How did the Panchayat solve the problem?
The Panchayat solved the problem by using clever reasoning against the neighbour's own argument. They agreed that only the well was sold, not the water. Then they declared that if the water belonged to the neighbour, he had no right to keep his water in the farmer's well. The neighbour was ordered to remove the water or use it all immediately, otherwise it would belong to the well's owner.
Explanation
The chapter describes how the Panchayat members discussed the matter among themselves. The village chief announced that if the neighbour had not sold the water and the water was his, then he had no business keeping his water in the farmer's well. The neighbour was told to remove the water or use it all up immediately, or the water would belong to the owner of the well.