This article is written by Nihar Ranjan Das, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.
“Compromise” a word that defines a deal between the parties, where each party gives up part of their demand. It is a settlement of disputes by mutual consent. In such a process the adverse claim of different parties kept way and they put an end to the litigation by way of compromise. Also in certain cases by the intervention of well wishers and with the help of conciliation process the parties settled up their litigations.
Whenever a Civil Suit is filed and instituted in the court, it is open to the parties to settle up mutually and compromise it by any lawful agreement or compromise in writing and signed by the parties therein. So in general, we can say that all the matters which are possible to decide in a civil suit also can be settled by means of a compromise.
Also there are certain provisions in CPC, which deal with withdrawal and compromise of civil litigations:
- Withdrawal of the suits provided under Order – 23, Rule – 1, 2 and 4.
- Compromise of the suits provided under Order 23, Rule – 3 and 3B.
Compromise in a civil suit
When a suit is instituted in the court, the Plaintiff (a person who files a case against another person) has a cause of action mentioned in his plaint describing all the details of his claim in the prayer section, which he will be entitled to. After hearing of the case, the court will decide and pronounce a judgement, which might be awarded to the plaintiff or the defendant as per the merit of the case. Such claim may be awarded to the plaintiff if the case is decided in his favour upon execution of a decree.
But in certain cases a situation might arise where there is a compromise between the parties after the institution of case and before the judgement has been passed, in accordance with the above mentioned provision.
It is purely the discretion of the parties if they actually want to compromise and adjust their disputes by an agreement or compromise. If the court is satisfied that the parties are willing to mutually settle up wholly or in part by any lawful agreement in writing and signed by both the parties or if the defendant satisfies the plaintiff in respect of the subject matter of the suit, the court shall record such statements, agreements, compromise or satisfaction and pass a compromise decree accordingly.
Essential clauses in a compromise
There are few conditions which must be satisfied for a valid compromise between the parties. The parties must enter into an agreement or compromise, which shall be in writing and signed by the parties and also that agreement must be a lawful one. The same shall be recorded by the court and also the most important thing, the compromise decree shall be counted as a valid one, only if the same has been passed by the court.
Jurisdiction: It is to be kept in mind that the compromise must be recorded in the court where it was pending before the compromise. In case of a suit, it can be recorded in the trial court whereas in case of an appeal/revision, it can be recorded at appellate court or revisional court thereof. In the case of execution of the same, it must be recorded by the executing court itself.
In case of a Minor: Another such essential provision regarding the compromise in a suit, in which a party to the suit is a minor. In such cases, it is provided that no next friend or guardian of minors shall be allowed to enter into any agreement or compromise without the leave of court with reference to the suit.
Power of a Pleader: A suit powered by a pleader on behalf of his client, can be counted as the pleader holds the same position as his client. The pleader has the full authority to enter into a compromise on behalf of his client. However, the court before granting any leave, should serve notice to the persons interested.
Applicability: Though the compromise observed by the court is called a decree but it shall have not the same effect as a decree. Hence the principle of Res-Judicata shall not be applicable because the acceptance by the court of something to which the parties had agreed upon. It is not the mere decision of the court.
Execution: As we earlier discussed, the compromise decree is not an actual decree, but the process of execution of such decree is similar to the execution of actual decree. It is always to be advised that the compromise which is unlawful or passed by the court having no jurisdiction to pass the same is always counted as a nullity and its validity can be challenged even in the time of execution. Again as we know appeal lies only against an actual decree and as we mentioned earlier that the compromise decree is not an actual decree, so no appeal lies against a compromise decree.
Rule 3B: No agreement or compromise in a representative suit can be entered into without the leave of the court. Before granting such leave, the court shall comply a notice to the interested party.
Bar to Suit- Rule-3A: no suit can be filed to set aside a compromise decree on basis of its legality and lawfulness.
Steps taken to settle a proceeding
- Scope of the settlement:
It usually involves at least a release of claims by one party against another. It is up to them to decide whether the release is to be unilateral or mutual and how the scope of the release will be defined. It is also to be taken into consideration that the release extends to the present and future claims or it affects only the existing claims made in the formal proceeding.
- Payment of a settlement:
Generally the intention of the parties’ under the settlement is to substitute the existing rights with the rights arising under the settlement. The settlement agreement should mention all these things including the consequences of non-payment.
- Conditions to the settlement:
The parties should consider whether there are condition precedent to the settlement, or any particular terms and conditions coming into effect. The process by which a settlement comes into effect is the most important thing to be taken care of. Generally the party is not obliged to dispose of the proceedings until the settlement amount is fully paid.
- Disposal of proceedings:
The settlement agreement must be clear about the formal disposal of the proceeding and who will bear the cost of the attorney/arbitrator and any outstanding dues of the court.
In arbitration proceeding parties shall be settled through arbitration in accordance with the Arbitration and Conciliation Act, 1996 and the respective pleadings shall be submitted to a mutually appointed sole Arbitrator.
The Arbitrator shall take a decision with a time bound manner maximum of 6(six) months after considering only the written arguments. The decision awarded by the Arbitrator shall be bound on both the Parties. In case one of the Party deliberately tried to delay and/or obstruct the Arbitration proceeding, the Arbitrator shall pass an ex-parte order, which would be enforceable on both the Parties.
It is important to include an obligation on the parties to agree and undertake to each other that they shall during and after the Term of this settlement agreement preserve the confidentiality and not directly or indirectly reveal any part, report, publish, disclose or transfer or use of its own confidential information except in limited circumstances, such as in compliance with the law or regulatory body or for any reason to enforce this settlement agreement.
- No admission if no final settlement:
The parties must ensure that the provision of the settlement agreement provides that, if no final settlement is reached, it will not be possible to put the settlement agreement before the court or arbitral tribunal for admission purpose.
This Compromise Agreement (“Agreement”) made on 10th Day of October 2020, at New Delhi, India.
BY AND BETWEEN
A Das, S/O- B, resident of________, Aadhar No._____, (hereinafter called as Party No.1) of the First Part;
Z Das, S/O- Y, resident of________, Aadhar No._____, (hereinafter called as Party No.2) of the Second Part
- [The disputes and differences have arisen between the aforementioned Parties, regarding a civil suit filed by the Party No.1 against the Party No.2, with a prayer for declaration of title, confirmation of possession and permanent injunction.] — (Scope of Settlement)
- That, by the intervention of gentlemen, the dispute between the parties have been amicably settled and compromised on the following terms and conditions:
- [That the Party No.2 shall hand over possession of Suit Schedule property to the plaintiff as Land owner’s allocation as per the terms and conditions of the Construction agreement between the parties by end of September 2014.
- [That in addition to that, the Party No.2 shall pay a sum of Rs 20,00,000/- (Rupees Twenty Lakhs only) to the plaintiff in four equal instalments of Rs5,00,000/-(Rupees Five Lakhs only) each on or before Dt 30.12.2020.]—(Payment of a Settlement)
- That the party No.1 has executed Registered Power of Attorney in favour of the Party No.2 for sale of different parcels of suit land,out of which the Party NO.2 has already alienated land measuring ac0.144.07 dec., and the rest remaining land is Ac0.055.93.So after construction and alienation of Duplex no.1 over Ac0.055.93 dec, the rest land of Ac0.21.49dec is to be transferred by the Party No.1 in favour of the Party No.2 on or before dt.30.12.2020.
- That the suit may be disposed off on compromise as per the terms and conditions stated above in this Agreement.]—– Conditions to the Settlement
[The Parties hereby agreed to settle their disputes and differences amicably between themselves without recourse to litigation, with the above mentioned terms and conditions and promised before the Hon’ble court for not taking any coercive action against each other after the settlement.]— Disposal of Proceedings
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have each caused to be affixed hereto its or his or her hand and seal the day indicated
SIGNED AND DELIVERED by the within named “Party No.1”
Party No. 1
SIGNED AND DELIVERED by the within named “Party No.2”
Party No. 2
Example of compromise decree creates estoppel
Estoppel: it is a legal principle that prevents someone from arguing something that contradicts what they previously said or agreed to by law. So it is basically to protect or prevent people from being unjustly wronged by inconsistencies of another person’s word or action.
In the case of Raja Sri Sailendra Narayan Bhanja Deo v. State of Orissa on 3rd February, 1956, five judges bench of Supreme Court held that a judgement by consent is effective as estoppel between the parties as a judgement where the court exercises its mind on a contested case.
In Amitabh Bachchan vs. Deputy Commissioner of Income Tax, on 18th May, 2005, the Court provided that the assessee has argued that under Arbitration and Conciliation Act, 1996, the award of the arbitrator is final and binding to all the parties to the dispute and legal effect thereof is same as that of an order of a competent court to decide civil dispute.
The award of the arbitrator can be regarded as something comparable to a compromise decree of a civil court.
So the compromise decree might have created an estoppel by conduct and such estoppel must be pleaded.
As per the above facts and provision under C.P.C, we can say that after the institution of the suit, parties to the suit are free to settle and adjust their case by an agreement or by the compromise. Order-23, Rule-3 and 3B say regarding the compromise between the parties and also provide some conditions for the agreement. Upon fulfilling those conditions, the court may pass a compromise decree in the same suit.
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