2004 (4) TMI 298 - HC - Companies Law

Mutual consent essential for compromise under Order 23 Rule 3

The Court held that a compromise under Order 23 Rule 3 of the CPC requires mutual consent and cannot be one-sided. The Court concluded that without both ... award of arbitrators Issues Involved:1. Whether the Court is bound to accept the award of the arbitrators in a pending suit if one of the parties is not willing to accept the same as a compromise under Order 23 Rule 3 of the Code of Civil Procedure (CPC).2. The effect of an arbitration award obtained without the intervention of the Court in a pending suit.3. The requirements for a compromise or adjustment of a suit under Order 23 Rule 3 of CPC.4. The applicability of Section 47 of the Arbitration Act, 1940 in relation to arbitration awards in pending suits.Issue-wise Detailed Analysis:1. Whether the Court is bound to accept the award of the arbitrators in a pending suit if one of the parties is not willing to accept the same as a compromise under Order 23 Rule 3 of the Code of Civil Procedure (CPC):The Court concluded that a compromise requires mutual concessions and consensus. The plaintiff did not agree to treat the arbitrators' award as a compromise or adjustment of the dispute. Therefore, the Court is not bound to accept the award as a compromise under Order 23 Rule 3 of CPC without the consent of both parties. The compromise must be in writing and signed by the parties, and there must be a completed agreement between them. The Court emphasized that a compromise cannot be one-sided and requires the willingness of both sides.2. The effect of an arbitration award obtained without the intervention of the Court in a pending suit:The Court held that an arbitration award obtained without the intervention of the Court in a pending suit can only be treated as a compromise or adjustment of the suit if both parties agree to it. Such an award is not enforceable on its own and can only be considered for recording a settlement or compromise with the consent of all parties involved. The Court referred to Section 47 of the Arbitration Act, 1940, which states that an arbitration award obtained otherwise may be taken into consideration as a compromise or adjustment of a suit with the consent of all parties interested.3. The requirements for a compromise or adjustment of a suit under Order 23 Rule 3 of CPC:Order 23 Rule 3 of CPC requires that a compromise or adjustment of a suit must be in writing and signed by the parties. The Court must be satisfied that the suit has been adjusted wholly or in part by any lawful agreement or compromise. In this case, the plaintiff did not sign the consent terms, and therefore, the Court could not record the compromise or adjustment of the suit. The Court reiterated that the compromise must be bilateral and involve mutual concessions by both parties.4. The applicability of Section 47 of the Arbitration Act, 1940 in relation to arbitration awards in pending suits:The Court examined Section 47 of the Arbitration Act, 1940, which provides that an arbitration award obtained otherwise may be taken into consideration as a compromise or adjustment of a suit with the consent of all parties interested. The Court emphasized that such an award can only be considered for recording a settlement or compromise if both parties agree to it. If one party does not consent, the Court cannot enforce the award as a compromise or adjustment of the suit. The Court concluded that the trial Judge was justified in not recording the compromise based on the arbitrators' award since the plaintiff did not agree to it.Conclusion:The Court dismissed the revision application, upholding the trial court's decision not to record the compromise under Order 23 Rule 3 of CPC. The Court emphasized the necessity of mutual consent for a compromise or adjustment of a suit and clarified the limited effect of an arbitration award obtained without the Court's intervention in a pending suit. The proceedings before the trial court were stayed for one month to allow the petitioners to approach the Supreme Court. If no order is obtained from the Supreme Court, the trial court was directed to proceed with the suit and complete it by 31st December 2004.