Order 23 Rule 3(A) - Bar On Filing New Suits Only Applicable To Parties Involved In Compromise Decrees, Not To Strangers: J&K High Court

Justice Javed Iqbal Wani also added that while the law allows strangers to the compromise to file independent suits, the supervisory jurisdiction of the High Court was not appropriate for the issues raised in this case.

“On a close reading of the provision of Order 23 Rule 3(A) what emerges is that bar to sue is limited and applicable only to parties to the compromise and not to third party, stranger, or to those who have not signed the consent terms and it has been held by the Apex Court in case titled as Banwari Lal vs. Smt. Chando Devi reported in (1993) 1 SCC 581 that a stranger to the compromise is not precluded from filing a suit and the provisions of Order 23 Rule (3A) would not operate against such stranger”.

Order 23 Rule 3A of the CPC lays down that once a compromise agreement is the basis for a court decree, no new lawsuits can challenge the compromise's legality. This rule prevents multiple litigations stemming from the same compromise.

The Court was hearing a petition under Article 227 of the Constitution challenging an order issued by the Principal District Judge of Srinagar which had dismissed an application seeking to set aside judgment and decree in terms of the impugned order.

The respondents who were engaged in the textile business had secured loans from various sources, including the petitioner, pledging their business assets as collateral. Upon defaulting on their loan from Jammu and Kashmir Bank, legal proceedings ensued, culminating in a compromise judgment in 2006.

The petitioner, upon discovering this, filed multiple applications before the trial court, including one to set aside the 2006 compromise decree. The trial court dismissed the application under the impugned order.

Thus, the petitioner approached the court under its supervisory jurisdiction. 

The core issue revolved around whether the petitioner, not a party to the original suit, could contest the compromise judgment dated 3.6.2006. 

Assailing the judgment the petitioner argued that her loan to the respondents entitled her to a charge on their properties, including the business premises.

After examining the relevant sections of the CPC, specifically Order 23 Rule 3(A), the court underscored that the legislative intent was to finalize disputes and prevent multiple suits while ensuring that individuals not party to the compromise could still seek legal recourse.

Relying on Silver Screen Enterprises vs. Devki Nandan Nagpal (1970, the bench emphasised that courts lack discretion when parties have validly settled disputes outside of court. However, the bench clarified the status of third parties or strangers who find themselves inadvertently affected by compromise decrees and observed,

The Judge also highlighted the failure on the part of the petitioner to file an independent suit against the compromise judgment and decree. The bench noted that the petitioner had taken recourse to a remedy not available under law to her by invoking the supervisory jurisdiction of the High Court to set aside the compromise judgment and decree, as mandated in Shalini Shayam Shetty & Anr v Rajendra Shankar Pati,(2010).

Thus, the court held that this remedy was not appropriate in this case, and the impugned order did not warrant interference. As such, the petition was dismissed.

Case Title: Nikhat Nabi v M/s Fancy Fabrics & Ors (J&K Bank Ltd)

Citation: 2023 LiveLaw (JKL) 265

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