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Synopsis

The Supreme Court has stated that mere statements made by the parties before the court about a compromise of a suit cannot satisfy the requirements of Order XXIII Rule 3 of the Civil Procedure Code.

"For a valid compromise in a suit there has to be a lawful agreement or compromise in writing and signed by the parties which would then require it to be proved to the satisfaction of the court. In the absence of any document in writing, the question of the parties signing it does not arise. Even the question of proving such document to the satisfaction of the court to be lawful, also did not arise," a bench of Justices Vikram Nath and Prashant Kumar Mishra said.

When a compromise is to be recorded and a decree is to be passed, Rule 3 of Order XXIII of the Code requires that the terms of the compromise should be reduced to writing and signed by the parties, the bench said.

The court dealt with the question of the status of the so-called compromise order of August 20, 1984, in the first round of litigation.

In the case, the plaintiffs in the second round of litigation were the defendants, whereas Mansha Ram and others were plaintiffs in the first round of litigation.

The first suit was for declaration and permanent injunction on account of interference by the defendants therein. The plaintiffs were already recorded in the revenue records. Their suit was decreed by the Trial Court on April 11, 1983. 

At the time of the execution of the sale deed on August 22, 1983, in favor of the present appellants (defendants in the second suit, Mansha Ram, and others), they were fully competent to execute the sale deed. It is true that when the said sale deed was executed, the first appeal was pending before the first appellate court, the bench noted.

Before the first appellate court, the plaintiff-respondent therein, Bihari Lal, gave a short statement to the effect that they had reached a settlement, received money, and that possession and ownership of the land would be with the appellants. Mansha Ram and Khazana Ram stated that they had reached a settlement with the appellants and agreed to the statement of the appellant that the suit may be dismissed. At the same time, appellants Julfi Ram and others stated that they had reached a settlement with the respondents, had paid money to Mansha Ram and others, that they shall be owners in possession of the land in dispute, and that the suit be dismissed.

Based on these statements, the District Judge, Hamirpur, by order on August 20, 1984, accepted the appeal, set aside the judgment and decree of the Trial Court, and dismissed the suit. It further directed that a decree sheet be prepared and the file consigned to the record.

"The effect of this decree would be that the suit of the plaintiffs was dismissed. No declaration was granted to the defendants in the said suit. There was no written compromise deed between the parties, there was no verification as such of any written document," the bench said.

The court also pointed out that at best, under the alleged compromise order of dismissal of the suit, the defendants therein could have claimed to be in possession of the land in suit and no further.

"The ownership could not have been transferred because of the dismissal of the suit. Even assuming for the sake of argument that ownership rights were also transferred under the alleged compromise deed, the sale deed executed prior to the said compromise will not be affected in any manner as the plaintiffs were not only recorded as land owners but also had a decree of declaration and permanent injunction in their favour at the time when sale deed was executed," the bench said.

The court also noted that the defendants in the first round of litigation were admittedly tenants. They could have become owners of the land in suit either by way of a registered sale deed in their favor or by way of a declaration by the competent civil court, whether on merits or by way of a compromise decree granting such declaration. However, neither of the two happened.

"Merely because some statement of the parties is recorded by the first appellate court that they have settled the dispute and that the suit may be dismissed, would not make the defendants therein from tenants to owners. Dismissal of the suit would only mean that their status as tenants would continue," the bench said.

In the case, the bench pointed out that the first appellate court and the High Court failed to consider that there was no challenge to the sale deed of August 22, 1983.

The doctrine of lis pendens or the restriction imposed under section 52 of the Transfer of Property Act, 1882 may not be relevant or applicable considering the fact that one of the parties - plaintiffs in the proceedings and respondents in the pending appeal - having executed the sale deed during the pendency of appeal, by their subsequent conduct of giving a statement that their suit be dismissed, acted in a dishonest and unfair manner. They were fully aware of having executed the sale deed, and their subsequent statement would only be termed as collusive and dishonest, the bench said.

The order in the appeal court was not a decree on merits declaring any rights of the defendants to the suit (appellants in the appeal). In such circumstances, the sale deed of August 22, 1983, could not be said to be hit by the doctrine of lis pendens, it added.

The bench relied upon "Thomson Press (India) Ltd Vs Nanak Builders & Investors (P) Ltd" (2013) wherein it was held that transfer of suit property pendente lite is not void ab initio, as it remains subservient to the pending litigation. The purchaser of any such property takes the bargain subject to the rights of the plaintiff in the pending suit.

With regard to a contention on the compromise of suit, the bench said a plain reading of the provision clearly provided that for a valid compromise in a suit, there has to be a lawful agreement or compromise in writing and signed by the parties, which would then require it to be proved to the satisfaction of the Court.

"In the present case there is no document in writing containing the terms of the agreement or compromise. In the absence of any document in writing, the question of the parties signing it does not arise. Even the question of proving such document to the satisfaction of the court to be lawful, also did not arise. Thus, it cannot be said that the order of August 20, 1984 was an order under Order XXIII Rule 3 CPC," the bench said.

Here, neither the compromise deed has been reduced to writing nor has it been recorded by the court. Mere statements of the parties before the court about such said compromise cannot satisfy the requirements of Order XXIII Rule 3 of the CPC. Therefore, the compromise decree is not valid, the bench declared.

The court thus allowed the civil appeal and set aside the orders passed by the appellate court and the High Court. The court confirmed the decree of the trial court dismissing the suit related to the subject land in Himachal Pradesh.