Mukhtiar Singh vs Arjun Singh

G.R. Majithia, J.—This judgment disposes of S.A.O. Nos. 71 and 72 of 1986 since common questions of law arise for determination there in.

These appeals are directed against the judgment and decree of the first appellate Court dated October 18,1986 whereby the judgment and decree of the trial court dated March 26, 1985 were reversed and the suits were remanded to it for disposal afresh on merits. These appeals were initially placed before the learned Single Judge for disposal, who held that the following questions of law arose for determination and these should be decided by a larger Bench:

(1) What is the import of the words ''not lawful'' in Rule 3-A of Order 23 of the Code; do these words have or have not the same connotation as the words "shall not be deemed to be lawful" in the Explanation to Rule 3-A of Order 23 of the Code or to be a little more specific, whether a separate suit lies to set aside a decree on the ground that the agreement or the compromise on which it is based is void having been brought about by misrepresentation, undue influence or fraud etc.

(2) What is the import of Rule 1-A(2) of Order XLIII of the Code can an appeal be maintained against a decree passed in a suit after recording a compromise and can a challenge be made in such an appeal on the ground that the compromise or agreement on which the decree is based not lawful?

It is how these appeals have been placed before us for disposal. Reference to the relevant facts is Necessary for deciding the questions of law raised in these appeals. The Appellant claiming himself to be the adopted son of Arjan Singh (since deceased) filed a suit for declaration to the effect that he was the owner-in-possession of the land, which is the subject matter in suit, having got the same as a result of family settlement from his adoptive father. The suit was registered as suit No. 123 of 17.3.1981 it culminated in a consent decree. Arjan Singh challenged the consent decree in a civil suit on the ground that a fraud had been committed by the Appellant in as much as he was made to admit the allegations made by the Appellant in the plaint culminating in a consent decree on the basis of misrepresentation, undue influence and coercion exercised by the latter. But that suit was dismissed as withdrawn. Arjan Singh then filed a second suit challenging the consent decree in the suit filed by the Appellant and the decree in the suit earlier filed by him which was dismissed as withdrawn, on the ground of fraud, undue influence and misrepresentation.

The suit filed by him was registered as, Suit No. 199 of 28.3.1984 The daughters of Arjan Singh, namely Smt. Labh Kaur and Ors. made similar challenge to the decree in Civil Suit No. 784 of 8.1.1982. In both these suits, the Appellant had raised a irreliminatory objection that in view of the provisions of Order 23, Rule 3-A, CPC (for short, the Code), the suits were not maintainable. The preliminary objection was upheld by the trial Judge and the suits viz. Suit No. 199 of 28.8 1984 and Suit No. 784 of 8.1.1982 were dismissed. Aggrieved against the judgments and decrees of the trial Judge, the Plaintiffs in the suits assailed the same in first appeals. Arjan Singh, Appellant in Civil Appeal No. 166 of 22.8.1985, died during the pendency of the appeal and his four daughters, namely, Labh Kaur, Amar Kaur, Gurmeet Kaur and Balwant Kaur, were brought on record as his legal representatives. These daughters of Arjan Singh contested the appeal. The first appellate court reversed the judgment and decree of the trial court holding that the compromise decrees were challenged on the ground of fraud, undue influence and coercion and Rule 3-A of Order 23 of the code was not attracted where the consent decree and the contested decree were challenged on these grounds. After so holding, it set aside the judgment and decree of the trial court and remitted the suits to it for disposal on merits.

Order 23 of the Code relates to withdrawal and adjustment of suits. Rule 3 of Order 23 relates to the procedure for disposing of a suit when the same has been adjusted by the parties either wholly or in part by any lawful agreement of compromise in writing and signed by the parties. The word "compromise" has been used in Rule 3 for the reason that it is more comprehensive than the word "agreement" and the rule comes into play when the decree has to be passed on the basis of compromise. We are here concerned with the explanation to Rule 3 and Rule 3-A of Order 23 as inserted by the Amendment Act, 1976. The same read thus:

Rule 3. 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.

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 of compromise which is void or voidable under the Indian Contract Act, 1872 (9 of 1872), shall not be deemed to be lawful within the meaning of this rule. Rule 3-A. Bar to suit, - No suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.

Rule 3 of Order 23 of the Code enjoins the court to record a lawful adjustment or compromise and pass a decree in terms of such comprehensive or adjustment, the agreement, compromise of satisfaction as envisaged by this rule may (i) relate to the whole suit, or (ii) relate to only a part thereof, or (iii) also comprise matters that do not relate to the suit. When the agreement relates to the whole suit the Court must, on being asked by the parties, record the agreement and pass a decree accordance with the agreement, and the suit stops there. Where the agreement relates to a pari only of the suit the Court must, on being invited by the parties, pass a decree in accordance with the agreement and the suit may be proceeded with as to the rest. This rule only requires that the compromise should be recorded and does not lay down any particular mode in which that should be done. An order that the compromise should form a part of the decree is sufficient compliance with this rule and valid. Before the amendment of this rule in 1976 and as the rule then stood, the position was that where an agreement, besides relating to the suit or a part there of, comprised matters that did not relate to the suit, the decree could contain only such terms of the agreement as related to the suit, but not the rest. This is not so now as the rule now requires that the agreement must relate 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. The amendment enlarges the scope and compromise or agreement which must be recorded by the Court in that though the agreement must relate to the parties to the suit, it need not relate to the subject matter of the suit. Where both the parties to the suit apply to the Court under this rule to pass a decree in accordance with the compromise arrived at between them, the Court has no power to refuse to pass a decree on the ground that it considers the compromise to be too favourable to one of the parties. The Court is bound to record a settlement once it is arrived at by the parties, If a party, however, denies his consent the Court must hold an inquiry and determine if such party had or had not given it. The Court can refuse to record a settlement where the statute on which the suit is founded expressly or impliedly negatives the applicability of this rule, or if the compromise is a nullity, or where the compromise is not in the interests of the public or the institution which is a party to the suit or where it would result in substantial failure of justice. The rule encompasses a lawful agreement of compromise. The Explanation inserted by the Amendment Act, 1976 now clarifies that an agreement or compromise, which is void or voidable under the Contract Act, 1972, shall not be deemed to be lawful within the meaning of this rule. The Court has to refuse to record a compromise which is not lawful one by reasons of its being either void or voidable.

The word "lawful" as appearing in Order 23, Rule 3, of the Code was interpreted by Sulaiman and Kendall, JJ. in Qadri Jahan Begam Vs. Fazal Ahmad where it was held this:

In our opinion the word "lawful" in Order 23, Rule 3, does not merely mean binding or enforceable. A contract which is brought about either by undue influence, misrepresentation or fraud is u/s 19 (a), Contract Act, merely voidable and not absolutely illegal and lawful. Section 23 of the Act indicates when the consideration or object of an agreement is unlawful. These are cases, where it is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to any person or property, or where the Court regards it as immoral or opposed to public policy. We think that the word "lawful" in Order 23, Rule 3 refers to agreements which in their very terms or nature are not ''unlawful'' and may, therefore, include agreements which are voidable at the option of one of the parties thereto, because they have been brought about by undue influence, coercion or fraud.

The above principle of law as laid down by Sulaiman and Kendall, JJ. in Qadri Jahan Begam''s case (supra) had been accepted by Kania J. (as his Lordship then was) in The Western Electric Company, Limited Vs. Kailas Chand, with certain reservations, namely, that the term "lawful agreement" as used under Order 23, Rule 3, excludes not only unlawful agreements, that is, the object or consideration for which is unlawful as defined in the contract Act, but all agreements on the face of them are void and, therefore, will not be enforced by the Court. Those principles have been followed by the Allahabad High Court in Mirza Husain Yar Beg Vs. Radha Kishan and Others, , Laraiti Vs. Ch. Shiam Sunder Lal and Another and Ram Asrey Vs. Rameshwar Prasad and Others, by the Madras High Court in Kuppuswami Reddi and Another Vs. Pavanambal, by the Kerala High Court in Krishnan Nair Vs. Rayarappan Nair and Others, and by the Rajasthan High Court in Putto Lal v. Sumersinghji AIR 1963 Rak 63. So far as the Calcutta High Court is concerned, Sinha J. (as he then was) agreed with the statement of law made my Kania, J. (as his Lordship then was) in the case of Western Electric Co. Ltd. (supra) (See Harbans Singh Chauhan Vs. Bawa Singh Chauhan and Others,

Thus in the light of the statement of law made in these authorities, it is clear that before the Court considers whether or not an agreement is lawful, it must be satisfied that there has been an agreement between the parties. An agreement is brought into existence where one party makes an offer and another accepts the same. It is the consensus of mind of two persons in regard to certain matters. If out of these two persons, one has not agreed to the terms proposed by the other, there is no agreement between them. When the consent of one of them to the term if obtained by the other by some illegal means, namely, by, fraud, coercion or undue influence, it is difficult to hold that the person whose consent has been so obtained agreed to the term. If any of the parties alleges that the agreement was obtained by fraud, undue influence or coercion, the Court will of necessity embark upon an inquiry as to the allegation of that party. If after the recording of the compromise, a party alleges that the agreement was the result of fraud, coercion or undue influence then what is the remedy for that party?. This question was answered in Smt. Sumitra Devi Aggarwalla v. Sm. Sulekha Kundu and Anr. AIR 1976 Cal 1976, by M.M. Dutt and Sharma, JJ. thus:

In our opinion to consider whether or not an agreement has been reached, between the parties, the Court will of necessity embark upon an enquiry as to the allegation of a party that his'' consent to the agreement or his signature on the document containing the terms, has been obtained by fraud, undue influence or coercion. It is true that the party complaining has his remedy by way of suit. He can obtain a declaration that the contract is vitiated by fraud, undue influence or coercion and, as such, is not binding upon him. In our opinion, to drive such a party to a separate suit will be against justice, equity and good conscience.

The above statement makes it clear that the party who challenged the compromise on the basis of fraud, undue influence or coercion has two remedies open to him, firstly, by filing a suit and, secondly, making an application u/s 151 of the Code. The fact that the Court can exercise its inherent powers u/s 151 of the Codes does not mean that there is a bar for filing a suit, which remedy is available to that party.

Rule 3-A or Order 23 of the Code bars a second suit on the ground that the compromise on which the decree in the first suit is based was not lawful. The Explanation to Rule 3 of Order 23 as introduced by the Amendment Act, 1976 deals with agreements or compromises which are not to be deemed to be lawful if they are void or voidable under the Indian Contract Act, 1872. The Court cannot record such an agreement or compromise since such compromise or agreement is not to be deemed to be lawful. Such void or voidable agreement having been dealt with under Rule 3, the agreements and compromise other than those dealt with in the Explanation to Rule 3. The words " not lawful" occuring in Rule 3-A have thus a wider content than similar words in the Explanation to Rule 3 though both were enacted by the Legislature at the same time. The plain meaning of the new rule is that it bars a suit to set aside a decree on the ground that the compromise on which the decree is based was not lawful not only on the grounds contained in the Contract Act but also otherwise, such as want of authority to make the compromise. (Emphasis supplied to point out the distinction between the language employed in the Explanation to Rule 3 and Rule 3-A of order 23 of the Code). Rule 3-A has to be read together with or in the light of the other amendments carried out by the Amendment Act, 1976. Section 96(3) is a bar to an appeal against a consent decree. But before the Amendment Act, 1976 was passed an appeal against an order recording or refusing to record a compromise was available under Order XLIII, Rule 1(m) of the Code. The Legislature repealed clause(m) of Rule 1 of Order 23 thereby doing away with an appeal against an order recording or refusing to record a compromise under Rule 3 ibid. Thus both the suit to set aside a consent decree on the ground of compromise on which it is based being not lawful and appeal against the order recording or refusing to record the compromise were done away with. Having done that the legislature added a new rule i.e. Rule 1-A, in Order XLIII of the Code. This rule provides that certain orders which are not appealable may be challenged in appeal against the decrees. In Sub-rule (1) of Rule 1-A of Order 23 it has been provided that where any order is made against a party and there upon any judgment is pronounced against such a party and a decree is drawn up, such party may, in an appeal against a decree, contend that such order should not have been made and the judgment should not have been pronounced.

Thus, the net deduction from the analysis of the provisions of Rules 3 and 3-A of Order XLIII of the Code is that when the adjustment or compromise is not lawful and challenges to the same has been made on the ground of fraud, undue influence or misrepresentation which makes the agreement voidable and not void, the matter is not with in the ambit of the Explanation to Rule 3 or Rule 3-A,and the remedy is by way of independent suit or the Court may, in exercise of its inherent jurisdiction u/s 151 of the Code, relieve the party of the agreement or compromise, which is obtained by fraud, undue influence or misrepresentation.

Thus, our answer to the questions posed is as under:

(1). The words "not lawful" occurring in Rule 3-A of Order 23 of the Code have wider content than similar words in the Explanation to Rule 3. The Explanation to Rule 3 deals with agreements or compromise-issuses which are not to be deemed to be lawful if they are void or idable under the Indian Contract Act, 1872, but the agreements or compromises which are not lawful if they are void or voidable under the Indian Contract Act, 1872, but the agreements or compromises which are not lawful as referred to in Rule 3-A are more general in term and are not engrafted by the limitations as inserted in the Explanation appended to Rule 3. If the agreement or compromise is not the result of consensus of mind of two persons in regard to certain matters, viz. when the consent of one of them to the terms is obtained by the other some illegal means, namely, by fraud, coercion or undue influence, there is in fact no compromise. Rule - 3A does not bar the maintainability of the suit challenge the compromise on these grounds However, the Court can in exercise of its inherent jurisdiction also relieve the party alleging fraud, coercion or undue influence of the argument, question No. 1 is answered accordingly.

(2). Question No. 2 is answered in the negative. No appeal is competent.

The questions of law having been answered, nothing survives for consideration and we find no merit in these appeals.

For the reasons stated above, the appeals fail and are dismissed, but with no order as to costs.