Lok Adalat Settlements Require Party Presence/Free Consent; Counsel Must Hold Written Authority to Compromise

1. Introduction

In MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD v. HAKIM UDDIN AND ANR (Gauhati High Court, decided on 08-01-2026), the petitioners (a finance company and its branch manager) challenged, under Article 226 of the Constitution, an order dated 14.09.2024 passed in a National Lok Adalat in FA No. 76/2018 before the Assam State Consumer Disputes Redressal Commission.

The appeal (FA No. 76/2018) arose from an ex parte consumer forum order in CP case No. 02/2017 directing payment to the consumer (respondent no. 1). The core dispute in the writ petition was not the underlying consumer merits, but the validity of a Lok Adalat “settlement” allegedly recorded when the company’s authorized officer was absent and only counsel appeared.

Key issue: Can a settlement be arrived at in a National Lok Adalat in the absence of a party and only with the presence of the learned counsel for the said party?

2. Summary of the Judgment

The Gauhati High Court set aside the Lok Adalat order dated 14.09.2024 and directed that the pending appeal be decided by the Consumer Commission on merits, expeditiously.

The Court held that the Legal Services Authorities Act, 1987 contemplates settlements between the parties, requiring their presence and free consent. For a corporate party, this means the presence of a duly authorized representative. On examining the requisitioned records, the Court found no written authority letter empowering counsel to sign/compromise on behalf of the petitioners. In these circumstances, the purported Lok Adalat settlement could not stand.

3. Analysis

3.1 Precedents Cited

• Bharvagi Constructions & Anr. Vs. Kothakapu Muthyam Reddy & Ors., (2018) 13 SCC 480
  

  The High Court relied on this Supreme Court decision to reaffirm the relationship between the “finality” of Lok Adalat awards and the High Court’s constitutional writ jurisdiction. Although Section 21 gives Lok Adalat awards the status of a civil court decree and bars appeals, Bharvagi Constructions clarifies that writ review remains available on limited grounds.

• State of Punjab & Anr. Vs. Jalour Singh & Ors., (2008) 2 SCC 660
  

  Cited through Bharvagi Constructions, this three-judge decision is pivotal on the remedy against Lok Adalat awards. It holds that, where a genuine settlement exists (duly signed by parties and annexed), the award is final and binding, executable like a decree, and no appeal lies. However, an aggrieved party may challenge such award only by a writ petition under Articles 226/227 on very limited grounds. This doctrinal gateway enabled the High Court to entertain the present writ petition.

• Prasanta Kumar Sahoo (supra)
  

  The judgment records that, in an earlier order dated 11.12.2025, the High Court considered Prasanta Kumar Sahoo (supra) and narrowed the inquiry to whether counsel had written authorization to sign a compromise on behalf of the petitioner and whether such authority was placed before the Lok Adalat. While the present judgment does not reproduce the ratio of that case, it uses it to frame the evidentiary/legal requirement of authorization for counsel-driven compromise.

3.2 Legal Reasoning

1. Statutory finality is real—but not a constitutional bar.

   The Court first acknowledged the statutory command in Section 21 of the Legal Services Authorities Act, 1987: every Lok Adalat award is deemed a decree; it is final and binding; and no appeal lies against it. Yet, applying Bharvagi Constructions and State of Punjab & Anr. Vs. Jalour Singh & Ors., the Court held that this finality does not oust the High Court’s Article 226 jurisdiction.

2. “Settlement” under the 1987 Act requires parties’ free consent—implicitly demanding their presence.

   The Court treated the Lok Adalat’s legitimacy as resting on consent-based dispute resolution: the statute’s object is to bring disputes to a final settlement, which requires the presence of the parties and their free consent. It reasoned that if parties are absent, “the entire essence and objective” of the Act would be defeated. This is the judgment’s central normative move: it reads “settlement between the parties” not as a mere formality but as a substantive consent requirement.

3. For corporate parties, “presence” means a competent authorized representative.

   Since petitioner no. 1 is a company, the Court emphasized that the person who can validly settle must be a duly authorized representative. The Court did not accept that counsel’s presence alone, without demonstrated authority, satisfied the statutory settlement model.

4. Written authority to compromise is a practical minimum safeguard; its absence was decisive.

   Pursuant to its earlier order dated 11.12.2025, the Court examined the Commission’s records specifically to see if any authority letter was given to counsel to act and sign the compromise. Finding no such authority letter, the Court concluded the settlement could not be treated as a valid Lok Adalat settlement and therefore interfered with the Lok Adalat order.

   Notably, respondent no. 1 argued that counsel had “instructions” via WhatsApp messages displayed during proceedings, and further that liability had been admitted in an affidavit in the appeal. The Court did not treat these assertions as curing the foundational defect: the settlement mechanism demands party consent, and for a company that consent must be manifested through a competent authorized representative (and, on the Court’s approach, the authority should be traceable on the record).

5. Remedy tailored to preserve adjudication on merits.

   Rather than decide the consumer dispute, the Court restored the appeal (pending since 2018) for decision on merits by the Commission and directed expeditious disposal—consistent with the limited supervisory role in writ review of Lok Adalat awards.

3.3 Impact

• Higher threshold for validity of Lok Adalat compromises involving absent parties.

  The judgment signals that a compromise recorded in Lok Adalat proceedings is vulnerable if the party is absent and the record does not show a proper, competent authorization—especially for corporations and institutions that act through officers.

• Institutional practice change: record the authority.

  Consumer Commissions and Lok Adalats may need to insist that counsel placing a settlement on record produce and file an authority letter (board resolution/power of attorney/authorization memo, as applicable) before the compromise is accepted.

• Clarifies the limited but real writ-correction window.

  By reaffirming Bharvagi Constructions and State of Punjab & Anr. Vs. Jalour Singh & Ors., the decision reinforces that while Lok Adalat awards are final and non-appealable, they are not immune from writ scrutiny where consent/settlement validity is questioned.

• Litigation strategy implications.

  Parties (and especially large entities) will likely ensure authorized officers attend Lok Adalats or that counsel carries formal written authority, reducing later challenges and preserving the credibility of ADR outcomes.

4. Complex Concepts Simplified

Lok Adalat “award” deemed a decree (Section 21)

It is treated like a civil court judgment for enforcement (execution). It is final and binding, and no statutory appeal lies.

Writ petition under Article 226/227 against Lok Adalat award

Even though no appeal is allowed, the High Court can intervene in exceptional situations (for example, where the award is not based on a valid, voluntary settlement). This review is narrow and supervisory, not a rehearing on merits.

Ex parte order

An order passed when one side did not appear; the absent side typically seeks to challenge it through appeal/setting aside procedures, as happened here.

Authority to compromise

A lawyer generally conducts litigation, but entering a binding settlement is a distinct act requiring express authorization from the client—often best evidenced by a written authority letter, particularly when the client is a company acting through representatives.

5. Conclusion

The Gauhati High Court’s decision establishes a clear operational rule: a Lok Adalat settlement must reflect the parties’ free consent, and where a party (especially a company) is absent, counsel’s concession cannot substitute for consent unless supported by proper written authority on record. While Lok Adalat awards are statutorily final under Section 21, the judgment reiterates that constitutional writ review remains available on limited grounds, including defects going to the existence and validity of the settlement itself. The immediate outcome is restoration of the consumer appeal for decision on merits, with a direction for expeditious disposal.