Supreme Court clarifies the right to restore an appeal after a compromise decree: Navratan Lal Sharma v. Radha Mohan Sharma & Ors. (2024) INSC 970 (12 December 2024)

Date of the Judgment: 12 December 2024
Citation: 2024 INSC 970
Judges: Pamidighantam Sri Narasimha, J., Manoj Misra, J.
Can a party restore an appeal dismissed based on a compromise if the other party fails to honor the terms of the compromise? The Supreme Court of India recently addressed this critical question, clarifying the statutory rights available to litigants in such situations. This judgment emphasizes that a party can seek restoration of an appeal if the compromise is not fulfilled, and the court cannot deny this right. The bench comprised Justices Pamidighantam Sri Narasimha and Manoj Misra, with the opinion authored by Justice Pamidighantam Sri Narasimha.

Case Background

The appellant, Navratan Lal Sharma, owned a property and filed a suit against the respondents, Radha Mohan Sharma and others, seeking cancellation of certain power of attorney and sale deeds. He alleged that the first respondent had forged these documents and illegally transferred the property to the second respondent. The Trial Court dismissed the suit on 17 February 2014. Subsequently, Navratan Lal Sharma filed a first appeal before the Rajasthan High Court.

During the pendency of the appeal, the appellant and the second respondent reached a compromise on 18 May 2022, with a corrigendum on 8 July 2022. This compromise involved the development of the property, with the second respondent agreeing to pay certain amounts to the appellant. However, the cheques issued by the second respondent were dishonored, leading to the appellant seeking restoration of the appeal.

Timeline

Course of Proceedings

The Rajasthan High Court, on 14 July 2022, disposed of the first appeal based on the compromise, but explicitly stated that the parties did not have the liberty to restore the appeal. When the cheques issued as part of the compromise were dishonored, the appellant applied for restoration of the appeal. The High Court dismissed this application on 19 October 2023, citing the absence of liberty to restore the appeal in its previous order. The High Court observed that since the order dated 14.07.2022 was a consensual order and the parties were aware that there was no liberty to get the first appeal restored, the application for restoration was not entertainable even if the compromise is not acted upon.

Legal Framework

The Supreme Court examined the provisions of Order 23, Rules 3 and 3A of the Code of Civil Procedure, 1908 (CPC). Order 23, Rule 3 of the CPC states:

“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 satisfied the plaintiff in respect to 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 not 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 1872), shall not be deemed to be lawful within the meaning of this rule.”

Order 23, Rule 3A of the CPC states:

“No suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.”

The Court also referred to Section 96(3) of the CPC, which bars appeals against consent decrees. The Court noted that the only remedy available to a party aggrieved by a compromise decree is to approach the same court that recorded the compromise, under the proviso to Order 23, Rule 3, to establish that there was no valid compromise.

The Court highlighted that the explanation to Order 23, Rule 3 clarifies that any agreement that is void or voidable under the Indian Contract Act, 1872, is not considered a lawful agreement. This means that if a compromise is based on fraud, it can be challenged.

Arguments

The appellant argued that the High Court erred in dismissing the application for restoration solely on the ground that the order recording the compromise did not grant liberty to restore the appeal. The appellant contended that the compromise was vitiated by fraud as the cheques issued by the second respondent were dishonored, and the compromise itself recognized the right to seek restoration in case of non-compliance.

The respondents contended that the order dated 14.07.2022 was a consensual order and the parties were aware that there was no liberty to get the first appeal restored, the application for restoration was not maintainable even if the compromise is not acted upon.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue addressed was:

1. Whether the High Court was correct in dismissing the application for restoration of the appeal solely on the ground that the order recording the compromise did not grant liberty to restore the appeal.

Treatment of the Issue by the Court

Authorities

Judgment

Authorities

The Court relied on Banwari Lal v. Chando Devi [(1993) 1 SCC 581]* to emphasize the court’s duty to be satisfied that the compromise is lawful. It also cited Pushpa Devi Bhagat v. Rajinder Singh [(2006) 5 SCC 566]* to reiterate that the only remedy against a consent decree is to approach the same court that recorded the compromise. The Court also referred to several other cases to reinforce the principle that a court cannot curtail a statutory remedy.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to uphold the statutory rights of litigants and ensure that compromise decrees are not used to circumvent justice. The Court emphasized that:

• The statutory right to seek restoration of an appeal under Order 23, Rule 3 of the CPC cannot be curtailed by the court.
• Courts must not curtail statutorily provisioned remedial mechanisms available to parties.
• A compromise decree is valid only if the underlying agreement is lawful, and agreements vitiated by fraud are not lawful.
• The court that recorded the compromise has the jurisdiction to determine its legality.

Logical Reasoning:

The Supreme Court rejected the High Court’s interpretation that the absence of liberty to restore the appeal in the compromise order barred the appellant from seeking restoration. The Court reasoned that statutory rights cannot be curtailed by such an interpretation. The Court emphasized that the compromise must be lawful, and if there is a breach of the compromise due to fraud, the aggrieved party has the right to seek restoration of the appeal. The Court also emphasized that the court which recorded the compromise has the jurisdiction to determine its legality.

The Supreme Court stated, “In fact, when there is a statutory remedy available to a litigant, there is no question of a court granting liberty to avail of such remedy as it remains open to the party to work out his remedies in accordance with law.”

The Court also observed, “Therefore, there was no occasion for the court to deny liberty to file for restoration by its order dated 14.07.2022 and the consequent dismissal of the recall application by the impugned order on this ground alone does not arise.”

Further, the Court noted, “Further, as a matter of public policy, courts must not curtail statutorily provisioned remedial mechanisms available to parties.”

The Court held that the High Court had erred in dismissing the restoration application solely on the ground that the order recording the compromise did not grant liberty to restore the appeal. The Court emphasized that the appellant has a statutory right to seek restoration under Order 23, Rule 3 of the CPC, and this right cannot be curtailed by the High Court’s order.

The Court did not discuss any alternative interpretations of the law. The decision was unanimous with no dissenting opinion.

Key Takeaways

• A party can seek restoration of an appeal if the compromise decree is not fulfilled due to fraud or non-compliance.
• The court cannot deny the statutory right to seek restoration of an appeal under Order 23, Rule 3 of the CPC.
• A compromise decree is valid only if the underlying agreement is lawful and not vitiated by fraud.
• The court that recorded the compromise has the jurisdiction to determine its legality.
• Courts must not curtail statutorily provisioned remedial mechanisms available to parties.

Directions

The Supreme Court set aside the High Court’s order and remanded the matter back to the High Court to decide the application for recall on its own merits. The Supreme Court clarified that it had not expressed any opinion on the merits of the case.

Development of Law

The judgment reaffirms the principle that a compromise decree does not extinguish the statutory right to seek restoration of an appeal if the compromise is breached due to fraud or non-compliance. It clarifies that the court cannot deny this right based on a technicality of not granting liberty to restore the appeal in the order recording the compromise. The ratio decidendi of the case is that a party has a statutory right to approach the same court which recorded the compromise to establish that there was no valid compromise, and that right cannot be curtailed by the court.

Conclusion

The Supreme Court’s judgment in Navratan Lal Sharma v. Radha Mohan Sharma & Ors. clarifies that a party can seek restoration of an appeal if the compromise decree is not fulfilled, and the court cannot deny this right. This decision reinforces the importance of upholding statutory rights and ensuring that compromise decrees are based on lawful agreements, and not used to circumvent justice.