Code of Civil Procedure, 1908 (CPC)
Compromise of a Suit under Order XXIII Rule 3 CPC
Most litigation ends in agreement rather than judgment, and the Code gives that agreement the force of a decree. Order XXIII Rule 3 of the Code of Civil Procedure, 1908 requires the court, where a suit has been adjusted by a lawful agreement in writing and signed by the parties, to record it and pass a decree in its terms. Rule 3A then closes the door on a separate suit to upset that decree, and Rule 3B protects those who are bound by a representative decree but were never in court. These notes cover the essentials of a valid compromise, the decree it produces, and every route by which it may be challenged.
Compromise under Order XXIII Rule 3, with the bar in Rule 3A and the safeguard in Rule 3B
1. Order XXIII Rule 3: The Provision
§ Order XXIII Rule 3, CPC 1908 (in substance) 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 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, shall not be deemed to be lawful within the meaning of this rule. |
2. The Essentials of a Lawful Compromise
§ Four requirements, all of which must be met The court records a compromise only where: • The agreement is lawful. By the Explanation, an agreement void or voidable under the Indian Contract Act, 1872 is not lawful. A compromise obtained by coercion, undue influence, fraud or misrepresentation is voidable and cannot be recorded; one with an unlawful object or consideration under Section 23 of that Act is void. • It is in writing and signed by the parties. Both requirements were made express by the Amendment Act of 1976. An oral compromise, however clearly proved, cannot be recorded under this rule, and a writing signed only by counsel without authority is insufficient where the party's signature is required. • It is proved to the satisfaction of the court. The court does not act as a rubber stamp. It satisfies itself that the agreement exists, that it is lawful, and that the parties understood it; and where its existence or lawfulness is disputed, the proviso requires the court itself to decide the question, without adjournment unless reasons are recorded. • It relates to the suit. The decree follows the compromise so far as it relates to the parties to the suit. The compromise may cover a wider subject matter than the suit, and the closing words of the rule expressly permit that, but the decree is confined to what concerns the suit and its parties. |
§ Authority to compromise A pleader may compromise on his client's behalf only where he has authority to do so; the vakalatnama ordinarily confers it in terms, and the court looks to that instrument. A minor or a person under disability. By Order XXXII Rule 7, no next friend or guardian for the suit shall, without the leave of the court expressly recorded in the proceedings, enter into any agreement or compromise on behalf of a minor with reference to the suit, and any such agreement entered into without leave is voidable against all parties other than the minor. A representative. In a representative suit, Rule 3B requires the express leave of the court after notice, dealt with below. |
3. The Compromise Decree and the Consent Decree
§ What the decree is, and what it is not A compromise decree is a decree, and is executable as such under Order XXI. It is not merely a recorded agreement: the court's order converts the bargain into a command. But it is also contractual in origin. It derives its terms from the parties' agreement rather than from the court's adjudication, and that dual character explains every rule about it. Res judicata operates only so far as there has been an adjudication. A decree passed purely on the parties' consent decides nothing, so it does not found res judicata under Section 11 in the strict sense; but it operates as an estoppel by agreement between the parties, which produces much the same practical result and is the safer way to state the position. Appeal. By Section 96(3), no appeal shall lie from a decree passed by the court with the consent of parties. The remedy against a compromise decree therefore lies elsewhere, as set out below. |
Consent decree and compromise decree
Basis | Compromise decree, Order XXIII Rule 3 | Consent decree |
|---|---|---|
Meaning | A decree passed in terms of a lawful agreement or compromise recorded by the court under Rule 3 | A decree passed with the consent of the parties, whether or not preceded by a formal compromise agreement |
Relationship | Every compromise decree is a consent decree; the terms are used interchangeably in practice | The wider expression, covering any decree the parties agree the court should pass |
Formal requirements | The agreement must be lawful, in writing, signed by the parties and proved to the court's satisfaction | Consent must be clear and must appear on the record; Rule 3 governs where the consent takes the form of a compromise |
Appeal | Barred by Section 96(3) | Barred by Section 96(3) |
Challenge | By application to the same court under the proviso to Rule 3; a separate suit is barred by Rule 3A | The same, where the decree rests on a recorded compromise |
Res judicata | Operates as an estoppel by agreement rather than as an adjudication under Section 11 | The same position |
4. Challenging a Compromise Decree
§ Order XXIII Rule 3A: the bar on a separate 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. The rule was inserted in 1976 to end a practice that had defeated the purpose of settlement: a party who had compromised would file a fresh suit alleging that the compromise was unlawful, and the litigation the compromise was meant to end would begin again in another forum. The bar is confined to its terms. It bars a suit, on the ground that the compromise was not lawful. It does not bar the remedies below. |
§ The remedies that remain A party who says the compromise should not have been recorded may: • Apply to the same court under the proviso to Rule 3. Where it is alleged by one party and denied by the other that an adjustment or satisfaction has been arrived at, or that it was not lawful, the court that recorded it decides the question. This is the principal remedy, and it lies to the court that passed the decree. • Apply for recall where the decree was obtained by fraud on the court, since a judgment obtained by fraud is a nullity on the principle in S.P. Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1; the application lies to the same court. • Appeal against the order refusing to set aside the compromise, since Order XLIII Rule 1A(2) allows a party, in an appeal against a decree passed on a compromise, to contest the decree on the ground that the compromise should not have been recorded. • Seek review under Section 114 and Order XLVII, where the grounds of review are made out, or move the High Court under Section 115 or Article 227 in an appropriate case. |
📖 S.P. Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1 The Supreme Court considered a decree obtained by the suppression of a material document, and stated the principle in unqualified terms: fraud avoids all judicial acts, and a judgment or decree obtained by playing a fraud on the court is a nullity and non est in the eyes of law. Such a decree can be challenged in any court, at any stage, even in collateral proceedings, and a litigant who approaches the court must come with clean hands. The Court emphasised that non-disclosure of a relevant and material document with a view to obtaining an advantage amounts to fraud on the court. Rule: the bar in Order XXIII Rule 3A addresses a compromise that was not lawful; it does not protect a decree obtained by fraud on the court, which remains open to challenge on that footing. |
5. Compromise in a Representative Suit
§ Order XXIII Rule 3B, CPC 1908 (in substance) (1) No agreement or compromise in a representative suit shall be entered into without the leave of the Court expressly recorded in the proceedings; and any such agreement or compromise entered into without such leave shall be void. (2) Before granting such leave, the Court shall give notice in such manner as it may think fit to such persons as may appear to it to be interested in the suit. Explanation. A representative suit includes a suit under Order I Rule 8, a suit under Order XXXI Rule 1 or Rule 2, a suit in which the manager of an undivided Hindu family sues or is sued as representing the other members, and any other suit in which the decree passed may bind a person not named as a party. |
The reason for the rule is the reason for the whole apparatus of representative litigation: the decree will bind persons who are not in court, and a representative who may bind them by a decree could otherwise bind them by a bargain made for his own benefit. The Code therefore requires two things, notice to those interested and the court's express leave recorded in the proceedings, and makes a compromise entered into without leave void, not merely voidable. The rule works together with Order I Rule 8(4), under which no part of the claim in a representative suit may be abandoned, the suit withdrawn, or any compromise recorded, unless notice has been given to all persons interested.
6. Withdrawal Compared with Compromise
Basis | Withdrawal, Rule 1 | Compromise, Rule 3 |
|---|---|---|
Whose act ends the suit | The plaintiff alone; no consent of the defendant is needed | The agreement of both parties, which the court records |
What the court does | Permits the withdrawal, with or without liberty, on such terms as it thinks fit | Satisfies itself that the compromise is lawful, records it, and passes a decree in its terms |
The result | An order; no decree on the merits and no adjudication | A decree, executable under Order XXI |
Fresh proceedings | Barred by Rule 1(4) where no leave was granted; permitted where leave was granted under Rule 1(3) | A suit to set aside the decree on the ground that the compromise was unlawful is barred by Rule 3A |
Appeal | The order may be challenged in the ordinary way | Barred by Section 96(3), the decree being by consent |
Protection for absent persons | Order I Rule 8(4): notice before withdrawal in a representative suit | Rule 3B: express leave after notice, failing which the compromise is void |
7. Landmark Points
- Order XXIII Rule 3 with its Explanation. The compromise must be lawful, in writing and signed by the parties, and proved to the court's satisfaction; an agreement void or voidable under the Contract Act is not lawful.
- Proviso to Rule 3. Where an adjustment is alleged and denied, the court itself decides the question, and no adjournment is granted for that purpose unless reasons are recorded.
- Order XXIII Rule 3A. No suit lies to set aside a decree on the ground that the compromise on which it is based was not lawful; the remedy is an application to the same court.
- Order XLIII Rule 1A(2). In an appeal against a decree passed on a compromise, a party may contest the decree on the ground that the compromise should not have been recorded.
- S.P. Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1. A decree obtained by fraud on the court is a nullity and may be challenged at any stage, including collaterally.
- Order XXIII Rule 3B with Order I Rule 8(4) and Order XXXII Rule 7. Compromises in representative suits and on behalf of minors require the express leave of the court.
- Section 96(3). No appeal lies from a decree passed by the court with the consent of parties.
8. Frequently Asked Questions
What are the essentials of a valid compromise under Order XXIII Rule 3?
The agreement or compromise must be lawful, in writing and signed by the parties, proved to the satisfaction of the court, and it must relate to the suit. By the Explanation, an agreement void or voidable under the Indian Contract Act, 1872 is not lawful and cannot be recorded.
Can an oral compromise be recorded?
No. Since the Amendment Act of 1976, Order XXIII Rule 3 requires the agreement or compromise to be in writing and signed by the parties. An oral compromise, however clearly proved, cannot be recorded under the rule.
Is a compromise decree appealable?
No. Section 96(3) provides that no appeal shall lie from a decree passed by the court with the consent of parties. The remedy is an application to the same court under the proviso to Rule 3, and, in an appeal against the decree, the ground permitted by Order XLIII Rule 1A(2) that the compromise should not have been recorded.
Can a separate suit be filed to set aside a compromise decree?
No. Order XXIII Rule 3A bars a suit to set aside a decree on the ground that the compromise on which it is based was not lawful. The party must apply to the court that recorded the compromise, under the proviso to Rule 3.
What is the remedy against a compromise decree obtained by fraud?
An application to the same court for recall, on the principle in S.P. Chengalvaraya Naidu v. Jagannath that a decree obtained by fraud on the court is a nullity and may be challenged at any stage, even collaterally. Rule 3A bars a suit on the ground that the compromise was unlawful; it does not protect a decree procured by fraud on the court.
Does a compromise decree operate as res judicata?
Not in the strict sense, since a decree passed purely on consent involves no adjudication of the matters in issue. It operates as an estoppel by agreement between the parties, which in practice produces much the same result.
Can a representative suit be compromised?
Only with the leave of the court expressly recorded in the proceedings, and after notice to the persons interested. Order XXIII Rule 3B makes a compromise entered into without such leave void, and Order I Rule 8(4) independently requires notice before any compromise is recorded in such a suit.
Can a compromise be entered into on behalf of a minor?
Only with the leave of the court expressly recorded in the proceedings, under Order XXXII Rule 7. An agreement or compromise entered into by a next friend or guardian for the suit without such leave is voidable against all parties other than the minor.
9. Related Topics in This CPC Series
- Withdrawal of a Suit under Order XXIII Rule 1
- Order XXIII: Withdrawal and Adjustment of Suits
- Representative Suit under Order I Rule 8
- Doctrine of Res Judicata: Section 11