CHANAKYA NATIONAL LAW UNIVERSITY

ADJUSTMENT/COMPROMISE OF SUIT
CPC & LAW OF LIMITATION
SUBMITTED TO: MR. B.R.N. SHARMA
SUBMITTED BY: TEJASWINI RANJAN
SEMESTER: 5
ROLL NO. : 829
SESSION: 2012-17

ACKNOWLEDMENT
I have taken efforts in this project. However, it would not have been possible
without the kind support and help of many individuals. I would like to extend
my sincere thanks to all of them.
I am highly indebted to my teacher for his guidance and constant supervision
as well as for providing necessary information regarding the project & also for
her support in completing the project.
I would like to express my gratitude towards my parents & my friends for
their kind co-operation and encouragement which help me in completion of
this project.
I would like to express my special gratitude and thanks to seniors for giving
me such attention and time.
My thanks and appreciations also go to my colleagues in developing the
project and people who have willingly helped me out with their abilities.

TABLE OF CONTENTS
INTRODUCTION
WITHDRAWAL OF SUITS
COMPROMISE OF SUITS
CONCLUSION
BIBLIOGRAPHY

INTRODUCTION
The Fundamental principle of English Law that wherever there is a right, there is a remedy (ubi
jus ibi remedium) has been adopted by the Indian legal system also. In fact, right and remedy are
but the two sides of the same coin and they cannot be dissociated from each other. Accordingly,
a litigant having a grievance of a civil nature has a right to institute a civil suit in a competent
civil court unless its cognizance is either expressly or impliedly barred by any statute. A suit for
its maintainability requires no authority of law and it is enough that no statute bars it.
Sections 26 to 35-B, Orders 1 to 20 of the First Schedule deal with the procedure relating to
suits. Orders 1 and 2 provide for parties to suits and frame of suits.
The term suits has not been defined in the Code. According to the dictionary meaning, suit is
a generic term of comprehensive signification referring to any proceeding by one person or
persons against another or others in a court of law wherein the plaintiff pursues the remedy
which the law affords him for the redress of any injury or the enforcement of a right, whether at
law or in equity. Ordinarily, a suit is a civil proceeding instituted by the presentation of a pliant.
There are four essential of a suit:
(1) Opposing parties;
(2) Subject matter in dispute;
(3) Cause of action; and
(4) Relief

Withdrawal of Suits
Order 23 deals with withdrawal and compromise of suits. It provides for two types of
withdrawals:
(i)

Absolute withdrawal, i.e. withdrawal without the leave of the court; and

(ii)

Qualified withdrawal, i.e. withdrawal with the leave of the court.

Under Order 23, at any time after the institution of the suit, the plaintiff may as against all or any
of the defendants abandon his suit or part of his claim [Rule 1 (1)]. However, the leave of the
court

is

required

where

the

plaintiff

is

minor,

etc.

under

Order

32.

A withdrawal without the leave of the court is 'absolute', while a withdrawal with the leave of the
court is 'qualified.' If the court is satisfied that a suit must fail by reason of some 'formal defect',
or that there are 'sufficient grounds' for allowing the plaintiff to institute a fresh suit, it may allow
the withdrawal from suit with liberty to institute a fresh suit in respect of the subject matter of the
suit

or

part

of

the

claim

[Rule1

(3)].

The expression 'formal defect' covers every kind of defect which does not affect the merits of a
case. Thus, a mis-joinder of parties or an erroneous valuation of the subject matter of a suit or
non-payment of proper court feel stamp fee, failure to disclose cause of action, defect in prayer
clause, etc. are formal defects. But, the following cannot be said to be 'formal defects': Nonjoinder of necessary party, omission to include all the causes of action in the plaint, bar of
limitation,

failure

to

bring

legal

representatives

on

record,

etc.

The expression 'sufficient grounds' includes cases like - premature suit, infructuous suit, or where
the plaintiff felt that the defendant was absent and even if the decree was passed it could not be
executed,

or

where

there

was

omission

to

file

Power

of

Attorney.

Where a plaintiff withdraws a suit [under Rule 1 (1)] or withdraws from a suit without the
permission of the court [under Rule 1 (3)], he shall be liable to costs and precluded from
instituting a fresh suit against the same defendant in respect of the same subject matter [Rule 1
5

(4)]. The principle underlying Order 23, Rule 1 is that once a plaintiff invokes the jurisdiction of
the court and institutes a suit, he cannot be permitted to institute a fresh suit in respect of the
same subject-matter again if he abandons such suit without the permission of the court to file
fresh suit. The plaintiff also becomes liable for such costs as the court may award to the
defendant.

However, when there are several plaintiffs, the court cannot allow one of them to withdraw,
unless the other co-plaintiffs consent to such withdrawal. So, if the court allows two out of five
plaintiffs to withdraw (with liberty to file a fresh suit) and the other three plaintiffs do not
consent, the court acts without jurisdiction and the two plaintiffs will not be able to file a second
suit in respect of the same subject matter. Where the plaintiff sues in a representative character,
he cannot abandon or withdraw the suit or a part of the claim; he may get out of the suit.

If the plaintiff withdraws or abandons a suit and a defendant applies to be transposed as a

plaintiff (under Order 1), the court must, when considering such an application, have due regard
to the question whether the applicant has a substantial question to be decided as against any of
the

other

defendants

[Rule

1-A].

In any fresh suit instituted on the permission granted under Rule 1, the plaintiff is bound by the
law of limitation in the same manner as if the first suit had not been instituted (Rule 2). Thus, the
granting of permission to withdraw a suit with liberty to file a fresh suit removes the bar of res
judicata.

(a)Withdrawal without leave of court: Rule 1(4)

At any time after the institution of a suit, the plaintiff may abandon his suit or abandon a part of
his claim against all or any of the defendants without the leave of the court. This right is absolute
and unqualified and the court cannot refuse permission to withdraw a suit and compel the
plaintiff to proceed with it1, unless vested right comes into existence before such prayer is made2.

1
2

Bijyananda v. Satrughna Sahu, AIR 1963 SC 1566 (1571)

Ramamurthi v. Rajeswararao, (1972) 2 SCC 721

However, in case such abandonment or withdrawal of a suit or part of a claim without the leave
of the court, the plaintiff will be precluded from instituting a fresh suit in respect of the same
cause of action. The plaintiff also becomes liable for such costs as the court may award to the
defendant. Rule 1-A of Order 23 as added by the Amendment Act 1976 provides for the
circumstances under which the defendant may be allowed to be transposed as a plaintiff where
the suit is withdrawn by the plaintiff.
(b)Withdrawal with leave of court: Rule 1(3)
(1)Grounds
Where the court is satisfied that a suit must fail by reason of some formal defect, or there are
sufficient grounds for allowing the plaintiff to institute a fresh suit for the subject-matter of a suit
or part of a claim, it may grant permission to withdraw such suit or such part of the claim with
liberty to file a fresh suit in respect of the subject-matter of such suit or such part of the claim on
such terms as it thinks fit. Such permission may be granted by the court on the following
Formal defect: Though the expression "formal defect" has not been defined in the Code, it
connotes some defect of form or procedure not affecting the merits of the case3; such as want of
statutory notice under Section 80 of the Code, misjoinder of parties or of causes of action, nonpayment of proper court fee or stamp fee, failure to disclose cause of action, mistake in not
seeking proper relief, improper or erroneous valuation of the subject-matter of the suit, absence
of territorial jurisdiction of the court, or defect in prayer clause, etc. But a defect affecting the
merits of the case, or a defect which goes to the root of the plaintiff's case cannot be said to be a
formal defect4, e.g.: non-joinder of a necessary party, omission to substitute heirs, omission to
include all the causes of action in the plaint, non-registration of a partnership firm, bar of
limitation, deliberate undervaluation of the subject-matter of the suit, addition of a new factual
plea, failure to bring legal representatives on record, etc.9
Other grounds: The expression "other sufficient grounds" should generally be construed
ejusdem generis (of the same kind or nature) with formal defect.' For instance, where the suit
was premature or it had become infructuous, or where the plaintiff felt that the defendant was
3
4

Ramrao v. Babu, AIR 1940 Born 121

Waston v. Collector of Rajashahye, 13 MIA 160 (PC)

absent and even if the decree was passed, it could not be executed, it was held to be a sufficient
ground. Wide and liberal meaning should be given to the expression "sufficient grounds" by
exercising power in the interest of justice5.
(2)Effect of leave
It is at the discretion of the court to grant such permission and it can be granted he court either on
an application of the plaintiff or even suo motu. Such permission may be granted on such terms
as to costs, etc. as the court thinks fit. The granting of permission to withdraw a suit with liberty
to file a fresh suit removes the bar of res judicata. It restores the plaintiff to the position which he
would have occupied had he brought no suit at all.
(c)Suit by minor: Rule 1(2)
By the Amendment Act of 1976, a specific provision has been made that where the plaintiff is a
minor, neither the suit nor any part of the claim can be abandoned without the leave of the court.
Sub-rule (2) of Rule 1 enacts that an application for leave under the proviso to sub-rule (1) of
Rule 1 must be accompanied by an affidavit of the next friend and also, if the minor of such
person is represented by a pleader, by a certificate of the pleader to the effect that the proposed
abandonment is, in his opinion, for the minor's benefit.

(d)Withdrawal by one of the plaintiffs: Rule 1(5)

Where there are two or more plaintiffs in a suit, the suit or part of the claim cannot be abandoned
or withdrawn without the consent of all the plaintiffs.One of such plaintiffs, however, may
abandon or withdraw from the suit to the extent of his interest in it.

(e) Limitation: Rule 2

A plaintiff withdrawing a suit with liberty to file a fresh suit is bound by the law of limitation in
the same manner as if the first suit has not been filed at all."
5

Baniram v. Gaind, (1981) 4 SCC 209

(f) Applicability to other proceedings

(i) Appeals and revisions
The provisions of this order apply to withdrawal of appeals and revisions6. The appellant has a
right to withdraw his appeal unconditionally and if he makes such an application, the court must
grant it, subject to costs, and has no power to say that it will not permit the withdrawal and will
go on with the hearing of the appeal7. Similarly, in appropriate cases, an appellate court can grant
permission to withdraw a suit with liberty to file a fresh suit." Such power, however, has to be
exercised sparingly and cautiously.

(ii)Representative suits
Where the plaintiff sues in a representative character, he cannot abandon or withdraw the suit or
a part of the claim. He may, however, get out of the suit, but that does not put an end to the
litigation where other persons are interested in it and have a right to come in and continue the
litigation.
(iii)Writ petitions
The general principles for withdrawal of suits also apply to petitions under Article 32 or Article
226 of the Constitution. Ordinarily, therefore, a High Court or the Supreme Court would not
refuse the prayer of the petitioner or his advocate to allow him to withdraw the petition, if such
withdrawal is unconditional. But he cannot thereafter institute a fresh petition on the same cause
of action.
(iv)Execution proceedings
The provisions of Order 23 do not apply to execution proceedings. The court has no power to
allow an application for execution to be withdrawn with liberty to file a fresh application.

6
7

Manharlal v. Meena Agencies, 1986 Born Rent Cas 106 (Guj)

Bijyananda v. Satrughna Sahu, AIR 1963 SC 1566

Withdrawal of an application without the permission of the court to bring a fresh application
hence is no bar to a fresh application for execution within the period of limitation8.

Palaniandi v. Papathi, AIR 1914 Mad 1: 15 Mad LT 100

10

Compromise of Suits
(a)General
After the institution of the suit, it is open to the parties to compromise, adjust or settle it by an
agreement or compromise9. The general principle is that all matters which can be decided in a
suit can also be settled by means of a compromise. Rule 3 of Order 23 lays down that
(i)

where the court is satisfied that a suit has been adjusted wholly or in part by any
lawful agreement in writing and signed by the parties; or

(ii)

Where the defendant satisfies the plaintiff in respect of the whole or any part of the
subject-matter of the suit, the court shall record such agreement, compromise or
satisfaction and pass a compromise decree accordingly.

(iii)

It is open to the parties to compromise, adjust or settle a suit by an agreement or

compromise. The general principle is that all matters which can be decided in a suit
can

also

be

settled

by

means

of

compromise.

10

Where it is proved to the satisfaction of the court that a suit has been adjusted, wholly
or in part, by any lawful agreement or compromise (in writing and signed by the
parties), or where the defendant satisfies the plaintiff in respect of the whole or any
part of the subject matter of the suit, the court must order such agreement,
compromise or satisfaction to be recorded, and then pass a decree accordingly as it
relates to the parties in the suit. It does not matter that the subject matter of the
agreement, etc. is the same as the subject matter of the suit (Order 23, Rule 3).

A court passing a compromise decree performs a judicial act and not a ministerial act.
Therefore, the court must satisfy itself that the agreement is lawful and it can pass a
decree in accordance with it and that such decree can be enforced against all the
parties to the compromise. If the compromise is not lawful, an order recording

Motilal v. Mahmood, AIR 1968 SC 1087

Prithvichand v S. Y. Shinde AIR 1993 SC 1929

10

11

compromise

can

be

recalled

by

the

court.

11

Proviso to Rule 3 lays down that where it is alleged by one party and denied by the
other that an adjustment or satisfaction has been arrived at, the court shall decide the
question; but no adjournment to be granted unless the court thinks fit to grant it. An
agreement or compromise which is void or voidable under the Indian Contract Act
shall not be deemed to be lawful within the meaning of this rule Explanation to
Rule3).

No agreement or compromise in a representative suit can be entered into without the

leave of the court, otherwise it shall be void (Rule 3-B). Similarly, a compromise on
behalf of a minor cannot be made without the court's leave. Nothing in this Order
shall apply to any proceedings in execution of a decree or order (R4).

Compromise

Decree

and

Estoppel

A 'compromise decree' is acceptance by the court of something to which the parties

had agreed; the court does not decide anything. A compromise decree is not a
decision on merits as it cannot be said that the case was "heard and finally decided."
Nevertheless, it is based on consent or compromise of parties and, therefore, will
operate

as

Appeal

an

'estoppel'

against

12

Compromise

Decree

No suit can be filed to set aside a decree on the ground that the compromise on which
the decree is based was not lawful (Rule 3-A). Likewise, no appeal lies against a
decree

passed

by

the

court

with

consent

of

parties

[Section

96(3)].

Rule 1-A(2) of Order 43, however, lays down that in an appeal against a decree
passed after recording or refusing to record a compromise, the order recording or

11
12

Banwari Lal v Chando Devi AIR 1993 SC 1139).

Shankar v Balkrishna AIR 1954 SC 352

12

refusing to record a compromise can also be questioned. A party challenging the

compromise can file an appeal under Section 96(1) of the Code and Section 96(3)
shall not bar such an appeal. Likewise, such a decree can be challenged by filing a
suit on the ground of fraud, undue influence or coercion. 13 Thus, a compromise
decree is liable to be set aside on any of the grounds which may invalidate an
agreement.14

The Supreme Court in Bakshi Dev Raj Vs. Sudhir Kumar has examined the Role of
Counsels and their power to make concessions in Court to withdraw or compromise
claims / proceedings on behalf of their respective Clients. The Court, in the present
judgment, has also examined the provisions of Order XXIII of the Code of Civil
Procedure with regard to compromise of suit, and discussed the power of advocates /
pleaders to act on behalf of their clients in such situations. The relevant paragraphs
from the judgment are reproduced hereunder;
Order XXIII of CPC deals with "Withdrawal and Adjustment of Suits". Rule 3 of
Order XXIII speaks about "compromise of suit" which reads as under:

Compromise of suit.- Where it is proved to the satisfaction of the Court that a suit has
been adjusted wholly or in part by any lawful agreement or compromise in writing
and signed by the parties, or where the defendant satisfies the plaintiff in respect of
the whole or any part of the subject matter of the suit, the Court shall order such
agreement, compromise or satisfaction to be recorded, and shall pass a decree in
accordance therewith so far as it relates to the parties to the suit, whether or not the
subject matter of the agreement, compromise or satisfaction is the same as the subject
matter of the suit: Provided that where it is alleged by one party and denied by the
other that an adjustment or satisfaction has been arrived at, the Court shall decide the
question; but no adjournment shall be granted for the purpose of deciding the
question, unless the Court, for reasons to be recorded, thinks fit to grant such
adjournment. Explanation--An agreement or compromise which is void or voidable

13
14

Banwari Lal v Chando Devi

Ruby Sales & Services (P) Ltd. v State of Maharashtra (1994) 1 SCC 531

13

under the Indian Contract Act, 1872 (9 of 1872), shall not be deemed to be lawful
within the meaning of this rule."
(iv)
(v)

9. The very same rule was considered by this Court in Gurpreet Singh vs. Chatur
Bhuj Goel, (1988) 1 SCC 270. In that case, the respondent therein Chatur Bhuj Goel,
a practising advocate at Chandigarh first lodged a criminal complaint against Colonel
Sukhdev Singh, father of the appellant, under Section 420 of the Indian Penal Code
1860 (hereinafter referred to as "the IPC"), after he had served the respondent with a
notice dated 11.07.1979 forfeiting the amount of Rs.40,000/- paid by him by way of
earnest money, alleging that he was in breach of the contract dated 04.06.1979
entered into between Colonel Sukhdev Singh, acting as guardian of the appellant,
then a minor, and the respondent, for the sale of residential house No. 1577, Sector18- D, Chandigarh for a consideration of Rs,2,85,000/-. In terms of the agreement, the
respondent was to pay a further sum of Rs.1,35,000/- to the appellant's father Colonel Sukhdev Singh by 10.07.1979 when the said agreement of sale was to be
registered and vacant possession of the house delivered to him, and the balance
amount of Rs.1,10,000/- on or before 31.01.1980 when the deed of conveyance was
to be executed. The dispute between the parties was that according to Colonel
Sukhdev Singh, there was failure on the part of the respondent to pay the amount of
Rs.1,35,000/- and get the agreement registered, while the respondent alleged that he
had already purchased a bank draft in the name of the appellant for Rs.1,35,000/- on
07.07.1979 but the appellant's father did not turn up to receive the same. Although the
Additional Chief Judicial Magistrate by order dated 31.10.1979 dismissed the
complaint holding that the dispute was of a civil nature and no process could issue on
the complaint, the learned Single Judge, by his order dated 11.02.1980 set aside the
order of the learned Additional Chief Judicial Magistrate holding that the facts
brought out clearly warranted an inference of dishonest intention on the part of
Colonel Sukhdev Singh and accordingly directed him to proceed with the trial
according to law. Aggrieved Colonel Sukhdev Singh came up in appeal to this Court
by way of special leave. While construing Order XXIII Rule 3 of CPC, this Court
concluded thus:
14

Under Rule 3 as it now stands, when a claim in suit has been adjusted wholly or in
part by any lawful agreement or compromise, the compromise must be in writing and
signed by the parties and there must be a completed agreement between them. To
constitute an adjustment, the agreement or compromise must itself be capable of
being embodied in a decree. When the parties enter into a compromise during the
hearing of a suit or appeal, there is no reason why the requirement that the
compromise should be reduced in writing in the form of an instrument signed by the
parties should be dispensed with. The court must therefore insist upon the parties to
reduce the terms into writing."
It is clear from this decision that during the course of hearing, namely, suit or appeal,
when the parties enter into a compromise, the same should be reduced in writing in
the form of an instrument and signed by the parties. The substance of the said
decision is that the Court must insist upon the parties to reduce the terms into writing.

(b)Satisfaction of court
It is the duty of the court to satisfy itself with regard to the terms of agreement. The court must
be satisfied that the agreement is lawful and it can pass a decree in accordance with it. The court
should also consider whether such a decree can be enforced against all the parties to the
compromise. A court passing a compromise .decree performs a judicial act and not a ministerial
act. Therefore, the court must satisfy itself by taking evidence or on affidavits or otherwise that
the agreement is lawful. If the compromise is not lawful, an order recording compromise can be
recalled by the court. In case of any dispute between the parties to the compromise, it is the duty
of the court to inquire into and decide whether there has been a lawful compromise in terms of
which the decree should be passed. An agreement or compromise which is void or voidable
under the Indian Contract Act, 1872, shall not be deemed to be lawful within the meaning of
Rule 3.
The court in recording compromise should not act in a casual manner. Where it is alleged by one
party that a compromise has not been entered into or is not lawful, it is the duty of the court to
decide that question.
15

(c)Compromise on behalf of minor

No next friend or guardian of a minor shall, without the leave of the court, enter into any
agreement or compromise on behalf of the minor with reference to the suit, unless such leave is
expressly recorded in the proceedings.
(d)Compromise by pleader
A pleader stands in the same position as his client with regard to his authority to compromise the
suit. An advocate appearing for a party, therefore, has always an implied authority to enter into a
compromise on behalf of his client.
(e) Representative suit: Rule 3-B
No agreement or compromise in a representative suit can be entered into without the leave of the
court. Before granting such leave, notice to the persons interested should be given by the court.
(f) Compromise decree and res judicata
A compromise decree is not a decision of the court. It is acceptance by the court of something to
which the parties had agreed. A compromise decree merely sets the seal of the court on the
agreement of the parties. The court does not decide anything. Nor can it be said that a decision of
the court is implicit in it. Hence, a compromise decree cannot operate as res judicata15. In some
cases, however, it is held that a consent decree would also operate as res judicata16.It is submitted
that the former view is correct since, in a consent decree, it cannot be said that a suit is heard and
finally decided by the court on merits. Such a decree, however, may create an estoppel between
the parties.
(g) Compromise decree and estoppel
A compromise decree is not a decision on merits as it cannot be said that the case was "heard and
finally decided". Nevertheless, it is based on consent or compromise of parties and, therefore,
will operate as an estoppel.

15
16

Subba Rao v. Jagannadha Rao, AIR 1967 SC 591

Shankar Sitaram v. Balkrishna sitaram, AIR 1954 SC 352

16

(h) Execution of compromise decree

A consent decree is executable in the same manner as an ordinary decree. But if the decree gives
effect to an unlawful compromise or is passed by the court having no jurisdiction to pass it, it is a
nullity and its validity can be set up even in the execution. The underlying principle is that a
defect of jurisdiction strikes at very authority of the court to pass a decree and such a defect
cannot be cured even by the consent of parties. Prior to the Amendment Act of 1976, a
compromise decree could be passed only so far as it related to the suit, but, by the Amendment
Act, it is specifically provided that whether or not the subject-matter of the agreement,
compromise or satisfaction is identical with the subject-matter of the suit, if it is between the
parties and the compromise is a lawful one, the court can pass such a decree.
(i)Bar to suit: Rule 3-A
No suit can be filed to set aside a compromise decree on the ground that it not lawful.39
(j) Appeal
No appeal lies against a decree passed by the court with consent of parties., nor a suit can be
instituted to set aside a compromise decree on the ground that such compromise is not lawful.
However, Rule 1-A(2) of Order 43 lays down that in an appeal against a decree passed after
recording or refusing to record compromise, the order recording or refusing to record a
compromise can also be questioned. A party challenging the compromise can file an appeal
under Section 96(1) of the Code and Section 96(3) shall not bar such an appeal17. Likewise, such
a decree can be challenged by filing a suit on the ground of fraud, undue influence or coercion.
A compromise decree is a creature of an agreement and does not stand on higher footing than
the agreement which preceded it. It is, therefore, liable to be se-aside on any of the grounds
which may invalidate an agreement.18

17
18

Banwari Lal v. Chando Devi, (1993) 1 SCC 581

Ruby Sales & Services v. State of Maharashtra. (1994) 1 SCC 531 (535).

17

CONCLUSION
A withdrawal without the leave of the court is 'absolute', while a withdrawal with the leave of the
court is 'qualified.' If the court is satisfied that a suit must fail by reason of some 'formal defect',
or that there are 'sufficient grounds' for allowing the plaintiff to institute a fresh suit, it may allow
the withdrawal from suit with liberty to institute a fresh suit in respect of the subject matter of the
suit

or

part

of

the

claim

[Rule1

(3)].

The expression 'formal defect' covers every kind of defect which does not affect the merits of a
case. Thus, a mis-joinder of parties or an erroneous valuation of the subject matter of a suit or
non-payment of proper court feel stamp fee, failure to disclose cause of action, defect in prayer
clause, etc. are formal defects. But, the following cannot be said to be 'formal defects': Nonjoinder of necessary party, omission to include all the causes of action in the plaint, bar of
limitation,

failure

to

bring

legal

representatives

on

record,

etc.

A 'compromise decree' is acceptance by the court of something to which the parties had agreed;
the court does not decide anything. A compromise decree is not a decision on merits as it cannot
be said that the case was "heard and finally decided." Nevertheless, it is based on consent or
compromise of parties and, therefore, will operate as an 'estoppel'.

18

Bibliography

Civil Procedure by C.K. Takwani

The Code of civil Procedure by Sukumar Ray

The code of civil Procedure by M.P. Jain

19