Legal Blog: Compromise between Parties & the Role of Counsels : Supreme Court Explains

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Monday, August 8, 2011

Compromise between Parties & the Role of Counsels : Supreme Court Explains

Justice P. Sathasivam
Supreme Court of India
The Supreme Court in Bakshi Dev Raj Vs. Sudhir Kumar has examined the Role of Counsels and their power to make concessions in Court to withdraw or compromise claims / proceedings on behalf of their respective Clients. The Court, in the present judgment, has also examined the provisions of Order XXIII of the Code of Civil Procedure with regard to compromise of suit, and discussed the power of advocates / pleaders to act on behalf of their clients in such situations. The relevant paragraphs from the judgment are reproduced hereunder;

Compromise of Suit

8. Order XXIII of CPC deals with "Withdrawal and Adjustment of Suits". Rule 3 of Order XXIII speaks about "compromise of suit" which reads as under: 

"3. Compromise of suit.- 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 (9 of 1872), shall not be deemed to be lawful within the meaning of this rule." 

9. The very same rule was considered by this Court in Gurpreet Singh vs. Chatur Bhuj Goel, (1988) 1 SCC 270. In that case, the respondent therein Chatur Bhuj Goel, a practising advocate at Chandigarh first lodged a criminal complaint against Colonel Sukhdev Singh, father of the appellant, under Section 420 of the Indian Penal Code 1860 (hereinafter referred to as "the IPC"), after he had served the respondent with a notice dated 11.07.1979 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 04.06.1979 entered into between Colonel Sukhdev Singh, acting as guardian of the appellant, then a minor, and the respondent, for the sale of residential house No. 1577, Sector-18- D, Chandigarh for a consideration of Rs,2,85,000/-. In terms of the agreement, the respondent was to pay a further sum of Rs.1,35,000/- to the appellant's father - Colonel Sukhdev Singh by 10.07.1979 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 31.01.1980 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 07.07.1979 but the appellant's father did not turn up to receive the same. Although the Additional Chief Judicial Magistrate by order dated 31.10.1979 dismissed the complaint holding that the dispute was of a civil nature and no process could issue on the complaint, the learned Single Judge, by his order dated 11.02.1980 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 him to proceed with the trial according to law. Aggrieved Colonel Sukhdev Singh came up in appeal to this Court by way of special leave. While construing Order XXIII Rule 3 of CPC, this Court concluded thus: 
"10. 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 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." 
It is clear from this decision that during the course of hearing, namely, suit or appeal, when the parties enter into a compromise, the same should be reduced in writing in the form of an instrument and signed by the parties. The substance of the said decision is that the Court must insist upon the parties to reduce the terms into writing. 

10. In Pushpa Devi Bhagat (dead) through LR. Sadhna Rai (Smt.) vs. Rajinder Singh and Others, (2006) 5 SCC 566, the term `instrument' used in above-referred Gurpreet Singh's case (supra) refers to a writing a formal nature, this Court explained that when the hearing of letters patent appeal commenced before the High Court, the parties took time to explore the possibility of settlement and when the hearing was resumed, the appellant's father made an offer for settlement which was endorsed by the counsel for the appellant also. The respondent was also present there and made a statement accepting the offer. The said offer and acceptance were not treated as final as the appeal was not disposed of by recording those terms. On the other hand, the said proposals were recorded and the matter was adjourned for payment in terms of the offer. When the matter was taken up on the next date of hearing, the respondent stated that he is not agreeable. The High Court directed that the appeal would now be heard on merits as the respondent was not prepared to abide by the proposed compromise. The said order was challenged before this Court by the appellant by contending that the matter was settled by a lawful compromise by recording the statement by appellant's counsel and the respondent's counsel and the respondent could not resile from such compromise and, therefore, the High Court ought to have disposed of the appeal in terms of the compromise. It is in this factual background, the question was considered with reference to Gurpreet Singh's case (supra). This was explained in Pushpadevi's case (supra) that the distinguishing feature in that case was that though the submissions made were recorded but that were not signed by the parties or their counsel, nor did the Court treat the submissions as a compromise. In Pushpadevi's case (supra), the Court not only recorded the terms of settlement but thereafter directed that the statements of the counsel be recorded. The statement of the counsel were also recorded on oath read over and accepted by the counsel to be correct and then signed by both counsel. In view of the same, in Pushpadevi's case (supra), it was concluded that there was a valid compromise in writing signed by the parties (represented counsel). 

11. In the earlier part of our order, we have already recorded that during the course of hearing of second appeal, both counsel agreed that without addressing the questions of law so formulated, the matter can be settled by modifying the decree impugned in appeal by incorporating the area of land under Survey No. 110/65 with the boundary between the lands thereunder and Survey No.109/65 belonging to the other side being the Sheesham and Shreen trees currently existing on the spot. 

Role of the counsel 

12. Now, we have to consider the role of the counsel reporting to the Court about the settlement arrived at. We have already noted that in terms of Order XXIII Rule 3 of CPC, agreement or compromise is to be in writing and signed by the parties. The impact of the above provision and the role of the counsel has been elaborately dealt with by this Court in Byram Pestonji Gariwala vs. Union Bank of India and Others, (1992) 1 SCC 31 and observed that courts in India have consistently recognized the traditional role of lawyers and the extent and nature of implied authority to act on behalf of their clients. Mr. Ranjit Kumar, has drawn our attention to the copy of Vakalatnama (Annexure-R3) and the contents therein. The terms appended in Vakalatnama enable the counsel to perform several acts on behalf of his client including withdraw or compromise suit or matter pending before the Court. The various clauses in the Vakalatnama undoubtedly gives power to the counsel to act with utmost interest which includes to enter into a compromise or settlement. The following observations and conclusions in paras 37, 38 and 39 are relevant: 
"37. We may, however, hasten to add that it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immediate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay. In these days of easier and quicker communication, such contingency may seldom arise. A wise and careful counsel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingencies in order that neither his authority nor integrity is ever doubted. This essential precaution will safeguard the personal reputation of counsel as well as uphold the prestige and dignity of the legal profession. 
38. Considering the traditionally recognised role of counsel in the common law system, and the evil sought to be remedied by Parliament by the C.P.C. (Amendment) Act, 1976, namely, attainment of certainty and expeditious disposal of cases by reducing the terms of compromise to writing signed by the parties, and allowing the compromise decree to comprehend even matters falling outside the subject matter of the suit, but relating to the parties, the legislature cannot, in the absence of express words to such effect, be presumed to have disallowed the parties to enter into a compromise by counsel in their cause or by their duly authorised agents. Any such presumption would be inconsistent with the legislative object of attaining quick reduction of arrears in court by elimination of uncertainties and enlargement of the scope of compromise. 
39. To insist upon the party himself personally signing the agreement or compromise would often cause undue delay, loss and inconvenience, especially in the case of non- resident persons. It has always been universally understood that a party can always act by his duly authorised representative. If a power-of-attorney holder can enter into an agreement or compromise on behalf of his principal, so can counsel, possessed of the requisite authorisation by vakalatnama, act on behalf of his client. Not to recognise such capacity is not only to cause much inconvenience and loss to the parties personally, but also to delay the progress of proceedings in court. If the legislature had intended to make such a fundamental change, even at the risk of delay, inconvenience and needless expenditure, it would have expressly so stated." 
13. In Jineshwardas (D) by LRs and Others vs. Jagrani (Smt) and Another, (2003) 11 SCC 372, this Court, by approving the decision taken in Byram Pestonji's case (supra), held that a judgment or decree passed as a result of consensus arrived at before Court, cannot always be said to be one passed on compromise or settlement and adjustment. It may, at times, be also a judgment on admission. 

14. In Jagtar Singh vs. Pargat Singh and Others, (1996) 11 SCC 586, it was held that counsel for the appellant has power to make a statement on instructions from the party to withdraw the appeal. In that case, respondent No.1 therein, elder brother of the petitioner filed a suit for declaration against the petitioner and three brothers that the decree dated 04.05.1990 was null and void which was decreed by subordinate Judge, Hoshiarpur on 29.09.1993. The petitioner therein filed an appeal in the Court of Additional Distruct Judge, Hoshiarpur. The counsel made a statement on 15.09.1995 that the petitioner did not intend to proceed with the appeal. On the basis thereof, the appeal was dismissed as withdrawn. The petitioner challenged the order of the appellate court in the revision. The High Court confirmed the same which necessitated filing of SLP before this Court. Learned counsel for the petitioner contended that the petitioner had not authorized the counsel to withdraw the appeal. It was further contended that the court after admitting the appeal has no power to dismiss the same as withdrawn except to decide the matter on merits considering the legality of the reasoning of the trial Court and the conclusions either agreeing or disagreeing with it. Rejecting the said contention, the Court held as under: 
"3. The learned counsel for the petitioner has contended that the petitioner had not authorised the counsel to withdraw the appeal. The Court after admitting the appeal has no power to dismiss the same as withdrawn except to decide the matter on merits considering the legality of the reasoning of the trial court and the conclusions either agreeing or disagreeing with it. We find no force in the contention. Order III Rule 4 CPC empowers the counsel to continue on record until the proceedings in the suit are duly terminated. The counsel, therefore, has power to make a statement on instructions from the party to withdraw the appeal. The question then is whether the court is required to pass a reasoned order on merits against the decree appealed from the decision of the Court of the Subordinate Judge? Order 23 Rules 1(1) and (4) give power to the party to abandon the claim filed in the suit wholly or in part. By operation of Section 107(2) of the CPC, it equally applies to the appeal and the appellate court has co-extensive power to permit the appellant to give up his appeal against the respondent either as a whole or part of the relief. As a consequence, though the appeal was admitted under Order 41 Rule 9, necessarily the Court has the power to dismiss the appeal as withdrawn without going into the merits of the matter and deciding it under Rule 11 thereof. 
4. Accordingly, we hold that the action taken by the counsel is consistent with the power he had under Order III Rule 4 CPC. If really the counsel has not acted in the interest of the party or against the instructions of the party, the necessary remedy is elsewhere and the procedure adopted by the court below is consistent with the provisions of CPC. We do not find any illegality in the order passed by the Additional District Judge as confirmed by the High Court in the revision." 
15. The analysis of the above decisions make it clear that the counsel who was duly authorized by a party to appear by executing Vakalatnama and in terms of Order III Rule 4, empowers the counsel to continue on record until the proceedings in the suit are duly terminated. The counsel, therefore, has power to make a statement on instructions from the party to withdraw the appeal. In such circumstance, the counsel making a statement on instructions either for withdrawal of appeal or for modification of the decree is well within his competence and if really the counsel has not acted in the interest of the party or against the instructions of the party, the necessary remedy is elsewhere. Though learned counsel for the appellant vehemently submitted that the statement of the counsel before the High Court during the course of hearing of Second Appeal No. 19 of 2005 was not based on any instructions, there is no such material to substantiate the same. No doubt, Mr. Garg has placed reliance on the fact that the first appellant was bedridden and hospitalized, hence, he could not send any instruction. According to him, the statement made before the Court that too giving of certain rights cannot be sustained and beyond the power of the counsel. It is true that at the relevant time, namely, when the counsel made a statement during the course of hearing of second appeal one of the parties was ill and hospitalized. However, it is not in dispute that his son who was also a party before the High Court was very much available. Even otherwise, it is not in dispute that till filing of the review petition, the appellants did not question the conduct of their counsel in making such statement in the course of hearing of second appeal by writing a letter or by sending notice disputing the stand taken by their counsel. In the absence of such recourse or material in the light of the provisions of the CPC as discussed and interpreted by this Court, it cannot be construed that the counsel is debarred from making any statement on behalf of the parties. No doubt, as pointed out in Byram Pestonji (supra), in order to safeguard the present reputation of the counsel and to uphold the prestige and dignity of legal profession, it is always desirable to get instructions in writing.


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