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PETITIONER: GURPREET SINGH

       Vs.

RESPONDENT: CHATUR BHUJ GOEL

DATE OF JUDGMENT15/12/1987

BENCH: SEN, A.P. (J) BENCH: SEN, A.P. (J) RAY, B.C. (J)

CITATION:  1988 AIR  400            1988 SCR  (2) 401  1988 SCC  (1) 270        JT 1987 (4)   665  1987 SCALE  (2)1338

ACT:      Civil  Procedure   Code,  1908:  order  XXIII  Rule  3- Settlement arrived  at between  parties in appeal-Compromise not reduced  in "writing  and signed by the parties"-Whether can be given effect to.

HEADNOTE: %      A  suit  filed  by  the  respondent  for  the  specific performance of a C contract entered into between him and the father of  the appellant  was decreed  by the trial court. A Single Judge of the High Court affirmed the decree.      During the  hearing of  the Letters Patent Appeal filed by the  appellant, a  settlement was  arrived at between the parties, and  statements were  made by  them to  that effect before the  court. The  case was  adjourned to  the date  on which payment  in terms  of the  compromise was  to be made. Though the  statements formed  part of  the proceedings, the compromise was not reduced in writing and signed by parties. Taking advantage  of this,  the respondent  tried to  resile from the  compromise. When the case came up on the adjourned date, the  Division Bench directed that since the respondent was not  prepared to  abide by  the proposed compromise, the appeal would  be decided  on merits and that the case should be placed before another Bench.      ln the  appeal by  special leave  against the aforesaid decision, it  was contended  on behalf of the appellant that the requirements  of order XXIII Rule 3 Civil Procedure Code were mandatory,  that the  claim in  the suit  for  specific performance having  been  settled  by  a  lawful  compromise within the  meaning of  Rule  3,  the  High  Court  was  not justified in  directing that  the appeal  be  placed  before another Bench  for decision  on merits,  that the  word  "in writing and  signed by the parties" qualified the words "any lawful agreement  or compromise" appearing in the first part and, therefore,  where the  parties made  a statement before the Court  that the dispute between them had been settled on certain terms, and the settlement so made formed part of the proceedings of  the Court, there was no legal requirement to have an  agreement in  writing embodying  the terms  of  the compromise.

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402      Dismissing the appeal, ^      HELD: The  whole object  of the  amendment of Rule 3 of the Civil  Procedure Code,  1908 by  adding  the  words  "in writing and  signed by  the parties" is to prevent false and frivolous pleas  that a  suit has been adjusted wholly or in part by  any lawful  agreement or compromise, with a view to protract or delay the proceedings in the suit.[408C-D]      Under Rule  3 as it now stands when a claim in suit has been adjusted  wholly or  in part by any lawful agreement or compromise, the  compromise must be in writing and signed by the parties  and there must be a completed agreement between them.  To   constitute  an   adjustment,  the  agreement  or compromise must  itself be  capable of  being embodied  in a decree. When  the parties enter into a compromise during the hearing of  a suit  or appeal,  there is  no reason  why the requirement that the compromise should be reduced in writing in the  from of  the an  instrument signed by the parties to reduce the terms into writing. [408D-F]      The present case clearly does not come within the ambit of the  second part of Order XXIII Rule 3 of the Code. Under the terms  of the  proposed compromise,  the  appellant  was required to  pay Rs.2,25,000  by a  bank draft  on March 17, 1987 but before the due date the respondent resiled form the promised compromise,  saying that  it was detrimental to his interest. That being so, that appellant could only fall back on the  first part.  But, in  the absence of an agreement in writing, the  High Court  had no  other alternative  but  to direct that  the appeal  be listed  for hearing  on  merits. [409C-D]      Manohar Lal & Anr. v. Surjan Singh & Anr., [1983] Punj. Lj  402, overruled.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2035 of 1987.      From the Judgment and order dated 23.4.1987 of the High Court of Punjab and Haryana in C.M.P. No 19 of 1987.      S.N. Kacker and R.S. Sodhi for the Appellant.      Mrs. Shyamla  Pappu, A.M.  Ashri, K.S.  Thaper and V.K. Jain for the Respondents. 403      The Judgment of the Court was delivered by A      SEN, J. The controversy in this appeal by special leave centres, s  around the  words ’in  writing and signed by the parties’ added  to order  XXIII, r.  3 of  the Code of Civil Procedure, 1908  by the  Code of Civil Procedure (Amendment) Act, 1976  and  the  precise  question  is  whether  when  a settlement is  arrived at  between  the  parties  in  appeal before the  Court, the  compromise cannot be given effect to under Order  XXIII, r. 3 of the Code unless the terms of the compromise are embodied in an agreement in writing.      First as  to the  facts. The  respondent herein  Chatur Bhuj Goel,  a practising advocate at Chandigarh first lodged a criminal  complaint against  Colonel Sukhdev Singh, father of the  appellant, under  s. 420  of the  Indian Penal Code, 1860 after  he had served the respondent with a notice dated July 11, 1979 forfeiting the amount of Rs.40,000 paid by him by way  of earnest  money, alleging that he was in breach of the contract dated June 4, 1979 entered into between Colonel Sukhdev Singh,  acting as  guardian of the appellant, then a minor, and  the respondent,  for the  sale of  a residential

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house at 1577, Sector 18D, Chandigarh for a consideration of Rs.2,85,000. In  terms of  the agreement, the respondent was to pay  a further  sum of  Rs.1,35000() to  the  appellant’s father Colonel  Sukhdev Singh by July 10, 1979 when the said agreement of sale was to be registered and vacant possession of the house delivered to him, and the balance amount of Rs. 1,10,000 on  or before  January 31,  1980 when  the deed  of conveyance was  to be  executed.  The  dispute  between  the parties was  that according  to Colonel Sukhdev Singh, there was failure  on the part of the respondent to pay the amount of Rs.1,35,000  and get  the agreement registered, while the respondent alleged  that he  had already  purchased  a  bank draft in  the name  of the appellant for Rs.1,35,000 on July 7, 1979  but the  appellant’s father  did  not  turn  up  to receive the same. The respondent met him at his residence at Chandigarh on  the morning  of July  16, 1979  when  it  was agreed that  they would meet in the District Court precincts later in  the day  for the  purpose of  registration of  the agreement, but again the appellant’s father did not turn up. Although the learned Additional Chief Judicial Magistrate by order dated October 31, 1979 dismissed the complaint holding that the  dispute was of a civil nature and no process could issue on  the complaint,  a learned Single Judge of the High Court by  his order  dated February  11, 1980  set aside the order of  the learned  Additional Chief  Judicial Magistrate holding that  the facts  brought out  clearly  warranted  an inference of  dishonest intention  on the  part  of  Colonel Sukhdev Singh and accordingly directed 404      him  to  proceed  with  the  trial  according  to  law. Aggrieved, Colonel  Sukhdev Singh  came up in appeal to this Court by special leave.      This Court  by its  order in Criminal Appeal No. 595/80 dated September  2, 1980  reversed the  judgment of the High Court on  the ground  that the dispute was purely of a civil nature and  the criminal  13 process  could  not  have  been employed  for   the  purpose  of  coercing  the  appellant’s guardian Colonel  Sukhdev Singh  to specifically perform the contract. It  was directed that Colonel Sukhdev Singh should return the  earnest money  of Rs.40,000 to the respondent on or  before  October  5,  1980  and  in  the  meanwhile,  the respondent was  at liberty  to  file  a  suit  for  specific performance of  the contract, if so advised. It was observed that the  return of  the said amount of Rs.40,000 by Colonel Sukhdev Singh  would be  without prejudice to the rights and contentions of  the parties,  including  the  right  of  the respondent to claim specific performance of the contract, if he was  in law  otherwise so entitled. Pursuant thereto, the appellant’s guardian  Colonel  Sukhdev  Singh  refunded  the amount of  Rs.40,000 to  the respondent. On  October 3, 1980 the respondent  instituted the  suit in  the  Court  of  the District Judge, Chandigarh, out of which this appeal arises, for  specific  performance  of  the  contract  and,  in  the alternative, claimed Rs.2,50,000 by way of damages. Both the learned District  Judge as well as a learned Single Judge on a consideration  of the evidence came to the conclusion that the breach  of contract  was on  the part of the appellant’s guardian Colonel  Sukhdev Singh  and not  on the part of the respondent and  accordingly decreed  the suit  for  specific performance. Thereupon,  the appellant  preferred an  appeal under cl. 10 of the Letters Patent.      The hearing  of the  Letters  Patent  Appeal  commenced before a  Division Bench  on January  14, 1987 and continued for three days. On January 16, 1987, the appellant’s counsel had not  concluded and  there fore the hearing was adjourned

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to January  28, 1987.  On that  date, after  the appellant’s counsel had  addressed the  Court for  a while,  the parties took time to explore the possibility of a settlement. At the resumed hearing  later in  the day,  the appellant’s  father Colonel Sukhdev Singh made a statement to the effect:           "I make  an offer  that  I  shall  personally  pay           Rs.2,25,000 to  the respondent Chatur Bhuj Goel by           way of  full and  final settlement  of the dispute           between him  and the  appellant. The  said  amount           shall be paid by a bank draft in Court on 17.3.87.           In the event of failure on my part to pay the 405           amount as  stipulated on  that date,  the  Letters           Patent  Appeal   No.  734   of  1983  shall  stand           dismissed and the appellant shall have no right to           file an appeal against the decision to the Supreme           Court." The above  statement was  duly endorsed by Shri V.K. Sharma, learned counsel appearing for the appellant and stated: B           "The appellant  makes an  offer that  in full  and           final  settlement   of  the  dispute  between  the           parties,  the  appellant  Gurpreet  Singh  in  his           personal capacity  or through  his father  Colonel           Sukhdev  Singh   shall  pay   Rs.2,25,000  to  the           respondent on  17.3.87 by  a bank draft payable at           Chandigarh,  if   the  respondent  agrees  to  the           Letters  Patent  Appeal  No.  734  of  1983  being           allowed and  that in  the event  of non-payment of           the amount on the stipulated date, the said appeal           shall stand dismissed and the appellant shall have           no right to file an appeal in the Supreme Court." The respondent Chatur Bhuj Goel who, as already stated, is a practising advocate,  was respondent by Shri Bhagirath Dass, a senior  advocate practising at Chandigarh. Apparently, the respondent  on   mature  deliberation   made  the  following statement in the presence of his counsel           "I accept  the offer made by Colonel Sukhdev Singh           and Shri  V.K. Sharma,  counsel for  the appellant           Gurpreet Singh. ’      Thereupon, the  learned Judges  adjourned the appeal to March 17,  1987 i.e.  the  date  on  which  the  payment  of Rs.2,25,000 was  to be  made. The  aforesaid statements form part of  the  proceedings  of  the  Court.  Admittedly,  the compromise was  not reduced  in writing  and signed  by  the parties. Taking  advantage of  this fact,  the respondent on February 9,  1987 made  an application  by which he tried to resile from the compromise stating:           "on 28th January 1987, the offer of compromise was           made by  the appellant,  which was  recorded.  The           statement of the respondent was also recorded. The           respondent however  did not  sign  the  statement.           That the  statement was  made  by  the  respondent           without  thinking  of  the  repercussions  of  his           statement. He  was influenced  by the stand, which           was 406           adopted by  his  Senior  Advocate  Shri  Bhagirath           Dass. If the statement recorded by the Court which           has not  been signed  by the  respondent is  given           effect  to,   the  respondent   would   suffer   a           tremendous loss."      On the  adjourned date i.e. March 17, 1987, the learned Judges directed that in view of the fact that the respondent was not  prepared to  abide by  the proposed compromise, the appeal would  now be  heard and  decided on  merits, with  a

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further direction  that it  be placed  before another Bench. Hence, this appeal by special leave.      In support  of the  appeal Shri  S.N.  Kacker,  learned counsel for the appellant, contends that the requirements of order XXIII, r. 3 of the Code are mandatory and the claim in the suit  for specific  performance having been settled by a lawful compromise  within the  meaning of  r. 3, the learned Judges were  not justified  in directing  that the appeal be placed before  another bench  for decision  on  merits.  The learned counsel  submits that  order XXIII, r. 3 of the Code is in two parts. According to him, the words ’in writing and signed  by  the  parties’  qualify  the  words  ’any  lawful agreement or  compromise’ appearing  in the  first part  and these words cannot obviously be read into the second part at all. It is urged that the first part of order XXIII, r. 3 of the Code  refers to an adjustment on settlement of the claim in suit  by a  lawful agreement  or compromise  outside  the Court,  meaning  thereby  that  where  the  parties  make  a statement before the Court that the dispute between them has been settled  on certain  terms and  the statements  so made form part of the proceedings of the Court, there is no legal requirement to  have an  agreement in  writing embodying the terms of the compromise.      For a  proper appreciation of the contentions advanced, it is  necessary to  set out  the Statement  of objects  and Reasons which is in these terms:           "Cl.  77-Sub-cl(iii).   It  is  provided  that  an           agreement or  compromise under rule 3 should be in           writing and  signed by the parties. This is with a           view to avoiding the setting up of oral agreements           or compromises to delay the progress of the suit.                The words ’lawful agreement or compromise’ in           rule 3 have given rise to a conflict in the matter           of interpreta- 407           tion.  One  view  is  that  agreements  which  are           voidable under  s. 19A of the Contract Act are not           excluded. While  this stand  is taken  by the High           Courts of  Allahabad, Calcutta. Madras and Kerala,           a contrary  view has  been expressed  by the  High           Courts of  Bombay and  Nagpur. An Explanation has,           therefore, been  added to  the rule to clarify the           position. A proviso has been added to clarify that           no adjournment  should ordinarily be granted where           a  decision   is  necessary   as  to   whether  an           adjustment or  satisfaction has  or has  not  been           arrived at                In view of the words ’so far as it relates to           the suit’  in rule  3, a  question arises  whether           decree which  refers to  the terms of a compromise           in respect of matters beyond the scope of the suit           is executable  or whether  the terms of the decree           relating to  the matters  outside the  suit can be           enforced only  by a  separate suit.  The amendment           seeks to clarify the position." The provision contained in order XXIII, r. 3 of the Code, as amended, provides:           "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

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         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 or  compromise which is           void or  voidable under  the Indian  Contract Act,           1872 (9 of 408           1872), shall not be deemed to be lawful within the           meaning of this rule."      According to  the grammatical  construction,  the  word ’or’ makes  the two  conditions disjunctive. At first blush, the argument  of the learned counsel appears to be plausible but that  is of  no avail.  In our opinion, the present case clearly falls  within the  first part and not the second. We find no  justification to  confine the  applicability of the first part  of order XXIII, r. 3 of the Code to a compromise effected  out   of  Court.  Under  the  rule  prior  to  the amendment, the  agreement com  promising the  suit could  be written or  oral and  necessarily the  Court had  to enquire whether or  not such  compromise had  been effected.  It was open to the Court to decide the matter by taking evidence in the usual  way or  upon affidavits.  The whole object of the amendment by  adding the words ’in writing and signed by the parties’ is to prevent false and frivolous pleas that a suit had been  adjusted wholly or in part by any lawful agreement or  compromise,  with  a  view  to  protract  or  delay  the proceedings in the suit.      Under r.  3 as  it now stands, when a claim in suit has been adjusted  wholly or  in part by any lawful agreement or compromise, the  compromise must be in writing and signed by the parties  and there must be a completed agreement between them.  To   constitute  an   adjustment,  the  agreement  or compromise must  itself be  capable of  being embodied  in a decree. When  the parties enter into a compromise during the hearing of  a suit  or appeal,  there is  no reason  why the requirement that the compromise should be reduced in writing in the form of an instrument signed by the parties should be dispensed with.  The Court  must therefore  insist upon  the parties to reduce the terms into writing.      In our  considered opinion,  the view  to the  contrary expressed by  the High Court in Manohar Lal & Anr. v. Surjan Singh &  Anr., [1983]  Punj. LJ  402  that  the  first  part relates to  a lawful  agreement or  compromise arrived at by the parties  out of  Court, does  not seem  to  be  correct. Sandhawalia,  CJ   speaking  for  himself  and  Tewatia,  J. observes that  the word ’or’ makes the two parts disjunctive and they  visualise two  distinct and  separate  classes  of compromise. According  to the learned Judges, the first part relates to  a lawful  agreement or  compromise arrived at by the parties  out of  Court, while  the second  is applicable where the  defendant satisfies  the plaintiff  in respect of the whole  or any  part of  the subject  matter of the suit. Such a  restricted construction  is  not  warranted  by  the language used in r. 3. The word 409 ’satisfies’  denotes   satisfaction  of  the  claim  of  the

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plaintiff wholly  or in part, and for this there need not be an agreement in writing signed by the parties. It is open to the defendant  to prove  such satisfaction by the production of a  receipt or  payment through  bank  or  otherwise.  The satisfaction of  the claim  could  also  be  established  by tendering of  evidence. It  is for  the Court  to decide the question upon taking evidence or by affidavits as to whether there has  in fact  been such  satisfaction of the claim and pass a  decree in  accordance with  order XXIII, r. 3 of the Code.      In any  event, the  present case  clearly does not come within the  ambit of the second part of order XXIII, r. 3 of the Code.  Under the  terms of  the proposed compromise, the appellant was required to pay Rs.2,25,000 by a bank draft on March 17,  1987, but  the fact  remains that  the respondent before the  due date  resiled from  the proposed  compromise saying that  it was  detrimental to his interest. That being so, the  appellant could  only fall  back on the first part. But in  the absence  of an agreement in writing, the learned Judges had  no other  alternative but  to  direct  that  the appeal be listed for hearing on merits.      In the  result, the  appeal must fail and is dismissed. The High  Court is directed to hear and decide the appeal on merits. There shall be no order as to costs. N.P.V.                                     Appeal dismissed. 410