Settling a Money Dispute at a Pre-Litigation Lok Adalat

A motor accident compensation claim was referred to a Lok Adalat organized by the High Court. The Lok Adalat bench determined an enhanced award. The appellant State of Punjab attempted to appeal against the Lok Adalat order before a Division Bench of the High Court, asserting that the award was excessive.

The Supreme Court ruled that under Section 21 of the Legal Services Authorities Act, 1987, every award of a Lok Adalat is deemed to be a decree of a Civil Court. Section 21(2) explicitly mandates that no appeal shall lie against an award of the Lok Adalat to any court. A Lok Adalat cannot adjudicate or determine a dispute judicially; it merely records a settlement or compromise arrived at by the parties. Once signed, the award is final and cannot be reopened by an appeal or revision.

The appellant filed a criminal complaint under Section 138 of the Negotiable Instruments Act for cheque dishonour. The dispute was referred to a Lok Adalat where parties executed a compromise agreement. When the respondent defaulted on the agreed payment schedule, the appellant filed an Execution Petition in a Civil Court under Order 21 CPC. The High Court rejected the execution petition, holding that a criminal court award could not be executed as a civil decree.

A three-judge bench of the Supreme Court reversed the High Court, definitively ruling that even if a dispute originated before a criminal court under Section 138 of the NI Act, once it is compromised before a Lok Adalat, Section 21 of the Legal Services Authorities Act creates a statutory legal fiction. The award is deemed to be a decree of a Civil Court and is executable before an ordinary Civil Court through property attachment, salary garnishment, or civil imprisonment under Order 21 CPC.

A money recovery and property dispute was sent to a Lok Adalat. The conciliators drafted settlement terms and passed an award based on discussions, despite one party refusing to sign the memorandum of compromise and objecting to the settlement valuation.

The Supreme Court struck down the award, reaffirming that a Lok Adalat has no judicial power to adjudicate, determine, or impose any decision on non-consenting parties. Compromise or mutual settlement between the parties is the sine qua non (essential condition) for passing a valid award under Section 20. If either party does not freely agree, the Lok Adalat must return the matter to the regular court or close the pre-litigation docket without passing an award.

Following a money compromise recorded before a Lok Adalat, one of the parties filed a fresh regular civil suit challenging the compromise decree, claiming mistake of fact and seeking a declaration that the settlement was void.

The Supreme Court held that an award of a Lok Adalat, which is deemed to be a decree of a Civil Court, has the effect of a consent decree. It operates as res judicata between the parties and bars any fresh suit on the same cause of action. The only very narrow remedy available to an aggrieved party is an extraordinary writ petition under Article 226 or 227 of the Constitution before the High Court, and that too solely on strict grounds of proved fraud or misrepresentation.