Various forms of dispute arise in day to day life of an individual wherein they have to approach the court of law. However, they often explore other ways to resolve the conflict without waiting for a court ruling. Individuals take every possible action to resolve the dispute, as the process of Litigation is lengthy and time-consuming. One of the effective approaches is a compromise, where both sides agree to adjust their demands to find common ground for resolving the Dispute. The basic idea of this approach is simple before worsening the situation or the relations that an individual has before dragging the other party into the court, both parties agree to settle the matter out of court, creating a win-win situation and retrieving the relationship between them.
Once the parties agree and an agreement is reached, it must be written down, signed by both parties and presented to the court for review. The court then ensures that the compromised agreement between the parties should be in accordance with the law. The Court will also undertake that the Agreement is fair, lawful, and free of any coercion, undue influence, or misrepresentation on either of the parties. After confirming the validity of the compromise, the court takes it into consideration and passes a decree based on the terms of the agreement. This entire process is governed by Order XXIII Rule 3 of the Code of Civil Procedure (CPC), which allows disputes to be resolved through lawful agreements, even if the settlement doesn’t directly address the initial issue in the lawsuit, as long as both parties are involved.
Recent Legal Developments and Key Changes
A series of important judgements and amendments in the Law have further clarified the law related to compromises, offering new insights and clarifications that are crucial and need of the hour. The key changes are:
The Importance of Written, Signed Agreements
While the concept of compromise has been around for a while, recent judgements have clarified that verbal agreements made in court are no longer enough to form a valid compromise. For a compromise to be legitimate under Order XXIII Rule 3 of the CPC, it must be in writing and signed by the parties involved. This development comes in response to challenges faced by courts when trying to enforce verbal agreements, particularly when one of the parties dies or fails to adhere to the terms of the settlement. Without a written document, it becomes nearly impossible for the court to ascertain the exact terms of the compromise, leading to legal complications.
In Amro Devi & Ors. V. Julfi Ram (Deceased) (2024), the Supreme Court of India reinforced that oral statements made in court do not meet the legal requirements for a valid compromise. A written and signed document is now essential for a compromise to be legally binding and enforceable. The court stressed that the absence of a written agreement renders a compromise legally insufficient under the CPC. This ruling emphasizes the need for transparency and ensures that both parties are on the same page when it comes to the terms of the settlement or compromise.
(https://api.sci.gov.in/supremecourt/2015/13615/13615_2015_7_1502_53695_Judgement_15-Jul-2024.pdf)
Stamp Duty and Registration of Compromise Decrees
Another significant development concerns the issue of stamp duty and registration for compromise decrees. Under normal circumstances, agreements that are to be enforced—such as contracts—require registration and stamp duty payments. However, the Supreme Court’s decision in Mukesh v. The State of Madhya Pradesh (2024) ruled that compromise decrees (especially those related to property partition) do not need to be registered or stamped if they merely affirm pre-existing rights rather than creating new ones. This decision reduces the financial burden associated with compromise decrees, particularly in disputes involving property. As these issues have a Property worth in crores, and to get the agreement stamped, the parties have to bear a huge amount of money. Hence, the court ruled that the Compromised Agreement need not be stamped or registered.
{https://api.sci.gov.in/supremecourt/2021/3835/3835_2021_15_1506_58154_Judgement_20-Dec-2024.pdf}
Limited Options to Challenge Compromise Decrees
It might happen that one party fails to honour the terms of the compromise, or disputes arise later. However, once a compromise decree is passed, the options to challenge it are quite limited. In a recent judgement by the Supreme Court in Navratan Lal Sharma v. Radha Mohan Sharma (2024), the Court clarified that the only legal recourse for challenging a compromise decree is to file a recall application with the same court that recorded the decree. This ruling brings clarity to situations where a party seeks to reverse or contest a compromise after it has been formally entered into the court record.
{https://api.sci.gov.in/supremecourt/2024/2586/2586_2024_12_1501_57760_Judgement_12-Dec-2024.pdf}
Conclusion
Order XXIII Rule 3 of the CPC plays a vital role in resolving legal disputes through compromise. The recent Supreme Court rulings underscore the importance of formalising settlements by ensuring they are written, signed, and free of any ambiguity. These developments have reinforced the idea that a verbal compromise is not sufficient and that a written document is necessary for legal validity. Additionally, the Court’s decisions regarding stamp duty and the process for challenging compromise decrees highlight the evolving nature of dispute resolution in India, making it both more efficient and transparent.
In short, the legal landscape surrounding compromises in India is shifting, ensuring that agreements are documented properly and that disputes can be resolved fairly and efficiently. Whether you’re entering a compromise or challenging one, understanding the legal framework will make the process smoother and less uncertain.
