2014 (8) TMI 1124 - SC - Indian Laws

Supreme Court Upholds Consent Decrees, Emphasizes Binding Nature of Settlement

The Supreme Court allowed the appeals, set aside the High Court's judgment, and restored the consent decrees passed by the Principal District Judge. The ... Arbitration and Conciliation - awards challenged - Held that:- Here is a case where arbitral awards were given in favour of the Appellant way back in April and June, 2006. However, the Appellant is yet to reap the benefits thereof. Respondent No. 1 challenged these awards by filing applications Under Section 34 of the Act. When these proceedings were pending, the Respondents themselves came out with the proposal to negotiate and try to amicably settle the matters, keeping in view the otherwise laudable decision taken by PWD to settle such disputes as is clear from the letter dated 02.08.2008. Negotiations took place thereafter. Though the Appellant had agreed to forgo substantial part of the award in terms of interest etc., the talks failed at that time as the Respondents wanted 10% reduction in the principal amount as well, whereas the Appellant was conceding to give up only 5% of the principal amount. Be, as it may, the Appellant agreed to give further concessions in the Court when the matter came on 09.04.2011 vide his 3 memos dated 6.4.2011 filed on that date. These memos show that the Appellant had given the said offer due to the acute financial crisis he was suffering from as he wanted to satisfy his creditors including his bankers to whom he owed substantial amounts. Alas, even after the settlement was fructified, resulting into passing of agreed orders, it has resulted into legal tangle even thereafter, and the Appellant has not been able to get even the said agreed amount. We are, therefore, of the opinion that the High Court was not justified in setting aside the consent decree passed by the learned District Judge. Such a consent decree operates as an estoppel and was binding on the parties from which the Respondents could not wriggle out by taking an after thought plea that its lawyer was not authorised to enter into such a settlement. These appeals are accordingly allowed. The impugned judgment of the High Court is set aside and the consent decrees dated 28.04.2011 passed by the trial court are restored. Issues Involved:1. Validity of the compromise agreement endorsed by the Government Pleader.2. Authority of the Government Pleader to enter into a settlement.3. Binding nature of the consent decree passed by the Principal District Judge.Detailed Analysis:1. Validity of the Compromise Agreement Endorsed by the Government Pleader:The core issue was whether the compromise agreement endorsed by the Government Pleader was valid and binding on the Respondents. The Appellant, an Engineering Contractor, had entered into negotiations with the Respondents to settle arbitration awards. Despite initial failed negotiations, the Appellant later offered to forgo further interest accrued after 09.01.2009, which was accepted by the Government Pleader. This led to the Principal District Judge passing consent decrees based on this settlement.The High Court set aside these decrees on the ground that the Government Pleader was not authorized to endorse the compromise. However, the Supreme Court found that the Government Pleader's endorsement was in accordance with earlier negotiations and beneficial to the Government. The Supreme Court emphasized that the Government Pleader had the implied authority to act on behalf of the Government, and the absence of any immediate objection or action against the Pleader indicated acceptance of his actions.2. Authority of the Government Pleader to Enter into a Settlement:The Respondents argued that the Government Pleader was not authorized to enter into the settlement and that his endorsement was not binding. The Supreme Court rejected this argument, noting that the Respondents did not provide any evidence to show that the Government Pleader lacked authority. The Court highlighted that the Government Pleader's role includes the power to make statements and enter into compromises on behalf of the Government, as per Order III Rule 4 of the Code of Civil Procedure.The Court also referred to previous judgments, including Byram Pestonji Gariwala v. Union Bank of India, which recognized the traditional role of lawyers and their implied authority to act on behalf of their clients. The Court concluded that the Government Pleader was legally entitled to enter into the compromise, and his endorsement was valid consent from the Respondents.3. Binding Nature of the Consent Decree Passed by the Principal District Judge:The Supreme Court held that the consent decree passed by the Principal District Judge, based on the settlement endorsed by the Government Pleader, was binding on the parties. The Court emphasized that such a decree operates as an estoppel, preventing the Respondents from later challenging the settlement. The Court noted that the Respondents did not take any action against the Government Pleader, who continued to represent the Government in other cases, further indicating acceptance of his authority.The Supreme Court criticized the Respondents for attempting to wriggle out of the valid compromise by taking an afterthought plea. The Court restored the consent decrees and awarded costs to the Appellant, highlighting the prolonged legal battle and the Appellant's financial distress.Conclusion:The Supreme Court allowed the appeals, set aside the High Court's judgment, and restored the consent decrees passed by the Principal District Judge. The Court affirmed the validity of the compromise agreement endorsed by the Government Pleader and emphasized the binding nature of the consent decree. The Appellant was awarded costs, and the Respondents were estopped from challenging the settlement.