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1992 (12) TMI 239 - SC - Indian LawsTrial Court entertaining the application filed for recall of the order recording a compromise alleged to have been entered between the appellant and the respondent - HELD THAT - 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 1985 (6) TMI 202 - KARNATAKA HIGH COURT Bindeshwari Pd. Chaudhary v. Debendra Pd. Singh 1958 (7) TMI 48 - PATNA HIGH COURT 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.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of the compromise petition not signed by both parties as required under Order 23, Rule 3 CPC The Court examined the statutory framework under Order 23, Rule 3 of the CPC, which mandates that a compromise must be in writing and signed by the parties. The Court referred to authoritative precedents, including the judgment in Gurpreet Singh v. Chatur Bhuj Goel, which emphasized that the court must insist on a written instrument signed by the parties to constitute a lawful compromise. Similarly, the case of Byram Pestonji Gariwala v. Union Bank of India was cited to reinforce this requirement. In the present case, the compromise petition filed on 27.2.1991 was not signed by the respondent or his counsel, and the only indication of consent was a thumb impression of the appellant witnessed by an advocate. The Court held that the Trial Court erred in accepting such a petition as a valid compromise. The absence of signatures of both parties meant the petition did not meet the statutory requirements and could not be treated as a lawful agreement under Rule 3. The Court underscored that the recording of compromise is not a mere formality or seal of approval by the Court, but requires the Court to apply judicial mind and satisfy itself that the compromise is lawful and binding. The compromise petition in this case lacked these essential elements, rendering the order based on it invalid. Issue 2: Distinction between withdrawal of suit under Rule 1 and compromise under Rule 3 of Order 23 CPC The respondent contended that the suit was withdrawn under Rule 1 and not compromised under Rule 3, thus precluding any recall of the order. The Court analyzed the language and terms of the petition and the order passed on 27.2.1991, which explicitly referred to a compromise deed and dismissed the suit "as per compromise deed Ex. C". The Court concluded that the order was clearly passed under Rule 3 and not under Rule 1, as it was based on alleged terms of settlement and transfer of possession. Therefore, the validity of the order had to be assessed under the provisions applicable to compromise, not mere withdrawal. The Court rejected the High Court's view that the suit was simply withdrawn, emphasizing the substantive content and effect of the order. Issue 3: Power of the Court to recall an order recording a compromise under proviso to Rule 3 of Order 23 CPC The Court examined the amendments introduced to Order 23, including the proviso and explanation to Rule 3, which require the Court to decide any dispute as to whether a lawful adjustment or satisfaction has been arrived at, without granting adjournments except for recorded reasons. The explanation clarifies that an agreement or compromise void or voidable under the Indian Contract Act is not lawful within the meaning of this Rule. The Court held that this provision empowers the Court before which the compromise petition was filed to entertain applications challenging the validity or legality of the compromise. The Court may recall its order if the compromise is found to be void, voidable, or obtained by fraud. The Court referred to various High Court decisions permitting the use of Section 151 CPC to question the legality of a compromise even after it has been recorded, reinforcing that the Court must examine the validity of the compromise on the material before it. In the present case, the appellant alleged fraud by his counsel in collusion with the respondent, and the Trial Court rightly exercised its power to recall the order recording the compromise and restore the suit for hearing on merits. Issue 4: Remedies available against orders recording compromise in light of amendments to Order 43 and Section 96 CPC The Court analyzed the legislative intent behind the amendments which deleted the right of appeal under Order 43, Rule 1(m) against orders recording or refusing to record compromise, and introduced Rule 1A to enable challenges to such orders only in appeals against the final decree. The Court explained that Section 96(3) bars appeals against decrees passed with consent, implying the validity and binding nature of such decrees unless set aside by prescribed procedures. The amendments aimed to prevent multiplicity of litigation by restricting separate suits to set aside compromise decrees (barred by Rule 3A of Order 23). However, Rule 1A(2) permits contesting the validity of a compromise in an appeal against the decree, thus preserving a remedy to challenge unlawful compromises without allowing piecemeal or vexatious proceedings. The Court concluded that the appellant's application to recall the order recording the compromise was maintainable under the proviso to Rule 3 and Section 151 CPC, and that the deletion of appeal rights under Order 43 did not oust the Court's power to examine the validity of the compromise at the stage of recording it. Issue 5: Interpretation of Section 96(3) CPC in relation to challenge to compromise decrees The Court clarified that Section 96(3) bars appeals against decrees passed with consent only when the factum of compromise is undisputed. Where the validity of the compromise itself is challenged, this bar does not apply, and the party may raise such challenge in an appeal against the decree under Rule 1A(2) of Order 43. Thus, the statutory scheme balances finality of consent decrees with protection against fraudulent or unlawful compromises. 3. SIGNIFICANT HOLDINGS The Court held:
"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." "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." The Court set aside the High Court's order and upheld the Trial Court's recall of the compromise order, restoring the suit for hearing on merits.
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