Can an independent suit or appeal be filed for setting aside a compromise decree? - Supreme Court Order

Introduction

The Hon’ble Supreme Court in the matter of R. Jankiammal vs S.K.Kumaraswamy (D) Thr.Lrs. reported in C.A. No.-001537-001537 / 2016 dated June 30, 2021 decided the precise question – “can an independent suit or appeal be filed for setting aside a compromise decree?” which was called for determination. This matter was a classic case of a joint family dispute where a compromise arrangement was obtained by fraud and misrepresentation. This write-up examines the facts of the case, provisions of cancellation of compromise decree, relevant judgements and final order of the Supreme Court. 

Factual Matrix

Three brothers purchased various properties and businesses out of joint family funds. Later, a partition deed was registered between three brothers with respect to the properties allotted to them as per registered partition deed along with the properties purchased by three brothers in the ratio of 1/3rd each.

One of the brothers Mr. Rangasamy died in a road accident leaving behind his widow named Janakiammal, two sons and one daughter. 

Later one of the joint family members filed a case praying, inter-alia, for partition and allotment of 1/6th share to him. In the plaint case, it was stated that even after a registered partition deed between the families of three brothers, joint family members continued to live jointly and did business jointly. All the three branches lived jointly. In the plaint, it was further stated that from the savings of the income and by mortgaging ancestral property, the capital necessary for the business was found and the business was expanded from time to time. 

Few family members pleaded that no doubt some properties have been acquired jointly in the names of certain members, but they must be deemed to be only co-­sharers in respect of those properties. It was pleaded that three branches were allotted shares in the partition deed and the case that parties continued to live jointly was denied.

Compromise Decree

An application under Rule 3 of Order XXIII of Civil Procedure Code (CPC) was filed by a family member who asked for ⅙ share which contained signatures of plaintiff and defendants. In the application under Order XXIII Rule 3, various items of properties were listed and allocated to different members of the family. On the basis of application, the Subordinate Judge, Coimbatore passed an order and directed for preparation of decree on the basis of a compromise petition.

In the compromise decree, although various properties were allotted to two other branches of brothers, the branch of Rangasamy (deceased brother) was allocated shares in only one company which was under liquidation.

Suit in Trail Court

Minor children of the deceased brother filed a suit through their widowed mother challenging the compromise decree on the ground that they were not parties thereto and that the compromise was obtained by fraud and misrepresentation.

Appeal against High Court order

The High Court after considering the submissions of the respective counsel came to the conclusion that the compromise decree was valid, the plaintiff failed to prove that any fraud was played. The High Court dismissed the appeals. Aggrieved by the judgment of the High Court, appeal has been filed before the Supreme Court.

Arguments by Plaintiff (Widowed mother)

The compromise decree is unfair, inequitable and fraudulent. Janakiammal was not aware of the compromise application or its terms. She is a widow only knowing Tamil, she signed the English written papers which were brought to her by the family members. She never engaged in any counsel. The family possessed several hundreds acres of land, several houses and other numerous assets but in the compromise decree, she was allotted only 200 shares. Numerous properties were purchased in her name after the death of her husband and were all allocated to the branches of the other two brothers without giving an inch of land to her. 

Arguments by the Defendants

Shri Kapil Sibal contended that the Suit was decided on compromise where all the defendants have signed the compromise application including Janakiammal. It was submitted that all were educated persons and having signed the compromise application, it is not open to them to contend that they signed the application under some misrepresentation or fraud.

Shri Sibal submitted that none of the pleadings of the plaintiff falls in the definition of fraud. No fraud was committed on the plaintiff. Under Order XXIII Rule 3A CPC, no separate suit could have been filed to question the compromise decree.

Shri Sibal submitted that the remedy open for the Plaintiff was to file an appeal against the Compromise decree. Filing of a suit is nothing but litigative gambling by the Plaintiff.

Relevant Provisions

Court decided that a separate suit challenging the compromise decree is barred as per Order XXIII Rule 3A of Civil Procedure Code which has been extracted for ease of reference hereunder:

“3A. 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.”

At the same time, Proviso in Rule 3 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. 

Rule 3 of Order XXIII 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”. The explanation was added by amendment provided that an agreement or a compromise which is void or voidable under the Indian Contract Act, 1872, shall not be deemed to be lawful.

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.

Consent: A conjoint reading of Sections 10, 13 and 14 of the Indian Contract Act, 1872 indicates 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. An agreement, which is void or voidable under the Indian Contract Act, shall not be deemed to be lawful as is provided by Explanation to Rule 3 of Order XXIII.

Findings of the Court

Plaintiff pleaded that compromise was not a lawful compromise having been obtained by fraud and misrepresentation. The plaintiff’s case was that they were represented by a Party to the Suit which submitted that the compromise is being entered only to save the family property since the Plaintiff has given personal guarantee to the Punjab National Bank for obtaining a loan for a property. Court held that the pleadings clearly make out the case of the Plaintiff that the consent which it gave for compromise by signing the compromise was not free consent. The compromise, thus, becomes voidable at the instance of the Plaintiff.

Reliance on previous judgements

In the matter of Pushpa Devi Bhagat (Dead) Through LR. Sadhna Rai (Smt.) Vs. Rajinder Singh and Ors., (2006) 5 SCC 566, Justice R.V. Raveendran, speaking for the Court, noted the provisions of Order XXIII Rule 3 and Rule 3A and recorded his conclusions in the following words:­ 

“17. The position that emerges from the amended provisions of Order 23 can be summed up thus:

(i) No appeal is maintainable against a consent decree having regard to the specific bar contained in Section 96(3) CPC.

(ii) No appeal is maintainable against the order of the court recording the compromise (or refusing to record a compromise) in view of the deletion of clause (m) of Rule 1 Order 43.

(iii) 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.

(iv) 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, by an order on an application under the proviso to Rule 3 Order 23.

Therefore, 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…”

The next judgment is R. Rajanna Vs. S.R. Venkataswamy and Ors., (2014) 15 SCC 471 in which provisions of Order XXIII Rule 3 and Rule 3A were again considered. Following was held by this Court:­ 

“11. It is manifest from a plain reading of the above that in terms of the proviso to Order 23 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 23 Rule 3, the agreement or compromise shall not be deemed to be lawful within the meaning of the said Rule if the same is void or voidable under the 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. What is lawful will in turn depend upon whether the allegations suggest any infirmity in the compromise and the decree that would make the same void or voidable under the Contract Act. More importantly, Order 23 Rule 3­A clearly bars a suit to set aside a decree on the ground that the compromise on which the decree is based was not lawful. This implies that 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….”

In a subsequent judgment, Triloki Nath Singh Vs. Anirudh Singh (Dead) Through Legal Representatives and Ors., (2020) 6 SCC 629, Supreme Court stated 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.

Finality of decisions is an underlying principle of all adjudicating forums. Thus, creation of further litigation should never be the basis of a compromise between the parties. 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. The court can be instrumental in having an agreed compromise effected and finality attached to the same. The court should never be party to imposition of a compromise upon an unwilling party, still open to be questioned on an application under the proviso to Order 23 Rule 3 CPC before the court.

Final Judgement

The Hon’ble Supreme Court of India held that he above judgments contain a clear ratio that a party to a consent decree based on a compromise to challenge the compromise decree on the ground that the decree was not lawful, i.e., it was void or voidable has to approach the same court, which recorded the compromise and a separate suit challenging the consent decree has been held to be not maintainable. 

The Plaintiff prayed for a declaration declaring that the decree passed by the Court is sham and nominal, ultravires, collusive, unsustainable invalid, unenforceable and not binding on the Plaintiff. It noted the grounds as contained in the plaint to challenge the consent decree from which it is clear that the compromise was sought to be termed as not lawful, i.e., void or voidable. On the basis of grounds which have been taken by the plaintiff, the only remedy available to the plaintiff was to approach the court in the same case and satisfy the court that the compromise was not lawful. 

Rule 3A was specifically added by the amendment to bar a separate suit to challenge the compromise decree which, according to legislative intent, arrest the multiplicity of proceedings. 

The Supreme Court held that it did not find any error in the judgment of the trial court and the High Court held that the Suit was barred under Order XXIII Rule 3A.