Supreme Court Clarifies Appeal Route for Disputed Compromise Decrees.


23 April 2025 Civil Appeals >> Civil & Consumer Law  

The Supreme Court of India recently clarified the appropriate legal avenue for a litigant who is already a party to a suit but disputes the existence or validity of a compromise recorded under Order XXIII Rule 3 of the Civil Procedure Code (CPC). The ruling stemmed from an appeal filed by Sakina Sultanali Sunesara, challenging a Gujarat High Court Larger Bench judgment. The High Court had concluded that such a litigant must first approach the Trial Court, reserving a First Appeal under Section 96 of the CPC only for those not on the suit's record.

The case involved disputes over three parcels of land in Siddhpur, District Patan, which originally belonged to Moosabhai Mooman. Following his death, the land devolved to his widow, sons, and daughter. The appellant, Sakina Sultanali Sunesara, became the sole recorded owner of the suit land after various relinquishments of undivided interests.

 
 

The core of the dispute arose from two consent decrees, dated March 15, 2016, and December 17, 2016, respectively, which the appellant maintained were procured by fraud and without her knowledge. She filed Appeals from Order (AOs) against these decrees, invoking Order XLIII Rule 1-A. The Single Judge of the High Court, noting conflicting views, referred the matter to a Larger Bench, which held that a party to the suit must first invoke the proviso to Order XXIII Rule 3.

The Supreme Court, after reviewing the impact of the Civil Procedure (Amendment) Act 104 of 1976, provided a clear interpretation of the relevant provisions. Prior to 1977, an order "recording or refusing to record" a compromise was appealable under Order XLIII Rule 1(m), which was later deleted. The 1976 amendment introduced several key provisions:

Proviso and Explanation to Order XXIII Rule 3: This obliges the Trial Court to immediately decide any objection to the fact or lawfulness of a compromise.
Rule 3-A of Order XXIII: This bars a separate suit to avoid a compromise decree.
Order XLIII Rule 1-A: This permits an appellant, already involved in a competent appeal against a decree, to contend that the compromise "should, or should not, have been recorded".
Section 96(3) (as renumbered): This prohibits an appeal from a decree "passed with the consent of parties".
The Court's interpretation is that a party who accepts the compromise is bound by it and cannot appeal under Section 96(3). However, a party who disputes the compromise must first raise that objection before the Trial Court under the proviso to Order XXIII Rule 3. A fresh suit to challenge the compromise is no longer permissible due to Order XXIII Rule 3-A. Only if the Trial Court decides the objection and issues a decree adverse to the objector, can a first appeal be filed under Section 96(1). In such an appeal, the appellant may, by virtue of Order XLIII Rule 1-A(2), challenge the recording of the compromise.

The Supreme Court affirmed its previous rulings in cases like Banwari Lal v. Chando Devi and Pushpa Devi Bhagat v. Rajinder Singh, emphasizing that the proviso to Order XXIII Rule 3 is not optional but the "exclusive first port of call" for any party on record denying a compromise. Order XLIII Rule 1-A, the Court clarified, does not create a new right of appeal but merely enables an appellant, already before the Appellate Court, to attack the decree on the ground that the compromise should not have been recorded. When the fact of compromise is undisputed, the bar in Section 96(3) is absolute.

Given that the appellant was a defendant-of-record in the suits and the decrees were based on written compromise terms signed by counsel holding valid vakalatnamas, the Court deemed them consent decrees under Section 96(3). Since the appellant never invoked the proviso to Order XXIII Rule 3 and instead lodged AOs on the basis of the deleted Order XLIII Rule 1(m), the Supreme Court upheld the High Court's decision that such appeals were incompetent since 1976.

The Court further dismissed the argument that allegations of fraud transform a consent decree into an ordinary decree, stating that fraud and other vitiating elements are precisely what the proviso to Order XXIII Rule 3 is designed for the Trial Court to examine. The presence of subsequent purchasers, who were not parties to the suits, did not alter the appellant's position as a party to the original suits. The Court also noted that both suits were eventually compromised before a Lok Adalat, and Section 21(2) of the Legal Services Authorities Act, 1987, interdicts any appeal from a Lok Adalat award.

Consequently, the Supreme Court dismissed the civil appeals, affirming the judgment of the Larger Bench of the High Court of Gujarat and the consequential order of the Single Judge. The Court stated that it remains open for the appellant, if so advised, to invoke the proviso to Order XXIII Rule 3 of the CPC before the Trial Court.