Kerala High Court
Moni Mathai, S/O. E.C. Mathai, E.C. ... vs The Federal Bank Limited, Represented ... on 22 January, 2003
Equivalent citations: AIR2003KER164, IV(2004)BC489, [2004]118COMPCAS650(KER), AIR 2003 (NOC) 164 (KER), (2003) 2 KHCACJ 367 (KER), 2003 (2) KHCACJ 367, (2003) ILR(KER) 2 KER 317, (2002) 3 KER LT 490, (2002) 4 SCT 923, (2003) 1 KER LJ 406, (2003) 7 INDLD 92, (2004) 4 BANKCAS 489, (2004) 118 COMCAS 650, (2003) ILR 2 KER 317
Author: K. Padmanabhan Nair
Bench: K. Padmanabhan Nair
JUDGMENT K. Padmanabhan Nair, J.
1. The Original Petition is filed for quashing an award passed by the Lok Adalath held by the District Legal Services Authority constituted under the Kerala State Legal Services Authorities Act (District Authority for short). The first petitioner is the son of petitioners 2 and 3. The first petitioner availed a loan from the first respondent-Bank on 29-1-1996. The second and third petitioners were the co-obligants for the loan amount. The petitioners committed default in repaying the debt. It is averred that the petitioners received a notice from the first respondent asking them to attend a Lok Adalath to be held on 14-1-2000. It is further averred that usually cases pending before the civil courts alone are posted before the Lok Adalat but the petitioners did not receive any such notice from any of the civil courts. It is also averred that the first petitioner expressed his willingness to settle the case provided the first respondent reduces the rate of interest. It is alleged that Ext. P2 award was passed by the Lok Adalat conducted by the District Authority without hearing the petitioners. It is also averred that the first petitioner was cheated by the first respondent-Bank and no concession was given to him in the rate of interest. The second respondent Recovery Officer issued Ext.P7 demand notice based on an order passed by the Debts Recovery Tribunal in O.A. No. 157 of 2000 dated 13-2-2002. It is also averred that the petitioners are not aware of the pendency of any such O.A. and no notice was issued to them from the Debts Recovery Tribunal. It is also contended that the second respondent initiated recovery proceedings for sale of the properties in violation of the Rules. Hence the petition for quashing Ext. P2 Award, Ext. P6 recovery notice and Ext. P7 notice of sale proclamation.
2. The first respondent-Bank has filed a counter affidavit contending that the original petition is not maintainable and the same is filed suppressing material facts. It is contended that the first petitioner availed a loan of Rs. 7,19,000/=. Since the petitioners failed to repay the amount a notice was issued. It is contended that the petitioners came forward with the request for settling the dispute on mutual consent so that they can save the cost of litigation. It is averred that based on the request made by the petitioners, the first respondent submitted Ext. R1(A) request before the District Authority, on 10-12-1999 to take the case in the Lok Adalat and pass suitable orders. It is also contended that the petitioners were informed about the inclusion of the matter in the Lok Adalat by the first respondent Bank and the District Authority. The petitioners were co-operative and agreed to pay the amount together with interest within one year from the date of award. It is also contended that reasonable opportunity was given to the petitioners before signing the compromise proposal and the parties had agreed to settle the matter and filed a compromise petition and based on the compromise petition, the award was passed. It is contended that the compromise petition was signed by all the petitioners and countersigned by the Presiding Officer. It is contended that the jurisdiction of the Lok Adalat is not confined to settle disputes in pending cases but also to matters which are not filed before any court. It is contended that in view of the provisions contained in Section 21 of the Legal Services Authorities Act, 1987 (for short, the Act), the petitioners are not entitled to challenge the award at all. It is also averred that based on Ext. P2 award, the Bank filed O.A. No. 157 of 2000 before the Debts Recovery Tribunal and the Tribunal disposed of the O.A. allowing the Bank to recover an amount of Rs. 10,42057.00. It is also averred that order is passed by the Tribunal in exercise of the powers conferred under Section 31A of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It is also contended that the final order passed by the Debts Recovery Tribunal cannot be challenged before the High Court under Articles 225 or 227 of the Constitution of India. It is contended that the admissions made by the petitioners in the O.P. itself will show that the parties had agreed to pay the entire amount as per the agreement and hence they are not entitled to raise a contention that the rate of interest awarded in excessive.
3. No counter affidavit is filed by the second respondent.
4. The petitioners have filed a reply affidavit stating that the entire proceedings before the District Authority was against the provisions contained in Section 20(1) of the Act. It is averred that the petitioners were not heard by the authority or the committed which organised the Lok Adalat. It is also averred that in Ext. P7 notice, the petitioners were asked to appear before the Recovery Officer on 11 a.m. on 15/6/2002 which was Saturday and therefore a holiday. It is averred that on that day they went to the office of the Recovery Officer but the office was closed.
5. In view of the factual dispute, I have called for the entire records of the District Authority regarding the award passed in this case. The records show that on 31-12-1999 the first respondent-Bank had filed a request before the District Authority stating that the bank had granted a term loan of Rs. 7,19,000/- to the first petitioner and he had not repaid instalments. It is further stated that the Bank had issued a lawyer notice and decided to file a suit and at that stage the 'party' had agreed to settle the dispute on mutual consent. It is further requested that the District Authority may take up the case in the Adalat and pass the Award. Along with the application, the Bank had produced details of the loan transaction and also memorandum executed by petitioners 2 and 3 creating a mortgage by deposit of title deeds. No notice whatsoever was issued to the petitioners on the application filed by the first respondent by the District Authority. The Lok Adalat was held on 14-1-2000. The petitioners as well as the officer of the first respondent signed a compromise. Neither the petitioners nor the Bank were represented by Advocates. Based on that compromise petition, an award was passed by a Bench of the Lok Adalat presided over by the Subordinate Judge and an Advocate member.
6. The learned counsel appearing for the first respondent has raised a preliminary objection regarding the maintainability of the Original Petition. It is contended that in view of the provisions contained in Section 21(2) of the Legal Services Authorities Act, 1987 (Act for short) the O.P. is not maintainable. Section 21(2) provides that no appeal shall lie to any court against the award. So that bar is only in respect of filing an appeal. When there is patent illegality, error of law or error of jurisdiction, the High Court can interfere with the decision of an inferior Tribunal. If there is violation of fundamental right or violation of any Act or Rules or violation of the principles of natural justice also the court can interfere with the award passed by the Lok Adalat under Article 226 of the Constitution of India. So there is no merit in the argument that the O.P. is not maintainable.
7. It is argued that there is undue delay in filing the O.P. It is true that the award under challenge was passed on 14-1-2000 and this Original Petition is filed after the lapse of two years. According to the petitioners, they filed a petition before the Chief Manager of the Bank and the same was rejected only on 29-11-2000. It is well settled position of law that there is no time limit for filing a Writ Petition. When there is of error law and error of jurisdiction the Original Petition cannot be dismissed on the ground that it is barred by limitation. So there is no merit in that argument also.
8. Section 19 to 22 of Chapter VI of the Act deal with Lok Adalats. Section 19 deals with the organisation of Lok Adalats. Sub-section (5) of Section 19 provides that the Lok Adalats shall have jurisdiction to settle pending cases and also to decide disputes which are not pending before any court. It reads as follows:-
"19. Organisation of Lok Adalats. (1)....
(2).....
(3).....
(4).....
(5) A 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 or matter relating to an offence not compoundable under any law."
Section 20 deals with cases pending before a court. It reads as follows:-
"(1).....
(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 (1) of Section 19 may, on receipt of an application from any one of the parties to any matter referred to in Clause (ii) of Sub-section (5) of Section 19 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 a Lok Adalat under Sub-section (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, 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.
(5) .....
(6) Where no award is made by the Lok Adalat on the ground that no compromise or settlement could be arrived at between the parties, in a matter referred to in Sub-section (2), that Lok Adalat shall advise the parties to seek remedy in a court."
Section 21 deals with the award of Lok Adalat which reads as follows:-
"(1) Every award of the Lok Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court and where a compromise or settlement has been arrived at, by a Lok Adalat in a case referred to it under Sub-section (1) of Section 20, the court-fee paid in such case shall be refunded in the manner provided under the Court Fees Act, 1870 (7 of 1870).
(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."
Section 22 of the Act deals wit powers of the Lok Adalat. Sub-section (1) of Section 22 provides that the Lok Adalat shall have the same powers as are vested in a civil court under the Code of Civil Procedure. Sub-section (2) provides that the every Lok Adalat shall have the requisite powers to specify its own procedure. Sub-section (3) of Section 22 provides that all proceedings before the Lok Adalat shall be deemed to be judicial proceedings, Sub-section 22 was amended and words "Permanent Lok Adalat" are incorporated in Section
22. Sections 22A to Section 22E were inserted. The effect of those amendments does not arise for consideration in this Original Petition.
9. Section 28 of the Act deals with the power of the State Government to make rules. Sub-section (1) of Section 28 provides that the State Government in consultation with the Chief Justice may by notification make rules to carry out the provisions of the Act. The Government had issued Kerala State Legal Services Authorities Rules, 1998, Rule 13 of the Rules prescribes the qualification and experience of other persons of Lok Adalat, but no rule regarding the conduct of the Lok Adalat is incorporated in the Rules. Section 29A confers State Authority to make Regulations and the State Authority had framed Regulations.
10. Chapter VI of the Kerala State Legal Services Authority Regulations, 1998 (for short the Regulations) containing Regulations 26 to 40 deals with constitution of Lok Adalat. Regulation 26 deals with procedure for organising Lok Adalat. Regulation 27 enjoins that the Secretary of the concerned authority shall inform the State Authority about the proposal to organise the Lok Adalat well before the date on which the same is proposed to be organised. Regulation 27 reads as follows:-
"27. Intimation to the State Authority.- The Secretary of the High Court Legal Services Committee or the District Authority or the Chairman of the Taluk Legal Services Committee, as the case may be, shall inform the State Authority about the proposal to organise the Lok Adalat well before the date on which the Lok Adalat is proposed to be organised and furnish the following information to the State Authority, namely:-
(1) The place and the date on which the Lok Adalat is proposed to be organised;
(2) Whether any of the organisations as referred to in Clause 26(2) have agreed to associate themselves with the Lok Adalat;
(3) Categories and nature of cases, viz. pending cases of pre-litigation disputes, or both, proposed to be placed before the Lok Adalat;
(4) Number of cases proposed to be brought before the Lok Adalat in each category;
(5) Any other information relevant to the convening and organising of the Lok Adalat."
So going by Regulation 27, it can be seen that well in advance to the organisation of the Lok Adalat, the Secretary of the District Authority is bound to inform the State Authority. Regulation 28 costs a duty on the Secretary of the District Authority to inform every party concerned whose case is referred to the Lok Adalat so as to afford an opportunity to prepare himself. It reads as follows:-
"28. Notice to the parties concerned. The Secretary of the High Court Legal Services Committee or the District authority or the Chairman of the Taluk Legal Services Committee, as the case may be, convening and organising the Lok Adalat shall inform every party concerned whose case is referred to the Lok Adalat, well in time so as to afford him an opportunity to prepare himself for the Lok Adalat.' Regulation 29 deals with composition of the Lok Adalat and Regulation 30 deals with summoning of the records and the responsibility for its safe custody. Regulation 30(2) is important. It reads as follows:-
"30. Summoning of Records and the Responsibility for its safe custody.-
(1).....
(2) If any case is referred to the Lok Adalat at the prelitigation stage, the version of each party shall be obtained by the Secretary of the High Court Legal Services Committee or the District Authority or the Chairman of the Taluk Legal Services Committee, as the case may be, to be placed before the Lok Adalat.
(3).....
(4).....
So Regulation 30(2) enjoins that the Secretary shall obtain the version of each party and place the same before the Lok Adalat. If this procedure is followed the Bench will be knowing what exactly the pleadings and stand of the parties so far as the dispute to be settled.
11. Regulation 31 deals with the functioning of the Lok Adalats. It is the duty of the Secretary to assign cases to each Bench. A duty is cast on the Secretary to prepare cause list and intimate the same atleast two days prior to the date of Lok Adalat. Regulation 31(3) is important. It reads as follows:-
"31. Functioning of the Lok Adalat.-
(1).....
(2).....
(3) Every Bench of the Lok Adalat shall make sincere efforts to bring about a conciliatory settlement in every case put before it without bringing about any kind of coercion, threat or undue influence, allurement of misrepresentation"
A reading of Regulation 31(3) makes it clear that a duty is cast upon the Bench also to discuss the matter with parties. They are bound to explain to the parties the legal effect of the terms of settlement especially if the party is not represented by an Advocate. The Bench shall not take undue advantage of ignorance of a party and close their eyes to effect the terms of settlement.
12. Regulation 32 provides for holding of Lok Adalats. Regulation 33 prescribes the procedure for effecting compromise or settlement at Lok Adalat. Regulation 33 reads as follows:-
"33. Procedure for effecting compromise or settlement at Lok Adalat.-
(1) Every Award of the Lok Adalat shall be signed by the parties to the dispute and the panel constituting the Lok Adalat.
(2) The Original Award shall form party of the judicial records and a copy of the Award shall be given to each of the parties free of cost duly certified to be true by the panel constituting the Lok Adalat."
Regulation 34 states that every award of the Lok Adalat shall be categorical and lucid and shall be written in the regional language used in the local courts or in English. Regulation 35 provides that at the conclusion session of the Lok Adalat, the Secretary of the District Committee shall compile the results for submission to the State Legal Services Authority. Rule 36 deals with the maintenance of panel names of Lok Adalat Judges. Regulation 37 deals with the honorarium payable to the Presiding Officers and members of the Lok Adalat. Regulation 38 deals with the procedure for maintaining record of cases referred under Section 20 of the Act or otherwise.
13. In view of the provisions contained in Sub-section (5) of Section 19 of the Act, there is absolutely no merit in the contention raised by the petitioners that the Lok Adalat can decide only cases pending before a civil court. Sub-section (5) of Section 19 of the Act specifically confers power to deal and settle cases even at the pre litigation stage. So it is not necessary that to confer power on a Lok Adalat, the dispute must be first filed before a court. Sub-section (4) of Section specifically provides that while arriving at a compromise or settlement between the parties, the Lok Adalat shall be guided by the principles of Justice, equity, fair play and other legal principles.
14. In this case it has to be noted that the Bank has not filed any suit or paid any court fee. It has not engaged any Advocate. So there is no question of any amount being incurred by the Bank as litigation expenses. Going by the terms of compromise and award, it can be seen that the petitioners had agreed to repay the entire amount with interest even after the disposal of the case until the entire amount is paid. So going by the terms of award, it can be seen that the petitioners who are debtors have no gain or advantage by arriving such a compromise. It is very difficult to believe that a party voluntarily agreed for a compromise exactly on the terms suggested by the other side without any bargaining or making any concession. The petitioners did not get any legal assistance. There is nothing on record to show that the Bench told the petitioners about the legal consequences of the terms of settlement. There is much weight in the contention raised by the counsel that the first petitioner agreed for the compromise only because the Bank had offered some concession. It is also very pertinent to note that in the letter written by the Bank to the District Authority on 31-12-1999, the only averment is that the loan was granted to the first petitioner. It is further stated that since the 'party' had not repaid the instalments, suit notice was issued and at that stage the 'party' had agreed to settle the liabilities on mutual consent. There is absolutely no mention of the names of the second or third petitioners in that letter. There is also no reference to the effect that the second and third petitioners were told about the dispute and they had agreed to pay the entire amount with the agreed rate of interest. So the case of the petitioners that they were mislead by the Bank official is to be accepted.
15. The records produced in this case shows that the request for referring the matter to Lok Adalat was filed by the Bank on 1-2-2000 before the District Authority. There is absolutely nothing on record to show that the District Authority had issued any notice to the petitioners so as to give them an opportunity to put forward their case. They were not heard by the District Authority. In this case, no notice as contemplated under Sub-section (2) of Section 20 was issued or the petitioners were heard. The Secretary did not inform the petitioners so as to afford them an opportunity to prepare themselves as provided under Regulation 28 or did not obtain the version of the petitioners as provided under Regulation 30(2). Apart from the compromise there is nothing on record to show that the petitioners were heard or made aware of the terms of the settlement. There is violation of all the mandatory provisions of the Act and the Regulations. There is violation of the principles of natural justice and fair play also. the original award is not signed by the petitioners as provided under Regulation 33(1) but signed only by the Presiding Officer and the member. When the Regulation provides that the parties shall subscribe their signature to the original award, that is also to be complied with. The District Authority has not followed the procedure for maintaining the record of cases as provided under Regulation 38. It is well settled position of law that when a special statute provides that a particular act shall be done in a particular manner it shall be done in that manner alone or not at all. Since Ext. P2 award is passed in violation of all the statutory provisions and also against the principles of natural justice, it is liable to the quashed.
16. Now I shall consider how far Ext.P6 recovery notice issued by the Recovery Officer is valid. It is submitted by the first respondent that on the basis of the award, the Bank has approached the Debts Recovery Tribunal and the Debts Recovery Tribunal in exercise of the powers conferred on it under Sections 19 and 31A of as Ext. R1(B). The first paragraph of the order passed by the Debts Recovery Tribunal shows that the Bank had filed the O.A. to issue recovery certificate in favour of the applicant Bank in terms of the award passed in KELSA No. 5 of 2000. No notice was issued by the Debts Recovery Tribunal to the petitioners. The Debts Recovery tribunal is bound to follow the principles of natural justice as held in Union of India v. Delhi High Court Bar Association (JT 2002 (3) SC 131). In Devassia v. South Indian Bank Ltd. (2001 (2) K.L.T. 176) a Learned Single Judge of this Court has considered the question whether the Debt Recovery Tribunal is bound to issue notice to the judgment debtor before passing an order under Section 31A of the Recovery of Debts Due to Banks and Financial Institutions Act. It was held as follows:-
"While passing orders like Ext. P2 issuing certificates intended for recovery of amounts, the Debt Recovery Tribunal is bound to follow the principles of natural justice and to issue notice to all affected parties, including the judgment debtor."
Ext.P2 recovery certificate was issued in violation of the principles of natural justice. I have already found that the award passed by the Lok Adalat is to be quashed. Once the award goes, the orders passed by the Tribunal based on that award also goes. Without a proper order, the Recovery Officer cannot proceed with the recovery also.
17. There is yet another aspect. Ext.P7 notice for settling the sale proclamation issued by the Recovery Officer shows that the proclamation of sale will be settled on 15th June, 2002 at 11 a.m. It is averred by the petitioners that on receipt of the notice, they went to the office of the Recovery Officer and that was a holiday. The learned counsel appearing for the petitioners submits that he personally went to the office of the Recovery Officer on 15-6-2002 and the Officer was not present. The decision of the Recovery Officer selecting a holiday for setting the sale proclamation is highly suspicious. The Recovery Officer has not followed the provisions contained in the second schedule to the provisions of the Income Tax Act. So Exts. P6 and P7 are also to be quashed.
18. Before parting with the case, I feel it is the duty of this Court to remind the various committees constituted under the Legal Services Authorities Act the need to follow the procedure prescribed under the Act, Rules and Regulations strictly. The Lok Adalats are also bound to follow the principles of natural justice, equity, fair play and other legal principles. Had the Committee taken care to issue notice to the petitioners and obtain a written statement containing their version and placed the same before the Lok Adalat all these unfortunate disputes could have been avoided. The Lok Adalats shall also not forget that their duty is not to dispose of cases some how but settle cases amicably.
In the result, the Original Petition is allowed Ext.P2 award passed by the Lok Adalat held on 14-1-2000 by the District Authority, and further proceedings of the Debts Recovery Tribunal based on that award and Ext.P7 notice issued by the Recovery Officer are hereby quashed. It is made clear that this order will not be a bar for the Bank to proceed against the petitioners for recovery of the amount advanced by the Bank subject to the law of limitation. It is also open to the parties to approach the District Authority for including KELSA No. 5 of 2000 again in the Lok Adalat. Forward copies of the judgment to all the courts below who is turn will make the copies of the same available to the various Committees constituted under the Legal Services Authorities Act for nature guidance.