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Compromise Decree: Challenge By The Third Party

An agreement between the parties to a case on a settlement later included in a court order is known as a compromise decree. It is a form of dispute resolution frequently utilized in civil litigation. Nonetheless, a third party not a party to the first action may contest the legality of a compromise decree. The legal basis for such challenges and relevant case law will all be discussed in this essay along with the third party's ability to challenge a compromise decree.

The subject matter that is prohibited by law should be discussed by the parties to the compromise. It shouldn't be unethical, against the law, or contrary to public policy. If the topic is illegal, the compromise is invalid. Unlawful agreements are null and void.

Order 23 Rule 3 of CPC states that:
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 as 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 a such adjournment.][1]

A person who is not a party to the lawsuit may request that a court set aside a compromise decree if they believe it was obtained through fraud, collusion, or deception, according to this rule. The guideline also stipulates that the application must be submitted promptly. In the case of Ram Swaroop v. Rameshwar Prasad[2], the court determined that if a compromise judgment was reached through deceit or conspiracy, a third party may challenge it.

The court also ruled that the third party must demonstrate that it has a concrete stake in the dispute and that the compromise decree has hurt its interests. Like this, the court determined that a compromise decree can be contested by a third party if it was obtained through deception or collusion in the case of Krishna Chandra Bhattacharjee v. Sambhunath Pandey[3], The court also ruled that the third party must demonstrate that it has a concrete stake in the dispute at hand and that the compromise decree has hurt its interests.

Causes of Third´┐ŻParty Challenges

Compromise judgments may be contested by third parties in India for a variety of reasons. Uncertainty on how the decree may impact the third party's interests is one of the most frequent causes. For instance, the transfer of intellectual property rights in a settlement agreement between two businesses may influence another party's ability to use that property. In this situation, the third party may contest the decree to safeguard its interests.

Dissatisfaction with the agreement's terms is another reason for third-party disputes. For instance, concessions made as part of a compromise agreement between a corporation and a regulator may have a negative effect on other parties. These parties could file a legal challenge against the decree to stop any harm to their interests. Eventually, to exercise their legal rights, some third parties may contest a compromise ruling. For instance, if a shareholder feels that a settlement between two companies would have a negative effect on the value of their investment, they may contest the agreement.

Legal Criteria Governing Challenges to Compromise Decrees

Third-party challenges must establish locus standi in India, which calls for them to prove that they have a significant stake in the decree's subject matter. They must also show how the order affects their rights or interests.

If a third party has locus standi, they may object to the terms of a compromise order by showing that the decree is unlawful or against public policy. A compromise decree may occasionally be amended or rejected by a third party if the court finds it to be unjust, irrational, or insufficient.

The Indian Contract Act and the Civil Process Code in India govern third-party challenges to compromise orders. The conditions for third-party challenger standing are that the third party must have a stake in the issue at hand and that the compromise decree must have an impact on their rights. The criteria for altering or rejecting the provisions of a compromise decree include the need for the proposed alteration or rejection to be supported by law and to be in the interests of all parties concerned.

Case Laws:
The subject of third-party challenges to compromise decrees has been discussed by Indian courts in several cases. The Supreme Court ruled in the case of S.K. Dutta v. Lawrence Singh[4] that a third party may contest a compromise judgment if the judgment injures its rights. In this instance, the court decided that a third party with an interest in the property could contest a compromise decree that transferred property from one party to another.

The Karnataka High Court ruled in the case of Ramachandra v. B.H. Kemparaju[5] that a third party might contest a compromise order if it was not informed of the settlement arrangement. In this instance, the court decided that a third party who claimed an interest in the property but was not informed of the settlement arrangement might contest a compromise decision that transferred property from one party to another.

The case of Hindustan Lever Ltd. v. State of Maharashtra[6] case, decided by the Supreme Court, is one of the most important cases regarding third-party challenges to compromise decrees. In this instance, the State government and Hindustan Lever Ltd. reached an agreement on the taxes problem. The Indian Express newspaper, a third party, contested the compromise decree, asserting that it was against the public interest. The Indian Express did not have any legal stake in the issue at hand, the Supreme Court ruled, thus it lacked locus standi to appeal the compromise decree.

A case involving a third party contesting an Indian compromise decree is Competition Commission of India v. Thomas Cook (India) Ltd[7]. Via a consent decree, the Competition Commission of India (CCI) resolved accusations of anti-competitive behavior against Thomas Cook (India) Limited in 2016. The Federation of Hotel & Restaurant Associations of India, a third party, contested the order because it was insufficiently protective of the interests of the hotel sector. The decree was finally granted by the court, although various modifications were mandated to accommodate the concerns of outside parties.

The Godrej & Boyce Manufacturing Co. Ltd. v. State of Maharashtra[8] case said that a third party could contest a compromise decree if it adversely damaged their legal rights. The rights of the impacted party were not taken into account during the settlement procedure; hence the Bombay High Court permitted the challenge of the compromise decree in this instance.

Order 23 Rule 3A CPC Bar to file a separate lawsuit to contest the compromise decree.

It is specifically prohibited by Order 23 Rule 3A to file a new lawsuit after a compromise judgment has been entered. Only the court that recorded the compromise can investigate it. According to Order 23 Rule 3A of the CPC, it was determined in Triloki Nath Singh vs. Anirudh Singh[9] (D) Thr. Lrs (2020)[10] that the civil court's complaint for a declaration was unmaintainable. The prohibition also covers strangers who could jeopardize proceedings. The Supreme Court's compromise decree may be revoked by a party if they were not parties to it, giving them a claim for damages.

In N. Shailesh Prasad and Others v. Sree Surya Developers and Promoters[11], it was decided that no independent lawsuit could be brought against a compromise decision. The primary goal of the adjudicating forums is to reach definitive judgments to avoid protracted litigation. The legislation's goal is to prevent further disputes between the parties if a legitimate agreement already exists. Hence, the lower court was correct to reject the claim because it would be impossible to sustain a lawsuit to challenge the compromise decision.

Solutions to overcome challenges
The difficulties that could result from third-party challenges to compromise decrees can be overcome. By carefully considering legal issues and using effective negotiation strategies, parties can settle disputes through compromise decrees. In settling disagreements and averting future challenges to the compromise order, the participation of a neutral third-party mediator might be helpful.

In conclusion, a party who was not a party to the first litigation has the right to contest a compromise decree. The third-party must demonstrate that it had a prior claim to the dispute's subject matter, that the compromise decree did not effectively protect those claims, and that it was not informed of the settlement agreement.

The subject of third-party challenges to compromise decrees has been addressed by the Indian courts in several judgments, giving a framework for such challenges. To prevent challenges to the decree's legality, it is crucial for parties to a compromise decree to make sure the interests of third parties are sufficiently protected.

Compromise decrees are essential instruments for resolving legal disputes in India without the necessity for a trial, but they are not impervious to objections from outside parties. Nonetheless, parties can successfully overcome these difficulties and arrive at a solution that is in the best interests of all parties involved by taking legal considerations into account and using effective negotiation strategies. Third-party challenges to compromise decrees are subject to legal standards established by Indian law, and pertinent case laws offer direction for their interpretation and application.

  1. The Code of Civil Procedure, 1908, Withdrawal and Adjustment of Suits, Order 23 Rule 3
  2. Ram Swaroop v. Rameshwar Prasad, AIR 1966 All 424
  3. Krishna Chandra Bhattacharjee v. Sambhunath Pandey, AIR 1964 Cal 400
  4. S.K. Dutta v. Lawrence Singh Ingty, (1968) 2 SCR 165
  5. Ramachandra v. B.H. Kemparaju, 2010 (2) KarLJ 138
  6. Hindustan Lever v. State of Maharashtra, (2004) 9 SCC 438
  7. CCI v. Thomas Cook (India) Ltd., (2018) 6 SCC 549
  8. Godrej & Boyce Mfg. Co. Ltd. v. State of Maharashtra, 2019 SCC OnLine Bom 11445
  9. Order 23 Rule 3 CPC - iPleaders,
  10. Triloki Nath Singh v. Anirudh Singh, (2020) 6 SCC 629
  11. Sree Surya Developers & Promoters v. N. Sailesh Prasad, (2022) 5 SCC 736
Written By:
  1. Parth Tanwar Student of O.P. Jindal Global University 2nd Year LL.B (Hons)
  2. Jaispriya Poply Student of O.P. Jindal Global University 2nd Year LL.B (Hons)

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