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