This article is written by Arundhati Pawar, a graduate of Fergusson College in Pune and currently a practising advocate in Pune.  This article discusses the concept of a compromise decree, the scope of the provision, its types and its appeal provisions.

Introduction 

In India given the lengthy litigation compromise is a common practice adopted by the parties to the civil suit for the speedy redressal of the suit. The word “compromise” means the act of negotiation where both parties exchange something to obtain a middle ground and arrive at a mutual conclusion. It is a give-and-take to settle the dispute.

In other words, a compromise is an agreement between the parties arranged to settle the dispute by mutual consensus. It is a tradeoff parties choose to avoid lengthy litigation and put an end to the dispute.

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Conditions of compromise of suit

A lawful consent decree must have been passed

The parties to compromise should engage in the subject matter which is opposed by law. It should not be against public policy, immoral, or violated by statutory law. The compromise is void if the subject matter is illegal. An agreement not enforceable by law is void.

There must be an agreement or compromise

Parties should agree and arrive at a common conclusion. Both parties must have agreed and negotiated their terms and conditions in the agreement. 

It must be in writing and signed by the parties 

A compromise agreement should be in writing so as to avoid any ambiguity and future uncertainty. 

It must be recorded by the court 

The court, if satisfied with the compromise agreement of both parties to the dispute may record the compromise decree. Whenever the decree is recorded in a court of law, it is legally binding.

Minor cannot enter into compromise without appropriate representation by a proxy

Minor is to be represented by a guardian or any such person appointed to act on his behalf. The representative so appointed cannot, without the consent of the court, enter into a compromise agreement.

Order 23 CPC – Compromise of suit 

Parties having a dispute come together and jointly decide to settle the conflict between them instead of taking the full course of a formal civil suit. Order 23 Rule 3 of the Code of Civil Procedure, 1908 states that when the parties have made an arrangement to settle the dispute entirely or in part the court if it is satisfied shall pass the decree to such effect and record the same. The agreement should be legal, in writing and signed by the parties. It should not be opposed to law and public policy.

Order 23 Rule 3 CPC

Where the court is convinced that the parties have mutually settled the dispute either completely or partly, the court shall record and order the decree for the same. Indian Contract Act (1872) stipulates agreement with mistake to the essential fact, unlawful consideration, agreement with the restraint of trade and legal proceeding, to do an impossible act as void or voidable under the Indian Contract Act, 1876 will not be considered lawful under this rule. An agreement void or voidable in accordance with the Indian Contract Act 1872 will not be considered lawful under this provision.

Order 23 Rule 3A CPC – Bar to challenge compromise decree in a separate suit

Order 23 Rule 3A expressly bars instituting a fresh suit for which a compromise decree is passed. It can only be probed by the same court which recorded the compromise. In Triloki Nath Singh vs Anirudh Singh (D) Thr. Lrs (2020), it was held that the suit for a declaration which was filed before the civil court was not maintainable in the light of Order 23 Rule 3A of CPC. The bar also applies to strangers to compromise proceedings. Not being a party to the compromise decree will confer the party cause of action and the right to invalidate the compromise decree passed by the High Court.

In Sree Surya Developers and Promoters vs. N.Shailesh Prasad and Others (2022), it was held that no independent suit could be maintained against a compromise decree. The main objective of the adjudicating forums is to attain conclusive decisions in order to avoid lengthy litigation. The intent of the legislation is to bar additional litigation where there exists a valid agreement between the parties. Hence the lower court was right in rejecting the claim on the grounds that a suit for relief sought to challenge the compromise decree would not be maintainable.

No independent suit on the ground of unlawfulness can be maintained against a compromise decree. The remedy available to the parties is to file an application where such a compromise was recorded.

Order 23 Rule 3B CPC – No agreement or compromise is to be entered in a representative suit without the leave of the court

Generally, all the parties involved in the subject matter are the parties to the suit. Representative suits are an exception to that rule. Representative suits are instituted by one or more parties either for themselves or on their behalf against one or more parties that have a similar vested interest in the subject matter of the suit. In representative suits, it is mandatory for the parties to obtain approval from the court to enter into such a compromise; failure to obtain the consent of the court will make the agreement void. 

Representative suits include:-

  1. Suit under Section 91 which envisages public nuisance as annoying and harmful acts which affect the public at large.
  2. Suit under Section 92 which deals with public charities where trust property is misused. 
  3. Suit under Order 1 Rule 8 which deals with the right of a person to defend himself and others having the same interest.
  4. Any other person who may not be a party to suit but will be affected by the decree of the court.

Here since the interest of numerous parties is at stake, notices are served to all the parties in the representative suit. 

What happens when a compromise decree is vitiated

Parties to the compromise can be prevented from proceeding with the compromise decree.  Compromise can be cancelled or prevented whenever the compromise decree is vitiated on the grounds of fraud, illegality, mistake of fact, coercion, undue influence or misrepresentation. In this case, the parties are to approach the same court which recorded and passed the decree. It needs to be proved why the agreement should be considered unlawful in the eyes of the law. After inquiring the court ascertains the effectiveness of the compromise decree and decides whether to set aside the decree.

In Lalitha Theresa Sequeria vs Dolfy A Pias @ Adolphys Joseph Pais (2014) the plaintiff, in this case, alleged that the decree was obtained by fraud and was called to defeat and shadow the provisions of the Urban Land Ceiling Act (1976).  The plaintiff could not prove the alleged facts. There was no recorded evidence to establish his allegations. Therefore the court held that there was no ground or reason to interfere with the judgement and order by the High Court. 

Execution of compromise decree

The compromise decree and other decrees of the court are executed similarly. Before the Amendment of 1976 compromise decree could only be passed for the matter related to the subject matter of the suit. After the amendment, the scope of the compromise decree was increased, where compromise can be decided if 

  1. Related to the parties of the suit.
  2. Need not be related to the subject matter of the agreement but needs to be related to the suit.

Can a compromise decree be challenged?

Section 96 of the CPC provides a provision for appeal from the original decree. A compromise decree is an exception to this provision. Subclause (3) of Section 96 enumerates that an appeal cannot lie against a decree passed with the agreement of the parties. 

An appeal cannot lie for setting aside a compromise decree on the ground that it is obtained unlawfully. A compromise decree can be challenged where there are unprecedented circumstances and evidence on the face of the information provided to the court.

The Bombay High  Court in Gaurishankar Rukhmeshchandra Mishra Versus Asaram Shankar Jagdale and others (2016)  held that a stranger to the suit is a stranger to the compromise agreement and therefore cannot challenge the compromise decree. Hence, the third party cannot challenge the compromise decree.

In Ajitpalsingh s/o.Nirmal Singh Khalsa Versus Sanjay s/o.Shamrao Deulkar (2016) a compromise decree was passed before Lok Adalat, and it was held that the decree passed was conclusive and binding on the parties involved. The compromise decree cannot be challenged. The only relief one can obtain is by filing a writ petition under Article 226 or Article 227 of the Constitution of India subject to specific grounds.

Judicial pronouncements

In R. Rajanna vs S.R.Venkataswamy & Ors (2014) the appellant filed an original suit challenging the legality compromise decree. Here since the compromise decree was already passed the plaint was rejected on the ground that no separate suit can be filed once the compromise decree is passed. It was held that no independent suit could be instituted challenging the compromise decree; such a suit was barred by the provisions of Order 23 Rule 3A of the CPC. 

In Daljit Kaur & Ors vs Muktar Steels Pvt Ltd & Ors (2013)  it has been opined that if the litigants enter into a settlement and compromise decree was passed and recorded by the court. The court has recorded all the material documents and facts, and the same has not been challenged. In such a situation no appeal can lie against the consent decree. Section 96(3) of the Code of Civil Procedure states that no appeal can lie from a decree passed under Order 23 Rule 3. 

In  Pushpa Devi Bhagat (D) Th. Lr. Smt vs Rajinder Singh & Ors (2006) the court lays down the scope of Order 23 –

  1. No appeal is maintainable in case of a consent decree with reference to the specific bar contained in Section 96 (3) of CPC.
  2. An appeal cannot sustain against the order of the court recording the compromise. 
  3. An Independent suit cannot be filed for setting aside the compromise decree.
  4. A consent decree is official and obligatory except when it is set aside by the same court that passed it.

Conclusion 

Order 23 Rule 3 of Civil Procedure Court 1908 plays a vital role in law as it puts an end to litigation. A compromise decree is the court’s approval of the settlement agreed upon by the parties. It is an easy way to resolve disputes where the parties are at a consensus. It saves the valuable time of the court, besides saving money and time of the parties too. Thus, it is always encouraged that the parties come to such settlements as permitted by the law.

Frequently Asked Questions (FAQs)

Whether a compromise decree requires registration?

Any decree or order creating a new right, title, or interest in immovable property of a value of Rs.100/- or above is compulsory for registration. Section 17 of the Registration Act, 1908 identifies the documents for which registration is compulsory.

In Mohammade Yusuf and Others Versus Rajkumar and Others (2020) it was held that the compromise decree does not require registration, but if the subject matter deals with the immovable property of a value of Rs.100/- or more, then it is not excluded from registration under Section 17(2).

Can a compromise decree in a prior suit bar a subsequent suit by virtue of res judicata?

If the subject matter in question has already been decided and the rights claimed in the new suit are the same as decided in earlier legal proceedings in such circumstances subsequent suits will be barred. The parties are restrained from taking a contrary stand in the subsequent suit. If the parties exhibit a new ground, it is only in such a situation the subsequent suit will persist. 

References 

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