Can the validity of a decree passed on a compromise be challenged in a separate suit?

 The following passage from the decision
of Pushpa Devi (supra) case is, in this regard, apposite:
“17. ..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. In that
event, the court which recorded the compromise will
itself consider and decide the question as to whether
there was a valid compromise or not. This is so
because a consent decree is nothing but contract
between parties superimposed with the seal of
approval of the court. The validity of a consent
decree depends wholly on the validity of the
agreement or compromise on which it is made. The
second defendant, who challenged the consent
compromise decree was fully aware of this position
as she filed an application for setting aside the
consent decree on 21-8-2001 by alleging that there
was no valid compromise in accordance with law.
Significantly, none of the other defendants
challenged the consent decree. For reasons best
known to herself, the second defendant within a few
days thereafter (that is on 27-8-2001) filed an appeal
and chose not to pursue the application filed before
the court which passed the consent decree. Such an
appeal by the second defendant was not
maintainable, having regard to the express bar
contained in Section 96(3) of the Code.”
 We may also refer to the decision of this Court in
Banwari Lal v. Chando Devi (1993) 1 SCC 581 where
also this Court had observed:
“As such a party challenging a compromise can file a
petition under proviso to Rule 3 of Order XXIII, or an
appeal under S. 96(1) of the Code, in which he can
now question the validity of the compromise in view
of Rule 1-A of Order 13 of the Code.”
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 10416-10417
OF 2014
(Arising out of S.L.P. (C) Nos. 13942-13943 of 2012)
R. Rajanna
...Appellant
Versus
S.R. Venkataswamy & Ors.
Dated;November 20, 2014

T.S. THAKUR, J.

1. Leave granted.
2. Can the validity of a decree passed on a compromise be
challenged in a separate suit is the short question that falls
for determination in this appeal. It arises in the following
circumstances:
3.
The appellant filed a suit for declaration to the effect
that gift-deed dated 12th August, 1982 executed by one
Ramaiah was void and for a permanent prohibitory injunction
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restraining the defendant-respondent from alienating the
suit schedule property or interfering with the peaceful
possession and enjoyment of the same by the plaintiff. By
its judgment and order dated 25th March, 1991, the Trial
Court decreed the suit holding the gift-deed in question to be
null and void, hence not binding on the plaintiff-appellant.
Defendants No.2 and 3 in the said suit were also directed to
demolish the building constructed in the schedule property
and surrender possession thereof to the plaintiff. Aggrieved
by the judgment and decree passed against him the
respondent filed RFA No.223 of 1991 before the High Court
of Karnataka at Bangalore. According to the respondent a
compromise petition was in terms of Order XXIII Rule 3 of
Civil Procedure Code filed by the parties before the High
Court in the said appeal settling the dispute amicably. The
appellant stoutly disputes that position and asserts that no
such comprise was either needed nor was the same ever
entered into between the parties. The appellant describes
the so-called compromise deed as a forged and fabricated
document.
The appellant denies that he ever signed any
such compromise petition or asked his advocate to file the
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same before the Court. Even so the High Court had
proceeded on the basis that a compromise had indeed taken
place between the parties in the light whereof the High Court
set aside the judgment and decree of the Trial Court and
allowed the appeal filed by the respondents. The appellant’s
case is that order dated 1 st August, 1995 passed by the High
Court in RFA NO. 223 of 1991 was the result of fraud played
upon the High Court.
4.
Aggrieved by the judgment and order dated 1 st August,
1995 passed by the High Court, the appellant appears to
have filed OS No.5236 of 2005 before the Additional City
Civil Judge, Bangalore, in which the appellant prayed for
setting aside of the compromise recorded in the High Court’s
order dated 1st August, 1995 and the decree passed on the
basis thereof.
The defendant-respondent No.1 moved an
application in the said suit under Order VII Rule 11(d) read
with Section 151 Code of Civil Procedure for 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.
5.
By its order dated 11th February, 2011, the City Civil
Court, Bangalore, allowed the application filed by the
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respondent and rejected the plaint filed by the plaintiff-
appellant. The Court took the view that in the light of the
proviso to Order XXIII Rule 3 of the CPC inserted w.e.f.
1.2.1997, a party aggrieved of a decree on compromise had
to approach the Court that passed the decree to establish
that no compromise had taken place between the parties
which could provide a basis for the Court to act upon the
same.
In doing so the Court placed reliance upon the
decision of this Court in Pushpa Devi Bhagat v. Rajinder
Singh and Ors. (2006) 5 SCC 566.
6.
It was after the rejection of the plaint that the appellant
filed miscellaneous application IA Nos. 1 and 2 of 2011 in
RFA No.223 of 1991 praying for setting aside of order dated
1st August, 1995 by which the High Court had allowed the
appeal filed by the respondents and set aside the decree
passed in OS No.5236 of 2005 on the basis of the alleged
compromise between the parties. The appellant's case
before the High Court was that no such compromise had
taken place nor was any compromise petition ever signed by
him.
It was also alleged that the appellant had given no
instructions to his advocate for presenting any compromise
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petition and that the alleged compromise petition was totally
fraudulent and based on forged signature of the appellant
apart from being unauthorised as the counsel engaged by
him had no authority to present or report any such
compromise before the Court. The appellant also prayed for
condonation of delay in filing the application for setting aside
the compromise decree passed by the High Court.
7.
The High Court of Karnataka has by its orders impugned
in this appeal, dismissed IA No.1 of 2011 filed by the
appellant without even adverting to the provisions of Order
XXIII Rule 3 CPC and in particular Rule 3A which bars a suit
to have a compromise decree set aside on the ground that
the compromise on which the decree had been passed did
not exist or take place.
The High Court appears to have
taken the view that even if the compromise was fraudulent
since the appellant had filed a suit for declaration he ought
to pursue the same to its logical conclusion. The High Court
further held that even if the plaint in the suit filed by the
appellant had been rejected in terms of Order VII Rule 11(d)
of CPC, the appellant ought to seek redress against any such
order of rejection. The High Court has on that basis declined
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Page 5
to consider the prayer made by the appellant for setting
aside the compromise decree.
8.
The precise question that falls for determination in the
above backdrop is 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.
9.
Order XXIII Rule 3 and Rule 3A of CPC may at this stage
be extracted for ready reference:
“3. Compromise of suit. – 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 [in writing and signed by the parties],
or where the defendant satisfies the plaintiff in
respect of the whole or any part of the subject-
matter of the suit, the Court shall order such
agreement, compromise or satisfaction to be
recorded, and shall pass a decree in accordance
therewith [so far it relates to the parties to the suit,
whether or not the subject-matter of the agreement,
compromise, or satisfaction is the same as the
subject-matter of the suit]:
[Provided that where it is alleged by one party and
denied by the other that an adjustment or
satisfaction has been arrived at, the Court shall
decide the question; but no adjournment shall be
granted for the purpose of deciding the question,
unless the Court, for reasons to be recorded, thinks
fit to grant such adjournment.]
Explanation – An agreement or compromise which is
void or voidable under the Indian Contract Act, 1872
shall not be deemed to be lawful within the meaning
of this rule.”
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Page 6
10. It is manifest from a plain reading of the above 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. 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 XXIII 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
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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 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.
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Page 8
11. The upshot of the above discussion is that 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
(supra) 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 following passage from the decision
of Pushpa Devi (supra) case is, in this regard, apposite:
“17. ..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. In that
event, the court which recorded the compromise will
itself consider and decide the question as to whether
there was a valid compromise or not. This is so
because a consent decree is nothing but contract
between parties superimposed with the seal of
approval of the court. The validity of a consent
decree depends wholly on the validity of the
agreement or compromise on which it is made. The
second defendant, who challenged the consent
compromise decree was fully aware of this position
as she filed an application for setting aside the
consent decree on 21-8-2001 by alleging that there
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Page 9
was no valid compromise in accordance with law.
Significantly, none of the other defendants
challenged the consent decree. For reasons best
known to herself, the second defendant within a few
days thereafter (that is on 27-8-2001) filed an appeal
and chose not to pursue the application filed before
the court which passed the consent decree. Such an
appeal by the second defendant was not
maintainable, having regard to the express bar
contained in Section 96(3) of the Code.”
12. We may also refer to the decision of this Court in
Banwari Lal v. Chando Devi (1993) 1 SCC 581 where
also this Court had observed:
“As such a party challenging a compromise can file a
petition under proviso to Rule 3 of Order XXIII, or an
appeal under S. 96(1) of the Code, in which he can
now question the validity of the compromise in view
of Rule 1-A of Order 13 of the Code.”
13. In the light of the above, we allow these appeals, set
aside the order passed by the High Court and remit the
matter back to the High Court for disposal of IA Nos.1 and 2
of 2011 in accordance with law in the light of the
observations made hereinabove.
In the peculiar facts and
circumstances of the case, we leave the parties to bear their
own costs. We make it clear that we have expressed no
opinion as to the merits of the application seeking setting
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aside of the compromise decree which aspect is left for the
High Court to examine in accordance with law.
...............................................J.
(T.S. THAKUR)
.................................................J.
(R. BANUMATHI)
New Delhi;
November 20, 2014

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