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Synopsis

The Supreme Court has said that as a matter of public policy, courts must not curtail statutorily provisioned remedial mechanisms available to parties, as it set aside the Rajasthan High Court's order, which had dismissed a plea to restore an appeal due to non-compliance with the terms of a compromise decree.

A bench of Justices P S Narasimha and Manoj Misra considered the statutory framework and Order 23, Rules 3 and 3A of the Civil Procedure Code and circumstances of a case, to arrive at its conclusion that restoration was the sole remedy, which the aggrieved party could exercise as a statutory right.

Appellant Navratan Lal Sharma initially filed a suit for declaration and injunction, which was dismissed by the Trial Court. The appellant then filed a first appeal. During its pendency, the parties reached a compromise, agreeing to dispose of the appeal based on its terms.

On July 14, 2022, the High Court decided the appellant’s application under Order 23, Rule 3 of the Code of Civil Procedure, 1908 and disposed of the first appeal in terms of the compromise. However, when the respondent failed to comply with the compromise terms, the appellant filed an application to restore the appeal. 

This application was dismissed by the order by the High Court, saying no liberty was granted for restoration of the appeal while recording the compromise.

During the pendency of the first appeal, the parties filed an application under Order 23, Rule 3 of the CPC for disposal of the first appeal as per the compromise, wherein it was stated that respondent no 1 did not have any objection to the compromise and that the appellant could file for restoration of the appeal if the agreed payment was not completed and the cheques were dishonoured.

By an order of July 14, 2022, the Rajasthan High Court disposed of the first appeal by taking the compromise of May 18, 2022 and the corrigendum compromise of July 08, 2022 on record and making them a part of its order. However, it also held that the parties did not have liberty to get the first appeal restored. 

When the cheques issued by respondent no 2, said to be in furtherance of the compromise were dishonoured, the appellant moved the High Court for restoration of the appeal alleging fraud and illegal interference with his possession and attempts to get the land converted without paying the agreed amounts. 

By the order impugned, the High Court dismissed the application on the only ground that in its order of July 14, 2022, the court clearly recorded that the parties were not given liberty to restore the appeal. The High Court observed that since the order of July 14, 2022 was a consensual order and the parties were aware that there was no liberty to get the first appeal restored, the application for restoration was not entertainable even if the compromise is not acted upon. 

After hearing the parties, the court noted the relevant provisions under the CPC that governed compromise decrees as contained in Order 23, Rules 3 and 3A of the CPC.

Referring to Banwari Lal Vs Chando Devi (1993), the Supreme Court said the matter had laid down the law on the disposal of a proceeding in accordance with a compromise between the parties and on recall of a compromise decree. It was held that under Order 23, Rule 3, the court must be satisfied upon applying judicial mind that the agreement between the parties is lawful before accepting the same and disposing the suit. Further, the proviso and the Explanation to Order 23, Rule 3 mandate that the court must “decide the question” of whether an adjustment or satisfaction has been arrived at, and it is clarified that void and voidable agreements under the Indian Contract Act, 1872 shall be deemed to be not lawful. Upon such reading of the provision, it held that the court recording the compromise can examine the legality of the agreement, in accordance with the provisions of the Contract Act, even after the compromise decree is passed and when a party moves an application for recall.

The bench noted that the law on the issue is summarised in Pushpa Devi Bhagat Vs Rajinder Singh (2006). In this case, the bench pointed out, the court also took note of Section 96(3) of the CPC7 and the deletion of Order 43, Rule 1(m) of the CPC by way of an amendment in 1976, as well as Order 23, Rule 3A. The consequence of these is that an appeal against a consent decree and an order recording (or refusing to record) a compromise is not maintainable, nor can a fresh suit be filed for setting aside such decree. Hence, the only remedy available to the aggrieved party is to approach the court that recorded the compromise under the proviso to Order 23, Rule 3. 

In the present case, the bench said, by alleging fraud in his recall application, the appellant was effectively impugning the legality of the compromise as proving the same would render the agreement voidable under the Contract Act. 

"When the court disposes of a proceeding pursuant to a compromise under Order 23, Rule 3, it bears the duty to examine this issue and be satisfied that the agreement or compromise is lawful. The proviso explicitly obligates the court that entertains the petition of compromise to determine this issue, and as per the law laid down by this Court in Banwari Lal case, this issue can be agitated by way of a recall application even after the compromise decree has been passed," the bench said.

In the impugned order, the High Court dismissed the application solely on the ground that the order of July 14, 2022 recording the compromise does not grant liberty to restore the appeal, court stressed.

"We are of the opinion that this is not the correct approach, as it defeats the statutory right and remedy available to the appellant under the CPC. This court in Pushpa Devi Bhagat case as well as several other cases, has held that only the court that entertains the petition of compromise can determine its legality, at the time of recording the compromise or when it is questioned by way of a recall application. No other remedy is available to the party who is aggrieved by the compromise decree as an appeal and fresh suit are not maintainable under the CPC," the bench said.

After explaining this legal position, the court held the High Court was not correct in curtailing the statutory remedy available to the appellant in the case.

"In fact, when there is a statutory remedy available to a litigant, there is no question of a court granting liberty to avail of such remedy as it remains open to the party to work out his remedies in accordance with law," the bench said. 

Therefore, the bench said, there was no occasion for the court to deny liberty to file for restoration by its order on July 14, 2022 and the consequent dismissal of the recall application by the impugned order on this ground alone did not arise. 

"Further, as a matter of public policy, courts must not curtail statutorily provisioned remedial mechanisms available to parties," the bench said.

The court also found it relevant to point out that para 4 of the compromise deed of May 18, 2022 recognised the appellant’s right to file for restoration of appeal in case of non-compliance. Further, its para 7 stipulated that the compromise will be considered void in case of non payment. 

"Reading these clauses together, it is clear that the compromise deed itself recognises the parties’ right to approach the court to question its validity in certain circumstances. These clauses are in line with the public policy consideration of access to justice reflected in Section 28 of the Contract Act that stipulates that agreements which restrain a party from enforcing his rights through legal remedies are void," the bench said.

While setting aside the impugned order of October 19, 2023, the bench remanded the matter to the High Court to decide the application for recall on its own merits.

Case Title: Navratan Lal Sharma Vs Radha Mohan Sharma & Ors