1

CHANAKYA NATIONAL LAW UNIVERSITY

ADJUSTMENT/COMPROMISE OF SUIT CPC & LAW OF LIMITATION

SUBMITTED TO: MR. B.R.N. SHARMA SUBMITTED BY: TEJASWINI RANJAN

SEMESTER: 5 ROLL NO. : 829

SESSION: 2012-17

2

ACKNOWLEDMENT

I have taken efforts in this project. However, it would not have been possible

without the kind support and help of many individuals. I would like to extend

my sincere thanks to all of them.

I am highly indebted to my teacher for his guidance and constant supervision

as well as for providing necessary information regarding the project & also for

her support in completing the project.

I would like to express my gratitude towards my parents & my friends for

their kind co-operation and encouragement which help me in completion of

this project.

I would like to express my special gratitude and thanks to seniors for giving

me such attention and time.

My thanks and appreciations also go to my colleagues in developing the

project and people who have willingly helped me out with their abilities.

3

TABLE OF CONTENTS

INTRODUCTION

WITHDRAWAL OF SUITS

COMPROMISE OF SUITS

CONCLUSION

BIBLIOGRAPHY

4

INTRODUCTION

The Fundamental principle of English Law that wherever there is a right, there is a remedy (ubi

jus ibi remedium) has been adopted by the Indian legal system also. In fact, right and remedy are

but the two sides of the same coin and they cannot be dissociated from each other. Accordingly,

a litigant having a grievance of a civil nature has a right to institute a civil suit in a competent

civil court unless its cognizance is either expressly or impliedly barred by any statute. A suit for

its maintainability requires no authority of law and it is enough that no statute bars it.

Sections 26 to 35-B, Orders 1 to 20 of the First Schedule deal with the procedure relating to

suits. Orders 1 and 2 provide for parties to suits and frame of suits.

The term “suits “has not been defined in the Code. According to the dictionary meaning, ‘suit’ is

a generic term of comprehensive signification referring to any proceeding by one person or

persons against another or others in a court of law wherein the plaintiff pursues the remedy

which the law affords him for the redress of any injury or the enforcement of a right, whether at

law or in equity. Ordinarily, a suit is a civil proceeding instituted by the presentation of a pliant.

There are four essential of a suit:

(1) Opposing parties;

(2) Subject matter in dispute;

(3) Cause of action; and

(4) Relief

5

Withdrawal of Suits

Order 23 deals with withdrawal and compromise of suits. It provides for two types of

withdrawals:

(i) Absolute withdrawal, i.e. withdrawal without the leave of the court; and

(ii) Qualified withdrawal, i.e. withdrawal with the leave of the court.

Under Order 23, at any time after the institution of the suit, the plaintiff may as against all or any

of the defendants abandon his suit or part of his claim [Rule 1 (1)]. However, the leave of the

court is required where the plaintiff is a minor, etc. under Order 32.

A withdrawal without the leave of the court is 'absolute', while a withdrawal with the leave of the

court is 'qualified.' If the court is satisfied that a suit must fail by reason of some 'formal defect',

or that there are 'sufficient grounds' for allowing the plaintiff to institute a fresh suit, it may allow

the withdrawal from suit with liberty to institute a fresh suit in respect of the subject matter of the

suit or part of the claim [Rule1 (3)].

The expression 'formal defect' covers every kind of defect which does not affect the merits of a

case. Thus, a mis-joinder of parties or an erroneous valuation of the subject matter of a suit or

non-payment of proper court feel stamp fee, failure to disclose cause of action, defect in prayer

clause, etc. are formal defects. But, the following cannot be said to be 'formal defects': Non-

joinder of necessary party, omission to include all the causes of action in the plaint, bar of

limitation, failure to bring legal representatives on record, etc.

The expression 'sufficient grounds' includes cases like - premature suit, infructuous suit, or where

the plaintiff felt that the defendant was absent and even if the decree was passed it could not be

executed, or where there was omission to file Power of Attorney.

Where a plaintiff withdraws a suit [under Rule 1 (1)] or withdraws from a suit without the

permission of the court [under Rule 1 (3)], he shall be liable to costs and precluded from

instituting a fresh suit against the same defendant in respect of the same subject matter [Rule 1

6

(4)]. The principle underlying Order 23, Rule 1 is that once a plaintiff invokes the jurisdiction of

the court and institutes a suit, he cannot be permitted to institute a fresh suit in respect of the

same subject-matter again if he abandons such suit without the permission of the court to file

fresh suit. The plaintiff also becomes liable for such costs as the court may award to the

defendant.

However, when there are several plaintiffs, the court cannot allow one of them to withdraw,

unless the other co-plaintiffs consent to such withdrawal. So, if the court allows two out of five

plaintiffs to withdraw (with liberty to file a fresh suit) and the other three plaintiffs do not

consent, the court acts without jurisdiction and the two plaintiffs will not be able to file a second

suit in respect of the same subject matter. Where the plaintiff sues in a representative character,

he cannot abandon or withdraw the suit or a part of the claim; he may get out of the suit.

If the plaintiff withdraws or abandons a suit and a defendant applies to be transposed as a

plaintiff (under Order 1), the court must, when considering such an application, have due regard

to the question whether the applicant has a substantial question to be decided as against any of

the other defendants [Rule 1-A].

In any fresh suit instituted on the permission granted under Rule 1, the plaintiff is bound by the

law of limitation in the same manner as if the first suit had not been instituted (Rule 2). Thus, the

granting of permission to withdraw a suit with liberty to file a fresh suit removes the bar of res

judicata.

(a)Withdrawal without leave of court: Rule 1(4)

At any time after the institution of a suit, the plaintiff may abandon his suit or abandon a part of

his claim against all or any of the defendants without the leave of the court. This right is absolute

and unqualified and the court cannot refuse permission to withdraw a suit and compel the

plaintiff to proceed with it1, unless vested right comes into existence before such prayer is made

2.

1 Bijyananda v. Satrughna Sahu, AIR 1963 SC 1566 (1571)

2 Ramamurthi v. Rajeswararao, (1972) 2 SCC 721

7

However, in case such abandonment or withdrawal of a suit or part of a claim without the leave

of the court, the plaintiff will be precluded from instituting a fresh suit in respect of the same

cause of action. The plaintiff also becomes liable for such costs as the court may award to the

defendant. Rule 1-A of Order 23 as added by the Amendment Act 1976 provides for the

circumstances under which the defendant may be allowed to be transposed as a plaintiff where

the suit is withdrawn by the plaintiff.

(b)Withdrawal with leave of court: Rule 1(3)

(1)Grounds

Where the court is satisfied that a suit must fail by reason of some formal defect, or there are

sufficient grounds for allowing the plaintiff to institute a fresh suit for the subject-matter of a suit

or part of a claim, it may grant permission to withdraw such suit or such part of the claim with

liberty to file a fresh suit in respect of the subject-matter of such suit or such part of the claim on

such terms as it thinks fit. Such permission may be granted by the court on the following

Formal defect: Though the expression "formal defect" has not been defined in the Code, it

connotes some defect of form or procedure not affecting the merits of the case3; such as want of

statutory notice under Section 80 of the Code, misjoinder of parties or of causes of action, non-

payment of proper court fee or stamp fee, failure to disclose cause of action, mistake in not

seeking proper relief, improper or erroneous valuation of the subject-matter of the suit, absence

of territorial jurisdiction of the court, or defect in prayer clause, etc. But a defect affecting the

merits of the case, or a defect which goes to the root of the plaintiff's case cannot be said to be a

formal defect4, e.g.: non-joinder of a necessary party, omission to substitute heirs, omission to

include all the causes of action in the plaint, non-registration of a partnership firm, bar of

limitation, deliberate undervaluation of the subject-matter of the suit, addition of a new factual

plea, failure to bring legal representatives on record, etc.9

Other grounds: The expression "other sufficient grounds" should generally be construed

ejusdem generis (of the same kind or nature) with formal defect.' For instance, where the suit

was premature or it had become infructuous, or where the plaintiff felt that the defendant was

3 Ramrao v. Babu, AIR 1940 Born 121

4 Waston v. Collector of Rajashahye, 13 MIA 160 (PC)

8

absent and even if the decree was passed, it could not be executed, it was held to be a sufficient

ground. Wide and liberal meaning should be given to the expression "sufficient grounds" by

exercising power in the interest of justice5.

(2)Effect of leave

It is at the discretion of the court to grant such permission and it can be granted he court either on

an application of the plaintiff or even suo motu. Such permission may be granted on such terms

as to costs, etc. as the court thinks fit. The granting of permission to withdraw a suit with liberty

to file a fresh suit removes the bar of res judicata. It restores the plaintiff to the position which he

would have occupied had he brought no suit at all.

(c)Suit by minor: Rule 1(2)

By the Amendment Act of 1976, a specific provision has been made that where the plaintiff is a

minor, neither the suit nor any part of the claim can be abandoned without the leave of the court.

Sub-rule (2) of Rule 1 enacts that an application for leave under the proviso to sub-rule (1) of

Rule 1 must be accompanied by an affidavit of the next friend and also, if the minor of such

person is represented by a pleader, by a certificate of the pleader to the effect that the proposed

abandonment is, in his opinion, for the minor's benefit.

(d)Withdrawal by one of the plaintiffs: Rule 1(5)

Where there are two or more plaintiffs in a suit, the suit or part of the claim cannot be abandoned

or withdrawn without the consent of all the plaintiffs.One of such plaintiffs, however, may

abandon or withdraw from the suit to the extent of his interest in it.

(e) Limitation: Rule 2

A plaintiff withdrawing a suit with liberty to file a fresh suit is bound by the law of limitation in

the same manner as if the first suit has not been filed at all."

5 Baniram v. Gaind, (1981) 4 SCC 209

9

(f) Applicability to other proceedings

(i) Appeals and revisions

The provisions of this order apply to withdrawal of appeals and revisions6. The appellant has a

right to withdraw his appeal unconditionally and if he makes such an application, the court must

grant it, subject to costs, and has no power to say that it will not permit the withdrawal and will

go on with the hearing of the appeal7. Similarly, in appropriate cases, an appellate court can grant

permission to withdraw a suit with liberty to file a fresh suit." Such power, however, has to be

exercised sparingly and cautiously.

(ii)Representative suits

Where the plaintiff sues in a representative character, he cannot abandon or withdraw the suit or

a part of the claim. He may, however, get out of the suit, but that does not put an end to the

litigation where other persons are interested in it and have a right to come in and continue the

litigation.

(iii)Writ petitions

The general principles for withdrawal of suits also apply to petitions under Article 32 or Article

226 of the Constitution. Ordinarily, therefore, a High Court or the Supreme Court would not

refuse the prayer of the petitioner or his advocate to allow him to withdraw the petition, if such

withdrawal is unconditional. But he cannot thereafter institute a fresh petition on the same cause

of action.

(iv)Execution proceedings

The provisions of Order 23 do not apply to execution proceedings. The court has no power to

allow an application for execution to be withdrawn with liberty to file a fresh application.

6 Manharlal v. Meena Agencies, 1986 Born Rent Cas 106 (Guj)

7 Bijyananda v. Satrughna Sahu, AIR 1963 SC 1566

10

Withdrawal of an application without the permission of the court to bring a fresh application

hence is no bar to a fresh application for execution within the period of limitation8.

8 Palaniandi v. Papathi, AIR 1914 Mad 1: 15 Mad LT 100

11

Compromise of Suits

(a)General

After the institution of the suit, it is open to the parties to compromise, adjust or settle it by an

agreement or compromise9. The general principle is that all matters which can be decided in a

suit can also be settled by means of a compromise. Rule 3 of Order 23 lays down that

(i) where the court is satisfied that a suit has been adjusted wholly or in part by any

lawful agreement in writing and signed by the parties; or

(ii) Where the defendant satisfies the plaintiff in respect of the whole or any part of the

subject-matter of the suit, the court shall record such agreement, compromise or

satisfaction and pass a compromise decree accordingly.

(iii) It is open to the parties to compromise, adjust or settle a suit by an agreement or

compromise. The general principle is that all matters which can be decided in a suit

can also be settled by means of a compromise.10

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 must order such agreement,

compromise or satisfaction to be recorded, and then pass a decree accordingly as it

relates to the parties in the suit. It does not matter that the subject matter of the

agreement, etc. is the same as the subject matter of the suit (Order 23, Rule 3).

A court passing a compromise decree performs a judicial act and not a ministerial act.

Therefore, the court must satisfy itself that the agreement is lawful and it can pass a

decree in accordance with it and that such decree can be enforced against all the

parties to the compromise. If the compromise is not lawful, an order recording

9 Motilal v. Mahmood, AIR 1968 SC 1087

10 Prithvichand v S. Y. Shinde AIR 1993 SC 1929

12

compromise can be recalled by the court.11

Proviso to Rule 3 lays down 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 to be granted unless the court thinks fit to grant it. An

agreement or compromise which is void or voidable under the Indian Contract Act

shall not be deemed to be lawful within the meaning of this rule Explanation to

Rule3).

No agreement or compromise in a representative suit can be entered into without the

leave of the court, otherwise it shall be void (Rule 3-B). Similarly, a compromise on

behalf of a minor cannot be made without the court's leave. Nothing in this Order

shall apply to any proceedings in execution of a decree or order (R4).

Compromise Decree and Estoppel

A 'compromise decree' is acceptance by the court of something to which the parties

had agreed; the court does not decide anything. A compromise decree is not a

decision on merits as it cannot be said that the case was "heard and finally decided."

Nevertheless, it is based on consent or compromise of parties and, therefore, will

operate as an 'estoppel' .12

Appeal against Compromise Decree

No suit can be filed to set aside a decree on the ground that the compromise on which

the decree is based was not lawful (Rule 3-A). Likewise, no appeal lies against a

decree passed by the court with consent of parties [Section 96(3)].

Rule 1-A(2) of Order 43, however, lays down that in an appeal against a decree

passed after recording or refusing to record a compromise, the order recording or

11

Banwari Lal v Chando Devi AIR 1993 SC 1139). 12

Shankar v Balkrishna AIR 1954 SC 352

13

refusing to record a compromise can also be questioned. A party challenging the

compromise can file an appeal under Section 96(1) of the Code and Section 96(3)

shall not bar such an appeal. Likewise, such a decree can be challenged by filing a

suit on the ground of fraud, undue influence or coercion.13

Thus, a compromise

decree is liable to be set aside on any of the grounds which may invalidate an

agreement.14

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;

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:

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

13

Banwari Lal v Chando Devi 14

Ruby Sales & Services (P) Ltd. v State of Maharashtra (1994) 1 SCC 531

14

under the Indian Contract Act, 1872 (9 of 1872), shall not be deemed to be lawful

within the meaning of this rule."

(iv)

(v) 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:

15

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.

(b)Satisfaction of court

It is the duty of the court to satisfy itself with regard to the terms of agreement. The court must

be satisfied that the agreement is lawful and it can pass a decree in accordance with it. The court

should also consider whether such a decree can be enforced against all the parties to the

compromise. A court passing a compromise .decree performs a judicial act and not a ministerial

act. Therefore, the court must satisfy itself by taking evidence or on affidavits or otherwise that

the agreement is lawful. If the compromise is not lawful, an order recording compromise can be

recalled by the court. In case of any dispute between the parties to the compromise, it is the duty

of the court to inquire into and decide whether there has been a lawful compromise in terms of

which the decree should be passed. 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

Rule 3.

The court in recording compromise should not act in a casual manner. Where it is alleged by one

party that a compromise has not been entered into or is not lawful, it is the duty of the court to

decide that question.

16

(c)Compromise on behalf of minor

No next friend or guardian of a minor shall, without the leave of the court, enter into any

agreement or compromise on behalf of the minor with reference to the suit, unless such leave is

expressly recorded in the proceedings.

(d)Compromise by pleader

A pleader stands in the same position as his client with regard to his authority to compromise the

suit. An advocate appearing for a party, therefore, has always an implied authority to enter into a

compromise on behalf of his client.

(e) Representative suit: Rule 3-B

No agreement or compromise in a representative suit can be entered into without the leave of the

court. Before granting such leave, notice to the persons interested should be given by the court.

(f) Compromise decree and res judicata

A compromise decree is not a decision of the court. It is acceptance by the court of something to

which the parties had agreed. A compromise decree merely sets the seal of the court on the

agreement of the parties. The court does not decide anything. Nor can it be said that a decision of

the court is implicit in it. Hence, a compromise decree cannot operate as res judicata15

. In some

cases, however, it is held that a consent decree would also operate as res judicata16

.It is submitted

that the former view is correct since, in a consent decree, it cannot be said that a suit is heard and

finally decided by the court on merits. Such a decree, however, may create an estoppel between

the parties.

(g) Compromise decree and estoppel

A compromise decree is not a decision on merits as it cannot be said that the case was "heard and

finally decided". Nevertheless, it is based on consent or compromise of parties and, therefore,

will operate as an estoppel.

15

Subba Rao v. Jagannadha Rao, AIR 1967 SC 591 16

Shankar Sitaram v. Balkrishna sitaram, AIR 1954 SC 352

17

(h) Execution of compromise decree

A consent decree is executable in the same manner as an ordinary decree. But if the decree gives

effect to an unlawful compromise or is passed by the court having no jurisdiction to pass it, it is a

nullity and its validity can be set up even in the execution. The underlying principle is that a

defect of jurisdiction strikes at very authority of the court to pass a decree and such a defect

cannot be cured even by the consent of parties. Prior to the Amendment Act of 1976, a

compromise decree could be passed only so far as it related to the suit, but, by the Amendment

Act, it is specifically provided that whether or not the subject-matter of the agreement,

compromise or satisfaction is identical with the subject-matter of the suit, if it is between the

parties and the compromise is a lawful one, the court can pass such a decree.

(i)Bar to suit: Rule 3-A

No suit can be filed to set aside a compromise decree on the ground that it not lawful.39

(j) Appeal

No appeal lies against a decree passed by the court with consent of parties., nor a suit can be

instituted to set aside a compromise decree on the ground that such compromise is not lawful.

However, Rule 1-A(2) of Order 43 lays down that in an appeal against a decree passed after

recording or refusing to record compromise, the order recording or refusing to record a

compromise can also be questioned. A party challenging the compromise can file an appeal

under Section 96(1) of the Code and Section 96(3) shall not bar such an appeal17

. Likewise, such

a decree can be challenged by filing a suit on the ground of fraud, undue influence or coercion.

A compromise decree is a creature of an agreement and does not stand on higher footing than

the agreement which preceded it. It is, therefore, liable to be se-aside on any of the grounds

which may invalidate an agreement.18

17

Banwari Lal v. Chando Devi, (1993) 1 SCC 581 18

Ruby Sales & Services v. State of Maharashtra. (1994) 1 SCC 531 (535).

18

CONCLUSION

A withdrawal without the leave of the court is 'absolute', while a withdrawal with the leave of the

court is 'qualified.' If the court is satisfied that a suit must fail by reason of some 'formal defect',

or that there are 'sufficient grounds' for allowing the plaintiff to institute a fresh suit, it may allow

the withdrawal from suit with liberty to institute a fresh suit in respect of the subject matter of the

suit or part of the claim [Rule1 (3)].

The expression 'formal defect' covers every kind of defect which does not affect the merits of a

case. Thus, a mis-joinder of parties or an erroneous valuation of the subject matter of a suit or

non-payment of proper court feel stamp fee, failure to disclose cause of action, defect in prayer

clause, etc. are formal defects. But, the following cannot be said to be 'formal defects': Non-

joinder of necessary party, omission to include all the causes of action in the plaint, bar of

limitation, failure to bring legal representatives on record, etc.

A 'compromise decree' is acceptance by the court of something to which the parties had agreed;

the court does not decide anything. A compromise decree is not a decision on merits as it cannot

be said that the case was "heard and finally decided." Nevertheless, it is based on consent or

compromise of parties and, therefore, will operate as an 'estoppel'.

19

Bibliography

Civil Procedure by C.K. Takwani

The Code of civil Procedure by Sukumar Ray

The code of civil Procedure by M.P. Jain