Authority of a Lawyer to Compromise on behalf of Client, Supreme Court reiterates the principles [Read the Judgment]

Whether the endorsement of the Government pleader, accepting the compromise memo filed by a opposite party in a Section 34 proceedings under the Arbitration and conciliation Act,1996,  is binding on the Government/Client was the issue before the Court.

Three Arbitration awards were challenged by the State of Tamil Nadu by  filing  three petitions under Section 34 of the Act, seeking to set  aside  these  awards. While the proceedings were pending before the  Principal  District  Judge, the negotiations  took place between the parties for a settlement  but they could not  agree as the  disagreement  continued. The Government sought 10% percent reduction in Principle Award amount and the contractor was willing  only to reduce 5 % of the principle amount, apart from 40 % reduction in interest amount which agreed by both the parties.

The matters, however, lingered in Courts for  some  reason  or the other. After two years, again  contractor  came forward with a memorandum to the effect  that,  apart  from  the  offer made during the negotiations on 09.01.2009 for  foregoing  the  interest  at  40%, he was also willing to forgo further  accrued  interest  on  the  award amount after 09.01.2009.  This offer appeared to be fair to  the  Government Pleader. He made a written endorsement on the said memorandum, on behalf  of the Government that it  had  no  objection  for  this  memo.   As  a  result thereof, acting on this compromise, the petitions were  partly  allowed  and the awards of the Arbitrators were modified.

The modified award /disposal of the Section 34 proceedings were challenged by the State before the High Court, primarily on the ground that the Government had never agreed  to  the terms as endorsed by the Government Pleader, in as much  as,  he  was  never  authorised for this purpose.  It was argued  that  in  the  absence  of  any authorisation in favour  of  the  Government  Pleader,  endorsement  of  the compromise given by him was not binding on the Government. The High Court accepted the contention if the State and set-aside the order of the District Judge and remanded the matter for disposal of the Section 34 proceedings, and this was under challenge before the Supreme Court.

Rejecting the argument of the State, the Supreme Court bench consisting of Justice J. Chelameswar and Justice A.K. Sikri allowed the appeal. Justice  A.K. Sikri who penned the judgment held “  15.   The only ground which has prevailed with the High Court  in  accepting the appeals of the respondents against the aforesaid  orders  are  that  the Government pleader was not authorised by the respondents to enter into  such a settlement.  It is difficult to accept this  reasoning,  in  the  scenario which prevails on the record. In the first instance, it is  to  be  kept  in mind that nothing has been brought out by the respondents which  would  show that advocate was not authorised to enter into such a  settlement.   On  the perusal of the grounds of appeal submitted before  the  High  Court  by  the respondents and even in the counter affidavit filed in  this  appeal,  there is no allegation of  any  sort  against  the  Government  pleader.   On  the contrary, a categorical statement has been made  that  “the  action  of  the respondent was fair and just in  this  regard  as  the  respondent  has  not initiated  any  proceeding  against  the   District   Government   Pleader.” Furthermore, and most importantly, there is not even an iota of  a  pleading explaining as to how the Government Pleader was  not  authorised  to  record consent or that he in any manner lacked authority.  It is not even  remotely suggested in any of these grounds  that  the  Government  Pleader  he  acted improperly.  On the contrary, what is sought to be suggested is  that  there was a failure of compromise, or that no compromise was  recorded  or  agreed upon before the Court, which is contrary to the record of the Court and  the statements recorded in the judgment of the  District  Court,  and  therefore impermissible as a ground of challenge “

It was further held “  16.   It is also pertinent to point out that here also, no  application  was filed by the respondents before the District  Court  immediately  after  the passing of decrees in compromise terms, or even thereafter,  for  recall  of the compromise order with the plea that such a compromise  was  unacceptable as the Government  Pleader  was  not  authorised  to  enter  into  any  such settlement. Instead appeals were filed before the High  Court.   We  are  of the opinion that respondents should have approached the trial court  in  the first instance as it is the trial  judge  before  whom  the  compromise  was recorded and as he was privy to events that led to the compromise order,  he was in a better position to deal with this aspect”.

“ 19.   We find that in the present case the Government  Pleader  was  legally entitled to enter into a compromise  with  the  appellant  and  his  written endorsement on the Memo filed by the appellant can  be  deemed  as  a  valid consent of the Respondent itself.  Hence the Counsel appearing for  a  party is fully competent to put his signature to the terms of any compromise  upon which a decree can be passed in proper compliance  with  the  provisions  of Order XXIII Rule 3 and such decree is perfectly valid “

Read the Judgment here