Retaining Sale Consideration Precludes Fraud Challenge to Lok Adalat Award: Telangana HC

The Telangana High Court has established that parties who receive and retain consideration amounts under a settlement cannot subsequently challenge a Lok Adalat Award on grounds of fraud, as the principle of fair play and estoppel prevents them from resiling from the transaction after enjoying its benefits.

A Division Bench comprising Justice Moushumi Bhattacharya and Justice Renuka Yara delivered this significant ruling while dismissing a challenge to a 13-year-old Lok Adalat Award. The Bench examined whether procedural lapses, such as the absence of a separate signed memorandum of compromise or alleged lack of pecuniary jurisdiction, could vitiate an award when the parties had already acted upon the settlement terms.

Key Takeaways

Benefit Retention Bars Fraud Pleas

A party that accepts and keeps sale consideration is legally prohibited from alleging fraud to set aside a Lok Adalat settlement.

No Mandatory Prior Memorandum

There is no statutory requirement under the Legal Services Authorities Act, 1987 for a separate, prior memorandum of settlement; the award itself can record a compromise reached in the presence of the Lok Adalat.

Pecuniary Limits and Lok Adalats

Unlike Permanent Lok Adalats, regular Lok Adalats organized under Section 19 of the Legal Services Authorities Act, 1987 do not have pecuniary limitations for resolving disputes based on compromise.

GPA Presence Equals Party Presence

The signature of a General Power of Attorney (GPA) holder on a settlement is sufficient to constitute the 'deemed presence' of the principals they represent.

Validity of Awards Based on Consent

The Telangana High Court observed that the drawing up of a Lok Adalat Award is essentially an administrative act that incorporates terms agreed upon by the parties. It clarified that Section 20 of the Legal Services Authorities Act, 1987 emphasizes the arrival at a compromise, and the law does not prohibit such settlements from being reflected directly in the Award signed before the members of the Lok Adalat. The Bench observed that "The drawing up of a Lok Adalat Award is an administrative act and more important, contemplates putting the imprimatur of the judicial forum/Lok Adalat on the Settlement/Compromise arrived at by the parties. ... the Act and the Regulations indicate that the Lok Adalat Award can also be an act of formalising the Settlement/Compromise arrived at by the parties before/in front of the Lok Adalat; and the parties signing the same in the presence of/before the Lok Adalat and the Lok Adalat counter-signing the same."

Addressing Jurisdictional and Fraud Allegations

The petitioners had argued that the Mandal Legal Services Committee lacked the pecuniary jurisdiction to handle a matter valued at Rs. 1 crore. However, the Bench distinguished between 'Permanent Lok Adalats' (Chapter VIA) and 'Lok Adalats' (Chapter VI), noting that the latter has no such cap. Furthermore, the Court highlighted that under Section 21 of the Code of Civil Procedure, 1908, objections to pecuniary jurisdiction must be raised at the first instance, which the petitioners failed to do for a decade.

Ratio

A Lok Adalat Award is valid if signed by the parties (or their authorized GPA holders) and countersigned by the Lok Adalat members, even in the absence of a prior separate memorandum of settlement. Furthermore, a litigant who receives and retains the fruits of a compromise is estopped from challenging the Award on allegations of fraud or misrepresentation, as such conduct neutralizes the plea of fraud.

Background

The dispute originated from an Agreement of Sale-cum-General Power of Attorney (ASGPA) executed in 2011. The respondent had paid Rs. 85 lakhs to one M. Ganga Raju, who acted as the GPA holder for the owners. A settlement was reached before the Lok Adalat in 2013, where it was agreed that the sale deed would be registered upon payment of the remaining Rs. 15 lakhs. Following Ganga Raju's death, his legal heirs (the petitioners) received and retained a further Rs. 30 lakhs from the respondent, issuing receipts for 'part sale consideration'.

Years later, the petitioners challenged the Award, alleging fraud and claiming it only bore a single signature. The Telangana High Court relied on Bishnudeo Narain v. Seogeni Rai and Electrosteel Castings Ltd. v. UV Asset Construction Company Limited to reiterate that fraud must be pleaded with specific particulars. It further cited K.Srinivasappa v. Mallanna ( "2022 INSC 674": 2022 CaseBase(SC) 57) and Bhakti Vinaykumar Khatu v. Jayanti Bhaskar Shirsat ( "SLP.No.13941 of 2024, dated 28.01.2026": 2026 CaseBase(SC) 925) to emphasize that receiving money under a compromise precludes a subsequent challenge. The Bench also referenced Canara Bank v. G.S. Jayarama and Balla Veera Venkata Satyanarayana @ Sathi Babu v. the State of Andhra Pradesh ( "Writ Petition No.6190 of 2019 order dated 08.11.2019": 2019 CaseBase(AP) 9695) to distinguish the pecuniary powers of different types of Lok Adalats, ultimately finding the petition lacked merit.

Case Details:
Case No.: WRIT PETITION NO.16457 OF 2026
Neutral Citation: (CNR NO.HBHC010327182026)
Case Title: Smt. M.Nagalakshmi and Another V. The Chairman, Mandal Legal Services Committee, Cyberabad and Five Others
Appearances:
For the Petitioner(s): Mr. B. Mayur Reddy, learned Senior Counsel representing Mr. Sanjay Kumar Agarwal
For the Respondent(s): Mr. Vivek Reddy, learned Senior Counsel representing Ms. Soubhagyavalli Vedantam; Mr. Pusuluri Shashi Kiran, Standing Counsel for TSLSA

Source: 2026 CaseBase(TEL) 31246