Setting aside a compromise decree

Compromise Suit

Order XXIII deals with withdrawal and adjustment of suits. Rule 3 relates to compromise of suits, relevant portion of which is extracted below :

“3. Compromise of suit.

Where it is proved to the satisfaction of the Court that a SUIT has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties, or where the Defendant satisfies the Plaintiff in respect of the whole or any part of the subject matter of the SUIT, the Court shall order such agreement, compromise or satisfaction to be recorded, and shall 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:

Provided 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; but no adjournment shall be granted for the purpose of deciding the question, unless the Court, for reasons to be recorded, thinks fit to grant such adjournment.

Explanation–An agreement or compromise which is void or voidable under the Indian Contract Act, 1872 (9 of 1872), shall not be deemed to be lawful within the meaning of this rule”.

The said Rule consists of two parts. The first part provides that where it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties, the court shall order such agreement or compromise to be recorded and shall pass a decree in accordance therewith. The second part provides that where a defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the court shall order such satisfaction to be recorded and shall pass a decree in accordance therewith. The Rule also makes it clear that the compromise or agreement may relate to issues or disputes which are not the subject-matter of the suit and that such compromise or agreement may be entered not only among the parties to the suit, but others also, but the decree to be passed shall be confined 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. We are not, however, concerned with this aspect of the Rule in this appeal.

What is the difference between the first part and the 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 subject-matter 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.

Let us illustrate with reference to a money-suit filed for recovery of say a sum of Rupees one lakh. Parties may enter into a lawful agreement or compromise in writing and signed by them, agreeing that the defendant will pay the sum of Rupees one lakh within a specified period or specified manner or may agree that only a sum of Rs.75,000 shall be paid by the defendant in full and final settlement of the claim. Such agreement or compromise will fall under the first Part and if defendant does not fulfil the promise, the plaintiff can enforce it by levying execution. On the other hand, the parties may submit to the court that defendant has already paid a sum of Rupees one lakh or Rs.75,000/- in full and final satisfaction or that the suit claim has been fully settled by the defendant out of court (either by mentioning the amount paid or not mentioning it) or that plaintiff will not press the claim.

Here the obligation is already performed by the defendant or plaintiff agrees that he will not enforce performance and nothing remains to be performed by the defendant. As the order that follows merely records the extinguishment or satisfaction of the claim or non- existence of the claim, it is not capable of being ‘enforced’ by levy of execution, as there is no obligation to be performed by the defendant in pursuance of the decree. Such ‘satisfaction’ need not be expressed by an agreement or compromise in writing and signed by the parties. It can be by a unilateral submission by the plaintiff or his counsel. Such satisfaction will fall under the second part. Of course even when there is such satisfaction of the claim or subject matter of the suit by defendant and the matter falls under the second part, nothing prevents the parties from reducing such satisfaction of the claim/subject matter, into writing and signing the same.

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 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.

Compromise Decree

Section 96 provides for appeals from original decrees. Sub-section (3) of section 96, however, provided that no appeal shall lie from a decree passed by the court with the consent of the parties. We may notice here that Order 43, Rule 1 (m) of CPC had earlier provided for an appeal against the order under Rule 3 Order 23 recording or refusing to record an agreement, compromise or satisfaction. But clause (m) of Rule 1, Order 43 was omitted by Act 104 of 1976 with effect from 1.2.1977. Simultaneously, a proviso was added to Rule 3, Order 23 with effect from 1.2.1977.

We extract below the relevant portion of the said proviso :

“Provided 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….”

Rule 3A was also added in Order 23 with effect from 1-2-1977 barring any suit to set aside a decree on the ground that the compromise on which the decree is based was not lawful.

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) 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.

Supreme Court in Gurpreet Singh vs. Chatur Bhuj Goel [(1988) 1 SCC 270]  contend that a compromise should be reduced into writing in the form of an ‘instrument’ and signed by the parties to be valid under Order 23, Rule 3.

Order XXIII Rule 3 of Code of Civil Procedure, Apex Court concluded thus:

Under Rule 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.

It is clear from this decision that during the course of HEARING, namely, SUIT or appeal, when the parties enter into a compromise, the same should be reduced in writing in the form of an instrument and signed by the parties. The substance of the said decision is that the Court must insist upon the parties to reduce the terms into writing.

Case study( Extract)

In a suit against the tenant for possession, if the settlement is that the tenant will vacate the premises within a specified time, it means that the possession could be recovered in execution of such decree in the event of the defendant failing to vacate the premises within the time agreed. Therefore, such settlement would fall under the first part. On the other hand, if both parties or the plaintiff submit to the court that the tenant has already vacated the premises and thus the claim for possession has been satisfied or if the plaintiff submits that he will not press the prayer for delivery of possession, the suit will be disposed of recording the same, under the second part. In such an event, there will be disposal of the suit, but no ‘executable’ decree.

“In this case, under the settlement, the tenant undertook to vacate the suit property on a future date (that is 22-1-2002) and pay the agreed rent till then. The decree in pursuance of such settlement was an ‘executable’ decree. Therefore the settlement did not fall under the second part, but under the first part of Rule 3……………

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”.


Practice Ref: Pushpa Devi Bhagat (D) by LR-AIR 2006 SC 2628 : (2006) 3 Suppl. SCR 370 : (2006) 5 SCC 566 : JT 2006 (6) SC 235 : (2006) 7 SCALE 8

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