Supreme Court Upholds Bar on Suits Challenging Compromise Decrees in Property Dispute: Sree Surya Developers vs. N. Sailesh Prasad (2022)

Date of the Judgment: 09 February 2022
Citation: 2022 INSC 140
Judges: M.R. Shah, J., Sanjiv Khanna, J.
Can a party bypass the legal bar on challenging a compromise decree by cleverly drafting a suit? The Supreme Court recently addressed this question in a property dispute, clarifying that such tactics will not be permitted. The core issue revolved around whether a suit challenging a compromise decree, even indirectly, is maintainable under the Civil Procedure Code. The bench comprised Justices M.R. Shah and Sanjiv Khanna, with the judgment authored by Justice M.R. Shah.

Case Background

The case involves a property originally gifted to N. Sailesh Prasad (Respondent No. 1) by his paternal grandmother (Respondent No. 2) through a registered Gift Deed dated 13 February 2003. However, this gift was revoked by the grandmother on 10 December 2004. Subsequently, on 18 January 2008, the grandmother entered into a Development Agreement-cum-General Power of Attorney with M/s. Sree Surya Developers and Promoters (Appellant), granting them development rights.

In 2015, the father of N. Sailesh Prasad, acting as his next friend, filed a suit (O.S. No. 1750 of 2015) challenging the revocation of the Gift Deed. This suit was resolved through a compromise on 30 December 2015, where it was agreed that N. Sailesh Prasad would receive the 35,000 sq. ft. of constructed area allocated to his grandmother under the Development Agreement. A Compromise Decree was passed on 13 January 2016, by the VIII Additional Senior Civil Judge, RR District. The developer then assigned its rights to Respondent No. 4 on 6 April 2016, who began developing the property.

Upon attaining majority, N. Sailesh Prasad filed a new suit (O.S. No. 537 of 2018) seeking a declaration of his rights over the property and challenging the validity of the Compromise Decree. The developer filed an application under Order VII Rule 11 of the Civil Procedure Code (CPC) for rejection of the plaint, arguing that the suit was barred under Order XXIII Rule 3A of the CPC. The Trial Court agreed and rejected the plaint. The High Court, however, reversed this decision, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The Trial Court rejected the plaint in O.S. No. 537 of 2018, filed by N. Sailesh Prasad, based on an application by the developer under Order VII Rule 11(d) of the CPC. The Trial Court held that the suit was barred by Order XXIII Rule 3A of the CPC, which prohibits a separate suit to set aside a compromise decree. The High Court, in appeal, reversed this decision, stating that the Trial Court had failed to consider the provisions of Order XXXII Rules 1 to 7 of the CPC, which deal with suits involving minors. The High Court remanded the matter back to the Trial Court. The Supreme Court is now hearing the appeal against the High Court’s decision.

Legal Framework

The core legal issue revolves around Order XXIII Rule 3A of the Civil Procedure Code (CPC), which states:

“3A. Bar to suit. — No suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.”

This provision was introduced to prevent parties from challenging compromise decrees through separate suits, thereby promoting finality in litigation. The court also considered Order XXIII Rule 3, which allows for the compromise of suits, and Order XXXII Rules 1 to 7, which deals with suits by or against minors.

Arguments

Appellant’s Arguments (M/s. Sree Surya Developers and Promoters)

• The primary argument was that the suit filed by N. Sailesh Prasad was barred by Order XXIII Rule 3A of the CPC. According to the appellants, this provision explicitly prohibits a separate suit to challenge a decree based on a compromise, irrespective of whether the compromise was lawful or not.

• The appellants contended that the only remedy available to N. Sailesh Prasad was to file an application before the same court that passed the compromise decree. They cited several Supreme Court judgments to support this claim, including Banwari Lal vs. Chando Devi, (1993) 1 SCC 581, Pushpa Devi Bhagat vs. Rajinder Singh & Ors., (2006) 5 SCC 566, Horil vs. Keshav, (2012) 5 SCC 525, R. Rajanna vs. S.R. Venkataswamy & Ors., (2014) 15 SCC 471, and R. Janakiammal vs. S.K. Kumarasamy, (2021) 9 SCC 114. These cases established that an independent suit is not maintainable against a compromise decree.

• The appellants argued that N. Sailesh Prasad had already availed himself of other remedies, including filing an application under Order XXIII Rule 3A before the same court that passed the consent decree and filing a first appeal under Order XLIII before the first Appellate Court. Therefore, the present suit was deemed an abuse of the legal process.

• The appellants further argued that the plaintiff had cleverly drafted the suit by seeking multiple reliefs to circumvent the bar under Order XXIII Rule 3A. They contended that the primary relief sought was to set aside the compromise decree, which was disguised by multiple prayers. The appellants cited cases such as T. Arivandandam vs. T.V. Satyapal and Anr., (1977) 4 SCC 467, Madanuri Sri Rama Chandra Murthy vs. Syed Jalal, (2017) 13 SCC 174, Canara Bank vs. P. Selathal and Ors., (2020) 13 SCC 143, and Raghwendra Sharan Singh vs. Ram Prasanna Singh, (2020) 16 SCC 601 to support their claim that clever drafting of a plaint cannot make a suit maintainable if it is otherwise barred by law.

• The appellants pointed out that the High Court had not addressed the maintainability of the suit or Order XXIII Rule 3A in its judgment. Instead, the High Court had gone into the validity of the compromise decree based on Order XXXII Rules 1 to 7 of the CPC, which was not the correct approach at this stage.

Respondent’s Arguments (N. Sailesh Prasad)

• The respondent argued that the compromise decree was invalid because it violated Order XXXII Rule 7 of the CPC, which pertains to compromises involving minors. They contended that since the decree was not binding on him, he was entitled to file a substantive independent suit for various reliefs.

• The respondent claimed that the suit did not solely seek to set aside the compromise decree but also sought other reliefs for which an independent suit was maintainable. He argued that the prayer was to declare the compromise decree as not binding on him, not to set it aside, and therefore, the suit was not barred by Order XXIII Rule 3A.

• The respondent did not dispute that he had already filed an application under Order XXIII Rule 3A before the same court that passed the compromise decree. He also did not dispute that he could raise all grounds for challenging the validity of the decree, including non-compliance with Order XXXII Rule 7, in that application.

Submissions Table

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the Trial Court was correct in rejecting the plaint under Order VII Rule 11(d) of the CPC, on the ground that an independent suit challenging the Compromise Decree was barred by Order XXIII Rule 3A of the CPC.

Treatment of the Issue by the Court

Authorities

The Supreme 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 several key judgments to support its decision. The Court cited Banwari Lal vs. Chando Devi, (1993) 1 SCC 581* to emphasize that the intent of the 1976 amendment was to ensure that challenges to compromise decrees are addressed by the same court that recorded the compromise. The Court also referred to Pushpa Devi Bhagat vs. Rajinder Singh & Ors., (2006) 5 SCC 566*, Horil vs. Keshav, (2012) 5 SCC 525*, and R. Rajanna vs. S.R. Venkataswamy & Ors., (2014) 15 SCC 471* to reiterate that an independent suit to challenge a compromise decree is not maintainable. The Court further relied on R. Janakiammal vs. S.K. Kumarasamy, (2021) 9 SCC 114* to highlight that a party must approach the same court to challenge a compromise decree on grounds of unlawfulness. Additionally, the Court cited T. Arivandandam vs. T.V. Satyapal and Anr., (1977) 4 SCC 467*, Madanuri Sri Rama Chandra Murthy vs. Syed Jalal, (2017) 13 SCC 174*, Canara Bank vs. P. Selathal and Ors., (2020) 13 SCC 143* and Raghwendra Sharan Singh vs. Ram Prasanna Singh, (2020) 16 SCC 601*, to underscore that clever drafting cannot circumvent a legal bar.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to uphold the legislative intent behind Order XXIII Rule 3A of the CPC, which aims to prevent multiplicity of litigation and ensure finality of decrees based on compromise. The Court emphasized that the provision was specifically enacted to bar independent suits challenging compromise decrees, regardless of the grounds for challenge. The Court also emphasized that if a party has a grievance regarding the compromise decree, the party must approach the same court which has passed the decree. The Court noted that the plaintiff had already availed the remedy of filing an application under Order XXIII Rule 3A, and the Court stated that the validity of the compromise decree can be challenged in that application.

The Court was also concerned about the practice of clever drafting of plaints to circumvent legal bars. It reiterated that such tactics would not be permitted and that courts must nip such attempts in the bud.

Sentiment Analysis of Reasons

The Supreme Court’s reasoning was heavily influenced by the need to uphold the procedural bar under Order XXIII Rule 3A CPC and to discourage clever drafting to circumvent legal provisions. The emphasis was on maintaining the finality of decrees and avoiding multiplicity of suits.

Fact:Law Ratio

The Court’s decision was primarily driven by legal considerations, specifically the interpretation and application of Order XXIII Rule 3A of the CPC. Factual aspects of the case were secondary to the legal principle.

Logical Reasoning

The Supreme Court found that the High Court had erred by not addressing the maintainability of the suit under Order XXIII Rule 3A of the CPC. The High Court had instead focused on the validity of the Compromise Decree, which was not the correct approach at this stage. The Supreme Court emphasized that the only issue to be considered at this stage was whether the suit challenging the Compromise Decree was maintainable or not.

The Court also rejected the argument that the suit was maintainable because it sought a declaration that the Compromise Decree was not binding, rather than seeking to set it aside. The Court held that this was a case of clever drafting to circumvent the legal bar under Order XXIII Rule 3A of the CPC. The Court reiterated that a plaintiff cannot be allowed to circumvent a legal bar by cleverly drafting the plaint to avoid mentioning circumstances that would make the suit barred by law.

The Court noted that the respondent had already filed an application under Order XXIII Rule 3A before the same court that passed the decree. The Court clarified that all defenses and contentions regarding the validity of the Compromise Decree, including non-compliance with Order XXXII Rule 7, could be raised and considered in that application.

The Supreme Court quoted from T. Arivandandam Vs. T.V. Satyapal, (1977) 4 SCC 467, stating, “And, if clever drafting has created the illusion of a cause of action, nip it in the bud at the first hearing by examining the party searchingly under Order 10 CPC. An activist Judge is the answer to irresponsible law suits.”

The Supreme Court also quoted from Order XXIII Rule 3A of the CPC, stating, “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 Supreme Court observed in the judgment, “Therefore, on plain reading of Order XXIII Rule 3A CPC, no suit shall lie to set aside a decree on the ground that the compromise on which the decree is based was not lawful.”

There was no minority opinion in this case.

Key Takeaways

• Bar on Independent Suits: A separate suit to challenge a compromise decree is not maintainable. The aggrieved party must approach the same court that passed the decree.

• Clever Drafting: Courts will not allow parties to circumvent legal bars through clever drafting of plaints.

• Remedy: The only remedy to challenge a compromise decree is to file an application before the same court that passed the decree.

• Finality of Decrees: The judgment reinforces the importance of finality in litigation and discourages the filing of multiple suits on the same issue.

• Application under Order XXIII Rule 3A: All defenses and contentions regarding the validity of the compromise decree can be raised in an application under Order XXIII Rule 3A before the same court.

Directions

The Supreme Court quashed the High Court’s judgment and restored the Trial Court’s order rejecting the plaint. The Court directed that the application filed by the original plaintiff under Order XXIII Rule 3A CPC should be decided by the concerned court in accordance with law and on its own merits. The Court also clarified that all contentions/defenses available to the parties on the validity of the Compromise Decree were kept open for consideration by the concerned court.

Development of Law

The ratio decidendi of this case is that an independent suit challenging a compromise decree is barred under Order XXIII Rule 3A of the CPC. This judgment reinforces the existing legal position and clarifies that parties cannot circumvent this bar through clever drafting. There is no change in the previous position of law, but the judgment reiterates the importance of adhering to procedural norms and the finality of decrees based on compromise.

Conclusion

The Supreme Court’s judgment in M/s. Sree Surya Developers and Promoters vs. N. Sailesh Prasad clarifies that a separate suit to challenge a compromise decree is not maintainable under Order XXIII Rule 3A of the CPC. The Court emphasized the need to prevent multiplicity of litigation and uphold the finality of decrees. The judgment also serves as a reminder that clever drafting of plaints will not be allowed to circumvent legal bars. The matter has been remanded back to the trial court for consideration of the application filed by the respondent under Order XXIII Rule 3A, where the validity of the compromise decree will be decided.