Bar Under Order XXIII Rule 3A Attracted If Compromise On The Basis Of Which Decree Was Passed Was Void Or Voidable: Supreme Court

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Case: R. Janakiammal vs. SK Kumarasamy (Deceased)

Coram: Justices Ashok Bhushan and R. Subhash Reddy

Case No: [CA 1537 OF 2016]

Court Observation: “Determination of disputes between persons and bodies is regulated by law. The legislative policy of all legislatures is to provide a mechanism for determination of dispute so that dispute may come to an end and peace in society be restored. Legislative policy also aims for giving finality of the litigation, simultaneously 29 providing higher forum of appeal/revision to vend the grievances of an aggrieved party.

Rule 3A which has been added by above amendment provides 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. At the same time, by adding the proviso in Rule 3, it is provided that when there is a dispute as to whether an adjustment or satisfaction has been arrived at, the same shall be decided by the Court which recorded the compromise.

Rule 3 of Order XXIII provided that 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, the Court shall order such agreement or compromise to be recorded and pass a decree in accordance therewith.

Rule 3 uses the expression “lawful agreement or compromise”. The explanation added by amendment provided that an agreement or a compromise which is void or voidable under the Indian Contract Act, 1872, shall not be deemed to be lawful.”

Reading Rule 3 with Proviso and Explanation, it is 30 clear that an agreement or compromise, which is void or voidable, cannot be recorded by the Courts and even if it is recorded the Court on challenge of such recording can decide the question. The Explanation refers to Indian Contract Act. The Indian Contract Act provides as to which contracts are void or voidable. Section 10 of the Indian Contract Act provides that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

A consent when it is caused due to coercion, undue influence, fraud, misrepresentation or mistake is not free consent and such agreement shall not be contract if free consent is wanting. Sections 15, 16, 17 and 18 define coercion, undue influence, fraud and misrepresentation. Section 19 deals with voidability of agreements without free consent.

A conjoint reading of Sections 10, 13 and 14 indicates that when consent is obtained by coercion, undue influence, fraud, misrepresentation or mistake, such consent is not free consent and the contract becomes voidable at the option of the party whose consent was caused due to coercion, fraud or misrepresentation. An agreement, which is void or voidable under the Indian Contract Act, shall not be deemed to be lawful as is provided by Explanation to Rule 3 of Order XXIII.

Whether the bar under Rule 3A of Order XXIII shall be attracted in the facts of the present case as held by the Courts below is the question to be answered by us. Rule 3A bars the suit to set aside the decree on the ground that compromise on which decree was passed was not lawful. As noted above, the word “lawful” has been used in Rule 3 and in the Explanation of Rule 3 states that “an agreement or compromise which is void or voidable under the Indian Contract Act,1872 (9 of 1872), shall not 35 be deemed to be lawful……………….;”

Thus, an agreement or compromise which is clearly void or voidable shall not be deemed to be lawful and the bar under Rule 3A shall be attracted if compromise on the basis of which decree was passed was void or voidable.


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