http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7

PETITIONER:

GURPREET SINGH

Vs.

RESPONDENT:

CHATUR BHUJ GOEL

DATE OF JUDGMENT15/12/1987

BENCH:

SEN, A.P. (J)

BENCH:

SEN, A.P. (J)

RAY, B.C. (J)

CITATION:

1988 AIR 400 1988 SCR (2) 401

1988 SCC (1) 270 JT 1987 (4) 665

1987 SCALE (2)1338

ACT:

Civil Procedure Code, 1908: order XXIII Rule 3-

Settlement arrived at between parties in appeal-Compromise

not reduced in "writing and signed by the parties"-Whether

can be given effect to.

HEADNOTE:

%

A suit filed by the respondent for the specific

performance of a C contract entered into between him and the

father of the appellant was decreed by the trial court. A

Single Judge of the High Court affirmed the decree.

During the hearing of the Letters Patent Appeal filed

by the appellant, a settlement was arrived at between the

parties, and statements were made by them to that effect

before the court. The case was adjourned to the date on

which payment in terms of the compromise was to be made.

Though the statements formed part of the proceedings, the

compromise was not reduced in writing and signed by parties.

Taking advantage of this, the respondent tried to resile

from the compromise. When the case came up on the adjourned

date, the Division Bench directed that since the respondent

was not prepared to abide by the proposed compromise, the

appeal would be decided on merits and that the case should

be placed before another Bench.

ln the appeal by special leave against the aforesaid

decision, it was contended on behalf of the appellant that

the requirements of order XXIII Rule 3 Civil Procedure Code

were mandatory, that the claim in the suit for specific

performance having been settled by a lawful compromise

within the meaning of Rule 3, the High Court was not

justified in directing that the appeal be placed before

another Bench for decision on merits, that the word "in

writing and signed by the parties" qualified the words "any

lawful agreement or compromise" appearing in the first part

and, therefore, where the parties made a statement before

the Court that the dispute between them had been settled on

certain terms, and the settlement so made formed part of the

proceedings of the Court, there was no legal requirement to

have an agreement in writing embodying the terms of the

compromise.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7

402

Dismissing the appeal,

^

HELD: The whole object of the amendment of Rule 3 of

the Civil Procedure Code, 1908 by adding the words "in

writing and signed by the parties" is to prevent false and

frivolous pleas that a suit has been adjusted wholly or in

part by any lawful agreement or compromise, with a view to

protract or delay the proceedings in the suit.[408C-D]

Under Rule 3 as it now stands when a claim in suit has

been adjusted wholly or in part by any lawful agreement or

compromise, the compromise must be in writing and signed by

the parties and there must be a completed agreement between

them. To constitute an adjustment, the agreement or

compromise must itself be capable of being embodied in a

decree. When the parties enter into a compromise during the

hearing of a suit or appeal, there is no reason why the

requirement that the compromise should be reduced in writing

in the from of the an instrument signed by the parties to

reduce the terms into writing. [408D-F]

The present case clearly does not come within the ambit

of the second part of Order XXIII Rule 3 of the Code. Under

the terms of the proposed compromise, the appellant was

required to pay Rs.2,25,000 by a bank draft on March 17,

1987 but before the due date the respondent resiled form the

promised compromise, saying that it was detrimental to his

interest. That being so, that appellant could only fall back

on the first part. But, in the absence of an agreement in

writing, the High Court had no other alternative but to

direct that the appeal be listed for hearing on merits.

[409C-D]

Manohar Lal & Anr. v. Surjan Singh & Anr., [1983] Punj.

Lj 402, overruled.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2035 of

1987.

From the Judgment and order dated 23.4.1987 of the High

Court of Punjab and Haryana in C.M.P. No 19 of 1987.

S.N. Kacker and R.S. Sodhi for the Appellant.

Mrs. Shyamla Pappu, A.M. Ashri, K.S. Thaper and V.K.

Jain for the Respondents.

403

The Judgment of the Court was delivered by A

SEN, J. The controversy in this appeal by special leave

centres, s around the words 'in writing and signed by the

parties' added to order XXIII, r. 3 of the Code of Civil

Procedure, 1908 by the Code of Civil Procedure (Amendment)

Act, 1976 and the precise question is whether when a

settlement is arrived at between the parties in appeal

before the Court, the compromise cannot be given effect to

under Order XXIII, r. 3 of the Code unless the terms of the

compromise are embodied in an agreement in writing.

First as to the facts. The respondent herein Chatur

Bhuj Goel, a practising advocate at Chandigarh first lodged

a criminal complaint against Colonel Sukhdev Singh, father

of the appellant, under s. 420 of the Indian Penal Code,

1860 after he had served the respondent with a notice dated

July 11, 1979 forfeiting the amount of Rs.40,000 paid by him

by way of earnest money, alleging that he was in breach of

the contract dated June 4, 1979 entered into between Colonel

Sukhdev Singh, acting as guardian of the appellant, then a

minor, and the respondent, for the sale of a residential

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7

house at 1577, Sector 18D, Chandigarh for a consideration of

Rs.2,85,000. In terms of the agreement, the respondent was

to pay a further sum of Rs.1,35000() to the appellant's

father Colonel Sukhdev Singh by July 10, 1979 when the said

agreement of sale was to be registered and vacant possession

of the house delivered to him, and the balance amount of Rs.

1,10,000 on or before January 31, 1980 when the deed of

conveyance was to be executed. The dispute between the

parties was that according to Colonel Sukhdev Singh, there

was failure on the part of the respondent to pay the amount

of Rs.1,35,000 and get the agreement registered, while the

respondent alleged that he had already purchased a bank

draft in the name of the appellant for Rs.1,35,000 on July

7, 1979 but the appellant's father did not turn up to

receive the same. The respondent met him at his residence at

Chandigarh on the morning of July 16, 1979 when it was

agreed that they would meet in the District Court precincts

later in the day for the purpose of registration of the

agreement, but again the appellant's father did not turn up.

Although the learned Additional Chief Judicial Magistrate by

order dated October 31, 1979 dismissed the complaint holding

that the dispute was of a civil nature and no process could

issue on the complaint, a learned Single Judge of the High

Court by his order dated February 11, 1980 set aside the

order of the learned Additional Chief Judicial Magistrate

holding that the facts brought out clearly warranted an

inference of dishonest intention on the part of Colonel

Sukhdev Singh and accordingly directed

404

him to proceed with the trial according to law.

Aggrieved, Colonel Sukhdev Singh came up in appeal to this

Court by special leave.

This Court by its order in Criminal Appeal No. 595/80

dated September 2, 1980 reversed the judgment of the High

Court on the ground that the dispute was purely of a civil

nature and the criminal 13 process could not have been

employed for the purpose of coercing the appellant's

guardian Colonel Sukhdev Singh to specifically perform the

contract. It was directed that Colonel Sukhdev Singh should

return the earnest money of Rs.40,000 to the respondent on

or before October 5, 1980 and in the meanwhile, the

respondent was at liberty to file a suit for specific

performance of the contract, if so advised. It was observed

that the return of the said amount of Rs.40,000 by Colonel

Sukhdev Singh would be without prejudice to the rights and

contentions of the parties, including the right of the

respondent to claim specific performance of the contract, if

he was in law otherwise so entitled. Pursuant thereto, the

appellant's guardian Colonel Sukhdev Singh refunded the

amount of Rs.40,000 to the respondent. On October 3, 1980

the respondent instituted the suit in the Court of the

District Judge, Chandigarh, out of which this appeal arises,

for specific performance of the contract and, in the

alternative, claimed Rs.2,50,000 by way of damages. Both the

learned District Judge as well as a learned Single Judge on

a consideration of the evidence came to the conclusion that

the breach of contract was on the part of the appellant's

guardian Colonel Sukhdev Singh and not on the part of the

respondent and accordingly decreed the suit for specific

performance. Thereupon, the appellant preferred an appeal

under cl. 10 of the Letters Patent.

The hearing of the Letters Patent Appeal commenced

before a Division Bench on January 14, 1987 and continued

for three days. On January 16, 1987, the appellant's counsel

had not concluded and there fore the hearing was adjourned

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7

to January 28, 1987. On that date, after the appellant's

counsel had addressed the Court for a while, the parties

took time to explore the possibility of a settlement. At the

resumed hearing later in the day, the appellant's father

Colonel Sukhdev Singh made a statement to the effect:

"I make an offer that I shall personally pay

Rs.2,25,000 to the respondent Chatur Bhuj Goel by

way of full and final settlement of the dispute

between him and the appellant. The said amount

shall be paid by a bank draft in Court on 17.3.87.

In the event of failure on my part to pay the

405

amount as stipulated on that date, the Letters

Patent Appeal No. 734 of 1983 shall stand

dismissed and the appellant shall have no right to

file an appeal against the decision to the Supreme

Court."

The above statement was duly endorsed by Shri V.K. Sharma,

learned counsel appearing for the appellant and stated: B

"The appellant makes an offer that in full and

final settlement of the dispute between the

parties, the appellant Gurpreet Singh in his

personal capacity or through his father Colonel

Sukhdev Singh shall pay Rs.2,25,000 to the

respondent on 17.3.87 by a bank draft payable at

Chandigarh, if the respondent agrees to the

Letters Patent Appeal No. 734 of 1983 being

allowed and that in the event of non-payment of

the amount on the stipulated date, the said appeal

shall stand dismissed and the appellant shall have

no right to file an appeal in the Supreme Court."

The respondent Chatur Bhuj Goel who, as already stated, is a

practising advocate, was respondent by Shri Bhagirath Dass,

a senior advocate practising at Chandigarh. Apparently, the

respondent on mature deliberation made the following

statement in the presence of his counsel

"I accept the offer made by Colonel Sukhdev Singh

and Shri V.K. Sharma, counsel for the appellant

Gurpreet Singh. '

Thereupon, the learned Judges adjourned the appeal to

March 17, 1987 i.e. the date on which the payment of

Rs.2,25,000 was to be made. The aforesaid statements form

part of the proceedings of the Court. Admittedly, the

compromise was not reduced in writing and signed by the

parties. Taking advantage of this fact, the respondent on

February 9, 1987 made an application by which he tried to

resile from the compromise stating:

"on 28th January 1987, the offer of compromise was

made by the appellant, which was recorded. The

statement of the respondent was also recorded. The

respondent however did not sign the statement.

That the statement was made by the respondent

without thinking of the repercussions of his

statement. He was influenced by the stand, which

was

406

adopted by his Senior Advocate Shri Bhagirath

Dass. If the statement recorded by the Court which

has not been signed by the respondent is given

effect to, the respondent would suffer a

tremendous loss."

On the adjourned date i.e. March 17, 1987, the learned

Judges directed that in view of the fact that the respondent

was not prepared to abide by the proposed compromise, the

appeal would now be heard and decided on merits, with a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7

further direction that it be placed before another Bench.

Hence, this appeal by special leave.

In support of the appeal Shri S.N. Kacker, learned

counsel for the appellant, contends that the requirements of

order XXIII, r. 3 of the Code are mandatory and the claim in

the suit for specific performance having been settled by a

lawful compromise within the meaning of r. 3, the learned

Judges were not justified in directing that the appeal be

placed before another bench for decision on merits. The

learned counsel submits that order XXIII, r. 3 of the Code

is in two parts. According to him, the words 'in writing and

signed by the parties' qualify the words 'any lawful

agreement or compromise' appearing in the first part and

these words cannot obviously be read into the second part at

all. It is urged that the first part of order XXIII, r. 3 of

the Code refers to an adjustment on settlement of the claim

in suit by a lawful agreement or compromise outside the

Court, meaning thereby that where the parties make a

statement before the Court that the dispute between them has

been settled on certain terms and the statements so made

form part of the proceedings of the Court, there is no legal

requirement to have an agreement in writing embodying the

terms of the compromise.

For a proper appreciation of the contentions advanced,

it is necessary to set out the Statement of objects and

Reasons which is in these terms:

"Cl. 77-Sub-cl(iii). It is provided that an

agreement or compromise under rule 3 should be in

writing and signed by the parties. This is with a

view to avoiding the setting up of oral agreements

or compromises to delay the progress of the suit.

The words 'lawful agreement or compromise' in

rule 3 have given rise to a conflict in the matter

of interpreta-

407

tion. One view is that agreements which are

voidable under s. 19A of the Contract Act are not

excluded. While this stand is taken by the High

Courts of Allahabad, Calcutta. Madras and Kerala,

a contrary view has been expressed by the High

Courts of Bombay and Nagpur. An Explanation has,

therefore, been added to the rule to clarify the

position. A proviso has been added to clarify that

no adjournment should ordinarily be granted where

a decision is necessary as to whether an

adjustment or satisfaction has or has not been

arrived at

In view of the words 'so far as it relates to

the suit' in rule 3, a question arises whether

decree which refers to the terms of a compromise

in respect of matters beyond the scope of the suit

is executable or whether the terms of the decree

relating to the matters outside the suit can be

enforced only by a separate suit. The amendment

seeks to clarify the position."

The provision contained in order XXIII, r. 3 of the Code, as

amended, provides:

"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 satisfies the plaintiff in respect of

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7

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 no 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

408

1872), shall not be deemed to be lawful within the

meaning of this rule."

According to the grammatical construction, the word

'or' makes the two conditions disjunctive. At first blush,

the argument of the learned counsel appears to be plausible

but that is of no avail. In our opinion, the present case

clearly falls within the first part and not the second. We

find no justification to confine the applicability of the

first part of order XXIII, r. 3 of the Code to a compromise

effected out of Court. Under the rule prior to the

amendment, the agreement com promising the suit could be

written or oral and necessarily the Court had to enquire

whether or not such compromise had been effected. It was

open to the Court to decide the matter by taking evidence in

the usual way or upon affidavits. The whole object of the

amendment by adding the words 'in writing and signed by the

parties' is to prevent false and frivolous pleas that a suit

had been adjusted wholly or in part by any lawful agreement

or compromise, with a view to protract or delay the

proceedings in the suit.

Under r. 3 as it now stands, when a claim in suit has

been adjusted wholly or in part by any lawful agreement or

compromise, the compromise must be in writing and signed by

the parties and there must be a completed agreement between

them. To constitute an adjustment, the agreement or

compromise must itself be capable of being embodied in a

decree. When the parties enter into a compromise during the

hearing of a suit or appeal, there is no reason why the

requirement that the compromise should be reduced in writing

in the form of an instrument signed by the parties should be

dispensed with. The Court must therefore insist upon the

parties to reduce the terms into writing.

In our considered opinion, the view to the contrary

expressed by the High Court in Manohar Lal & Anr. v. Surjan

Singh & Anr., [1983] Punj. LJ 402 that the first part

relates to a lawful agreement or compromise arrived at by

the parties out of Court, does not seem to be correct.

Sandhawalia, CJ speaking for himself and Tewatia, J.

observes that the word 'or' makes the two parts disjunctive

and they visualise two distinct and separate classes of

compromise. According to the learned Judges, the first part

relates to a lawful agreement or compromise arrived at by

the parties out of Court, while the second is applicable

where the defendant satisfies the plaintiff in respect of

the whole or any part of the subject matter of the suit.

Such a restricted construction is not warranted by the

language used in r. 3. The word

409

'satisfies' denotes satisfaction of the claim of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7

plaintiff wholly or in part, and for this there need not be

an agreement in writing signed by the parties. It is open to

the defendant to prove such satisfaction by the production

of a receipt or payment through bank or otherwise. The

satisfaction of the claim could also be established by

tendering of evidence. It is for the Court to decide the

question upon taking evidence or by affidavits as to whether

there has in fact been such satisfaction of the claim and

pass a decree in accordance with order XXIII, r. 3 of the

Code.

In any event, the present case clearly does not come

within the ambit of the second part of order XXIII, r. 3 of

the Code. Under the terms of the proposed compromise, the

appellant was required to pay Rs.2,25,000 by a bank draft on

March 17, 1987, but the fact remains that the respondent

before the due date resiled from the proposed compromise

saying that it was detrimental to his interest. That being

so, the appellant could only fall back on the first part.

But in the absence of an agreement in writing, the learned

Judges had no other alternative but to direct that the

appeal be listed for hearing on merits.

In the result, the appeal must fail and is dismissed.

The High Court is directed to hear and decide the appeal on

merits. There shall be no order as to costs.

N.P.V. Appeal dismissed.

410