Supreme Court Sets Aside Rajasthan High Court Order, Reaffirms Statutory Right to Restore Appeal: “Compromise Violations Cannot Deny Legal Remedies for Non-Compliance or Alleged Fraud”

Court’s Decision:
The Supreme Court allowed the appellant’s appeal and set aside the order of the Rajasthan High Court dated 19.10.2023. It remanded the matter back to the High Court for reconsideration of the application for the restoration of the first appeal on its merits. The Supreme Court ruled that the restoration of the appeal is a statutory remedy available to the appellant and cannot be denied, even if the terms of the compromise were violated.

Facts: The appellant, who was the owner of a certain property, filed a suit to cancel specific power of attorney documents and sale deeds, alleging that one of the respondents forged the documents and conducted fraudulent transactions involving the property. The Trial Court dismissed the suit, and the appellant appealed to the Rajasthan High Court. During the pendency of the appeal, the appellant and the second respondent reached a compromise.

The compromise, which was formalized in May and July 2022, involved the development of the property and stipulated certain payments to be made by the second respondent to the appellant. The terms included a provision that if the payment terms were violated, the appellant would have the right to seek the restoration of the first appeal.

On 14.07.2022, the High Court disposed of the first appeal in terms of the compromise but did not grant the appellant liberty to restore the appeal. The parties were required to comply with the terms of the compromise. However, when the cheques issued by the second respondent, which were part of the compromise, were dishonoured, the appellant filed an application seeking to restore the appeal on the grounds that the compromise was not being adhered to.

Issues: The primary issue was whether the appellant could restore the appeal after the High Court disposed of the first appeal in terms of the compromise agreement, despite the fact that the respondent failed to comply with the terms, such as dishonouring the cheques.

Petitioner’s Arguments: The appellant argued that the compromise terms, which included financial transactions, had been violated, particularly due to the dishonour of cheques. The appellant contended that under the provisions of the Civil Procedure Code (CPC), specifically Order 23, Rules 3 and 3A, he had a statutory right to seek the restoration of the appeal if the compromise was violated. He asserted that the High Court’s order, which did not allow restoration of the appeal, was incorrect.

Respondent’s Arguments: The respondent argued that the High Court’s order from 14.07.2022 explicitly stated that the parties did not have the liberty to restore the appeal. Since the order was consensual and both parties had agreed to it, the respondent claimed that the appellant’s application for restoration was not maintainable. The respondent emphasized that the order dismissing the appellant’s restoration application on 19.10.2023 was valid.

Analysis of the Law: The Court examined the relevant provisions under the CPC that govern compromise decrees, particularly Order 23, Rules 3 and 3A. These provisions outline how a compromise or agreement reached by the parties during the pendency of a suit should be recorded by the court. The Court noted that a decree based on such a compromise is binding, but the aggrieved party can challenge its validity if there are grounds, such as fraud or non-compliance with the terms of the compromise.

The Court also referenced several judicial precedents that dealt with similar issues. It emphasized that under the CPC, if a compromise agreement is alleged to be fraudulent or violated, the remedy available to the aggrieved party is not to file an appeal or a new suit but to seek a recall of the compromise decree from the court that recorded it.

Precedent Analysis: The Supreme Court referred to past decisions such as Banwari Lal v. Chando Devi and Pushpa Devi Bhagat v. Rajinder Singh, where the Court clarified that an appeal against a consent decree or a decree based on a compromise is not maintainable. The only remedy for an aggrieved party is to file an application before the court that recorded the compromise, challenging the decree’s validity, particularly if fraud is alleged.

Additionally, the Court cited Shiv Shakti Coop. Housing Society and other decisions to emphasize the importance of access to legal remedies and the court’s duty to ensure that statutory rights are not curtailed. It also discussed how compromise agreements should be scrutinized to ensure they are not unlawful under the provisions of the Indian Contract Act.

Court’s Reasoning: The Supreme Court noted that the High Court’s order dismissing the restoration application was wrong because it curtailed the statutory right of the appellant. The Court reasoned that the remedy to challenge the compromise decree was clearly available to the appellant under the CPC, and there was no reason to deny him this remedy.

The Court emphasized that the statutory right to seek restoration of an appeal should not be restricted by the terms of the compromise agreement, as the law allows such remedies to be invoked when a party does not comply with the agreed terms. Furthermore, the Court observed that the appellant had a right to approach the court to challenge the validity of the compromise in light of the alleged fraud.

Conclusion: The Supreme Court allowed the appeal, set aside the impugned order of the High Court, and remanded the case for reconsideration. The High Court was directed to hear the restoration application on its merits, without curtailing the appellant’s statutory rights. The Court emphasized that it had not expressed an opinion on the merits of the restoration application but only on the legal right of the appellant to seek restoration based on non-compliance with the terms of the compromise.

Implications: This judgment reaffirms the principle that a party to a consent decree or a decree based on a compromise agreement has a statutory right to seek its recall if the compromise is violated, particularly when fraud or non-compliance is alleged. The Court also emphasized that statutory remedies provided under the CPC should not be restricted by any court’s order, as such restrictions could violate public policy and hinder access to justice. The decision underscores the importance of ensuring that legal remedies remain available to parties in cases of non-compliance with court-sanctioned agreements.

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