Sh. Chaman Lal Jain vs Sh. Arun Kumar Jain And Others
1995 Latest Caselaw 437 Del

ORDER

1. The applicant Mr. Jagdish Parsad Gupta has by this application challenged the compromise decree passed vide order dated 20th December, 1988. In order to appreciate the challenge made against the said decree, the relevant and material facts of the case have to be understood.

2. Mr. Chaman Lal Jain filed a suit for dissolution of partnership and rendition of account which was listed as suit No.924/86. The present applicant, Jagdish Parsad Gupta, was defendant No. 4 therein. He filed written statement and contested that suit by taking the pleas that the suit was barred by time. Suit was not maintainable because the said partnership of which dissolution and rendition of account was sought came to an end on account of variation in the term of the said partnership deed, Hence no relief could be sought on the basis of the partnership deed which got frustrated. On merits also he denied the claim of the plaintiffs therein. During the pendency of that suit, in December, 1988 parties entered into a compromise. They filed joint application under Order23, Rule 3, CPC which was listed as I.A No. 9396/88 in suit No.924/86. Statement of parties were recorded by the Court on 20th December, 1988.

Present applicant made statement in support of the compromise in the Court. Not only he was signatory to te compromise application bearing I.A. No. 9396/88 his counsel Shri Satish Chandra also signed the said compromise application. Pursuance to that compromise, this Court passed a compromise decree on 20th December, 1988 which was exhibited as Ex.PW 1/1. It contained the terms settled between the parties.

3. By the present application, applicant Shri Jagdish Prasad Gupta (defendant No. 4 in suit No. 924/86) wants the cancellation setting aside of the said consent decree exhibit P.W./1 passed on 20th December, 1988, inter alia, on the grounds that the agreement/compromise contained in Ex.PW. I/1 is void. The basis of Ex.PW.1/1 was the alleged partnership which had already become frustrated. Hence that partnership being non est in the eyes of law no compromise decree on the basis of non est document could be passed. There was no question of dissolution of non est partnership nor the question of rendition of account could arise. The alleged partnership deed dated 29th November, 1978 was executed between the applicant and the respondents herein together with applicant's father late Shri Dal Chand Gupta. The terms of the partnership were that the property of the applicant and his father comprising of 514 sq. yards and 407 sq. yards respectively bearing No. 4378/ A, situated at Ansari Road, Darya Ganj valued at Rs. 5,00,000/- and Rs. 3,25,000/-would be invested by the applicant and his father for the purpose of constructing a building with the sole object to commercialize the same and share profits amongst the partners. The profit of the applicant and his father was 28% and 12% respectively. While that of the respondents known as Jain Group in the ratio of 30% of Shri Naveen Kumar Jain and rest in the ratio of 10% each. Money was to be invested by Jain group for raising construction on the land provided by the applicant. The father of the applicant, later Shri Dal Chand Gupta, when found that Jain Group was incapable of performing their part of the agreement and had failed in obtaining the sanctioned plan from M.C.D., he sought permission from the partners to get out of the partnership and be permitted to sell his land. His request was allowed. He sold his land on 30th May, 1980. He totally extricated himself from the partnership. On this account alone, according to the applicant the partnership came to an end. In the sale deed executed by his late father, a citation appears which shows that no construction at all was carried out by the Jain Group i.e. present respondents. There was no likelihood of any construction of the building which was the main object of entering into this partnership. Thus, the sole purpose for which the partnership was entered into got frustrated. Thus that partnership became non est in the eyes of law. Therefore, the suit filed by the defendants i.e. Jain group on 30th April, 1986 bearing No. 924/86 was ex facie barred by the principles of frustration under Section 56 of the Contract Act (in short the Act). The alleged partnership never came into operation. The plans for the construction of the building was never sanctioned by the authority concerned. Hence the question of starting construction within three months from the date of sanction never arose. Para No. 8 of the partnership deed envisaged that the partnership would be deemed to be cancelled in case construction did not start within three months of the sanction of the plans. Since the plans were never sanctioned, therefore, the question of construction never arose. Hence, the partnership deemed to have come to an end and thus stood frustrated. Therefore, compromise decree based on frustrated partnership is a nullity.

4. This application has been contested by the respondents/Jains Group, on the grounds, that these objections were raised by the applicant in his written statement filed in suit No. 924/86. That suit he contested for nearly two years. The partnership deed was entered into on 20th November, 1978. Plans were submitted to the Municipal Corporation of Delhi. The same was rejected on 10th December, 1979. Thereafter, joint representation was made against the rejection of plan on 20th March, 1980. Second joint representation was made on 11th April, 1980. These representations were rejected on 22nd April, 1980. There was no breach on the part of the respondents. This fact was within the knowledge of the applicant. Rather the applicant stopped co-operating with the Jain group i.e. respondents herein. Hence the suit for dissolution of partnership and rendition of account was filed on 30th April, 1986. The applicant having raised all these legal objections gave up the same and entered into a fresh agreement which was listed as I.A.No. 9396/88. This fresh agreement was exhibited as PW.1/1. This agreement was arrived at nearly two years after the contest of that suit whereby parties entered into fresh terms of settlement. In the present application no ground of fraud has been alleged nor prima facie proved. Because of the fresh agreement having been arrived between the parties vide I.A. No. 9396/88 under Order 23, Rule 3, C.P.C., it superseded all earlier deeds and agreements. The mention of the partnership deed in I.A.No. 9396/88 was only by way of narration of facts. Fresh agreement Ex.P.W 1 /1 was in fact based on the fresh terms and conditions settled between the parties. Parties to I.A.No. 9396/88 acted upon the terms settled and incorporated therein. Hence, the present application is not maintainable.

5. I have heard Mr. Satish Chandra, counsel for the applicant and Mr. Mukul Rohtagi. Senior Advocate with Mr. Ravi Gupta for the respondents. The facts are not in dispute. It is not disputed that the partnership deed was entered into between the applicant, his father on one hand and the respondents known as Jain group on the other. The said partnership was not acted upon because of the non-sanctioning of the building plan by the Municipal Corporation of Delhi. It is also not disputed that as per the said partnership agreement, the construction was to start within three months from the sanctioning of the plan, but since the plan was not sanctioned, therefore construction could not be raised. The father of the applicant got himself extricated from the partnership and was permitted 10 sell his land. In the suit filed by the respondents Mr. Chaman Lal Jain and others, Shri Jagdish Parsad present applicant was defendant No.4. He entered into compromise which was incorporated and listed in I.A. No. 9396/88 Ex.PW. I/1. In terms of that compromise incorporated in IA. No. 9396/88 Ex. PW". 1/1, this Court passed the compromise decree on 20th December, 1988. It is also a fact on record that pursuance to the said compromise exhibit PW. I/I, the respondents herein paid to the applicant Shri Jagdish Parsad a sum of Rs. 2 lakhs vide bank draft. This amount was paid because the parties had assessed the divisible assets of the firm arid divided the same in accordance with certain dues on each partner. By this agreement contained in Ex.PW. 1/1 each of the party agreed to save the other party in respect of the liabilities allotted to them and each of the other party assigned, released and relinquished his interest in the property not allotted to him and allotted to the other party.

6. According to Mr. Satish Chandra, this agreement Ex.PW.I/1 was based on the partnership agreement which already stood frustrated on account of non-fulfilment of the terms laid down therein. Therefore, the agreement entered into and recorded in Ex.PW. 1/1 based on non est partnership deed is invalid and void. Such compromise decree as Ex.PW. 1/1 having based on a frustrated agreement is bit by the provisions of Section 56 of the Act.

7. Section 56 of the Act reads as under:--Section 56 of the Contract Act:

Agreement to do impossible act -- an agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful -- A contract to do an act which, after the contract is made becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non performance of Act, known to be impossible or unlawful. Where one person has promised to do something which he knew, or, with reasonable diligence, might have known and which the promisedid not know, to be impossible or unlawful, such promisor must make compensation to such promisesustains through the non performance of the promise."

8. The Supreme Cour, in the case of Satyabrata Ghose v. Mugnteram Bangur & Co., while interpreting the provisions of Section 56 of the Act observed that the doctrine of frustration is really an aspect or part of the law of discharge or contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section 56 of the Act. This Section lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties. Relief is given by the Courts on the grounds of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into agreement. When such an event or change of circumstance occurs which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, it is the Court which can pronounce the contract to be frustrated and at an end. Therefore, relying on these observations, Mr. Satish Chandra contended that no compromise decree could be passed on frustrated contract. It had already become non est in the eyes of law. The mere fact that the parties acted upon PW. 1 /1 by itself is no ground to validate a frustrated agreement nor the giving of Rs. 2 lakhs by the respondents to the applicant would discharge his rights in the property. To support his arguments in this regard he placed reliance on the observation of the Supreme Court in the case of Union Carbide Corporation v. Union of India, . The Apex Court observed that the order of the Court based on an agreement whose or part of whose consideration is unlawful have, it is urged, no higher sanctity than the agreement on which it is based. The orders of the court based on consent of parties do not, so goes the argument, reflect an adjudicative imposition of the Court, but merely set the seal of the Court on what is essentially an agreement between the parties. It was urged before the Supreme Court that the validity and durability of a consent order are wholly dependent on the legal validity of the agreement, on which it rests. Such an order is amenable to be set aside on any ground which would justify a setting aside of the agreement itself. It was further observed that these principles are unexeptionable. Relying on the observations of Vaughan Williams J, in the case of Huddersfield Banking Company Ltd. v. Kerry Lister and Son Ltd. (1985) 2 Ch 273 at page 276 it was observed:

"It seems to me that the clear result of the authorities is that, notwithstanding that consent order has been drawn up and completed and acted upon to the extent that the property has been sold and the money has been paid into the hands of the receiver, I may set aside the order and arrangements upon any ground which would justify me in setting aside an agreement entered into between the parties. The real trust of the matter is that the order is a mere creature of the agreement and to say that the Court can set aside the agreement and it was not disputed that this could be done if a common mistake were provided but that it cannot set aside an order which was the creature of that agreement seems to me to be giving the branch of existence which is independent of the tree".

9. Supreme Court relying on the above observation accepted the contention of the counsel for the appellant in that case and held that a contract whose object is opposed to the public policy is invalid and it is not any the less so by reason alone of the fact that the unlawful terms are embodied in a consensual decree.

10. In the case of State of Punjab v. Amar Smgh, , it was observed that-

"after all, by consent or agreement, parties cannot achieve what is contrary to law and a decree merely based on such agreement cannot furnish a judicial amulet against the contract of the parties is not the less a contract, and subject to the incidents of a contract, because there is superadded the command of the Judge".

11. Relying on these observations, Mr. Satish Chandra contended that the justifi-

cation of the compromise decree as raised by Mr. Mukul Rohtagi on the ground that its terms were acted upon is of no avail to him because an illegal contract or agreement cannot constitute or effect an accord or satisfaction. Even though parties acted upon Ex.PW.1/1 but the consent decree being based on an frustrated agreement is bad in the eye of law. No decree on the basis of frustrated agreement could be passed. The terms of the partnership agreement according to Mr. Satish Chandra became impossible because of intervening circumstances i.e. the M.C.D. refused to sanction the building plan. Hence construction could not start, therefore, partnership never came into existence nor acted upon. Hence, there was no question of dissolution of such a mm est partnership nor the question of rendition of account could arise. Reliance was also placed on the decision of the Supreme Court in the case of Smt. Sushila Devi v. Hari Singh, , wherein it was observed that if the performance of a contract becomes impracticable or useless having regard to the object and purpose the parties had in view then it must be held that the performance of the contract has become impossible. The supervening events should take away the basis of the contract and it should be of such a character that it strikes at the root of the contract. Since the intervening circumstances in the case in hand struck at the root of material terms of the partnership i.e. to get the building plan sanctioned from the M.C.D. and then start within three months construction of the building. Since the respondents failed to get the plan sanctioned and start construction within the stipulated period, therefore, the very purpose for which the partnership was entered into and which goes to the root of the agreement got frustrated. Hence such a partnership became non est. Therefore, no compromise based on such partnership could be made. Therefore, any decree based on non est document was illegal and liable to be set aside. Moreover for setting aside of void decree as Ex.PW. 1 /1, the applicant need not have pleaded specific instance of fraud or undue influence having been practiced on him. Suffice it was for the applicant to prove that the consent decree Ex.PW. 1 /1 was based on a frustrated agreement and, therefore, non est in the eyes of law. It could not have been passed. In this regard he has placed reliance on the decision of the Supreme Court in the case of Banwari Lal v, Smt. Chando Devi (through L.R.) . Relying on this judgment Mr. Satish Chandra contended that the compromise exhibit PW. 1/1 was nothing but a fraud on the applicant as the same was not based on a lawful agreement. It being non est in the eyes of law hence could not have been acted upon. Applicant also filed an affidavit by way of evidence which has not been controverted by the respondents. Hence this Court, relying on the evidential value of the affidavit filed with the application which remained uncontroversial on record, would be justified in arriving at the conclusion that the consent decree Ex.PW-I/I being based on a frustrated agreement cannot stand in the eyes of law. Reliance in this regard was placed on the decision of the Supreme Court in the case of Gograj (Dead) L.Rs. v. State of U. P. 1973 (27) FLR 248 (SC).

12. So far as the proposition of law urged by Mr. Satish Chandra is concerned, there cannot be any quarrel with the same. But what we have to see is the facts of this case. Each case stands on its own facts which ultimately leads to the laying down of the law. For example, in the case of Union Carbide Corporation, (supra) the Supreme Court made these observation because the compromise therein arrived at was invalid and against the law. The reason for holding that compromise invalid because by that compromise a non-compoundable offence was allowed to be compounded which is opposed to the public policy, and therefore unlawful. But that is not the case in hand. It is no one's case that the compromise in this case is unlawful or invalid or against the public policy, rather what Mr. Satish Chandra wants this Court to hold is that the consent decree or consent agreement Ex.PW-1/1 is based on a partnership deed which stood frustrated. He is not challenging the agreement Ex.PW. 1 /1 on its own merits. Therefore, no help can be drawn by Mr. Satish Chandra from the observations of the Supreme Court in Union Carbide Corporation, (supra). In the present case the respondent had filed a suit for dissolution of partnership and rendition of account. Defendants therein and applicant in this case contested the suit for more than two years. Thereafter, he entered into a compromise with the plaintiffs of that case, respondents herein. This agreement Ex.PW-171 according to my mind, was de hors the suit No. 924/86. For the purpose of coming to a fresh agreement like Ex.PW. 1 /1, some reference to the facts of the plaint were mentioned because the compromise, was arrived at during the pendency of the suit No. 924/86, therefore, narrations of some facts of the suit were mentioned in the application filed in that suit. To my mind, mere mentioning of some averments of the plaint in the compromise application would not mean that the compromise was based on those facts. This compromise was an independent one, though inter se the parties to the suit, but was not based on the terms of the partnership deed, which according to Mr. Satish Chandra, stood frustrated. There cannot be two opinions that when an agreement becomes impossible for performance then it is hit by the provisions of Section 56 of the Act. Even if the partnership for the sake of arguments is taken to have been frustrated, but as Mr. Rohtagi rightly says the compromise Ex.PW. 1 /1 was not based on the terms of such frustrated document. Moreover, objection in this regard was taken in the written statement filed by the applicant and in spite of that objection, the applicant herein i.e. defendant No. 4 entered into the agreement in order to settle their disputes regarding the property in question. Therefore, it cannot be said that the agreement Ex.PW.1/1 was based on a frustrated partnership deed. On the contrary, from the reading of the facts which have come on record the only irresistible conclusion which can be arrived at is that the agreement entered into between the parties vide LA. No. 9396/88 Ex.PW 1/1 was a fresh agreement.

13. It cannot be denied that a compromise or consent decree can be set aside on the ground of fraud or undue influence. But that is not the only ground for setting aside such a decree. There can be number of other instances on the basis of which consent decree can be set aside as held by the Supreme Court in the case of Union Carbide Corporation, (supra). When the agreement itself is unlawful and invalid, a decree passed on the basis of such an invalid agreement would amount to fraud and liable to be set aside. But the present decree is not based on any invalid agreement nor by itself unlawful, hence cannot be set aside. Moreover, applicant has not come to this Court with clean hands. He concealed the facts that he jointly signed application with respondents for sanction of building plan in 1989 acknowledging equal rights of the parties in the property in suit. He also concealed the fact that pursuance to Ex. PW. I/I mutations were effected in the names of parties of their respective shares in the property by the M.C.D. Moreover, a pursuance to Ex. PW. I/1 parties jointly carried out demolition of the old and existing structure.

14. Mr. Mukul Rohtagi had raised the objection that evidence by way of affidavit filed by the applicant cannot be relied upon because in the application, no specific averments of fraud or force or undue influence have been made, therefore, any evidence which is in variance with the pleading cannot be looked into. Moreover, it was not a partnership, but a joint venture. Though loosely it was called partnership which could not be completed because of the non-cooperation of the applicant himself. The applicant cannot be allowed to take advantage of his own wrongs. Vide Ex. P.W. I/1 Mr. Rohtagi contended that the applicant sold half of his land to the respondents against the consideration of Rs. two lakhs. This was a fresh agreement. It had been acted upon. Ex. P.W. I/1 is neither illegal nor unlawful.

15. As already observed above, I find no merits in this application. Ex. P.W. 1 /1 was a fresh agreement entered into between the parties in a pending suit and it has already been acted upon. The objections taken in this application were the precise objections taken in the written statement. But these were given up when parties entered into a fresh agree-

ment which is neither invalid nor unlawful. Applicant had the assistance Mr. Satish Chandra, Advocate even when he drafted his written statement and when he entered into the compromise and when compromise decree was passed. Now the applicant cannot be allowed to urge that the second agreement on the basis of which compromise decree was passed be set aside and what has followed subsequent thereto be undone. To my mind, this is neither permissible nor possible in the facts of this case. The application is accordingly dismissed. Parties are left to bear their own costs.

16. Application dismissed.