[I]t is impossible for the collectivity to undertake the direct settlement of all the controversies that may arise.
Answer: Option D.
Explanation:
The claim that has been given in this option has been supported by an example that has been given by the author in the final paragraph. The evidence is given of the time when Peter wrongs Paul in the passage.
The example given shows and demonstrates why is it weird and absurd to imagine that the entire collectivity would be able to examine the circumstances of the controversy and to adjudicate it and to make a formal judgement and the decision about a matter which is disputed.