Supreme Court Modifies Consent Decree on Mesne Profits: Compack Enterprises India (P) Ltd. vs. Beant Singh (2021)

Date of the Judgment: 17 February 2021

Citation: (2021) INSC 78

Judges: Mohan M. Shantanagoudar, J. and Vineet Saran, J.

Can a court modify a consent decree if there is an error in recording the terms of the agreement? The Supreme Court of India addressed this question in a case concerning a dispute over property possession and mesne profits. The Court clarified the circumstances under which a consent decree can be modified, particularly when there is a clear error in recording the agreed terms. This judgment was delivered by a two-judge bench consisting of Justice Mohan M. Shantanagoudar and Justice Vineet Saran, with the opinion authored by Justice Mohan M. Shantanagoudar.

Case Background

The case involves a property dispute between Compack Enterprises India (P) Ltd. (the Petitioner) and Beant Singh (the Respondent). The Respondent is the owner of a property in Delhi. Initially, a portion of this property was licensed to the Petitioner’s predecessor, M/s Compack Enterprises, through a license agreement dated 1 November 2000. This agreement was for a period of 30 months with a monthly license fee of Rs. 28,000.

The license was renewed on 1 July 2003, for another 30 months with a 10% increase in the monthly fee (Rs. 30,800). A final renewal occurred on 1 April 2006, extending the agreement until 30 September 2008, with a further 10% increase in the monthly fee (Rs. 33,900).

After the expiry of the 2006 agreement, the Petitioner continued to occupy the property without renewal. Consequently, on 13 February 2009, the Respondent filed a suit to recover possession and mesne profits (compensation for use and occupation) from 1 October 2008.

Timeline:

Course of Proceedings

The Trial Court initially dismissed the Respondent’s application for a judgment on admission, which led the Respondent to approach the High Court. The High Court reversed the Trial Court’s decision on 12 November 2014, directing the Petitioner to hand over possession of the entire suit property (5,472 sq. ft.) to the Respondent. The Trial Court then ruled on the mesne profits, calculating the amount due from the Petitioner. Both parties appealed this decision to the High Court, seeking adjustments to the mesne profits.

The High Court, on 14 February 2019, passed a consent decree, directing the Petitioner to pay an enhanced sum of Rs. 1,00,000 per month as mesne profits, with a 10% increase every 12 months. The Petitioner, aggrieved by the terms of the consent decree, filed a review petition, which was dismissed by the High Court on 25 July 2019.

Legal Framework

The case primarily revolves around the interpretation and modification of consent decrees. The Supreme Court referred to the principle that consent decrees are intended to create estoppels by judgment, preventing further litigation between the parties. The Court also cited the case of Byram Pestonji Gariwala v. Union Bank of India & ors., (1992) 1 SCC 31, which established that a consent decree can be set aside if the compromise was vitiated by fraud, misrepresentation, or mistake. Additionally, the Court noted that it has the power to rectify clerical or arithmetical errors in consent decrees to align them with the terms of the compromise.

Arguments

Petitioner’s Arguments:

• The Petitioner argued that the High Court erred in recording the terms of the consent decree. Specifically, the mesne profits should have been increased by 10% every 24 months, not every 12 months.
• The Petitioner contended that the High Court incorrectly recorded that the Petitioner had consented to handing over possession of the entire suit property (5,472 sq. ft.), while the Petitioner maintained that only 2,200 sq. ft. was licensed to them.
• The Petitioner argued that the 10% increase every 24 months mirrors the terms of the license agreements, where the license fee was increased by 10% every 30 months.

Respondent’s Arguments:

• The Respondent argued that the High Court’s order of 14 February 2019, should be interpreted to mean that the mesne profits should be increased by 10% every year.
• The Respondent opposed any modification to the consent decree, arguing that the High Court had correctly recorded the terms of the agreement.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether the High Court was correct in upholding the terms of the consent decree directing the Petitioner to hand over possession of the entire suit property of 5,472 sq. ft. to the Respondent.
2. Whether the High Court erred in recording the terms of the consent decree regarding the increase in mesne profits, specifically whether the increase should be every 12 months or every 24 months.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on Gupta Steel Industries v. Jolly Steel Industries Pvt. Ltd. & anr. (1996) 11 SCC 678* and Suvaran Rajaram Bandekar & ors. v. Narayan R. Bandekar & ors. (1996) 10 SCC 255* to emphasize the binding nature of consent decrees and the reluctance of courts to interfere with them.
• The Supreme Court cited Byram Pestonji Gariwala v. Union Bank of India & ors. (1992) 1 SCC 31* to highlight that consent decrees can be modified if there is fraud, misrepresentation, or mistake.
• The High Court judgment dated 12.11.2014 was followed to conclude that the Petitioner was in possession of the entire 5,472 sq. ft. property.
• The Trial Court judgment dated 23.09.2017 was considered to support the conclusion that the mesne profits should increase every alternate year.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several key factors:

• The inconsistency in the consent decree regarding the increase in mesne profits. The Court noted the discrepancy between the decree’s wording and the example provided, which suggested an increase every alternate year.
• The previous license agreements between the parties, which incorporated a 10% increase in license fee every 30 months. This indicated that the intended compromise was for an increase in mesne profits every alternate year.
• The Trial Court’s judgment, which also awarded a 10% increase every alternate year, further supported the Court’s conclusion.
• The Court also considered the previous High Court order, which had already settled the issue of the area of the property in possession of the Petitioner.

The Court’s reasoning was based on the principle that consent decrees can be modified to correct errors and align with the parties’ intentions. The Court emphasized that it was not unilaterally modifying the decree but rather correcting a mistake to reflect the actual compromise made by the parties.

“The aforementioned inconsistency in the underlined extract of the consent decree is an error apparent on the face of the record. Hence we find that this is a fit case to exercise inherent the jurisdiction to correct the terms of the consent decree, to bring it in conformity with the intended compromise.”

“Given this background, and looking at the preponderance of probabilities, we are inclined to give benefit of doubt to the Petitioner. Therefore, we hold that the intention of the compromise between the parties was that there should be a 10% increase in mesne profits every alternate year.”

“The recording of a 10% increase after every 12 months in the consent decree was an inadvertent error, which we have now rectified.”

Key Takeaways

• Consent decrees are generally binding, but they can be modified by the court to correct errors or to align with the parties’ actual intentions.
• Courts can exercise their inherent powers to rectify clerical or arithmetical errors in consent decrees.
• When interpreting consent decrees, courts will consider the surrounding circumstances, including prior agreements and court orders.
• Parties should ensure that the terms of consent decrees are accurately recorded to avoid future disputes.

Directions

The Supreme Court directed the Petitioner to:

• Hand over possession of the suit property (5,472 sq. ft.) to the Respondent within eight weeks.
• Pay all arrears of mesne profits as directed in the order dated 14 February 2019, with the modification that the mesne profits are to increase by 10% every alternate year.
• Pay costs of Rs. 1 lakh to the Respondent as stated in the order dated 25 July 2019.

Development of Law

The Supreme Court clarified that while consent decrees are generally binding, they can be modified to correct errors and align with the parties’ intentions. This decision reinforces the principle that courts have the inherent power to rectify mistakes in consent decrees to ensure fairness and accuracy. The ratio decidendi of this case is that a consent decree can be modified by the court if there is a clear error in recording the terms of the agreement. The Court also reiterated its previous position that consent decrees can be set aside if the compromise was vitiated by fraud, misrepresentation, or mistake.

Conclusion

The Supreme Court’s judgment in Compack Enterprises India (P) Ltd. vs. Beant Singh modified the High Court’s consent decree regarding the increase in mesne profits. The Court corrected the error to reflect a 10% increase every alternate year, aligning with the original intent of the parties and previous court orders. The Court upheld the direction to hand over possession of the entire suit property to the Respondent, reinforcing the binding nature of court orders and consent decrees while acknowledging the court’s power to rectify errors. This case underscores the importance of accuracy in recording consent decrees and the court’s role in ensuring fairness and justice.