top of page
Search
  • LLC

compromise of suits


Supreme Court of India

Bijayananda Patnaik vs Satrughna Sahu And Others on 26 March, 1963

The provisions in the Code relating to withdrawal of suits are to be found in O.XXIII, r. 1. Sub-rule (1) thereof lays down that at any time after the institution of a suit the plaintiff may, as against all or any of the defendants, Withdraw his suit or abandon part of his claims. Sub-rule (2) provides that "where the Court is satisfied (a) that a suit must fail by reason of some formal defect., or


(b) that there are other sufficient grounds for allowing the plaintiff to institute a fresh suit for the subject-matter of a suit or part of a claim, it may, on such terms as it thinks fit, grant the plaintiff permission to withdraw from such suit or abandon such part of a claim with liberty to institute a fresh suit in respect of the subject- matter of such suit or such part of a claim." We have already said that sub-rule (1) gives absolute power to the plaintiff to withdraw his suit or abandon part of his claim against all or any of the defendants, and where an application for withdrawal of a suit is made under O.XXIII, r. 1 (1), the Court has to allow that application and the suit stands withdrawn. It is only under sub-rule (2) where a suit is not being withdrawn. absolutely but is being withdrawn on condition that the plaintiff may be permitted to institute a fresh suit for the same subject-matter that the permission of the court for such withdrawal is necessary. The provisions of O.XXIII r. 1 (1) and (3) also apply in the same manner to withdrawal of appeals. In Kalyan Singh v. Rahmu (1), it was held that where no objection had been filed by the respondent, the appellant had an absolute right to withdraw his appeal at any time be- fore judgment. This view was followed by the Allahabad High Court in Kanhaya Lal v. Partap Chand (2), where it was held that having regard to O. XXIII, r. 1 (1) and s. 107 (2) of the Code of Civil Procedure, where no cross-objection has been filed by the respondent, an appellant has the right to withdarw his appeal unconditionally, his only liability being to pay costs. In Dhondo Narayan Shiralkar v. Annaji Pandurang Kokatnur (3), it was held that "an appellant is entitled as of right to withdraw his appeal, provided the respondent has not acquired any interest thereunder". There was however difference between the Allahabad and Bombay High Courts as to whether s. 107 (2) of the Code of the Civil Procedure would help an appellant in such a case. It is unnecessary for our present purpose to (1) I.L.R. (1901) 23 All. 130. (2) (1931) 29 A.L.J. 232. (3) I.L.R. (1952) Bom, 66. decide whether the absolute right of the appellant to withdraw an appeal unconditionally flows from s. 107 (2) or is an inherent right of the appellant on the analogy of 0, XXIII r. 1 (11). But there can be no doubt that an appellant has the right to withdraw his appeal unconditionally and if he makes such an application to the court, it has to grant it. The difficulty arising out of any cross-objection under which the respondent might have acquired an interest as pointed out by the Bombay High Court, no longer remains in veiw of 0. XLI r. 22 (4), which now permits the cross-objection to be heard even though the appeal is withdrawn. Therefore when the High Court is hearing an appeal from an original decree and an application is made to it to withdrew the appeal unconditionally, it must permit such withdrawal subject to costs and has no power to say that it will not permit the appeal to be withdrawn and will go on with the hearing of the appeal. The power of the High Court under s. 11 6A (2) when hearing an appeal from an election petition is the same as its power when hearing an appeal from an original decree, and the procedure is also the same, for there is no express provision to the contrary in the matter of withdrawal of an appeal in the Act. Therefore when an appellant under s. 116-A makes an application for an unconditional withdrawal of the appeal, the power of the High Court, consistently with its power in an appeal from an original decree, is to allow such withdrawal, and it cannot say that it will not permit the appeal to be withdrawn.


Supreme Court of India

Banwari Lal vs Smt. Chando Devi (Through L.R.) ... on 11 December, 1992

3A. Bar to suit - No suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.


8. Earlier under Order 43, Rule 1(m), an appeal was maintainable against an order under Rule 3 of Order 23 recording or refusing to record an agreement, compromise or satisfaction. But by the amending Act aforesaid that clause has been deleted; the result whereof is that now no appeal is maintainable against an order recording or refusing to record an agreement or compromise under Rule 3 of Order 23. Being conscious that the right of appeal against the order recording a compromise or refusing to record a compromise was being taken away, a new Rule 1A has been added to Order 43 which is as follows:-


1A. Right to challenge non-appealable orders in appeal against decrees.-


(1) Where any order is made under this Code against a party and thereupon any judgment is pronounced against such party and a decree is drawn up, such party may, in an appeal against the decree, contend that such order should not have been made and the judgment should not have been pronounced.


(2) In an appeal against a decree passed in a suit after recording a compromise or refusing to record a compromise, it shall be open to the appellant to contest the decree on the ground that the compromise should, or should not, have been recorded.


9. Section 96(3) of the Code says that no appeal shall lie from a decree passed by the Court with the consent of the parties. Rule 1A(2) has been introduced saying that against a decree passed in a suit after recording a compromise, it shall be open to the appellant to contest the decree on the ground that the compromise should not have been recorded. When Section 96(3) bars an appeal against decree passed with the consent of parties, it implies that such decree is valid and binding on the parties unless set aside by the procedure prescribed or available to the parties. One such remedy available was by filing the appeal under Order 43, Rule 1(m). If the order recording the compromise was set aside, there was no necessity or occasion to file an appeal against the decree. Similarly a suit used to be filed for setting aside such decree on the ground that the decree is based on an invalid and illegal compromise not binding on the plaintiff of the second suit. But after the amendments which have been introduced, neither an appeal against the order recording the compromise nor remedy by way of filing a suit is available in cases covered by Rule 3A of Order 23. As such a right has been given under Rule 1A(2) of Order 43 to a party, who challenges the recording of the compromise, to question the validity thereof while prefering an appeal against the decree. Section 96(3) of the Code shall not be a bar to such an appeal because Section 96(3) is applicable to cases where the factum of compromise or agreement is not in dispute.


14. When the amending Act introduced a proviso along with an explanation to Rule 3 of Order 23 saying that where it is alleged by one party and denied by other that an adjustment or satisfaction has been arrived at, "the Court shall decide the question", the Court before which a petition of compromise is filed and which has recorded such compromise, has to decide the question whether an adjustment or satisfaction had been arrived at on basis of any lawful agreement. To make the enquiry in respect of validity of the agreement or the compromise more comprehensive, the explanation to the proviso says that an agreement or compromise "which is void or voidable under the Indian Contract Act..." shall not be deemed to be lawful within the meaning of the said Rule. In view of the proviso read with the explanation, a Court which had entertained the petition of Compromise has to examine whether the compromise was void or voidable under the Indian Contract Act. Even Rule 1(m) of Order 43 has been deleted under which an appeal was maintainable against an order recording a compromise. As such a party challenging a compromise can file a petition under proviso to Rule 3 of Order 23, or an appeal under Section 96(1) of the Code, in which he can now question the validity of the compromise in view of Rule 1A of Order 43 of the Code.


15. The application for exercise of power under proviso to Rule 3 of Order 23 can be labeled under Section 151 of the Code but when by the amending Act specifically such power has been vested in the Court before which the petition of compromise had been filed, the power in appropriate cases has to be exercised under the said proviso to Rule 3. It has been held by different High Courts that even after a compromise has been recorded, the Court concerned can entertain an application under Section 151 of the Code, questioning the legality or validity of the compromise. Reference in this connection may be made to the cases Smt. Tarn Bai v. V.S. Krishnaswamy Rao AIR 1985 Karnataka 270, S.G. Thimmappa v. T. Anantha , Bindeshwari Pd. Chaudhary v. Debendra Pd. Singh , Mangal Mahton v. Behari Mahton and Sri Sri Iswar Gopal Jew v. Bhagwandas Shaw , where it has been held that application under Section 151 of the Code is maintainable. The Court before which it is alleged by one of the parties to the alleged compromise that no such compromise had been entered between the parties that Court has to decide whether the agreement or compromise in question was lawful and not void or voidable under the Indian Contract Act. If the agreement or the compromise itself is fraudulent then it shall be deemed to be void within the meaning of the explanation to the proviso to Rule 3 and as such not lawful. The learned Subordinate Judge was perfectly justified in entertaining the application filed on behalf of the appellant and considering the question as to whether there had been a lawful agreement or compromise on the basis of which the Court could have recorded such agreement or compromise on 27.2.1991. Having come to the conclusion on the material produced that the compromise was not lawful within the meaning of Rule 3, there was no option left except to recall that order.



Supreme Court of India

Byram Pestonji Gariwala vs Union Bank Of India And Ors on 20 September, 1991

There is no reason to assume that the legislature in- tended to curtail the implied authority of counsel, engaged in the thick of proceedings in court, to compromise agree on matters relating to the parties, even if such matters exceed the subject-matter of the suit. The relationship of counsel and his party or the recognised agent and his principal is a matter of contract; and with the freedom of contract gener- ally, the legislature does not interfere except when war- ranted by public policy, and the legislative intent is expressly made manifest There is no such declaration of policy or indication of intent in the present case. The legislature has not evinced any intention to change the well recognised and universally acclaimed common law tradition of an ever alert, independent and active. Bar with freedom to manoeuvre with force and drive for quick action in a battle of wits typical of the adversarial system of oral hearing which is in sharp contrast to the inquisitorial traditions of the 'civil law' of France and other European and Latin American countries where written submissions have the pride of place and oral arguments are considered relatively insignificant. (See Rene David, English Law and French Law - Tagore Law Lectures, 1980). 'The civil law' is indeed equally efficacious and even older, but it is the product of a different tradition, culture and language and there is no indication,. whatever, that Parliament was addressing itself to the task .of assim- ilating or incorporating the rules and practices of that system into our own system of judicial administration. The Indian legal system is the product of history. It is rooted in our soil; nurtured and nourished by our culture, languages-and traditions; fostered and sharpened by our genius and quest for social justice; reinforced by history and heritage: it is not a mere copy of the English common law; though inspired and strengthened, guided and enriched by concepts and precepts of justice, enquiry and good con- science which arc indeed the hallmark of the common law.

We may, however, hasten to add that it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immedi- ate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay. In these days of easier and quicker communication, such contingency may seldom arise. A wise and careful coun- sel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingen- cies in order that neither his authority nor integrity is ever doubted. This essential precaution will safeguard the personal reputation of counsel as well as uphold the pres- tige and dignity of the legal profession. Considering the traditionally recognised role of counsel in the common law system, and the evil sought to be remedied by Parliament by the C.P.C. (Amendment) Act, 1976, namely, attainment of certainty and expeditious disposal of cases by reducing the terms of compromise to writing signed by the parties, and allowing the compromise decree to comprehend even matters falling outside the subject-matter of the suit, but relating to the parties, the legislature cannot, in the absence of express words to such effect, be presumed to have disallowed the parties to enter into a compromise by counsel in their cause or by their duly authorised agents. Any such presumption would be inconsistent with the legislative object of attaining quick reduction of arrears in Court by elimination of uncertainties and enlargement of the scope of compromise.


To insist upon the party himself personally signing the agreement or compromise would often cause undue delay, loss and inconvenience, especially in the case of non-resident persons. It has always been universally understood that a party can always act by his duly authorised representative. If a power-of-attorney holder can enter into an agreement or compromise on behalf of his principal, so can counsel, possessed of the requisite authorisation by vakalatnama, act on behalf of his client. Not to recognise such capacity is not only to cause much inconvenience and loss to the parties personally, but also to delay the progress of proceedings in court. If the legislature had intended to make such a funda- mental change, even at the risk of delay, inconvenience and needless expenditure, it would have expressly so stated. Accordingly, we are of the view that the words 'in writing and signed by the parties', inserted by the C.P.C. (Amendment) Act, 1976, must necessarily mean, to borrow the language of Order II1 rule 1 C.P.C.:


"any appearance application or act in or to any court, required or authorized by law to be made or done by a party in such court, may except where otherwise expressly provided by any law for the time being in force, be made or done by the party in person, or by his recognized agent, or by a pleader, appearing, applying or acting as the case may be, on his behalf:

Provided that any such appearance shall, if the court so directs, be made by the party in person".

(emphasis supplied) In the present case, the notice issued under Order XXI rule 22 was personally served on the defendant, but he did not appear or show cause why the decree should not be exe- cuted. The notice was accordingly made absolute by Order dated 23.1.1990 and leave was granted to the plaintiff to execute the decree. The decree passed by the High Court on 18.6.1984 in terms of the compromise was a valid decree and it constituted res judicata. As stated by this Court in Shankar Sitaram Sontakke & Anr. v. Balkrishna Sitaram Son- takke & Ors., AIR 1954 SC 352:-


"...... It is well settled that a consent decree is as binding upon the parties thereto as a decree passed by invitum. The compromise having been found not to be vitiated by fraud, misrepresentation, misunderstanding or mistake, the decree passed thereon has the binding force of 'res judicata'." (Page 355) S.R. Das, C.J., in Sailendra Narayan Bhanja Deo v. The State of Orissa, AIR 1956 SC 346, states:


".... a judgment by consent or default is as effective an estoppel between the parties as a judgment whereby the court exercises its mind on a contested case ...... ". (Page 351) A judgment by consent is intended to stop litigation between the parties just as much as a judgment resulting from a decision of the court at the end of a long drawn out fight. A compromise decree creates an estoppel by judgment.

As stated by Spencer-Bower & Turner in Res Judicata Second Edition, page 37:


"Any judgment or order which in other respects answers to the description of a res judicata is nonetheless so because it was made in pursuance of the consent and agreement of the parties .... Accordingly, judgments, orders, and awards by consent have always been held no less efficacious as estoppels than other judgments, orders or decisions, though doubts have been occasionally expressed whether, strictly, the foundation of the estoppel in such cases is not representation by conduct, rather than res judicata ...................... ".

See also Mohanlal Goenka v. Benoy Kishna Mukherjee & Ors., AIR 1953 SC 65.


The consent decree made on 18.6.1984 remained unchallenged. None questioned it. The appellant never raised any doubt as to its validity or genuineness. He had no case that the decree was vitiated by fraud or misrepresentation or his counsel lacked authority to enter into a compromise on his behalf. Nevertheless, after six years he questioned its validity by means of chamber summons. This was an unsuccess- ful challenge by reason of delay, estoppel or res judicata, and was rightly so held by the High Court.


In case of Kishun Vs. Behari, reported in (2005) 6 SCC 300, the plaintiff in the suit seeking cancellation of the gift deed executed by his father in favour of his brother (the defendant in the suit), filed an application before the trial Court under Order XXIII, Rule 3 asserting that there was a compromise of dispute between the parties. He provided along with the said application, an alleged joint statement said to have been signed by all the parties and filed before the Tahsildar. The said application was objected by the defendants, denying any compromise having taken place. The trial Court rejected the said application filed under Order XXIII, Rule 3 on the ground that there was no valid compromise or adjustment of disputes between the parties. The appellate Court set aside the said order of trial Court in the Appeal filed by the Original Plaintiff, and directed the trial Court to proceed with the matter in terms of the compromise petition. The original defendants filed a revision application before the High Court against the said order passed by the appellate Court, however, pending the said Revision Application, the trial Court implemented the directions of the appellate Court and passed the decree in terms of the compromise petition said to have been filed before the Tahsildar. The Revision Application came to be disposed of as having become infructuous. The original defendants filed an Appeal before the Appellate Court against the decree passed by the trial Court on the basis of the alleged compromise. The Appellate Court allowed the said Appeal observing that there was no lawful compromise of disputes between the parties. The original plaintiff filed a Second Appeal before the High Court. During the pendency of Second Appeal, both the parties i.e. the original plaintiff and the defendants expired, however, the High Court proceeded to allow the Second Appeal on the ground that an appeal against compromise decree filed by the defendant was not maintainable in view of Section 96(3) of the Code. The said decree having been challenged before the Supreme Court, the three-Judge Bench of the Supreme Court set aside the said decree passed by the High Court as it was a decree passed against the parties, who were dead, and therefore, a nullity, however, further observed in paragraph 7 as under:-


"7. That apart, we are of the view that the High Court was in error in holding that the appeal filed by Kishun against the decree of the trial court accepting a compromise which was disputed by him, was not maintainable. When on a dispute in that behalf being raised, an enquiry is made (now it has to be done in view of the proviso to Order 23 Rule 3 of the Code added by Act 104 of 1976) and the suit is decreed on the basis of a compromise based on that enquiry, it could not be held to be a decree passed on consent within the meaning of Section 96(3) of the Code. Section 96(3) contemplates non­ appealability of a decree passed by the court with the consent of parties. Obviously, when one of the parties sets up a compromise and the other disputes it and the court is forced to adjudicate on whether there was a compromise or not and to pass a decree, it would not be understood as a decree passed by the court with the consent of the parties. As we have noticed earlier, no appeal is provided after 1.2.1977, against an order rejecting or accepting a compromise after an enquiry under the proviso to Order 23 Rule 3, either by Section 104 or by Order 43 Rule 1 of the Code. Only when the acceptance of the compromise receives the imprimatur of the court and it becomes a decree, or the court proceeds to pass a decree on merits rejecting the compromise set up, it becomes appealable, unless of course, the appeal is barred by Section 96(3) of the Code. We have already indicated that when there is a contest on the question whether there was a compromise or not, a decree accepting the compromise on resolution of that controversy, cannot be said to be a decree passed with the consent of the parties. Therefore, the bar under Section 96(3) of the Code could not have application. An appeal and a second appeal with its limitations would be available to the party feeling aggrieved by the decree based on such a disputed compromise or on a rejection of the compromise set up."





Supreme Court in Sailendra Narayan v. State of Orissa. AIR 1956 SC 346, make the position clear. It has been explained in that decision, that the compromise decree creates an estoppel by judgment and a judgment by consent is as effective an estoppel between the parties as a judgment whereby the Court exercises its mind on a contested case. The Supreme Court quoted with approval the observations of Lord Hershell in in re South American and Mexican Co. Ex parte Bank of England. (1895) 1 Ch 37. which runs as follows:


"The truth is, a judgment by consent is intended to put a stop to litigation between the parties just as much as is a Judgment which results from the decision of the Court after the matter has been fought out to the end.


And I think it would be very mischievous if one were not to give a fair and reasonable interpretation to such judgments, and were to allow questions that were really involved in the action to be fought over again in a subsequent action."


The Judicial Committee in Kinch v. Wal-cott, 1929 AC 482 at p. 493. has also taken the same view.

In Secretary of State v. Ateendranath Das, (1936) ILR 63 Cal 550. the Calcutta High Court observed:


"On this authority it becomes absolutely clear that the consent order is as effective as an order passed on contest, not only with reference to the conclusions arrived at in the previous suit but also with regard to every step in the process of reasoning on which the said conclusion is founded."


Supreme Court of India

Gurpreet Singh vs Chatur Bhuj Goel on 15 December, 1987


Under r. 3 as it now stands, when a claim in suit has been adjusted wholly or in part by any lawful agreement or compromise, the compromise must be in writing and signed by the parties and there must be a completed agreement between them. To constitute an adjustment, the agreement or compromise must itself be capable of being embodied in a decree. When the parties enter into a compromise during the hearing of a suit or appeal, there is no reason why the requirement that the compromise should be reduced in writing in the form of an instrument signed by the parties should be dispensed with. The Court must therefore insist upon the parties to reduce the terms into writing.



Supreme Court of India

Babu Ram Gupta vs Sudhir Bhasin & Anr on 12 April, 1979


Take another instance where a compromise is arrived at between the parties and a particular property having been allotted to A, he has to be put in possession thereof by B. B does not give possession of this property to A. Can it be said that because the compromise decree has not been implemented by B, he commits the offence of contempt of court? Here also the answer must be in the negative and the remedy of B would be not to pray for drawing up proceedings for contempt of court against B but to approach the executing court for directing a warrant of delivery of possession under the provisions of the Code of Civil Procedure. Indeed, if we were to hold that non compliance of a compromise decree or consent order amount to contempt of court, the provisions of the Code of Civil Procedure relating to execution of decrees may not be resorted to at all. In fact, the reason why a breach of clear undertaking given to the court amounts to contempt of court is that the contemner by making a false representation to the Court obtains a benefit for himself and if he fails to honour the undertaking, he plays a serious fraud on the court itself and thereby obstructs the course of justice and brings into disrepute the judicial institution. The same cannot, however, be said of a consent order or a compromise decree where the fraud, if any, is practised by the person concerned not on the Court but on one of the parties. Thus, the offence committed by the person concerned is qua the party not qua the court, and, therefore, the very foundation for proceeding for contempt of court is completely absent in such cases. In these circumstances, we are satisfied that unless there is an express undertaking given in writing before the court by the contemner or incorporated by the court in its order, there can be no question of wilful disobedience of such an undertaking. In the instant case, we have already held that there is neither any written undertaking filed by the appellant nor was any such undertaking impliedly or expressly incorporated in the order impugned. Thus, there being no undertaking at all the question of breach of such an undertaking does not arise.






In case of Pusha Devi Bhagat Vs. Rajinder Singh and Ors., reported in (2006) 5 SCC 566, the suit filed by the plaintiffs - landlords seeking possession of the suit premises let out to a partnership firm for using it as a residence by one of its partners i.e. Pushpadevi, was decreed by the trial Court on the basis of the statements of the Counsel of both the parties recorded by the Court, and signed by them in presence of the Court and in presence of the plaintiffs. As per the said statement made by the Counsel for the defendants, the defendants undertook to vacate the premises on or before a particular date. The Second defendant Pushpadevi filed an application before the trial Court under Section 151 of the Code for setting aside the said decree alleging that she had not instructed her Counsel to enter into compromise on her behalf, and that there was no written compromise between the parties duly signed by the parties. The said second defendant Pushpadevi thereafter did not pursue the said application, and filed an appeal before the District Court against the said consent decree. The said decree came to be set aside by the District Court on the ground that there was no compromise reduced into writing and signed by the parties. In the appeal against the said order preferred by the original plaintiffs - landlords, before the High Court under Order XLIII, Rule 1(u) of CPC, the High Court allowed the said appeal holding that the consent decree in question did not fall under the first part of Rule 3 of Order XXIII but fell under the second part of the said Rule, and that there was valid compromise under Rule 3 of Order XXIII. Since the original second defendant had expired during the pendency of the appeal before the High Court, her heirs challenged the said judgement of High Court before the Supreme Court. The Supreme Court raised two questions broadly as to whether the appeal filed by Pushpadevi under Section 96 of the Code against the consent decree was maintainable and whether the compromise resulting into a consent decree was not a valid compromise under Order XXIII Rule 3 of CPC ? Thereafter, the Supreme Court considering the provisions of law, observed in paragraphs 17 to 25 as under:-


"17. The position that emerges from the amended provisions of Order 23, can be summed up thus :

(i) No appeal is maintainable against a consent decree having regard to the specific bar contained in section 96(3) CPC.

(ii) No appeal is maintainable against the order of the court recording the compromise (or refusing to record a compromise) in view of the deletion of clause (m) of Rule 1 Order 43.

(iii) No independent suit can be filed for setting aside a compromise decree on the ground that the compromise was not lawful in view of the bar contained in Rule 3A.

(iv) A consent decree operates as an estoppel and is valid and binding unless it is set aside by the court which passed the consent decree, by an order on an application under the proviso to Rule 3 of Order 23.

Therefore, the only remedy available to a party to a consent decree to avoid such consent decree, is to approach the court which recorded the compromise and made a decree in terms of it, and establish that there was no compromise. In that event, the court which recorded the compromise will itself consider and decide the question as to whether there was a valid compromise or not. This is so because a consent decree, is nothing but contract between parties superimposed with the seal of approval of the court. The validity of a consent decree depends wholly on the validity of the agreement or compromise on which it is made. The second defendant, who challenged the consent compromise decree was fully aware of this position as she filed an application for setting aside the consent decree on 21.8.2001 by alleging that there was no valid compromise in accordance with law. Significantly, none of the other defendants challenged the consent decree. For reasons best known to herself, the second defendant within a few days thereafter (that is on 27.8.2001), filed an appeal and chose not to pursue the application filed before the court which passed the consent decree. Such an appeal by second defendant was not maintainable, having regard to the express bar contained in section 96 (3) of the Code.


In case of Mahalaxmi Cooperative Housing Society Limited and Ors. Vs. Ashabhai Atmaram Patel and Ors., reported in (2013) 4 SCC 404, the Supreme Court following the Pushpadevi's case on interpretation of the provisions contained in Order XXIII Rule 3, observed in paragraphs 40 to 42 as under:-


"40. Rule 3 of Order XXIII, on the other hand, speaks of compromise of suit. Rule 3 of Order XXIII refers to distinct classes of compromise in suits. The first part refers to lawful agreement or compromise arrived at by the parties out of court, which is under the 1976 amendment of the CPC required to be in writing and signed by the parties. The second part of the Rule deals with the cases where the defendant satisfies the plaintiff in respect of whole or a part of the suit claim which is different from first part of Rule 3. The expression 'agreement' or 'compromise' refer to first part and not the second part of Rule 3. The second part gives emphasis to the expression 'satisfaction'. In Pushpa Devi Bhagat v. Rajinder Singh, (2006) 5 SCC 566 : (AIR 2006 SC 2628), this court has recognised that the distinction deals with the distinction between the first part and the second part.

"19. What is the difference between the first part and second part of Rule 3? The first part refers to situations where an agreement or compromise is entered into in writing and signed by the parties. The said agreement or compromise is placed before the court. When the court is satisfied that the suit has been adjusted either wholly or in part by such agreement, or compromise in writing and signed by the parties and that it is lawful, a decree follows in terms of what is agreed between the parties. The agreement/compromise spells out the agreed terms by which the claim is admitted or adjusted by mutual concessions or promises, so that the parties thereto can be held to their promise(s) in future and performance can be enforced by the execution of the decree to be passed in terms of it. On the other hand, the second part refers to cases where the defendant has satisfied the plaintiff about the claim. This may be by satisfying the plaintiff that his claim cannot be or need not be met or performed. It can also be by discharging or performing the required obligation. Where the defendant so 'satisfies' the plaintiff in respect of the subject­matter of the suit, nothing further remains to be done or enforced and there is no question of any 'enforcement' or 'execution' of the decree to be passed in terms of it."

41. Further, it is relevant to note the word 'satisfaction' has been used in contradistinction to the word 'adjustment' by agreement or compromise by the parties. The requirement of 'in writing and signed by the parties' does not apply to the second part where the defendant satisfies the plaintiff in respect of whole or part of the subject­matter of the suit.

42. The proviso to Rule 3 as inserted by the Amendment Act, 1976 enjoins the court to decide the question where one party alleges that the matter is adjusted by an agreement or compromise but the other party denies the allegation. The court is, therefore, called upon to decide the lis one way or the other. The proviso expressly and specifically states that the court shall not grant such adjournment for deciding the question unless it thinks fit to grant such adjournment by recording reasons."



In case of Daljit Kaur and Anr. Vs. Muktar Steels Pvt. Ltd. & Ors., reported in (2013) 16 SCC 607, the trial Court after appreciating the oral and documentary evidence led in the suit, opined that the compromise as stated by the plaintiff but disputed by the defendant, was arrived at between the parties, and decreed the suit accordingly. In the appeal before the City Civil Court, Hyderabad also, the appellate Court reappreciated the evidence and held that both the parties had arrived at a compromise in question, and that the decree passed by the trial Court being a consent decree, no appeal under Section 96(3) would lie. The Second Appeal preferred before the High Court was also dismissed by the Single Bench. In the Appeal, by special leave, the Supreme Court distinguishing the ratio laid down by the two-Judge Bench in Pushpadevi's case and following the ratio laid down by the three-Judge Bench in Kishun's case, observed as under in paragraph 18:-


18. The ratio laid down in the aforesaid case applies on all fours to the case at hand. The defendants­respondents had raised a dispute with regard to validity of the compromise and the concerned court had conducted an enquiry. Thus, a decree had been passed on the basis of the compromise based on that enquiry and, therefore, it cannot be said to be a consent decree. The decision in Pushpa Devi Bhagat (supra) has to be understood that when a decree is passed without any dispute being raised or contested in the court of first instance, the decree being passed on consent cannot be appealed against. As the present controversy is covered by the decision rendered in Kishun (supra), we are not required to dwell upon the applicability of Order XLIII, Rule 1A of the CPC."


In case of R. Rajanna Vs. S. R. Venkataswamy and Ors., reported in (2014) 15 SCC 471 the question was whether the validity of a decree passed on a compromise be challenged in a separate suit ? In the said case, the plaintiff's suit for declaration and injunction in respect of a gift deed was decreed against the defendant by the trial Court. In the appeal filed before the High Court a compromise was allegedly arrived at between the parties, on the basis of which High Court set aside the decree passed by the trial Court and allowed the Appeal. Being aggrieved by the said decree, the aggrieved original plaintiff filed a separate suit praying for setting aside the compromise recorded by the High Court and the decree passed thereon, alleging commission of fraud by the other party i.e. the original defendant. In the said subsequent suit, the defendant filed an application under Order VII, Rule 11 of CPC on the ground that separate suit was barred under Order XXIII, Rule 3A. The said application came to be allowed and the plaint came to be rejected by the trial Court. After the rejection of the plaint, the original plaintiff filed an application in the original First Appeal before the High Court praying for setting aside its earlier order, whereby the High Court had set aside the decree passed in the first suit on the basis of the compromise allegedly arrived at by the parties pending the appeal. The High Court took the view that even if the compromise was fraudulent, since the plaintiff had filed the separate suit for declaration, he ought to pursue the same to its logical conclusion. The High Court further held that even if the plaint filed by the plaintiff was rejected under Order VII, Rule 11, the plaintiff ought to seek redress against any such order of rejection. The High Court, therefore, declined to consider the prayer to set aside the decree passed on compromise. In the appeal before the Supreme Court it was observed in paragraph 11 as under:-

"11. It is manifest from a plain reading of the above that in terms of the proviso to Order XXIII Rule 3 where one party alleges and the other denies adjustment or satisfaction of any suit by a lawful agreement or compromise in writing and signed by the parties, the Court before whom such question is raised, shall decide the same. What is important is that in terms of Explanation to Order XXIII Rule 3, the agreement or compromise shall not be deemed to be lawful within meaning of the said rule if the same is void or voidable under Indian Contract Act, 1872. It follows that in every case where the question arises whether or not there has been a lawful agreement or compromise in writing and signed by the parties, the question whether the agreement or compromise is lawful has to be determined by the Court concerned. What is lawful will in turn depend upon whether the allegations suggest any infirmity in the compromise and the decree that would make the same void or voidable under the Contract Act. More importantly, Order XXIII Rule 3A clearly bars a suit to set aside a decree on the ground that the compromise on which the decree is based was not lawful. This implies that no sooner a question relating to lawfulness of the agreement or compromise is raised before the Court that passed the decree on the basis of any such agreement or compromise, it is that Court and that Court alone who can examine and determine that question. The Court cannot direct the parties to file a separate suit on the subject for no such suit will lie in view of the provisions of Order XXIII Rule 3A of CPC. That is precisely what has happened in the case at hand. When the appellant filed OS No.5326 of 2005 to challenge validity of the compromise decree, the Court before whom the suit came up rejected the plaint under Order VII Rule 11 CPC on the application made by the respondents holding that such a suit was barred by the provisions of Order XXIII Rule 3A of the CPC. Having thus got the plaint rejected, the defendants (respondents herein) could hardly be heard to argue that the plaintiff (appellant herein) ought to pursue his remedy against the compromise decree in pursuance of OS No.5326 of 2005 and if the plaint in the suit has been rejected to pursue his remedy against such rejection before a higher Court."


Gujarat High Court

Sakina Sultanali Sunesara ... vs Shia Imami Ismaili Momin Jamat ... on 28 August, 2019


21. The afore-stated question appears to have been framed under the premise that the remedy of filing an appeal is provided under Order XLIII Rule 1A of CPC. However, on the careful reading of the said provision it transpires that no such remedy of filing an Appeal either against any order or any decree is provided therein. The first part of Rule 1A of the said Order XLIII states that where any order is made under the Code against the party and thereupon any judgement is pronounced against such party and the decree is drawn up, such party may in an appeal against the decree contend that such order should not have been made and the judgement should not have been pronounced. We are not much concerned with the first part of Rule 1A i.e. Sub-rule (1) of Rule 1A, and therefore, the same is not being dealt with in detail. Sub-rule (2) of Rule 1A, which is more relevant for our purpose, states that in an appeal against the decree passed in the suit after recording a compromise or refusing to record a compromise it shall be open to the appellant to contest the decree on the ground that the compromise should or should not have been recorded. In this regard, it may be noted that the very opening words contained in Sub- rule (2) i.e. "in an appeal against the decree" implies that when an appeal is filed against the decree passed in the suit after recording the compromise or refusing to record compromise, the appellant could raise the contention that the compromise should or should not have been recorded. The said provision itself does not give any right to file any appeal either against the order or against the decree based on the compromise in the suit. It is true that before the deletion of Clause (m) of Rule 1 of Order XLIII, an Appeal from Order was maintainable under the said Rule against an order made under Order XXIII Rule 3 recoding or refusing to record an agreement, compromise or satisfaction. However, on deletion of the said Clause and simultaneous insertion of Rule 1A in Order XLIII, the right to file an Appeal from Order has been taken away and the concerned party has been permitted to contest the decree and raise the contention in the appeal that such a compromise should or should not have been recorded.


22. It cannot be gainsaid that an appeal would lie from every decree passed by any Court exercising original jurisdiction to the Court authorized to hear appeals from the decisions of such Court under Section 96(1) read with Order XLI of CPC. As held by the Supreme Court in Banwarilal's case, after the amendments, neither an appeal against the order recording the compromise nor remedy by way of filing a suit is available in cases covered under Rule 3A of Order XXIII. Such a right has been given under Rule 1A(2) of Order XLIII to a party, who challenges the recording of the compromise, to question the validity thereof while preferring an appeal against the decree passed in the suit.


23. Having said that let us examine as to what remedy an aggrieved party would have against the decree passed in the suit by the trial Court on the basis of the compromise between the parties (consent decree). The aggrieved party could be one of the parties to the suit who had signed the compromise. He could be the party to the suit but not the party to the compromise in the sense that the compromise might not have been signed by himself but by his authorized agent or pleader or power-of-attorney holder. The aggrieved party could also be a third party who was not the party to the suit. Hence, the Court will have to examine the issue taking into consideration different possible situations under which the decree under Order XXIII, Rule 3 could be challenged.


24. In order to deal with this issue, it would be apposite first refer to the provisions contained in Order XXIII Rule 3, which pertain to the compromise of the suit. The bare reading of the said provision implies that the said Rule is in two parts. The first part refers to the situation, where it is proved to the satisfaction of the Court that the suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties; and the second part refers to the situation where the defendant satisfies the plaintiff in respect of the whole or in part of the subject matter of the suit. In all the situations referred to in both the parts, the Court has to order such agreement, compromise or satisfaction to be recorded, and pass a decree in accordance therewith so far as it relates to the parties to the suit, whether or not the subject matter of the agreement, compromise or satisfaction is the same as the subject matter of the suit. The Court, when it passes the decree considering the first part of the said provision, has to record its satisfaction that the suit has been adjusted wholly or in part by a lawful agreement or compromise and that the said agreement or compromise is in writing and is signed by the parties. As per the Explanation to the said Rule 3, an agreement or compromise which is void or voidable under the Indian Contract Act, 1872 shall not be deemed to be lawful within the meaning of the said Rule. Therefore, it would be incumbent on the part of the Court to record its satisfaction keeping in mind the provisions contained in the Indian Contract Act as to whether the agreement or compromise arrived at between the parties, is a lawful agreement or compromise. The second part of the said Rule deals with the situation, where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit. In the second part, the questions as to whether the suit has been adjusted by any compromise or agreement signed by the parties etc., do not arise. The Supreme Court in case of Pusha Devi Bhagat Vs. Rajinder Singh (supra) very precisely put the difference as under:- "19. ... The difference between the two parts is this : Where the matter falls under the second part, what is reported is a completed action or settlement out of court putting an end to the dispute, and the resultant decree recording the satisfaction, is not capable of being enforced by levying execution. Where the matter falls under the first part, there is a promise or promises agreed to be performed or executed, and that can be enforced by levying execution. While agreements or compromises falling under the first part, can only be by an instrument or other form of writing signed by the parties, there is no such requirement in regard to settlements or satisfaction falling under the second part. Where the matter falls under the second part, it is sufficient if the plaintiff or plaintiff's counsel appears before the court and informs the court that the subject matter of the suit has already been settled or satisfied."


25. Now, so far as the proviso to the said Rule 3 of Order XXIII is concerned, it states that when it is alleged by one party and denied by the other that an adjustment or the satisfaction has been arrived at, the Court has to decide the question; but the Court should not grant adjournment for the purpose of deciding the question, unless the Court for the reasons to be recorded, thinks fit to grant such adjournment. The said proviso applies to both the parts of the said Rule namely where the suit has been adjusted wholly or in part by any lawful agreement or compromise, or where the defendant has satisfied the plaintiff in respect of the whole or any part of the subject matter of the suit. Thus, when such adjustment or satisfaction is disputed by either of the parties to the suit, the Court has to decide the question without granting any adjournment. It is further contemplates passing of a decree in the suit between the parties to the suit, and the proviso to the said Rule also contemplates the dispute to be raised by the parties to the suit, inasmuch as it states that "where it is alleged by one party and denied by the other that an adjustment or satisfaction has been arrived at, the Court shall decide the question". Further, such question could be raised by either of the parties to the suit before or after the decree is passed by the Court under Order XXIII, Rule 3 and the Court is obliged to decide such question. When no such question is raised by either of the parties and the decree is passed, it assumes the character of "Consent Decree" but when the dispute is raised and the Court passes the decree after deciding such dispute or question, it could not be called a "consent decree", and therefore, not barred by Section 96(3) of CPC. As held by three-Judge Bench of Supreme Court in case of Kishun (supra), where there is a contest on the question whether there was a compromise or not, a decree accepting the compromise on resolution of that controversy can not be said to be a decree passed with the consent of the parties, and therefore, the bar under Section 96(3) of the Code would not have application. Thus, either of the parties who is aggrieved by such decree which is not a consent decree, could certainly file an Appeal under Section 96(1) of CPC. In such an appeal filed against the decree passed in the suit after recording a compromise, the appellant can contest the decree on the ground that the compromise should, or should not, have been recorded, in view of Rule 1A(2) of Order XLIII of CPC.


26. Now, there could be a situation where the parties to the suit arrive at a compromise, sign such compromise and request the Court to pass a decree, and the Court passes the decree, however, subsequently one of the parties realises his mistake or comes to know that some fraud was committed while arriving at the compromise with the other party. In such a situation, the aggrieved party, who was party to the compromise, can not file either the Appeal under Section 96(1) against such decree, the same being the consent decree, on account of