Theory:

     Algu decided to refer the case to the panchayat. For a second time in a few months, preparations for holding the panchayat were made, and both the parties started meeting people seeking their support.

     The panchayat was held under the old banyan tree. Algu stood up and said, “The voice of the Panch is the voice of God. Let Sahu nominate the head Panch. I will abide by his decision.”
 
     Sahu saw his chance and proposed the name of Jumman. Algu’s heart sank and he turned pale. But what could he do?
 
     The moment Jumman became head Panch, he realised his responsibility as judge and the dignity of his office. Could he, seated in that high place, have his revenge now? He thought and thought. No, he must not allow his personal feelings to come in the way of speaking the truth and doing justice.
Explanation:
 
Algu found it impossible to get the money from Sahu. Since Sahu was adamant and had refused to pay him, Algu decided to take the case to the panchayat. Both Sahu and Algu met the village people seeking their support.
 
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Algu and Sahu met people seeking their support

The day of panchayat came, and the villagers gathered under the old banyan tree where the Panchayat meetings were usually conducted. Algu's case was the second case in a few months, the first one being Jumman's case. As it is customary for the people to nominate the Head Panch for cases, Algu let Sahu make the decision.
 
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Algu and Sahu's panchayat

Sahu, being cunning, appointed Jumman as the Panch. He knew about the friction existing between Jumman and Algu, and he believed that Jumman would pass a judgement in favour of Sahu. After all, Jumman had wanted his revenge, and this would indeed be a great chance.
 
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Sahu nominated Jumman as the Head Panch

Algu realised that he could lose his case any moment now. His heart sank and his skin turned pale. He had lost all his hopes in getting his money back and was very worried. He believed that Jumman would pass the verdict against him as he had done to Jumman.
 
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Algu lost his hope
 
Jumman, on the other hand, had conflicting emotions on his mind. Of course, he was presented with a chance of a lifetime in getting his revenge. He could humiliate Algu before the village people, and make him pay for the hurt he had caused. But he also understood the responsibilities that came with the position of the Head Panch. It is the responsibility to deliver justice. A judge should never be partial to anyone, and he/she knows neither friend nor enemy.
 
Meanings of difficult words from the paragraphs:
  
Sl. No.
Words
Meanings
1
Refer
Pass a matter to a higher authority for a decision
2
ChanceOpportunity
3
ProposeSuggest; put forward a plan or suggestion for consideration by others
4
Heart sank
Losing hope or courage
5
Turned paleBecame scared or worried
6
DignityThe state of being honoured or respected
7
OfficeIn this context, the word means a "position/post" of a person rather than the room where he/she works
 
Enrich your vocabulary with the following words from the explanation:
 
Sl. No
Words
Meanings
1
AdamantRefusing to change one's mind; inflexible
2
CunningBeing tricky; doing something with an evil or selfish motive
3
Friction
Trouble between a relationship due to a disagreement; conflicts
4
ConflictingOpposite; clashing; disagreeing
5
A chance of a lifetime A rare opportunity
6
HumiliateMake someone feel ashamed and foolish by injuring their dignity and pride
Reference:
National Council of Educational Research and Training (2006). Honeysuckle. Fair Play - Premchand (pp. 84 - 90). Published at the Publication Division by the Secretary, National Council of Educational Research and Training, Sri Aurobindo Marg, New Delhi.