Introduction:
Judicial pendency has been a roadblock in India’s quest to becoming a leading global economy. Although attributable to numerous factors, addressing the floodgate of litigation in the country is undoubtably the need of the hour[1]. Accordingly, various approaches have been adopted to promote the amicable settlement of pending litigation, including through alternate dispute redressal forums such as mediation, national lok adalats, etc., or by the volition of the State through numerous schemes such as Vivad se Vishwas[2].
One of the most commonly employed mechanisms for settlement of civil and commercial disputes is contemplated under Order XXIII Rule 3 of the Code of Civil Procedure, 1908 (“CPC”), which provides for the compromise of a suit, in view of a prior settlement agreed upon by the parties therein.
Through this blog, the authors will attempt to analyse the contours of Order, with special emphasis on whether issues settled by a consent decree can be re-agitated by either of the parties at a subsequent stage, and if so, under what circumstances.
Order XXIII Rule 3 – An Overview:
Civil litigation, specifically, civil suits, may be settled directly out of court, with the same being withdrawn simpliciter, in view of any settlement agreed upon by the parties therein. Typically, parties enter into consent terms/ settlement agreements, in terms of which a suit is thereafter decreed (“Compromise Decree” or “Consent Decree”). Each of these mechanisms have their own ramifications in relation to the refund of court fees, and accordingly must be opted for, after due consideration[3].
Consent Decrees are contemplated under Order XXIII Rule 3 of the CPC. The said provision, in brief, mandates that in the event of a suit being settled, in whole or in part, by virtue of a settlement, which is reduced in writing and signed by the parties, the court shall pass a decree in accordance with such agreement.
Therefore, the necessary conditions required for a court to pass such a decree are:
- There must be a written agreement, signed by the parties (or even by their counsel[4]). A consent decree based on a mere oral agreement would be void and hence, set aside[5]. This requirement is mandatory and cannot be dispensed with[6];
- The agreement must be lawful – agreements that are void/ voidable under the Indian Contract Act, 1872, are, thus, not covered under this provision[7]. Further, the court may refuse to record a settlement, pursuant to an agreement, where the settlement is not in the interest of the public[8]; and
- The agreement must relate to the parties to the suit, even if the subject matter differs – consequently, when a compromise consists of matters that are extraneous to the suit, the compromise decree ought to be confined only to matters that relate to the suit, and in case of other matters, the same can only be enforced in a separate suit[9]. Hence, the operative part of the compromise decree must comprise only those matters that relate to the suit, while the remaining matters may be set out in a schedule to the decree.[10]
Once the above requirements have been satisfied, the court will pass the Consent Decree in terms of the agreement entered into between the parties, and thus, provide judicial mandate thereto, further attracting the principle of res judicata[11], barring the institution of any subsequent suit in relation to the same subject matter[12]. Thus, a compromise decree is as much a decree passed on adjudication, and therefore must be performed by the parties[13]. Further, given that a compromise decree is executable, any breach thereof will attract the provisions of the Contempt of Courts Act, 1971[14] .
Challenge to a Compromise/ Consent Decree:
Having established the foregoing, an oft-contested issue is whether a Compromise Decree may be challenged/ set aside, or whether consent can be withdrawn unilaterally by a party, at a subsequent stage. It is unfortunate that although compromise decrees are a way of resolving litigation amicably, in reality, even they are not exempt from being challenged at a later time. However, fortunately, courts are circumspect in interfering with such decrees, and only entertain any challenge thereto, on extremely limited grounds.
It is settled law that a consent decree is intended to create an estoppel between parties, through a judicially enforced agreement. Therefore, unilateral revocation of consent is not permissible. A consent decree can be modified/ altered only with the consent of all concerned parties[15], or in the event the court finds that the consent was vitiated by fraud, misrepresentation, or mistake[16]. It has been repeatedly held that courts have no jurisdiction to extend the time fixed for performance of an obligation under the compromise decree.[17] Additionally, the Hon’ble Supreme Court may, in the exercise of its inherent powers, unilaterally rectify a consent decree, suffering from clerical or arithmetical errors, to make it conform with the terms of the compromise[18].
To elucidate, in Soumitra Kumar Nahar v. Parul Nahar[19], the Hon’ble Apex Court was faced with a situation where the Respondent-wife sought the revocation of her consent given in a different proceeding. The present case emanated from a matrimonial dispute, where the Hon’ble Delhi High Court had passed a consent order, which was not complied with by the Respondent therein. Subsequently, an attempt was made to re-agitate the issues already covered by the consent order. In this regard, the Hon’ble Apex Court, while dismissing these submissions, observed that the consent recorded before the Hon’ble Delhi High Court was a trilateral consent. Therefore, one party could not be permitted to unilaterally withdraw their consent, and such consent order would remain operative until the parties jointly move an application for withdrawal of consent, or until the court of competent jurisdiction sets aside the consent order on the permissible grounds (i.e., fraud, misrepresentation, or mistake).
The Hon’ble Supreme Court in Ajanta LLP v. Casio Keisanki Kabushiki Kaisha, while refusing to modify a Consent Decree on the grounds of ‘mistake’, observed that correspondence between the advocates for the parties, who are experts in law, would show that there is no ambiguity or lack of clarity, giving rise to any misunderstanding. The Court held that a Consent Decree cannot be modified/ altered unless the mistake is patent or obvious.
Another issue that frequently arises is whether a party can file an appeal against a compromise decree, in view of the statutory bar under Section 96(3) of the CPC. This has been resolved by the Hon’ble Apex Court in H.S. Goutham v. Rama Murthy[20], where the Court found that it would be open for a party to contest the decree on the ground that the compromise should or should not have been recorded by virtue of Order XLIII Rule 1A of CPC. While examining a suit filed for a declaration that a compromise decree is null and void, if obtained under fraud or misrepresentation, the Hon’ble Supreme Court held that a heavy onus lies on the plaintiff, who is required to raise specific pleadings and substantiate them with evidence in support to vitiate the Consent Decree[21].
Conclusion:
Summarising the above principles, given the scope and purpose of Order XXIII Rule 3 of CPC, the mechanism of providing compromise decrees is aimed at amicably settling disputes, rather than engaging in prolonged, expensive and adversarial litigation.
Moreover, being an entirely voluntary option, once consented, the parties cannot unilaterally opt out of it, unless a joint application for the same is preferred by all parties to the settlement agreement.
Hence, it can be concluded that modification of a consent decree is normally not permissible, unless it is proved that the underlying settlement agreement is vitiated by fraud/ misrepresentation, or a patent or obvious mistake, the standard of proof for which is indeed high, and lies entirely on the person alleging the same. Such inbuilt mechanisms are put in place to deter re-agitation of issues/ institution of claims in relation to a lis, which has already been closed/ decided by virtue of a prior settlement, at the behest of a mere disgruntled party.
[1] https://economictimes.indiatimes.com/news/india/cases-pending-in-courts-cross-5-crore-mark-govt-in-rajya-sabha/articleshow/101993830.cms?from=mdr
[2] Vivad se Vishwas II (Contractual Disputes)_0.pdf (doe.gov.in)
[3] Bai Mamubai Bhimji Bhanji Trust & Ors. v. Neelkanth Mansion & Infrastructure Pvt. Ltd. Suit No. 835 of 2014, Order dated 5th April 2019 – Bombay High Court
[4] Byram Pestonji Gariwala v. Union Bank of India, (1992) 1 SCC 31
[5] Kamla Devi v. Prabhat Chand, AIR 1997 Del 317
[6] Gurpreet Singh v. Chaturbhuj Goel, AIR 1988 SC 400
[7] Explanation – Order XXIII Rule 3
[8] K. Meenakshi Ammal v. Commr HR and C Endowments, AIR 1966 Mad 475
[9] Dhan Mia v. Jamial Khatun, AIR 1952 Assam 21
[10] Hemlata Kumari v. Midnapore Zamindari Co Ltd, (1928) ILR 47 Cal 485
[11] State of Goa v. Placido Braganza, 2001 SCC OnLine Bom 396
[12] M/s. Sree Surya Developers and Promoters v. N. Sailesh Prasad and Ors., Civil Appeal No. 439 of 2022 (SC)
[13] Ashish Seth v. Sumit Mittal, (2022) 8 SCC 724
[14] Rama Narang v. Ramesh Narang, (2006) 11 SCC 114
[15] Gupta Steel Industries v. Jolly Steel Industries (P) Ltd., (1996) 11 SCC 678; Suvaran Rajaram Bandekar v. Narayan R. Bandekar, (1996) 10 SCC 255
[16] Ajanta LLP v. Casio Keisanki Kabushiki Kaisha, (2022) 5 SCC 449
[17] Shivshankar Gurgar v. Dilip, (2014) 2 SCC 465; Deepa Bhargava v. Mahesh Bhargava, (2009) 2 SCC 294; Pioneer Engineering Co. v. D.H. Machine Tools, AIR 1986 Del 65.
[18] Compack Enterprises India (P) Ltd. v. Beant Singh, (2021) 3 SCC 702
[19] (2020) 7 SCC 599
[20] (2021) 5 SCC 241
[21] Arjunagouda v. Ashok Basavappa Basarkod, (2007) 15 SCC 784
