by the trial court.

65. In Byram Pesotnji Gariwala v. Union Bank of India and others, the Supreme Court has unequivocally declared the law that it would not be prudent for counsels to act on implied authority, “except when warranted by the exigency of circumstances demanding immediate adjustment of the suit by agreement or compromise and the signature of the party cannot be obtained without undue delay”. In the present case, there is no exigency or circumstance at all which necessitated immediate adjustment of the suit by the compromise. There was no reason as to why the signature of the authorized person in the respondent-bank could not be obtained.

As back as in 1991, the Supreme Court had noted that in these days of easier and quicker communication, such contingency may seldom arise. In the present case, there was no urgency at all.

66. We have put to learned counsel Mr. Abhinav Sharma, to explain as to what were the exigencies which demanded immediate attention and adjustment necessitating such an emergent situation that the settlement had to be reached before the Lok Adalat on 06th December, 2014. Instead of pointing out a single circumstance which would enable this Court to hold that the matter was so emergent that there was no time for the parties or counsel to approach the Bank, we were told by Mr. Sharma that it was not for the appellants who were the private parties to respond to this query. It is contended before us that if we wanted an answer to this question, we had to implead the counsel for the Bank who alone could answer what was the exigency or the emergency in reaching a settlement without even intimating the respondent-Bank.

It has to be held that the settlement has been reached was not only without authority but was an absolute breach of the rights of the appellant-bank.

Conclusions

I. There was no reference of the subject matter of the suit to the Lok Adalat in terms of Section 19 of the Legal Services Act.

II. The settlement dated 6th December, 2014 was not for the benefit of the respondent Bank and caused huge loss to it.

III. The counsel for the respondent in entering into the settlement has not acted either in good faith or for the benefit of the client and implied power to enter into the settlement, the counsel also therefore, failed.

IV. There was more than sufficient time and opportunity for the counsel to inform the respondent-bank of the proposed referral to the Lok Adalat and to take its consent with regard to matters which were noted by the trial court in its order dated 28th November 2014.

V. Even if it could be held that the advocate for the bank had implied authority to enter into the settlement, in the instant case, while entering into the settlement on 6th December 2014, there was no exigency or circumstances demanding immediate settlement of the suit by a compromise on 6th December 2014, precluding obtaining instructions from the respondent-bank or signature of the person authorized by the bank to enter into a settlement.

VI. The learned Single Judge had rightly held that the consent of the respondent-bank for arriving at the compromise before the Lok Adalat which was the sine-qua-non for making of the award before the Lok Adalat was lacking and, therefore, no sanctity could be attached to the award dated 6th December 2014 passed by the Lok Adalat.

Result

67. In the result, the challenge to the judgment dated 19th March, 2018 is devoid of any merit.

The appeal is, therefore, dismissed.