2014 (11) TMI 1296 - SC - Indian Laws

Suit for declaration to the effect that gift-deed was void and for a permanent prohibitory injunction restraining the defendant-respondent from alienating the suit schedule property or interfering with the peaceful possession and enjoyment of the same by the plaintiff - rejection of the plaint on the ground that the suit in question was barred by Rule 3A of Order XXIII of the Code of Civil Procedure - whether the High Court was right in directing the appellant to seek redress in the suit having regard to the provisions of Order XXIII rule 3 and Rule 3A of CPC? - HELD THAT - In terms of the proviso to Order XXIII Rule 3 where one party alleges and the other denies adjustment or satisfaction of any suit by a lawful agreement or compromise in writing and signed by the parties the Court before whom such question is raised shall decide the same. What is important is that in terms of Explanation to Order XXIII Rule 3 the agreement or compromise shall not be deemed to be lawful within meaning of the said rule if the same is void or voidable under Indian Contract Act 1872. It follows that in every case where the question arises whether or not there has been a lawful agreement or compromise in writing and signed by the parties the question whether the agreement or compromise is lawful has to be determined by the Court concerned. 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 XXIII Rule 3A of CPC. That is precisely what has happened in the case at hand. When the appellant filed OS No. 5326 of 2005 to challenge validity of the compromise decree the Court before whom the suit came up rejected the plaint under Order VII Rule 11 CPC on the application made by the respondents holding that such a suit was barred by the provisions of Order XXIII Rule 3A of the CPC. Having thus got the plaint rejected the defendants (respondents herein) could hardly be heard to argue that the plaintiff (appellant herein) ought to pursue his remedy against the compromise decree in pursuance of OS No. 5326 of 2005 and if the plaint in the suit has been rejected to pursue his remedy against such rejection before a higher Court. Conclusion - The High Court fell in a palpable error in directing the plaintiff to take recourse to the remedy by way of separate suit. The High Court in the process remained oblivious of the provisions of Order XXIII Rules 3 and 3A of the CPC as also orders passed by the City Civil Court rejecting the plaint in which the Trial Court had not only placed reliance upon Order XXIII Rule 3A but also the decision of the Court in Pushpa Devi s case 2006 (7) TMI 707 - SUPREME COURT holding that a separate suit was not maintainable and that the only remedy available to the aggrieved party was to approach the Court which had passed the compromise decree. The order passed by the High Court set aside and the matter remitted back to the High Court for disposal in accordance with law - appeal allowed by way of remand.

Summary

The core legal question considered by the Court was whether the validity of a decree passed on the basis of a compromise can be challenged in a separate suit, or whether such a challenge must be made before the Court that passed the decree itself.

In addressing this question, the Court examined the interplay between the provisions of Order XXIII Rules 3 and 3A of the Code of Civil Procedure (CPC), and the procedural and substantive implications of these provisions on the maintainability of a suit challenging a compromise decree.

The factual matrix involved a suit filed by the appellant challenging the validity of a gift deed and seeking injunctions. The Trial Court ruled in favor of the appellant, but the respondent filed an appeal before the High Court, which purportedly was settled by a compromise petition under Order XXIII Rule 3 CPC. The appellant denied the existence or validity of this compromise, alleging forgery and fraud. Despite this, the High Court set aside the Trial Court's decree based on the compromise. Subsequently, the appellant filed a separate suit seeking to set aside the compromise decree, which was dismissed by the City Civil Court on the ground that such a suit was barred by Order XXIII Rule 3A CPC. The appellant then sought to have the High Court set aside its earlier order allowing the appeal on the basis of the alleged compromise. The High Court declined to entertain this application, directing the appellant to pursue the remedy via the separate suit, which had already been dismissed. This led to the present appeal.

The Court first analyzed the legal framework under Order XXIII Rule 3 CPC, which mandates that where it is proved that a suit has been adjusted wholly or partly by a lawful written compromise signed by the parties, the Court shall record the compromise and pass a decree accordingly. The proviso to Rule 3 requires the Court to decide whether such a compromise exists if one party alleges and the other denies it, without granting adjournments unless reasons are recorded. The Explanation to Rule 3 clarifies that agreements void or voidable under the Indian Contract Act, 1872, are not lawful compromises within the meaning of the Rule.

Importantly, Order XXIII Rule 3A CPC bars the institution of a separate suit to set aside a decree on the ground that the compromise on which the decree is based was not lawful. This provision implies exclusivity of jurisdiction of the Court which passed the decree to entertain challenges to the validity of the compromise. The Court emphasized that the party aggrieved by a compromise decree must approach the same Court to establish that no lawful compromise took place, rather than filing a separate suit which would be barred.

Applying these principles to the facts, the Court found that the City Civil Court rightly rejected the plaint of the appellant under Order VII Rule 11(d) CPC, as the suit was barred by Order XXIII Rule 3A CPC. However, the High Court erred in directing the appellant to pursue the remedy through such a barred suit, thus failing to appreciate the exclusivity conferred by Rule 3A. The High Court's approach was contrary to the statutory scheme and the settled jurisprudence.

The Court relied heavily on the precedent set in Pushpa Devi Bhagat v. Rajinder Singh, where it was held that the only remedy to challenge a consent decree is to approach the Court which recorded the compromise and made the decree, and establish that there was no valid compromise. The Court reiterated that a consent decree is essentially a contract between parties with the Court's imprimatur, and its validity depends entirely on the validity of the underlying compromise. The Court also cited Banwari Lal v. Chando Devi, which affirmed that a party challenging a compromise can file a petition under the proviso to Rule 3 of Order XXIII or an appeal under Section 96(1) CPC, but not a separate suit barred by Rule 3A.

The Court concluded that the High Court's refusal to entertain the appellant's application to set aside the compromise decree and its direction to pursue a separate suit was a palpable error. It set aside the High Court's order and remitted the matter back for disposal of the pending applications in accordance with the law, emphasizing that the question of the validity of the compromise decree must be decided by the Court which passed the decree. The Court expressly refrained from expressing any opinion on the merits of the application seeking to set aside the compromise decree.

In sum, the Court established the following core principles:

• A decree passed on compromise can only be challenged before the Court which passed the decree, not by filing a separate suit.
• Order XXIII Rule 3 CPC requires the Court to decide the existence and validity of a compromise if disputed.
• The Explanation to Rule 3 excludes void or voidable agreements under the Contract Act from being lawful compromises.
• Order XXIII Rule 3A CPC bars suits to set aside compromise decrees on grounds that the compromise was not lawful.
• The appropriate remedy to challenge the validity of a compromise decree is to file a petition under the proviso to Rule 3 or an appeal under Section 96(1) CPC before the Court which passed the decree.
• The High Court erred in directing the appellant to pursue a remedy via a separate suit barred by Rule 3A, and the matter must be remitted for proper adjudication.

The Court's reasoning preserves the integrity of compromise decrees by ensuring that challenges to their validity are adjudicated within the statutory framework, preventing multiplicity of litigation and protecting judicial economy.