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Compromise of Suit in CPC

Updated: May 5

Compromise of Suit in CPC


Understanding Compromise in CPC

Upon initiation of legal proceedings, parties retain the option to resolve, modify, or reconcile the matter through an agreement or compromise. The fundamental notion is that any issue adjudicable in a suit can likewise be resolved through a compromise.

Rule 3 of Order 23 Civil Procedure Code(CPC) stipulates that if the court is convinced that (i) a suit has been entirely or partially settled by a lawful written agreement signed by the involved parties, or (ii) the defendant fulfils the plaintiff's claims regarding the entirety or a portion of the subject matter under dispute,

The term "compromise" essentially denotes the resolution of a dispute through mutual agreement. In this process, the adversarial contentions find closure, and the contention between the parties is respectfully laid to rest. A compromise, reached by mutual consent, brings an end to the contentious legal battle.

At times, disputing parties recognize the unfortunate bitterness of the struggle and allow reason to prevail in resolving the dispute.

Occasionally, through the intervention of well-wishers, a process of conciliation begins, leading eventually to the solidification of rights through consensus and mutual agreement.

A reciprocal settlement, approached with clarity of mind, is essential in this regard.

Essentials for Compromise of Suit

Before a consent decree can be issued, the following conditions must be met:

(i) There must exist an agreement or compromise.

(ii) It must be in writing and signed by the parties.

(iii) The agreement must be lawful.

(iv) The court must record the agreement.

(v) A consent decree must be passed based on the compromise.

A compromise, adjustment, or satisfaction may be officially recorded by the court where the proceedings are ongoing. In a suit, this recording is done by the trial court. In cases of appeal or revision, the appellate or revisional court is responsible for such action.

In execution proceedings, it falls upon the executing court to record any compromise reached.

Any dispute regarding the authenticity of the compromise can be raised, and the jurisdiction to address such disputes lies with the court that recorded the compromise and issued the consent decree. An appeal against such a decree is permissible, but no fresh suit can be initiated in this regard.


Satisfaction of Court

It is incumbent upon the court to ensure the validity of the terms of the agreement. The court must ascertain that the agreement is lawful and that it can issue a decree in accordance with it. Furthermore, the court should assess whether such a decree can be enforced against all parties involved in the compromise.

Issuing a compromise decree is a judicial act, not a ministerial one. Hence, the court must satisfy itself through evidence, affidavits, or other means that the agreement is lawful. If the compromise is found to be unlawful, the court has the authority to revoke the order recording the compromise.

In cases of disputes between the parties to the compromise, it is the responsibility of the court to investigate and determine whether a lawful compromise has been made, warranting the issuance of a decree. An agreement or compromise deemed void or voidable under the Indian Contract Act, 1872, is not considered lawful within the purview of Rule 3.

The court should not approach the recording of a compromise casually. If one party alleges that no compromise has been reached or that it is not lawful, it is the duty of the court to adjudicate on that matter.

Compromise of Suit on Behalf of Minor

No next friend or guardian of a minor shall, without the court's permission, engage in any agreement or compromise on behalf of the minor regarding the suit, unless such consent is explicitly documented in the proceedings.

Compromise in Representative Suit

No agreement or compromise in a representative suit can be made without the court's permission. Prior to granting such permission, the court must provide notice to the concerned parties.

Compromise and Res Judicata

A compromise decree does not constitute a judgement of the court. Rather, it signifies the court's endorsement of an agreement reached by the parties. It essentially formalises the agreement reached between the parties.

The court neither makes any decision nor can it be inferred that a decision has been made implicitly. Consequently, a compromise decree does not carry the weight of res judicata.

However, there are instances where it has been argued that a consent decree could indeed be considered as res judicata (as seen in Shankar v. Balkrishna, AIR 1954 SC 352). Nevertheless, the prevailing opinion maintains that in a consent decree, it cannot be construed that the court has adjudicated the suit on its merits.

Nonetheless, such a decree may establish an estoppel between the parties (as seen in Pulavarthi Venkata v. Valluri Jagannadha, AIR 1967 SC 591).

Execution of Compromise Decree

A consent decree is enforceable in the same manner as a regular decree. However, if the decree enforces an unlawful compromise or is issued by a court lacking jurisdiction, it is considered void, and its validity can be contested even during execution.

The fundamental principle here is that a jurisdictional defect undermines the court's authority to issue a decree, and such a defect cannot be rectified even with the parties' consent.

Before the Amendment Act of 1976, a compromise decree could only be issued concerning the subject matter of the suit.

However, the Amendment Act of 1976 explicitly states that regardless of whether the subject matter of the agreement, compromise, or satisfaction aligns with that of the suit, if it involves the parties and the compromise is lawful, the court can issue such a decree (as seen in Union Carbide Corpn. v. Union of India, (1991) 4 SCC 584).


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