Supreme Court

Strangers are barred to challenge compromise decree: Supreme Court

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The Supreme Court on Wednesday held that the bar on challenging a decree based on a compromise arrived at between parties also applies to strangers to the compromise proceedings.

“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. … After recording the statements of the parties, the Court passed a decree on the basis of compromise arrived at between the parties.”

The Code of Civil Procedure (CPC) in Rule 3A of Order 23 states thus:

“No suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.”

The question for consideration before the Supreme Court was whether this bar is applicable to strangers to the proceedings or is binding only on the parties to the compromise.

Answering in the affirmative, the Court said that the purpose and object of Rule 3A were to bring finality to a dispute once a compromise was arrived at. A decree passed by a competent court after the parties have arrived at a compromise would end all the pending litigation with respect to the subject matter.

The Bench of Justices AM Khanwilkar and Ajay Rastogi further observed,

“Finality of decisions is an underlying principle of all adjudicating forums. Thus, the creation of further litigation should never be the basis of a compromise between the parties. Rule 3A of Order 23 CPC put a specific bar that no suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful. The scheme of Order 23 Rule 3 CPC is to avoid multiplicity of litigation and permit parties to amicably come to a settlement that is lawful, is in writing and a voluntary act on the part of the parties.”

In the instant case, a decree based on a settlement was challenged by the appellant, who was not a party to the original proceedings. It was contended that the compromise decree was obtained through “fraud and misrepresentation” and that vital information as regards a sale deed in relation to the suit property was kept hidden from the High Court.

It was argued by the appellant that the bar imposed on challenging the compromise decree does not prevent him from litigation, given that he was a stranger to the compromise and was therefore not barred under Rule 3A of Order 23 of the CPC.

The Court, however, dismissed the appeal while holding that Rule 3A of Order 23 bars any new independent suit from challenging the lawfulness of the compromise decree. Merely on account of being a stranger to the compromise proceedings does not give the appellant a cause of action, the Court held.

“Merely because the appellant was not a party to the compromise decree in the facts of the present case, will be of no avail to the appellant, much less give him a cause of action to question the validity of the compromise decree passed by the High Court by way of a substantive suit before the civil Court to declare it as fraudulent, illegal and not binding on him.”

The Court observed that the appellant could seek relief against the person who was party to the compromise and the seller of the property to the appellant. The compromise decree itself, however, could not be challenged and the appellant remained barred under Rule 3A of Order 23. The Court said,

The Court thus found the appeal without merit and dismissed the same.


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