CODE OF CIVIL PROCEDURE (CIA-III)

RESEARCH PAPER
ON
COMPROMISE OF SUITS

BHAVESH CHOUDHARY
1016208
4TH YEAR, B.B.A.LLB (HONS)

TABLE OF CONTENTS

SR. NO

PARTICULARS

PAGE NO

1.

INTRODUCTION

34

2.

CHAPTER 1

57

3.

CHAPTER 2

89

INTRODUCTION

Order 23 Rule 3 of the Civil Procedure Code deals with Compromise of Suits. Rule 3 reads as
under:
R.3 Where it is proved to the satisfaction of the part 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 such adjournment.]
[Explanation An agreement or compromise which is void or voidable under the Indian
Contract, 1872 (9 of 1872), shall not be deemed to be lawful within the meaning of this
rule.]
Rule 3 was amended in order to make a provision that an agreement or compromise under Rule 3
should be in writing and signed by the parties. This is with a view to avoiding the setting up of
oral agreement or compromise to the progress of the suit. Where a suit was filed in 1975, there is
no bar to the defendants putting forward the oral settlement of the year 1985. The amendment
made in 1976 excluding oral settlement is only perspective.1
Even if the provisions of Order 23, Rule 3 of CPC are applicable on the writ proceeding, the
Court cannot be permitted to record to purported compromise in a casual manner. It is suo moto
1

R.V. Rao v. R. Satya Bai, AIR 1996 SC 965

required to address itself to the issue as to whether the compromise is lawful one and it has any
jurisdiction to entertain the same.2
This decree provides that where a suit, after its institution has been adjusted by the parties by any
lawful agreement or compromise, or the defendant has satisfied the plaintiff in respect of the
whole or any part of the subject matter of the suit, and the Court is satisfied in this regard, then it
shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree
accordingly. The word promise used in this rule, as interpreted by the Courts is more
comprehensive than the word agreement and includes mutual adjustment of claims between
parties even by mutual concession as also mutual promise of two or more parties at difference to
refer the matter to arbitration with the object of putting an end to litigation. 3 Whether the rule
applies to Arbitration proceedings under Arbitration Act, 1940, there was a conflict of opinion
but now the controversy has been resolved by the Supreme Court of India by laying down the
law that this rule would apply to proceedings before the compromise and pass a decree
accordingly in view of Section 41 of the Arbitration Act read with Section 141 of the CPC.4
Unless terms of a compromise decree necessarily involve the execution of a deed of conveyance,
registration is not necessary. 5 Where a suit is decreed in view of a written settlement filed by the
defendant admitting the claim of the plaintiff to be correct, it is covered by Order 12, Rule 6. It
is not a compromise decree covered by Order 23, Rule 3 of CPC.6
There can be more than one decreed passed at different stages in the same suit by the lessor for
eviction of number of lessees A decree passed on compromise with some of the defendants at
one stage. Another decree at later stage determining the rights of remaining defendants. Both of
the decrees were separate and independent. Neither was a nullity.7

Dwarka Pd. Agarwal v. B.D Agarwal, AIR 2003 SC 2686 (2694)

Ram Dayal v. Sheo Dayal, AIR 1939 Nag 186
4
Munshiram v. Banwari Lal, AIR 1962 SC 903
5
Girdharlal c. Hukom, AIR 1977 SC 129 (132)
6
Bhoop Singh v. Ram Singh Major, AIR 1996 SC 196 (200)
7
Bai Chanchal v. S. Jalaluddin, AIR 1971 SC 1081 (1084)
3

CHAPTER 1
SATISFACTION OF THE COURT
As soon as it is pointed out to the Court that parties have entered into a lawful agreement or
compromise thereby adjusted the suit either whole or in part, this rule requires that the Court
should record that agreement or compromise and pass a decree accordingly. 8 But the Court must
find out wherever there is a dispute between parties as to whether the alleged agreement has
really been entered into or not.9 And whether a party has agreed to the compromise or not,
whether he has signed it or not, is a question of fact as held by their Lordships of the Privy
Council.10
If an agreement or the compromise itself is fraudulent, then it shall be deemed to be void within
the meaning of the explanation to the proviso to Rule 3 and as such not lawful. 11 However, a
Court cannot impose a compromise on the parties. In order to attract the provisions of this rule
there must be a completed agreement between parties,12 and such an agreement must cause
adjustment of suit either wholly or in part. 13 If the parties are not ad idem that is of the same kind
with regard to compromise, it is not valid. It should be noted in this connection that an agreement
between the parties that a dispute is to be resolved in one way or the other according to the
statement of a third person is an adjustment and as held by Full Bench of Allahabad High Court,
that a party will not be allowed to resile for it without sufficient reason although the statement
might not have been made or recorded.14
In a decree of divorce by mutual consent the parties were present before the Supreme Court and
filed an application for compromise. It was held that parties should file the application before the
Court deciding the matter. The question of custody of child will also be decided in terms of the
compromise.15

Sujarat v. Md. Raza, AIR 1957 ALL 450 (DB)

Ibid
10
(1942) 22 Ind Cases 373 (PC)
11
Banwari Lal v. Chando Devi, AIR 1993 SC 1139 (1143)
12
Gouri Amma v. Parmeshwara, AIR 1952 Trav Co 547 (DB)
13
Jagatpur Dugar v. Puran Chand, AIR 1924 PC 200
14
Prithivichand Ramchand Sablok v. S.Y.Shinde, AIR 1993 SC 1929 (1933)
15
Lenna Roy v. Subrato Roy, AIR 1991 SC 92
9

Unless the terms of a compromise decree necessarily involve the execution of a deed of
conveyance also, a registered deed is not necessary for the enforcement. It is well settled that in
an eviction suit under Rent Control and Restriction Act if the Court does not find the permissible
grounds for eviction on the pleadings and other material on record then no consent or
compromise can give jurisdiction to the Court to pass a valid decree.16
An appeal against order if eviction was dismissed by the Supreme Court in view of agreement
between the parties. The landlord agreed thereunder not to execute eviction decree till the
decision of title suit was filed by the tenant relating to specific performance of agreement.
Expression decision in undertaking could not be held to be decision till it attained finality. It
pertains to determination of his by the Court in said title suit and not beyond thereto. The
doctrine of merger or principle that an appeal is continuation of suit would not apply.17
Dealing with the question of partial compromise the Supreme Court of India has held in K.C.
Dora v. Annamanaidu18 that Order 23 Rule 3 not only allows partial compromise if it has
lawfully been entered into by the parties, but also gives a mandate to the Court to record such a
compromise and award a decree to terms of it in so far as it is concerned with the suit. To the
extent of the compromise it is a consent decree and is not applicable in view of Section 96 (3) of
the CPC. Another requirement of this rule is that the said agreement or compromise entered into
between parties should also be lawful and the word lawful refers to the legal character of the
agreement or compromise must be lawful within the meaning of Indian Contract Act, 1872.
Where it has been proved to the Court that parties have entered into a lawful agreement or
compromise, the Court shall order such compromise to be recorded, and it is not merely a matter
of form but, as held by their Lordships of the Privy Council, a matter of substance, as the
aggrieved party has a right to appeal from such order by virtue of provisions of Order LXIII,
Rule 1 (m) of the code19. And failure to record the satisfaction, makes adjustment not in
accordance with the rule.20 This rule makes it obligatory on the part of the Court to record the
compromise provided it has been lawfully entered into between the parties.21
16

Nai Bahu v. Lala Ramnarayan, AIR 1978 SC 22 (28)

Rekha Mukherjee v. Ashish Kr. Das, AIR 2004 SC 443 (448)
18
1974 SC 1069
19
Kewaldas v. Sokar Lal, AIR 1973 PC 178
20
ibid
21
Md. Azizulla Khan v. Md. Nurullah Khan, AIR 1939 Nag 233 (FB)
17

As held by the Lordships of the Supreme Court of India, a decree under this rule may be awarded
on a compromise only when it relates to the suit.22 Where the agreement or the compromise
relates to matters entirely extraneous to the suit, no decree can be passed in terms of such
agreement or compromise under this rule.
Where a compromise decree is passed, the compromise becomes part of the decree and it is the
duty of the Court to enforce the terms of the compromise strictly and not take it as mere contract
between the parties. The Court under that pretext cannot absolve itself from the responsibility of
enforcing it.23
In a compromise deed the respond company agreed to pay dues along with future interest
subject to a minimum of 13.5% per annum or at such other rate as may be divided by the
corporation for similar advances from time to time with half yearly rests on product basis. The
plea that half yearly rests, was to apply if the rate of interest was to be decided by appellant
corporation was not tenable. Calculation of interest with half yearly rests could not be objected.24
In order that the provisions of this rule are attracted the compromise should be between the
parties to the suit. However, if a compromise has been arrived at where only some of the parties
to the suit are concerned, the said compromise is not necessarily invalid. 25 But where there is a
partial compromise, and the said compromise is prejudicial to the interest of other parties not
joining as held by the Supreme Court of India, such compromises cannot be recorded.26

CHAPTER 2
EFFECT OF THE DECREE

As held by the Supreme Court of India although a consent decree does not operate as res
judicata but creates an estoppel between the parties and is binding upon them like any other
22

Abdul Shakoor v. Bijai Kumar, AIR 1964 SC 874

Salkia Businessmens Association v. Howrah Municipal Corporation, AIR 2001 SC 2790
24
Rajasthan Financial Corporation v. Man Industrial Financial Corporation, AIR 2003 SC 4273 (4278)
25
Shankar Bharti v. Narasinha Bharti, AIR 1927 PC 57
26
Rani Bai v. Yadunandan, AIR 1969 SC 1118
23

decree.27 Dealing with the question whether a consent decree is in the nature of a contract, it has
been held by a Full Bench of the Allahabad High Court that a compromise decree according to
general trend of the opinion, is creature of an agreement and is subject to all the requirements of
such an agreement.28 It can be set aside of any one of the grounds on which a contract is set
aside, as for instance, fraud, mistake and misrepresentation, etc.29 In a compromise decree it was
provided that the defendants would be liable to be evicted after a period of ten years by
appropriate proceedings in a Court of law. The tenants defendants cannot be evicted in
execution of the compromise decree. A fresh suit for ejectment is not barred by law. 30 If an
ejectment suit or appeal from the ejectment decree, the tenant or his son is allowed to remain in
the occupation of the premises for a certain period then he shall have to vacate the premises after
that period and no fresh tenancy shall exist in his favour. The tenant is stopped from objecting to
execution of decree and is liable to be ejected.31 The victims in the Bhopal Gas Disaster case
would be bound by the settlement though not named in the suit.32
As regards execution of a consent decree, the same is executable like any other decree and in the
same manner in which other decrees are executed. But to decide the question as in a declaratory
decree it is executable or not, reference has to be made to the intention of parties as gathered
from the language used in the compromise without any reference to any aid from oral evidence.33

COMPROMISE OF APPEAL
Rule 3 applies also to appeals and a compromise decree can be awarded if the appeal is
compromised and as held by the supreme court of India the provisions of rule 3 are
mandatory34.where a suit is compromised after filing an appeal, the compromise can be recorded
by the Supreme Court. The appellate court can dispose of an appeal in terms of the
compromise35.
27

Sailendra Narayan v. State of Orissa, AIR 1955 SC 346

Habib Mian v. M. Ahmad, AIR 1969 All 296 (FB)
29
B.R. Jadhar v. Abdul Rashid, AIR 1961 Mys 175
30
Bibekananda Bhowal v. Satindra Mohan Dev, AIR 1996 SC 1985 (1988)
31
Som Dutt v. Govind Ram, AIR 2000 SC 1638
32
Charanlal Sahu v. Union of India, AIR 1990 SC 1480 (1582)
33
Sudhir Kumar v. Baldeo Krishna Thapar, (1970) 3 SCR 114
34
Silver S enterprises v. devki nandan, AIR 1970 SC 669
35
Cheriyan J v. Philip, AIR 1974 SC 2183
28

Where the compromise of appeal was made by counsel and the memorandum of compromise on
the basis of which appeal was disposed of was signed by that counsel of the respondent and that
counsel was found to do duly authorized to appear on behalf of the respondent, it was held by the
Supreme Court in State of Punjab v. M L Puri, that the compromise was binding on the
respondent36.
In a compromise entered into during hearing of a suit or appeal the court must insist that the
compromise be reduced to writing and signed by the parties. There is no justification to confine
the applicability of the 1st part of rule 3 to a compromise effected out of court 37. Overruling a full
bench decision of Madhya Pradesh High Court in a case 38, the Supreme Court held that
provisions under this rule apply to eviction suits governed by special statutes, but the
compromise must be in accordance with the rent restriction or control act and must be lawful in
nature39

36

AIR 1975 SC 1632

Gurpreet singh v. chatur goel, AIR 1988 SC 400
38
Chandhan bhai, AIR 1972 MP 106
39
Roshan lal v. madan lal, AIR 1975 SC 2130
37