What is a Compromise Decree and Can it be Challenged in an Appeal?

 

INTRODUCTION

 

Today, we will discuss the case of R. Janakiammal v. S.K. Kumarasamy (Deceased) through Legal Representatives and Others, Civil Appeal No. 1537/2016. In this case,   the Hon’ble Supreme Court of India discussed the meaning and the scope of a Compromise or a Consent Decree in terms of Order XXII Rule 3 of the Code of Civil Procedure, 1908 (in short, “CPC”).

 

The facts of the case are not relevant for our purposes. Therefore, let us read O.22 R.3 and R.3A of CPC to understand about Compromise Decrees.

 

ORDER XXII RULE 3 AND 3A OF CPC

 

Order XXII Rule 3 and 3A state that:

 

“3. 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:

 

There is a Proviso and an Explanation as well appended to this Rule. It states that:  

 

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.

 

The Explanation states that:

 

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.

 

Let us come to Rule 3A. It states that: -

 

“3-A. 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.”

 

In order to understand these provisions, let us go through the observations made by the Court in this case.

 

OBSERVATIONS OF THE COURT

 

Firstly, the Court explained that “the purpose of effecting a compromise between the parties is to put an end to the various disputes pending before the court of competent jurisdiction once and for all” and “the scheme of Order 23 Rule 3 CPC is to avoid multiplicity of litigation and permit parties to amicably come to a settlement which is lawful, is in writing and a voluntary act on the part of the parties.”

 

Secondly, it was observed by the Court that a Compromise or 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.”

 

Thirdly, the Court explained the mandate of Rule 3 of Order XXIII. It 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, the Court shall order such agreement or compromise to be recorded and pass a decree in accordance therewith.  Rule 3 uses the expression “lawful agreement or compromise”. Further, the explanation appended to Rule 3 provides that an agreement or a compromise which is void or voidable under the Indian Contract Act, 1872, shall not be deemed to be lawful.”

 

Fourthly, the Court observed that “the legislative policy of all legislatures is to provide a mechanism for determination of dispute so that dispute may come to an end and peace in society be restored” and the Proviso to O.22 R.3 of CPC provides that when there is a dispute as to whether an adjustment or satisfaction has been arrived at, the same shall be decided by the Court which recorded the compromise. Therefore, “reading Rule 3 with Proviso and Explanation, it is clear that an agreement or compromise, which is void or voidable, cannot be recorded by the Courts and even if it is recorded the Court on challenge of such recording can decide the question.”

 

Fifthly, the Explanation appended to O.22 R.3 of CPC was perused by the Hon’ble Court and it was observed that “when consent is obtained by coercion, undue influence, fraud, misrepresentation or mistake, such consent is not free consent, and the contract becomes voidable at the option of the party whose consent was caused due to coercion, fraud or misrepresentation.”  

 

Sixthly, it was the view of the Court that even if an Agreement or a Compromise is void or voidable, the bar under O.22 R.3A will still get attracted and such provisions exist “in order to avoid multiplicity of suit and prolonged litigation.”

 

Seventhly, the Court further clarified the mandate of the Proviso and the Explanation appended to O.22 R.3. It stated that by adding the proviso along with an explanation the purpose and the object of appears to be to compel the party challenging the compromise to question the same before the court which had recorded the compromise in question as such court was enjoined to decide the controversy whether the parties have arrived at an adjustment in a lawful manner.

 

Eighthly, the Court laid down following guidelines in relation to O.22 R.3 of CPC:

 

a. No appeal is maintainable against a consent decree having regard to the specific bar contained in Section 96 (3) CPC. S. 96 (3) specifically states that “no appeal shall lie from a decree passed by the Court with the consent of parties.”

 

b. 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.

 

c. 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.

 

Ninthly, in relation to challenging a Compromise Decree, the Court finally held that “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” and “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 23 Rule 3­A CPC.”

 

Those were the observations of the Courts. I hope that the meaning of Compromise as stipulated under O.22 R.3 of CPC is clear by now.

 

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