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Compromise (Consent Decree) - O.23 R.3, Proviso, Explanation, R. 3A; Sec 96 (3), r/w O.43, R. 1A (2)

Banwari Lal vs Smt. Chando Devi (Through L.R.) AIR 1993 SC 1139 (Indian Kanoon)
Bench: N Kasliwal, N Singh
ORDER N.P. Singh, J.

Para 6 - The experience of the courts has been that on many occasions parties having filed petitions
of compromise on basis of which decrees are prepared, later for one reason or other challenge the
validity of such compromise. For setting aside such decrees suits used to be filed which dragged on
for years including appeals to different courts. Keeping in view the predicament of the courts and
the public, several amendments have been introduced in Order 23 of the Code.

Rule 1 of Order 23 of the Code prescribes that at any time after the institution of the suit, the
plaintiff may abandon his suit: or abandon a part of his claim.
Rule 1(3) provides that where the Court is satisfied (a) that a suit must fail by reason of some formal
defect, or (b) that there are sufficient grounds for allowing the plaintiff to institute a fresh suit for the
subject-matter of a suit or part of a claim, it may, on such terms as it thinks fit, grant the plaintiff
permission to withdraw such suit with liberty to institute a fresh suit.
In view of Rule 1(4) if plaintiff abandons his suit or withdraws such suit without permission referred
to above, he shall be precluded from instituting any such suit in respect of such subject-matter.

Rule 3 of Order 23 which contained the procedure regarding compromise of the suit was also
amended to curtail vexatious and tiring litigation while challenging a compromise decree. Not only in
Rule 3 some special requirements were introduced before a compromise is recorded by the Court
including that the lawful agreement or a compromise must be in writing and signed by the parties, a
proviso with an explanation was also added.

By adding the proviso along with an explanation the purpose and the object of the amending Act
appears to be to compel the party challenging the compromise to question the same before the Court
which had recorded the compromise in question.
That Court was enjoined to decide the controversy whether the parties have arrived at an adjustment
in a lawful manner. The explanation made it clear that an agreement or a compromise which is void or
voidable under the Indian Contract Act shall not be deemed to be lawful within the meaning of the
said Rule.

Having introduced the proviso along with the explanation in Rule 3 in order to avoid multiplicity of
suit and prolonged litigation, a specific bar was prescribed by Rule 3A in respect of institution of a
separate suit for setting aside a decree on basis of a compromise saying :-

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.

Para 8 - Earlier under Order 43, Rule 1(m), an appeal was maintainable against an order under Rule 3
of Order 23 recording or refusing to record an agreement, compromise or satisfaction. But by the
amending Act aforesaid that clause has been deleted; the result whereof is that now no appeal is
maintainable against an order recording or refusing to record an agreement or compromise under
Rule 3 of Order 23.
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Being conscious that the right of appeal against the order recording a compromise or refusing to
record a compromise was being taken away, a new Rule 1A has been added to Order 43 which is as
follows:-

1A. Right to challenge non-appealable orders in appeal against decrees.-

(1) Where any order is made under this Code against a party and thereupon any judgment is
pronounced against such party and a decree is drawn up, such party may, in an appeal against the
decree, contend that such order should not have been made and the judgment should not have been
pronounced.

(2) In an appeal against a decree passed in a suit after recording a compromise or refusing to record
a compromise, it shall be open to the appellant to contest the decree on the ground that the
compromise should, or should not, have been recorded.

Para 9 - Section 96(3) of the Code says that no appeal shall lie from a decree passed by the Court
with the consent of the parties. O. 43 Rule 1A(2) has been introduced saying that against a decree
passed in a suit after recording a compromise, it shall be open to the appellant to contest the decree on
the ground that the compromise should not have been recorded.

 When Section 96(3) bars an appeal against decree passed with the consent of parties, it implies
that such decree is valid and binding on the parties unless set aside by the procedure prescribed or
available to the parties. One such remedy available was by filing the appeal under Order 43, Rule
1(m). If the order recording the compromise was set aside, there was no necessity or occasion to
file an appeal against the decree. Similarly a suit used to be filed for setting aside such decree on
the ground that the decree is based on an invalid and illegal compromise not binding on the
plaintiff of the second suit.

But after the amendments which have been introduced, neither an appeal against the order recording
the compromise nor remedy by way of filing a suit is available in cases covered by Rule 3A of Order
23.

 As such a right has been given under Rule 1A(2) of Order 43 to a party, who challenges the
recording of the compromise, to question the validity thereof while prefering an appeal against the
decree. Section 96(3) of the Code shall not be a bar to such an appeal because Section 96(3) is
applicable to cases where the factum of compromise or agreement is NOT in dispute.

Para 14 - When the amending Act introduced a proviso along with an explanation to Rule 3 of Order
23 saying that where it is alleged by one party and denied by other that an adjustment or satisfaction
has been arrived at, "the Court shall decide the question", the Court before which a petition of
compromise is filed and which has recorded such compromise, has to decide the question whether
an adjustment or satisfaction had been arrived at on basis of any lawful agreement. To make the
enquiry in respect of validity of the agreement or the compromise more comprehensive, the
explanation to the proviso says that an agreement or compromise "which is void or voidable under
the Indian Contract Act..." shall not be deemed to be lawful within the meaning of the said Rule. In
view of the proviso read with the explanation, a Court which had entertained the petition of
Compromise has to examine whether the compromise was void or voidable under the Indian
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Contract Act. Even Rule 1(m) of Order 43 has been deleted under which an appeal was maintainable
against an order recording a compromise. As such a party challenging a compromise can file a
petition under proviso to Rule 3 of Order 23, or an appeal under Section 96(1) of the Code, in which
he can now question the validity of the compromise in view of Rule 1A of Order 43 of the Code.

Para 15 - The application for exercise of power under proviso to Rule 3 of Order 23 can be
labeled under Section 151 of the Code but when by the amending Act specifically such power has
been vested in the Court before which the petition of compromise had been filed, the power in
appropriate cases has to be exercised under the said proviso to Rule 3.