Supreme Court Upholds Statutory Right to Restore Appeal After Failed Compromise:

The Supreme Court of India reversed a High Court ruling that had dismissed an appellant’s attempt to restore a previously compromised appeal. The appellant, Navratan Lal Sharma, had entered into a compromise agreement with one of the respondents, but the respondent failed to fulfill the terms. The court emphasized the importance of Order 23, Rules 3 and 3A of the Code of Civil Procedure (CPC), asserting that they provide a statutory right to seek restoration of an appeal in such situations.

The appellant, Navratan Lal Sharma, owned a property and filed a lawsuit against the respondents concerning the cancellation of a power of attorney and sale deeds related to that property.

The lawsuit was initially dismissed by the Trial Court. Sharma then filed a first appeal. And during the appeal, Sharma and one of the respondents reached a compromise agreement. This agreement stipulated development of the property and payment of certain sums to Sharma by the respondent. The compromise deed explicitly acknowledged Sharma’s right to restore the appeal if the respondent did not comply with the agreed-upon terms.

The High Court accepted the compromise and disposed of the appeal. However, the High Court's order did not state that the parties are at liberty to restore the appeal in case of dishonor of compromise agreement/deed. And when the respondent failed to honor the compromise agreement, Sharma filed an application to restore the appeal. However, the High Court dismissed this application, citing its previous order that did not grant liberty for restoration.

The Supreme Court while refering to its earlier judgments allowed Sharma’s appeal, setting aside the High Court’s order. In allowing the appeal the Apex Court referred its case of Banwari Lal v. Chando Devi and held the following "11. This Court in Banwari Lal v. Chando Devi has laid down the law on the disposal of a proceeding in accordance with a compromise between the parties and on recall of a compromise decree. It held that under Order 23, Rule 3, the Court must be satisfied upon applying judicial mind that the agreement between the parties is lawful before accepting the same and disposing the suit." Thus the Court’s judgment underscored Order 23, Rules 3 and 3A of CPC.

The court emphasized that Order 23, Rule 3 of the CPC mandates courts to examine the legality of compromise agreements before accepting them and disposing of a suit and the Court held that the same is held in its judgment in case of Pushpa Devi Bhagat v. Rajinder Singh (Click to Download) and the Court held "In this case, the Court also took note of Section 96(3) of the CPC7 and the deletion of Order 43, Rule 1(m) of the CPC by way of an amendment in 1976, as well as Order 23, Rule 3A. The consequence of these is that an appeal against a consent decree and an order recording (or refusing to record) a compromise is not maintainable, nor can a fresh suit be filed for setting aside such decree. Hence, the only remedy available to the aggrieved party is to approach the court that recorded the compromise under the proviso to Order 23, Rule 3. The Court held: (quoted Para 17. from Pushpa Devi Supra)" . Thus the Apex Court held that proviso to Rule 3 and Rule 3A clarify that courts can consider challenges to a compromise agreement's legality even after a compromise decree is passed.

Referring to the Statutory Right to Restoration the court determined that Order 23 grants an aggrieved party a statutory right to seek restoration of an appeal if a compromise agreement fails. This right is not contingent upon the court explicitly granting “liberty” for restoration.

On the Compromise Deed clauses the Apex Court noted that the compromise deed itself contained provisions acknowledging the appellant's right to restore the appeal if the respondent did not fulfill the agreed terms.

The court asserted that it is against public policy for courts to curtail the statutory remedial mechanisms available to parties. The judgment also cited Section 28 of the Contract Act, which states that agreements that prevent a party from enforcing their rights through legal means are void.

Coram: Justice P S Narasimha and Justice Manoj Misra.
Between:Navratan Lal Sharma Vs Radha Mohan Sharma & ors.
Date of Judgment:12-12-2024