Mediated Settlement Enforceable Only Upon Court Approval And Issuance Of Decree: J&K High Court

Citing Rule 24 & 25 of the said rules Justice Sanjay Dhar explained that when parties reach an agreement during mediation concerning the subject matter of a suit or other proceedings, the agreement must be reduced to writing, executed, and signed by the parties or their authorized representatives.

This agreement, the court added, is then required to be submitted to the mediator, who is obligated to forward it to the Court where the proceedings are pending. The Court, upon receiving the settlement, must evaluate whether the disputes have been amicably resolved and, if satisfied, proceed to pass an appropriate decree or order in accordance with the terms of the settlement, the court underscored.

The court exposition on the subject came as a response to a case revolving around a property dispute and subsequent mediated settlement. The petitioner, Nazir Ahmad Bhat had filed a perpetual injunction suit against the respondents, seeking to restrain them from interfering in his property dealings. The dispute originated from a series of agreements to sell immovable property valued at ₹2.19 crores.

The initial agreement, executed in October 2022, stipulated phased payments, which were renegotiated through subsequent agreements in May and July 2023. The petitioner alleged non-compliance by the respondent, while the respondent countered, accusing the petitioner of refusing to complete the sale despite receiving significant payments.

The respondents sought mandatory injunctions in their counterclaim, demanding either execution of the sale deed or recovery of ₹96.50 lakhs. The trial court, in a composite order dated May 2024, directed both parties to maintain the status quo, including restraining the plaintiff from alienating the property and mandating the deposit of received funds in court.

During the pendency of an appeal filed by the petitioner against the trial court's order, the case was referred for mediation. A settlement was reached in July 2024, wherein the petitioner agreed to pay ₹96.50 lakhs to the respondent, with ₹10 lakhs payable within 25 days. The petitioner was also permitted to sell the property to third parties. However, the mediated agreement was not presented for the Court's approval.

Subsequently, the petitioner filed an application under Order 12 Rule 6 of the Code of Civil Procedure (CPC), admitting the counterclaim and seeking adjudication based on the mediated terms. The trial court, bypassing the lack of judicial approval, directed execution of the settlement, prompting the present petition challenging its legality.

Upon meticulous analysis of the available record Justice Dhar underscored that mediated settlements must comply with the procedural framework laid down in the Mediation and Conciliation Rules, 2019.

Citing provisions from the said rules Justice Dhar noted that in the instant case no decree or order had been passed by either the appellate or trial court.

“In the present case, despite a settlement having been arrived at by the parties before the Mediator, the Appellate Court has not passed any order or decree in terms of the said settlement. Thus, the settlement between the parties has not matured into an order or decree of the Court”, the court reasoned.

Additionally, the court also referenced Order 23 Rule 3 of the CPC to reiterate that compromises or adjustments of suits require judicial acknowledgment and issuance of a decree.

“In the present case, no such procedure has been undertaken either by this Court at the time of dismissing the appeal as withdrawn or by the trial court before directing the execution of settlement dated 31.07.2024”, the court remarked.

Justice Dhar also pointed out procedural lapses in the trial court's handling of suit and counterclaim valuations, stressing the need for adherence to the Suits Valuation Act and Court Fee Act. He questioned whether the plaintiff and respondent had appropriately valued their claims and paid requisite court fees noting,

“Whether defendant No.1 could have valued the counter claim in the manner in which he has done and whether he was obliged to pay ad valorem court fee on the value of the suit property, are the issues which are to be considered by the trial court before proceeding further in the matter”

In light of these conclusions the petition was allowed and the impugned order passed by the trial court was set aside.

Case Title: Nazir Ahmad Bhat Vs Sehrish Shafi & Ors

Citation: 2024 LiveLaw (JKL) 359

Mr. Shuja-ul-Haq, Advocate represented the petitioner, Mr. Sajad Ahmad Mir, Advocate appeared for the respondents

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