Supreme Court clarifies Rights in Compromise Decrees: Statutory remedies cannot be curtailed, Read Judgment

"The validity of a consent decree depends on the legality of the agreement or compromise on which it is based."-SC

In a recent ruling, the Supreme Court highlighted the need for courts to assess the legality of compromise agreements, even after a consent decree is passed. This came after the appellant sought restoration of an appeal, alleging violation of compromise terms by the respondents. The Rajasthan High Court had dismissed the plea, but the Supreme Court questioned this approach, emphasizing the statutory rights of parties in such cases.

The appellant is the owner of the suit property and filed a suit against the respondents for cancellation of a power of attorney, sale deeds, and for permanent and mandatory injunction on the ground that respondent no. 1 forged the power of attorney and entered into sale deeds with respondent no. 2. The Trial Court dismissed the suit, and the appellant appealed to the Rajasthan High Court. During the appeal, the appellant and respondent no. 2 entered into a compromise in 2022, which included payment terms by respondent no. 2 to the appellant. However, the cheques issued under the compromise were dishonoured, and the appellant sought restoration of the appeal, which the High Court dismissed on the grounds of the consensual nature of the order.

The appellant contended that the compromise terms were violated as the cheques issued by respondent no. 2 were dishonoured, and the agreed payments were not made. Consequently, the appellant sought the restoration of the first appeal based on fraud and interference with possession, arguing that the original order of 14.07.2022 allowed for such restoration in case of non-compliance.

The respondents argued that the order of 14.07.2022 was consensual, and both parties were aware that no liberty to restore the first appeal was granted. Therefore, the application for restoration of the appeal should not be entertained, even if the compromise was not honored. The respondents maintained that the appellant's claim is based on an incorrect interpretation of the order.

The Court observed that the provisions under the Civil Procedure Code (CPC) governing compromise decrees are contained in Order 23, Rules 3 and 3A, which require the court to be satisfied that the agreement or compromise is lawful before recording it. The Court noted that, according to Banwari Lal v. Chando Devi, the court must examine the legality of the agreement when disposing of a suit based on a compromise, even after the compromise decree is passed. It emphasized that the validity of a consent decree depends on the validity of the agreement or compromise on which it is based.

The Court further referred Pushpa Devi Bhagat v. Rajinder Singh, where it was held that “no appeal is maintainable against a consent decree” and that the only remedy for a party aggrieved by a compromise decree is to approach the court that recorded the compromise under Order 23, Rule 3. The Court also clarified that an aggrieved party could question the legality of the compromise through a recall application.

The Court noted that the appellant had alleged fraud, which, if proven, could render the compromise voidable under the Indian Contract Act. “When the court disposes of a proceeding pursuant to a compromise under Order 23, Rule 3, it bears the duty to examine this issue and be satisfied that the agreement or compromise is lawful.”

The Court criticized the High Court’s approach, stating that it “defeats the statutory right and remedy available to the appellant under the CPC.” It also held that “there was no occasion for the court to deny liberty to file for restoration by its order dated 14.07.2022.” The Court emphasized that “courts must not curtail statutorily provisioned remedial mechanisms available to parties.”

Additionally, the Court observed that the compromise deed itself recognized the appellant’s right to file for restoration in case of non-compliance, and it was in line with public policy considerations that agreements restricting access to legal remedies are void.

The Court allowed the appeal, set aside the impugned order dated 19.10.2023, and remanded the matter to the High Court to decide the application for recall on its own merits. The Court made it clear that no opinion was expressed on the merits of the matter. There was no order as to costs, and any pending applications were disposed of.

Case Title: Navratan Lal Sharma v. Radha Mohan Sharma & Ors.

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