Supreme Court Modifies High Court Order on Consent Decree Execution in Family Dispute: Pawan Kumar Arya vs. Ravi Kumar Arya (2020)

LEGAL ISSUE: Whether a part of a consent decree, specifically the allotment of properties, can be executed independently when the decree also mandates a further supplementary agreement between the parties.

CASE TYPE: Civil, Family Dispute, Execution of Decree

Case Name: Pawan Kumar Arya and others vs. Ravi Kumar Arya and others

[Judgment Date]: March 2, 2020

Can a court enforce a part of a consent decree when the decree itself contemplates further agreements between the parties? The Supreme Court of India recently addressed this question in a dispute between two family groups, the PA Group and the RA Group, regarding the execution of a consent decree related to property allotments. The court’s decision clarifies the extent to which a consent decree can be partially enforced when it is part of a larger settlement framework. The judgment was delivered by a two-judge bench comprising Justice Ashok Bhushan and Justice M.R. Shah, with Justice M.R. Shah authoring the opinion.

Case Background

The dispute originated from a disagreement over the assets of Kash Foods Private Limited, specifically a plot of land in Worli, Mumbai. The PA Group and the RA Group, both factions of the same family, had initially filed a suit (Suit (L) No. 194 of 2015) against each other and Omkar Realtors and Developers Private Limited (Omkar Builders). The PA Group sought a 50-50 division of benefits from a development agreement between Kash Foods and Omkar Builders.

The PA Group contended that the RA Group had violated a Right of First Refusal clause by acquiring a 75% shareholding in Kash Foods without offering it to M.P. Recycling, a company jointly owned by both groups. Subsequently, the RA Group entered into a development agreement with Omkar Builders, leading to the receipt of ₹25 crores, an additional ₹20 crores as security, and 79,000 sq. ft. of carpet area (15 flats and 72 car parking spaces).

During the pendency of the suit, the parties reached a settlement, formalized in consent terms. These terms allocated 8 apartments to the PA Group and 7 apartments to the RA Group, all part of the redeveloped Worli property. Omkar Builders was to issue allotment letters for the 8 apartments to the PA Group, which the RA Group was to counter-sign. However, the RA Group refused to counter-sign the allotment letters, leading the PA Group to initiate execution proceedings under Order 21 Rule 34 of the Code of Civil Procedure.

Timeline:

Course of Proceedings

The learned Single Judge of the High Court dismissed the execution petition, stating that neither Omkar Builders nor the RA Group could be directed to execute the allotment letter (‘Annexure E’) at that stage. The judge also noted that the RA Group could not be restrained from dealing with the Kash Foods property. The Single Judge opined that a supplementary consent agreement was needed before the obligation to execute ‘Annexure E’ arose.

The Division Bench of the High Court upheld the Single Judge’s decision, agreeing that clause 28 of the consent terms did not obligate the RA Group to execute ‘Annexure E’. The High Court also held that there was no obligation on the RA Group to execute the letter of allotment in the form of ‘Annexure E’.

Legal Framework

The primary legal framework in this case revolves around the interpretation and execution of a consent decree under the Code of Civil Procedure. Specifically, Order 21 Rule 34 of the Code of Civil Procedure, which deals with the execution of documents, was invoked by the PA Group. The consent decree was based on the consent terms agreed upon by the parties. The key clauses of the consent terms include:

• Clause 2: States that the consent terms are an identified and mutually agreed framework for a complete parting of ways between the parties.
• Clause 3: Requires the parties to execute a definitive “Family Arrangement and Settlement” based on the agreed framework.
• Clause 13: Mandates the execution of supplemental consent terms related to the PA Kash Foods Property and Orbit Arya Commercial Premises.
• Clause 22: Restrains the RA Group from dealing with the PA Kash Foods Property, with modifications to be specified in the supplementary consent terms.
• Clause 28: Directs Omkar Builders to issue a separate letter regarding the PA Group’s entitlement to the PA Kash Foods Property as per draft at ‘Annexure E’.
• Clause 30: States that the present consent terms provide a framework for resolution of all matters.

Arguments

The arguments presented by both sides focused on the interpretation of the consent terms and the obligations arising from them.

Arguments of the PA Group (Appellants):

• The High Court erred in dismissing the execution petition, effectively nullifying the consent decree. The PA Group argued that the consent decree was a family settlement, which should be enforced with special equity.

• The PA Group submitted that the High Court’s order resulted in an absurd situation where they received nothing under the consent decree, while the RA Group benefited significantly. They emphasized that the consent decree was intended to bring about a complete resolution of all disputes.

• The PA Group contended that the obligation to provide ‘Annexure E’ was not contingent upon the execution of supplementary consent terms. They argued that the High Court had erroneously read an implied term into the consent decree. They relied on clause 28 of the consent terms, which directed Omkar Builders to issue ‘Annexure E’.

• The PA Group argued that the non-cooperation of the RA Group in executing the supplementary consent terms was a malafide attempt to avoid their obligations. They highlighted the numerous reminders sent to the RA Group to finalize the supplementary terms. They relied on Hari Shankar Singhania and others v. Gaur Hari Singhania and others (2006) 4 SCC 658, stating that family settlements should be implemented without technicalities.

Arguments of the RA Group (Respondents):

• The RA Group argued that the execution proceedings were premature, as they sought to execute only part of the consent decree. They contended that the consent terms required a supplementary agreement before implementation.

• The RA Group submitted that the consent terms aimed to resolve all disputes, not just the subject matter of the original suit. They argued that the allotment of 8 flats to the PA Group was contingent upon the resolution of other disputes and the execution of supplementary consent terms.

• The RA Group contended that there was no obligation on their part to issue ‘Annexure E’ immediately upon signing the consent terms. They argued that clause 28 only directed Omkar Builders to issue the letter and did not obligate them to counter-sign it.

• The RA Group pointed out that the consent terms were a “framework” for a complete settlement, and the supplementary terms were crucial to finalize the agreement. They emphasized that the PA Group could not seek partial execution of the decree without fulfilling their own obligations.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, but the core issue before the court was:

1. Whether the High Court was correct in dismissing the execution petition seeking enforcement of a specific part of the consent decree (allotment of 8 flats) without the execution of supplementary consent terms.

The court also implicitly dealt with the sub-issue of whether the obligation to provide ‘Annexure E’ was contingent upon the execution of the supplementary consent terms.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court modified the High Court’s order, directing both parties to fully comply with the consent terms and enter into the supplementary consent terms within four months. The Court also directed the RA Group to counter-sign ‘Annexure E’ within two weeks, with the caveat that the PA Group could not transfer the flats until the full implementation of the consent decree.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the integrity of the consent decree as a whole. The Court recognized that the consent terms were intended to be a comprehensive settlement of all disputes between the parties, not just the subject matter of the original suit. The Court was also mindful that the consent decree was a family settlement, which should be given effect to in letter and spirit.

The Court’s reasoning was driven by the principle that a consent decree, especially one aimed at resolving family disputes, should be implemented in its entirety. The Court noted that the consent terms were designed to achieve a complete parting of ways between the parties and that partial execution would frustrate this objective. The Court also sought to balance the equities between the parties, ensuring that neither party was unduly disadvantaged.

The Court considered the arguments of both sides, acknowledging the PA Group’s claim that they had received nothing while the RA Group had benefitted significantly. However, the Court also recognized the RA Group’s argument that the consent terms were a framework for a complete settlement, not just a partial one. The Court rejected the PA Group’s argument that the obligation to provide ‘Annexure E’ was independent of the supplementary consent terms.

The Court’s decision was a balanced approach, seeking to ensure that both parties were held to their obligations under the consent decree while also protecting the interests of both sides.

The Supreme Court’s reasoning was based on the following points:

• The consent terms were intended to be a comprehensive settlement of all disputes.
• The consent decree was a family settlement, which should be given effect to in letter and spirit.
• Partial execution would frustrate the objective of a complete parting of ways between the parties.
• The Court sought to balance the equities between the parties, ensuring that neither party was unduly disadvantaged.

The Court considered alternative interpretations but rejected them in favor of a holistic approach to the consent decree. The Court emphasized that the consent terms were a framework for a complete settlement, not just a partial one. The Court also noted that the supplementary consent terms were crucial to finalize the agreement.

The Court’s final decision was a balanced approach, seeking to ensure that both parties were held to their obligations under the consent decree while also protecting the interests of both sides. The Court directed the RA Group to counter-sign ‘Annexure E’ within two weeks, but with the caveat that the PA Group could not transfer the flats until the full implementation of the consent decree. This decision was a compromise that sought to implement the consent decree in its entirety while also ensuring that the PA Group was not left without any recourse.

The majority opinion was authored by Justice M.R. Shah, with Justice Ashok Bhushan concurring. There were no dissenting opinions.

The court quoted the following from the judgment:

“The present Consent Terms is an identified and mutually agreed framework for a complete parting of ways between the Parties and is aimed at bringing about an eventual complete quietus to the Disputes.”

“Even in the case of Hari Shankar Singhania (supra) , the decision which has been relied upon by the learned senior counsel appearing on behalf of the appellants, this Court has observed that a family settlement is treated differently from any other formal commercial settlement as such settlement in the eye of the law ensures peace and goodwill among the family members.”

“Therefore, as such, considering the fact that the parties entered into the consent terms/settlement for a complete parting of ways between the parties and so aimed at bringing about an eventual complete quietus to the disputes between the parties and even parties entered into the consent terms/settlement to resolve and settle the disputes in relation to the subject matter of AISCO, IMTC, Kash Foods, Orbit Arya Commercial Premises and the disputes in relation to the larger Arya Group of Companies and its constituents, which were beyond the dispute in the civil suit, the entire consent terms/consent decree is required to be acted upon and/or implemented by both the parties.”

Key Takeaways

• Consent decrees, especially those aimed at resolving family disputes, should be implemented in their entirety.
• Partial execution of a consent decree is generally not permissible if the decree contemplates further agreements between the parties.
• Courts will seek to balance the equities between the parties when interpreting and enforcing consent decrees.
• Family settlements are treated differently from commercial settlements and are to be enforced in letter and spirit.

Directions

The Supreme Court issued the following directions:

1. Both the PA Group and RA Group were directed to fully comply with the consent terms/consent decree and enter into the further supplemental consent terms/family arrangement within four months.
2. The RA Group was directed to counter-sign ‘Annexure E’ within two weeks.
3. The PA Group was restrained from alienating or transferring the 8 flats until the full implementation of the consent decree.
4. The original injunction granted by the learned Single Judge was directed to be continued till the execution of the further supplemental consent terms/family arrangement, except for the 7 flats allotted to the RA Group.

Development of Law

The ratio decidendi of this case is that a consent decree, especially a family settlement, must be implemented in its entirety, and partial execution is not permissible if the decree contemplates further agreements between the parties. This case reinforces the principle that family settlements are to be treated differently from commercial settlements and are to be enforced in letter and spirit. There is no change in the previous position of law, but the Supreme Court has clarified the approach to be taken in cases where a consent decree contemplates further agreements between the parties.

Conclusion

The Supreme Court’s decision in Pawan Kumar Arya vs. Ravi Kumar Arya clarifies that consent decrees, especially family settlements, must be implemented in their entirety. The Court’s modified order seeks to balance the equities between the parties, ensuring that neither party is unduly disadvantaged. The judgment emphasizes the importance of upholding the integrity of consent decrees and ensuring that they are implemented in letter and spirit.