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Compromise Decree: A Detailed Overview

Decree means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final. It shall be deemed to include the rejection of a plaint and the determination of any question within section 144, but shall not include--
(a) any adjudication from which an appeal lies as an appeal from an order, or
(b) any order of dismissal for the default".

Order XXIII Rule 3 CPC pertaining to the compromise of the suit is as follows:

"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 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."

Nature And Effect of A Compromise Decree
The most important question in relation to this subject is whether a ‘Compromise decree’ is an ordinary decree as defined under Section 2(2) of Code of Civil Procedure 1908, or it is merely an arrangement/settlement or a lawful agreement between the parties with the seal of Court super-added to it.

Referring to Section 375 of the CPC (Act XIV of 1882), (similar to Order XXIII Rule 3 CPC as it stood prior to the amendment of 1976),Lord Buckmaster,inHemanta Kiimari Debi v. Midnapur Zamindari Co.[1],states:
... In the first place, it is plain that the agreement or compromise, in whole and not in part, is to be recorded, and the decree is then to confine its operation to so much of the subject-matter of the suit as is dealt with by the agreement...although the operative part of the decree would be properly confined to the actual subject-matter of the then existing litigation the decree taken as a whole would include the agreement. This, in fact, is what the decree did in the present case. It may be that as a decree it was incapable of being executed outside the lands of the suit, but that does not prevent it's being received in evidence of its contents".

A compromise decree is not a decision of the Court, nor can it be said that a decision of the Court was implicit in it. It is the acceptance by the Court of something to which the parties agreed. Such a decree cannot operate asres judicata. (Subba Rao v. Jagannadha[2])

A consent decree (Compromise decree) does not stand on a higher footing than a contract between the parties. The Court always has the jurisdiction to set aside a consent decree upon any ground which will invalidate an agreement between the parties. In the absence of any such ground, the consent decree is binding on the parties. (Ganganand Singh and Ors. v. Rameshwar Singh Bahadur and Anr.[3])
Baldevdas Shivlal and Anr. v. Filimistan Distributors (India) P.Ltd[4]

The Trial Judge in overruling the objection did not decide any issues at the stage of recording evidence: he was not called upon to decide any issues at that stage. The observations made by him obviously relate to the arguments advanced at the Bar and can in no sense be regarded even indirectly as a decision on any of the issues. But the High Court has recorded a finding that the agreement dated November 27, 1954, created a lease and that the consent decree operated as res judicata. A consent decree, according to the decisions of this Court, does not operate as res judicata, because a consent decree is merely the record of a contract between the parties to a suit, to which is superadded the seal of the Court. A matter in the contest in a suit may operate as res judicata only if there is an adjudication by the Court: the terms of s. II of the Code leaves no scope for a contrary view. Again it was for the Trial Court in the first instance to decide that question and thereafter the High Court could if the matter were brought before it by way of appeal or in the exercise of its revisional jurisdiction, have decided that question. In our judgment, the High Court had no jurisdiction to record any finding on the issue of resjudicata in a revision application filed against an order refusing to uphold an objection to the certain question asked to a witness under examination.

It was held that "a compromise, as is well known, is an agreement between the parties with the seal of the Court super-added to it. A consent (compromise) decree, therefore, is not a decree in its true sense. It would not even attract the principles of res judicata".

Justice Rama RaoinNew Miraj Cafe vs. Ramakaran[5]observed in detail that Sec 2(2). C.P.C. defines decree as the final culmination of the rights of the parties in a suit. Order XXIII Rule 3 C.P.C. formulates the procedure of providing a legal seal to the adjustments arrived at by the parties by passing a decree in consonance with the terms of such adjustment and such decree is designated as compromise decree. The decrees in accordance with the judgment of the Court as well as the decrees pursuant to the volition of the parties are assimilated in the definition of the decree under Sec 2(2) C.P.C. For the purpose of enforceability and executability, all decrees including compromise decrees bear the same stamp of authority and incidents. The routes of culmination in the decree are different as there is a decree pursuant to the verdict of the umpire in an adversary system and another i.e. the compromise decree is the by-product of the trimming and adjustment of the rival projections and postures by the parties themselves and the consensus of agreement arrived at by the parties is given a judicial recognition and ratification. Both the decrees stand on the same footing in the eye of law as one is a follow up of the verdict as a result of controversies and the other is the creature of the agreement between the parties. Therefore, the distinction made out by the court below between a decree by adjudication and a decree by compromise is not discernible from the provisions of CPC.

In Sailendra Narayan v. State of Orissa[6],the Supreme Court held that a judgment by consent or default is as effective an estoppel between the parties as a judgment whereby the court exercises its mind in a contested case.

In Habib Mian v. M Ahmad[7],the Full Bench of the Allahabad High Court held that a compromise decree is founded upon the agreement on which it is based and it is a contract with the command of a Judge superadded to it. To the same effect is the decision in Indira Bai v. B A Patel[8],wherein it is held that the consent decree is as binding upon the parties thereto as a decree passed by invitum and the consent decree has the binding force ofres judicataas to the decree on adjudication.

Compromise Decree Creates Estoppel
Byram Pestonji Ganwala v. Union of India[9]the Court held that a judgment by consent is intended to stop litigation between the parties just as much as a judgment resulting from a decision of the Court at the end of a long drawn out fight. A compromise decree creates an estoppel by judgment and quotes the following paragraph from the Spencer-Bower and Turner in res judicata (2nd Edn. P. 37):
'Any judgment or order which h in other respects answers to the description of ares judicatais nonetheless so because it was made in pursuance of the consent and agreement of the parties. Accordingly, judgments, orders, and awards by consent have always been held no less efficacious as estoppels than other judgments, orders, or decisions, though doubts have been occasionally expressed whether, strictly, the foundation of the estoppel in such cases is not representation by conduct, rather than res judicata.

In Sailendra Narayan Bhanja Deo v. State of Orissa[10], five-Judges Bench of Supreme Court held that a judgment by consent is effective as estoppels between the parties as a judgment whereby the Court exercises its mind on a contested case.

Amitabh Bachchan vs. Deputy Commissioner of Income Tax (18.05.2005 - ITAT Mumbai)[11],The Court provided that the assessee has argued that under Arbitration and Conciliation Act, 1996, the award of the arbitrator is final and binding on all the parties to the dispute and the legal effect thereof is the same as that of an order of a competent Court to decide civil dispute. At best, the award of the arbitrator can be regarded as something comparable to a compromise decree of a civil Court. On the point of a claim of deduction under Section 80RR, the CIT (A) has upheld the order of AO on the issue:
"In a number of judicial decisions, Courts have held that a compromise decree or order does not operate as res judicata because the same is merely the record of a contract between the parties to suit to which is superadded the seal of the Court and the Court does not decide anything".

In Subba Rao's case (supra), Court held that the compromise decree might have created an estoppel by conduct and such estoppel must be specifically pleaded.

Jadu Gopal Chakravarty (Dead) by his Lrs. vs. Pannalal Bhowmick and Ors.[12],"Compromise decree is binding upon parties and unless set aside, it operates as an estoppel."
From the above mentioned judicial pronouncements, it is clear that the principle ofres judicatais not applicable in case of the decree passed by the Court under the compromise between the parties. However, such decree is binding on the parties on the basis of "Principle of Estoppel"

Whether Non-Execution Of Compromise Decree Creates ‘Contempt’
"Indeed, if we were to hold that non-compliance of a compromise decree or consent order amounts to contempt of court, the provisions of the Code of Civil Procedure relating to the execution of decrees may not be resorted to at all. In fact, the reason why a breach of clear undertaking given to the court amounts to contempt of court is that the contemner by making a false representation to the court obtains a benefit for himself and if he fails to honour the undertaking, he plays a serious fraud on the court itself and thereby obstructs the course of justice and brings into disrepute the judicial institution. The same cannot, however, be said of a consent order or a compromise decree where the fraud, if any, is practised by the person concerned not on the court but on one of the parties. Thus, the offence, committed by the person concerned is qua the party not qua the court, and, therefore, the very foundation for proceeding for contempt of court is completely absent in such cases." ( Babu Ram Gupta vs Sudhir Bhasin & Anr[13])

"We think it is sufficient to stress the following principles, which will be clearly relevant to a situation of the present kind. Essentially, contempt of Court is a matter which concerns the administration of justice and the dignity and authority of judicial tribunals; a party can bring to the notice of Court, facts constituting what may appear to amount to contempt of Court, for such action as the Court deems it expedient to adopt. But, essentially, jurisdiction in contempt is not a right of a party, to be invoked for the redressal of his grievances; nor is it a mode by which the rights of a party, adjudicated upon by a tribunal, can be enforced against another party. The entire corpus of execution law exists for the enforcement of rights, by one party against another, which have been the subject matter of adjudication. In our view, there are sufficient grounds here to show that it will be inexpedient and undesirable to institute proceedings in contempt jurisdiction, in a situation of this kind. Firstly, the facts themselves may be in controversy, whether a deliberate flouting of a judicial order or decree has occurred, and we state this, irrespective of the merits of the instant case. When they are in controversy, they cannot be ascertained without due enquiry. If the Court is to commence an action in contempt jurisdiction, only after ascertaining facts at such an enquiry, obviously it will be converting itself into an agency for arriving at findings of fact which may be a foundation for contempt jurisdiction. On the contrary, it would be in the interests of justice to exercise contempt jurisdiction, or to commence to do so, only when the facts on the record ex-facie support such a proceeding; any detailed enquiry must be left to the Court which has passed the order and which is presumably fully acquainted with the subject matter of its own decree of temporary prohibitory injunction. For this reason, we are of the view that Order XXXIX Rule 2(3) of the Civil Procedure Code is a far more adequate and satisfactory remedy in such cases. Again, where the situation is strictly inter partes and third party rights are not involved, it is clearly more desirable that the Court which made the order of injunction, should go into the facts, and ascertain the truth of the alleged disobedience, and the extent to which it has been willful." (A. Ramalingam vs V.V. Mahalinga Nadar[14])

In Lalit & Co.'s case, another learned Single Judge of this Court observed:-
"During the pendency of the suit for possession, the parties entered into a compromise and compromise application under the provisions of Order 23 Rule 3 CPC was filed by the parties. Statements of the parties in support of application were also recorded. After recording the statements of the parties, the Court passed a decree on the basis of compromise arrived at between the parties. This petition for initiating contempt against the respondent has now been filed alleging inter alia that the respondents have not complied with the terms of the decree and, therefore, they have made themselves liable to be proceeded for having committed contempt. A perusal of the decree and statements recorded by the Courts shows that no undertaking whatsoever was given by the respondent and the Court had passed the decree on the basis of the application filed by the parties under the provisions of Order 23 Rule 3 CPC. In my view, in case any of the terms of the decree have not been complied with by the respondents, the petitioner can have his remedies as may be permissible in law but the present petition for contempt cannot be entertained as the contempt proceedings cannot be a substitute to execution proceedings. With these observations, the present petition for contempt is dismissed."
Delhi High Court in Hindustan Motors Ltd. vs. Amritpal Singh Nayar And Anr[15]. on 31 May 2002

Having considered the matter, this Court is of the opinion that in the instant case no proceeding under theContempt of Courts Actshould be initiated. The undertaking given before this Court is qua the party to the lis and not qua the Court and in that view of the matter, no case for initiation of proceedings under theContempt of Courts Acthaving been made out. The same view has been taken by two learned Judges of this Court in Urmila Salwan and Ors. v. Kasturi Lal Bhatia[16].

Is Decree Appealable
The question, whether bar put by Sub-section (3) of Section 96 shall operate in cases where the factum of compromise is disputed, was, the subject-matter of consideration before the Supreme Court in the case of Katikara Chintamani Dora v. Gautreddi Annamanaidu[17], and it was laid down as follows;
"If the compromise agreement was lawful and as we shall presently discuss it was so the decree to the extent it was a consent' decree, was not appealable because of the express bar in Section 96(3) of the Code."
"Be that as it may, the bar to an appeal against a consent decree in Sub-section (3) of Section 96 of the Code is based on the broad principle of estoppel. It presupposes that the parties to an action can, expressly or by implication, waive or forgo their right of appeal by any lawful agreement or compromise or even by conduct. Therefore, as soon as the parties made the agreement to abide by the determination in the appeal and induced the court to pass a decree in terms of that agreement, the principle of estoppel underlying Section 96(3) became operative and the decree to the extent it was in terms of that agreement, became final and binding between the parties."

Pushpa Devi Bhagat (dead) through LR. Sadhna Rai (Smt.) v. Rajinder Singh and Ors[18]
The learned single Judge came to hold that the decree in question was a consent decree and hence, the appeal was not maintainable. However, it adverted to the facts and eventually dismissed the appeal. But, however, in Daljit Kaur and Ors. vs. Muktar Steels Pvt. Ltd. and Ors.[19],the pivotal issue that arises for consideration is whether in the present case the appeal could have been preferred against the judgment and decree passed by the learned trial Judge. As is evincible, the lower appellate court, as well as the High Court, has placed reliance on Pushpa Devi Bhagat (supra) to come to hold that the appeal was not maintainable. InPushpa Devi Bhagat (supra) a two-Judge Bench, dealing with a contention canvassed for the first time before this Court that the appeal before the first appellate court or before the High Court was not maintainable as there was a consent decree, permitted the contention to be raised and heard both parties on that score. In the context, it referred to Rules 3 and 3-A of Order XXIII and analyzing the said provisions summed up the statement of law emerging from Order XXIII that;
(i) no appeal is maintainable against a consent decree having regard to the specific bar contained in Section 96(3) Code of Civil Procedure;
(ii) no appeal is maintainable against the order of the court recording the compromise (or refusing to record a compromise) in view of the deletion of Clause (m) of Rule 1 Order XLIII;
(iii) no independent suit can be filed for setting aside a compromise decree on the ground that the compromise was not lawful in view of the bar contained in Rule 3-A; and
(iv) a consent decree operates as an estoppel and is valid and binding unless it is set aside by the court which passed the consent decree, by an order on an application under the proviso to Rule 3 Order XXIII.

Thereafter the learned Judges proceeded to state thus:
...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 a 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. 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.

The analysis made in the aforesaid decision and the dictum laid down therein has to be appositely understood. In fact, the Court was adjudicating a controversy pertaining to assail of a consent decree where the parties concerned had filed an application before the Court that had passed the consent decree alleging that there was no valid compromise but chose not to pursue the same and filed an appeal. In that factual context, the Court had ruled that in view of the express bar under Section 96(3) the appeal was not maintainable. Thus, we are inclined to think that the view expressed therein only conveys the principle that a consent decree is not appealable being barred under Section 96(3) of the Code of Civil Procedure. Be it noted, what weighed with the court was that the application filed for setting aside the compromise was not pursued. Therefore, the said decision has to be confined to the facts exposited therein, for the fundamental factum was that the facet of consent was not contested.

In Kishun alias Ram Kishun (dead) through L.Rs. v. Behari (dead)[20]a three-Judge Bench was dealing the maintainability of appeal in the backdrop of Section 96 (3) of the Code which provides that no appeal shall lie from a decree passed by the Court with the consent of the parties. In that case, the High court had allowed the second appeal holding that the first appellate court could not have entertained an appeal against a compromise decree. In the said case, one of the facets that arose for consideration whether the High Court was justified in holding that the appeal preferred against the decree under Section 96 (3) was maintainable. After discussing the factual matrix the court opined thus:

When on a dispute in that behalf being raised, an enquiry is made (now it has to be done in view of the proviso to Order 23 Rule 3 of the Code added by Act 104 of 1976) and the suit is decreed on the basis of a compromise based on that enquiry, it could not be held to be a decree passed on consent within the meaning of Section 96 (3) of the Code. Section 96 (3) contemplates non-appealability of a decree passed by the court with the consent of parties. Obviously, when one of the parties sets up a compromise and the other disputes it and the court is forced to adjudicate on whether there was a compromise or not and to pass a decree, it could not be understood as a decree passed by the court with the consent of the parties. As we have noticed earlier, no appeal is provided after 1.2.1977, against an order rejecting or accepting a compromise after an enquiry under the proviso to Order 23 Rule 3, either by Section 104 or by Order 43 Rule 1 of the Code. Only when the acceptance of the compromise receives the imprimatur of the court and it becomes a decree, or the court proceeds to pass a decree on merits rejecting the compromise set up, it becomes appealable, unless of course, the appeal is barred by Section 96 (3) of the Code. We have already indicated that when there is a contest on the question whether there was a compromise or not, a decree accepting the compromise on a resolution of that controversy, cannot be said to be a decree passed with the consent of the parties. Therefore, the bar under Section 96 (3) of the Code could not have application.

Under Rule 3 as it now stands, when a claim in suit has been adjusted wholly or in part by any lawful agreement or compromise, the compromise must be in writing and signed by the parties and there must be a completed agreement between them. To constitute an adjustment, the agreement or compromise must itself be capable of being embodied in a decree. When the parties enter into a compromise during the hearing of a suit or appeal, there is no reason why the requirement that the compromise should be reduced in writing in the form of an instrument signed by the parties should be dispensed with. The court must, therefore, insist upon the parties to reduce the terms into writing.

In Gurpreet Singh vs. Chatur Bhuj Goel[21],it was heldthat during the course of the hearing, namely, suit or appeal, when the parties enter into a compromise, the same should be reduced in writing in the form of aninstrument and signed by the parties. The substance of the said decision is that the Court must insist upon the parties to reduce the terms into writing.

The terms of Order 23 Rule 3 of the Code, the court cannot only permit compromise and adjustment of a suit by a lawful agreement, it also gives a mandate to the court to record it and pass a decree in terms of such compromise and the decree being a consent decree, the same is not appealable because of the express bar in Section 96(3) as this section is based on the broad principle of estoppel. (Katikara Chintamani Dora v. Guatreddi Annamanaidu[22])

Whether Separate Suit Be Filed To Ascertain Validity of Compromise Decree
The question which arose before this Court was whether the High Court was right in directing the appellant to seek redress in a separate suit. The Court observed that as soon as a question relating to the lawfulness of the agreement/ 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 concluded that the High Court in the process remained oblivious of the provisions of the Order 23 of Rule 3 and 3 A of CPC, as it cannot direct the parties to file a separate suit on the subject for which no such suit will lie in view of the provision of Order 23 Rule 3 A of CPC.. The Court allowed the appeal and set aside the Order of the High Court and remitted the matter back to the High Court for disposal in accordance with the law. (R. Rajanna v. S.R. Ventakaswamy[23])

[1]AIR 1919 PC 79
[3]AIR 1927 Pat 271
[4]1969 SCC (2) 201
[6]AIR 1956 S.C. 345
[7]AIR 1969 All. 296
[8]AIR 1974 A P. 303
[13]AIR 1979 SC 1528
[14]AIR 1966 Mad 21
[15]100 (2002) DLT 278
[16]2000 Cri LJ 284
[17]AIR 1974 SC 1069
[18](2006) 5 SCC 566
[20](2005) 6 SCC 300
[21](1988) 1 SCC 270
[22]AIR 1974 SC 1069
[23]2014 SCC 920

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