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Bijayshree Resources Ltd., Calcutta Vs. Subasree Real Estates - Court Judgment

LegalCrystal Citation
CourtChennai High Court
Decided On
Case NumberO.S.A.No. 343 of 2012
Judge
AppellantBijayshree Resources Ltd., Calcutta
RespondentSubasree Real Estates
Excerpt:
(prayer: appeal filed under order xxxvi rule 9 of o.s. rules read with clause 15 of the letters patent against the order dated 19.06.2012 passed in application no.4709 of 2011 in c.s.no.1584 of 1988 on the file of original side of this court.) sanjay kishan kaul, c.j. 1. the appellant company / defendant entered into an agreement dated 18.06.1984 with the respondent partnership firm / plaintiff in respect of a land owned by the appellant measuring 81 grounds, situated in tiruvallur, chengalpattu district, in which 100 plots were to be carved out. the appellant represented that they had entered into an agreement for sale with the original owners and proposed to convert the land as house site plots on obtaining sanction from the town planning authorities and intend to sell the plotted area,.....
Judgment:

(Prayer: Appeal filed under Order XXXVI Rule 9 of O.S. Rules read with Clause 15 of the Letters Patent against the order dated 19.06.2012 passed in Application No.4709 of 2011 in C.S.No.1584 of 1988 on the file of original side of this Court.)

Sanjay Kishan Kaul, C.J.

1. The appellant company / defendant entered into an agreement dated 18.06.1984 with the respondent partnership firm / plaintiff in respect of a land owned by the appellant measuring 81 grounds, situated in Tiruvallur, Chengalpattu District, in which 100 plots were to be carved out. The appellant represented that they had entered into an agreement for sale with the original owners and proposed to convert the land as house site plots on obtaining sanction from the Town Planning authorities and intend to sell the plotted area, which the respondent agreed to purchase at a rate of Rs.5,500/- per ground subject to the conditions specified in the agreement. The sale was to be made by the appellant to the respondent or his nominees. The agreement specifically stipulated that the duration for completion of the sale transaction under the agreement for sale would be on or before 31.05.1985 or six (6) months from the date of implementation of the lay out plan to be duly sanctioned by the Town Planning authorities, whichever was later.

2. The appellant obtained the layout sanction from the Town Planning authorities on 15.05.1985 and thus, the six (6) months stipulated expired on 15.11.1985. In this period of time and some extended period, only fifteen (15) plots are stated to have been sold with the last such plot being sold on 07.04.1986.

3. The respondent, in turn, entered into a private agreement with a third party, M/s.Meenam Builders, on 11.05.1987 in respect of the same residential plots, possibly on a back-to-back arrangement.

4. In view of the aforesaid position, some disputes arose inter se the parties, which resulted in the respondent instituting a suit on the original side of this Court in C.S.No.1584 of 1988 on 09.11.1988, in effect, seeking specific performance of the agreement dated 18.06.1984 while making the following prayers:

a) To direct the defendant, after completing the implementation of the sanctioned lay-out C.S.A.R./D.T.C.P.- M.84-249/L.P.207 (revised) on ground, to execute and register Sale Deed/s in respect of the entire properties described in the Schedule hereunder, either as a whole or in plots, in favour of the plaintiff or the plaintiff's nominee/s, at the cost of the plaintiff and upon payment of the sale consideration to the defendant at the rate of Rs.5,500/- (Rs.Five thousand five hundred) per ground of 2,400 square feet;

b) To direct the defendant to deliver vacant possession of all the properties described in the Schedule herreunder to the plaintiff or to plaintiff's nominee/s;

c) For costs and incident to the suit;

d) For any further relief/s and direction/s which may be just and necessary in the circumstances of the case.

5. It appears that the suit did not really proceed for a number of years and the parties entered into a Memorandum of Understanding (MoU) on 22.02.2002 along with a third party to the said MoU being Thiru.E.Sambhandam, father of Thiru.S.Rajasekaran, the managing partner of the respondent-firm. A part of the recital agreements are crucial for the controversy which has emanated in the present appeal and thus, we reproduce them as under:

''WHEREAS the party of the second part finding that the prolonged litigation before the court and uncertainities of litigation are causing enormous delay and has therefore out of his own free will and volition and after deep deliberation with his own father, has approached the party of the first part for an amicable settlement and offered to withdraw the suit now pending on the file of the High Court for specific performance on condition that the party of the third part, the father of the party of the second part, be given exclusive rights to canvass and market the sale of the rest of the plots as described in the ''B'' Schedule hereunder written, on certain terms as mutually agreed upon between the party of the first part and party of the third part.

AND WHEREAS the party of the first part, has agreed to the offer of the party of the second part and the parties to this Memorandum of Understanding after deep discussion, deliberation have agreed upon certain mutual terms and conditions on which this memorandum of understanding has to be complied with.''

On the basis of the aforesaid recitals, the Memorandum of Agreement sets down its terms and conditions and the relevant clauses thereto are reproduced as under:

1. It is agreed by the party of the second part that they will take all effective steps by instructing his advocates on record to withdraw the civil suit now pending for specific performance originally numbered as ASCS.No.1584/1988 (and/or other Number) in the High Court, Madras, where it is pending now.

2. The party of the second part shall sign and deliver a memo with his advocate's signature, the original of which will be filed before the High Court, Madras, and a true copy will be furnished to the party of the first part. The party of the second part shall comply with all other formalities, as required by the court, for withdrawing the suit in C.S.No.1584/1988 (and/or other Number) and have the same dismissed by the High Court, Chennai. The party of the second part shall cancel agreements entered with the party of the first part and power of attorney given to him, if any, by the party of the first part.

3. The party of the second part hereby agrees that on the dismissal of the suit as aforesaid by the High court, he shall arrange to get the original of the agreement for sale dated 18.06.1984 and original power of attorney given in favour of him which shall be delivered to the party of the first part. In the meanwhile, the party of the first and second part confirm that on the signing of this MOU, the agreement dated 18.06.1984 remains cancelled and the party of the second part shall have no right and claim whatsoever against the party of the first part in respect of that agreement of sale.

4. The party of the first part in consideration of the amicable settlement arrived at in respect of the civil suit as aforesaid and in consideration of the vast experience that the party of the third part possessed in revenue matters, real estate business and his marketing capacities, has decided only to agree for the party of the third part being entrusted with the marketing of the unsold plots that are described in the ''B'' Schedule written.

5...

6. The parties of the First Part agree to pay marketing Remuneration which includes marketing cost and may include the cost of pathway Road formation etc., for the sale of the plots mentioned in the Schedule ''B'' as per the following TERMS.

A) The party of the First Part in consultation with the party of third party has fixed a minimum price of Rs.85/- per sq.ft. i.e.Rs.2,04,000/- (Rupees Two Lakh and four thousand only) per ground (2400 sq.ft) and out of that amount of Rs.2,04,000/- (Two Lakh and four thousand only) a sum of Rs.1,63,000/- (Rupees One Lakh and sixty three thousands only) will be retained by the party of the first part and the balance amount of Rs.41,000/- (Rupees Forty one thousands only) shall be paid to the party of the third part as marketing remuneration, on receipt of full sale proceeds of the plot / plots sold.

B)..

C)..

7...

8. The Party of the Third Part agrees to complete the marketing of the plots in schedule ''B'' within 12 months from this date. If the party of the Third Part is not able to market all the plots in schedule ''B'' within 12 months, then the marketing arrangement gets cancelled on the expiry of 12 months from this date and there will be no right to the party of the third party to market the plots and the party of first part shall take over the unsold plots and market themselves and/or have marketing arrangements with any others as they like.

....''

6. It is the say of the appellant, thus, that the respondent as plaintiff agreed to withdraw the suit pending for specific performance of the agreement for sale dated 18.06.1984. The respondent firm was to arrange for the original of the said agreement to be delivered to the appellant on withdrawal of the suit. This agreement was given to the appellant and is in possession, which was produced in Court. The agreement, on the back of the first page, has an endorsement ''This agreement is cancelled this day 22.2.2002'' and is signed by both the parties. It is also the say of the appellant that in terms of Clause 3 extracted aforesaid, the respondent confirmed that the agreement dated 18.06.1984 remains cancelled and that it shall have no right and claim whatsoever against the appellant in respect of the agreement for sale. This was occasioned in terms of the said clause on signing of the tripartite MoU itself.

7. The MoU was tripartite as Thiru.E.Sambandham was introduced and in terms of Clause 4, was entrusted with the marketing of the unsold plots solely. The minimum price for the plot was also fixed in terms of Clause 6-A, a part of which being retained by the appellant and a part being paid to the third party to the MoU, Thiru.E.Sambandham, as marketing remuneration. In terms of Clause 8, this marketing by the third party was to be concluded within 12 months from the date of the MoU and on failure to do so, the marketing arrangement was to get cancelled on expiry of 12 months from that date and there would be no right to the third party to market the plots of the appellant.

8. Since the agreement dated 18.06.1984 was cancelled, the respondent cancelled its agreement with M/s.Meenam Builders mutually by a registered document dated 01.08.2002. The said cancellation agreement is on record and mentions that there was a failure of understanding over the price of the plots in pursuance to the agreement dated 18.06.1984 and consequently, the agreement dated 11.05.1987 entered into with M/s.Meenam Builders was being cancelled.

9. The aforesaid tripartite agreement also seems not to have resolved the disputes inter se the parties and for a long time, the matter just seems to have been dragged on. The respondent, through counsel, is stated to have filed proof affidavit on 13.04.2009 without disclosing the subsequent events of cancellation of the agreement dated 18.06.1984 and the execution of the tripartite MoU dated 22.02.2002 and on failure of the counsel for the appellant to appear (there was some issue of change of counsel), the suit was decreed ex parte on 06.07.2009 . The decree was, however, set aside on 07.06.2011 on Application No.4493 of 2009 being filed by the appellant on 03.08.2009. The appellant filed an additional written statement on 15.07.2011 setting forth the subsequent facts along with Application No.3722 of 2011 to receive the additional written statement. Another application was filed on 20.09.2011 bearing No.4709 of 2011 to take on record the compromise dated 22.02.2002 and seeking dismissal of the suit as a consequence thereof.

10. The application to receive additional written statement was allowed on 29.09.2011. The application to dismiss the suit was contested by the respondent pleading that the tripartite MoU could not be recorded in the suit as there were three parties in this MoU as against the two parties in the suit. It is the claim of the respondent that the MoU was not acted upon ''in full'' and was valid for a period of 12 months as per Clause 8, whereupon it expired.

11. The aforesaid application of the appellant was, however, dismissed vide an order dated 19.06.2012 of the learned Single Judge. The gravamen of the order is the finding of the learned Single Judge that the MoU dated 22.02.2002 was to last only for 12 months whereafter the arrangement was to become infructuous and thus, there was no point in taking it on record and directed the suit to be referred for recording of evidence with liberty to the appellant to confront the MoU dated 22.02.2002 with the appellant as plaintiff being examined as P.W.1 during the course of his examination. It is this order which is assailed in this appeal.

12. We may note that in the course of hearing, learned counsel for the respondent did not dispute the position that the direction contained in the impugned order could, at best, be treated as one for recording of evidence for determining the application filed by the appellant, i.e. A.No.4709 of 2011, and there could not have been dismissal of the application. The plea, thus, is that the respondent should be given the opportunity of leading evidence to show how the MoU had worked itself out and the suit must continue, though signature on the MoU and its execution had never been denied.

13. Thus, the question to be considered in this appeal is as to whether this course of action is to follow with modification of the impugned order or as contended by the learned Senior Counsel for the appellant, the suit is liable to be dismissed with the MoU being taken on record with liberty to the respondent or the third party, Thiru.E.Sambandham, father of the managing partner of the respondent firm, to enforce the rights under the MoU dated 22.02.2002, if such rights exist at all.

14. Mr.G.Masilamani, learned Senior Counsel for the appellant sought to contend that the impugned order is based on mis-reading of the MoU dated 22.02.2002 inasmuch as there is no question of revival of the agreement dated 18.06.1984. The time period specified for compliance of the terms of the MoU being 12 months, the non-compliance of the MoU could not revive the agreement dated 18.06.1984, but could, at best, be a cause to seek enforcement of the MoU dated 22.02.2002. There was no clause in the MoU which limited its effect to 12 months whereby the cause of action for the suit would survive. The termination of the agreement dated 18.06.1984 was final and that agreement could not be revived. That agreement alone was the cause of action for filing the suit.

15. The learned Senior Counsel pleaded that the MoU amounted to a novation of the contract and thus, the agreement dated 18.06.1984 stood superseded and novated by the MoU dated 22.02.2002. Learned Senior Counsel, referring to Clause 3 of the MoU, submitted that it was unequivocally recorded that on signing of the MoU, the agreement dated 18.06.1984 stood cancelled and that the respondent would have no right and claim whatsoever against the appellant in respect of that agreement for sale. Thus, the endeavour of the respondent was only to flog a dead horse.

16. Learned Senior Counsel submitted that the MoU was not a conditional agreement which sought to revive the earlier agreement and in this behalf, while referring to the recitals of the agreement extracted to aforesaid, submitted that the reference in the same to withdrawing the suit pending for specific performance ''on condition'' was in respect of the third party (father of the partner of the respondent firm) '' to be given the exclusive rights to canvass and market the sale of the rest of the plots''. Such rights were given under the MoU as per the terms of the agreement.

17. We may note that while referring to the additional typed set of documents sought to be filed by the respondent in Court on the date of hearing, it was submitted that the respondent seeks to refer to the application filed for restoration of the suit in July, 2009 where no mention was made of the MoU dated 22.02.2002. The occasion, it was submitted, to do so, could not arise at that stage as the only aspect to be explained was the absence of representation on part of the appellant. Once that order was set aside, the additional written statement was also brought on record and the application in question was filed. On the other hand, the ex parte decree obtained by the respondent, subsequently set aside, was on account of the failure of the respondent to put forth the subsequent facts correctly before the Court and the non-disclosure of such material documents to obtain advantage amounted to a fraud (vide S.P.Chengalvaraya Naidu (Dead) by LRs. vs. Jagannath (Dead) by LRs., (1994) 1 SCC 1). However, this aspect, to our mind, is not really of much relevance in the present proceedings.

18. Learned Senior Counsel referred to the judgment in Pushpa Devi Bhagat (D) Th.L.R.Smt.Sadhna Rai vs. Rajinder Singh and Others, 2007-1-L.W. 684, to contend that once a compromise is found genuine and lawful, the same has to be enforced under the provisions of Order 23 Rule 3 of the Code of Civil Procedure, 1908 (in brevity 'the Code'). The relevant paras of the judgment read as under:

''13. Order XXIII deals with withdrawal and adjustment of suits. Rule 3 relates to compromise of suits, relevant portion of which is extracted below :

"3. 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."

The said Rule consists of two parts. The first part provides that 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, the court shall order such agreement or compromise to be recorded and shall pass a decree in accordance therewith. The second part provides that where a defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit,the court shall order such satisfaction to be recorded and shall pass a decree in accordance therewith. The Rule also makes it clear that the compromise or agreement may relate to issues or disputes which are not the subject-matter of the suit and that such compromise or agreement may be entered not only among the parties to the suit, but others also, but the decree to be passed shall be confined 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. We are not, however, concerned with this aspect of the Rule in this appeal.

14. What is the difference between the first part and the second part of Rule 3 ? The first part refers to situations where an agreement or compromise is entered into in writing and signed by the parties. The said agreement or compromise is placed before the court. When the court is satisfied that the suit has been adjusted either wholly or in part by such agreement or compromise in writing and signed by the parties and that it is lawful, a decree follows in terms of what is agreed between the parties. The agreement/compromise spells out the agreed terms by which the claim is admitted or adjusted by mutual concessions or promises, so that the parties thereto can be held to their promise/s in future and performance can be enforced by the execution of the decree to be passed in terms of it. On the other hand, the second part refers to cases where the defendant has satisfied the plaintiff about the claim. This may be by satisfying the plaintiff that his claim cannot be or need not be met or performed. It can also be by discharging or performing the required obligation. Where the defendant so 'satisfies' the plaintiff in respect of the subject-matter of the suit, nothing further remains to be done or enforced and there is no question of any 'enforcement' or 'execution' of the decree to be passed in terms of it. Let us illustrate with reference to a money-suit filed for recovery of say a sum of Rupees one lakh. Parties may enter into a lawful agreement or compromise in writing and signed by them, agreeing that the defendant will pay the sum of Rupees one lakh within a specified period or specified manner or may agree that only a sum of Rs.75,000 shall be paid by the defendant in full and final settlement of the claim. Such agreement or compromise will fall under the first Part and if defendant does not fulfil the promise, the plaintiff can enforce it by levying execution. On the other hand, the parties may submit to the court that defendant has already paid a sum of Rupees one lakh or Rs.75,000/- in full and final satisfaction or that the suit claim has been fully settled by the defendant out of court (either by mentioning the amount paid or not mentioning it) or that plaintiff will not press the claim. Here the obligation is already performed by the defendant or plaintiff agrees that he will not enforce performance and nothing remains to be performed by the defendant. As the order that follows merely records the extinguishment or satisfaction of the claim or non- existence of the claim, it is not capable of being 'enforced' by levy of execution, as there is no obligation to be performed by the defendant in pursuance of the decree. Such 'satisfaction' need not be expressed by an agreement or compromise in writing and signed by the parties. It can be by a unilateral submission by the plaintiff or his counsel. Such satisfaction will fall under the second part. Of course even when there is such satisfaction of the claim or subject matter of the suit by defendant and the matter falls under the second part, nothing prevents the parties from reducing such satisfaction of the claim/subject matter, into writing and signing the same. The difference between the two parts is this : Where the matter falls under the second part, what is reported is a completed action or settlement out of court putting an end to the dispute, and the resultant decree recording the satisfaction, is not capable of being enforced by levying execution. Where the matter falls under the first part, there is a promise or promises agreed to be performed or executed, and that can be enforced by levying execution. While agreements or compromises falling under the first part, can only be by an instrument or other form of writing signed by the parties, there is no such requirement in regard to settlements or satisfaction falling under the second part. Where the matter falls under second part, it is sufficient if the plaintiff or plaintiff's counsel appears before the court and informs the court that the subject matter of the suit has already been settled or satisfied.

...

17. The next question is where an agreement or compromise falls under the first part, what is the meaning and significance of the words 'in writing' and 'signed by the parties' occurring in Rule 3 ? The appellant contends that the words 'in writing' and 'signed by the parties' would contemplate drawing up of a document or instrument or a compromise petition containing the terms of the settlement in writing and signed by the parties. The appellant points out that in this case, there is no such instrument, document or petition in writing and signed by the parties.''

19. Learned Senior Counsel submits that in the present case, the lawful agreement being the MoU dated 22.02.2002 is not in dispute and the effect of the same as recorded in the unequivocal terms was that the suit has to be withdrawn and the agreement dated 18.06.1984 stood cancelled. Thus, the very cause of action of the suit stood extinguished apart from the obligation on part of the respondent to withdraw the suit. As to what is the effect of the MoU, whether any party to the MoU is in breach of it or not is the subject matter of dispute arising from that MoU which was brought into force. The MoU is not disputed nor is any fraud played in that behalf. Such compromise can be entered into ''not only among the parties to the suit, but others also''. In the present case, thus, the father of the partner of the respondent was such third party. The decree has to be confined to the parties to the suit and the only decree to be passed was the dismissal of the suit in terms of the compromise. That was the only purpose of bringing the MoU on record and not for enforcing of any obligation arising from the MoU. The decree of dismissal must, thus, lawfully follow. The document being the MoU contains the terms of settlement in writing and is signed by the parties - the requirement of Order 23 Rule 3 of the Code.

20. Learned Senior Counsel also sought to contend that novation of the contract extinguishes the original contract and referred to the judgment of the Hon'ble Supreme Court in Union of India vs. Kishorilal Gupta and Bros., AIR 1959 SC 1362. It was opined that one of the modes by which a contract can be discharged is by the same process which created it, i.e. by mutual agreement and the parties may enter into a new contract in substitution of the old one. We reproduce the relevant para 5 as under:

''5. The law on the first point is well-settled. One of the modes by which a contract can be discharged is by the same process which created it, i.e., by mutual agreement; the parties to the original contract may enter into a new contract in substitution of the old one. The legal position was clarified by the Privy Council in Payana Reena Saminathan v. Pana Lana Palaniappa (1) [1914] A.C. 618 622. Lord Moulton defined the legal incidents of a substituted contract in the following terms at p. 622:

" The 'receipt' given by the appellants, and accepted by the respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the 'receipt'. It is a clear example of what used to be well known in common law plea ding as " accord and satisfaction by a substituted agreement ". No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all of a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it. "

The House of Lords in Norris v. Baron and Company [1918] A.C. 1. 26 in the context of a contract for sale of goods brought out clearly the distinction between a contract which varies the terms of the earlier contract and a contract which rescinds the earlier one, in the following passage at p. 26:

"In the first case there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist; in the second you could sue on the second arrangement alone, and the first contract is got rid of either by express words to that effect, or because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed. "

Scrutton, L.J., in British Russian Gazette and Trade Outlook Limited v. Associated Newspaper Limited [1933] 2 K.B. 6i6, 643, 644, after referring to the authoritative text-books on the subject, describes the concept of 11 accord and satisfaction " thus at p. 643:

" Accord and satisfaction is the purchase of a ,release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative. Formerly it was necessary that the consideration should be executed Later it was conceded that the consideration might be executory The consideration on each side might be an executory promise, the two mutual promise making an agreement enforceable in law, a contract I An accord, with mutual promises to perform, is good, though 'the thing be not performed at the time of action; for the party has a remedy to compel the performance', that is to say, a cross action on the contract of accord if, however, it can be shown that what a creditor accepts in satisfaction is merely his debtor's promise and not the performance of that promise, the original cause of action is discharged from the date when the promise is made. "

The said observations indicate that an original cause of action can be discharged by an executory agreement if the intention to that effect is clear. The modern rule is stated by Cheshire and Fifoot in their Law of Contract, 3rd Edn., at p. 453:

"The modern rule is, then, that if what the creditor has accepted in satisfaction is merely his debtor's promise to give consideration, and not the performance of that promise, the original cause of action is discharged from the date when the agreement is made.

This, therefore, raises a question of construction in each case, for it has to be decided as a fact whether it was the making of the promise itself or the performance of the promise that the creditor consented to take by way of satisfaction. "

So too, Chitty in his book on Contracts, 31st Edn., states at p. 286:

" The plaintiff may agree to accept the performance of a substituted consideration in satisfaction, or he may agree to accept the promise of such performance. In the former there is no satisfaction until performance, and the debtor remains liable upon the original claim until the satisfaction is executed. In the latter, if the promise be not performed, the plaintiff's remedy is by action for the breach of the substituted agreement, and he has no right of resort to the original claim. "

From the aforesaid authorities it is manifest that a contract may be discharged by the parties thereto by a substituted agreement and thereafter the original cause of action arising under the earlier contract is discharged and the parties are governed only by the terms of the substituted contract. The ascertainment of the intention of the parties is essentially a question of fact to be decided on the facts and circumstances of each case.''

21. On the other hand, Mr.V.Raghavachari, learned counsel for the respondent, contended that it is only in the process of trial on the application filed by the appellant could the effect of MoU executed on 22.02.2002 be gone into and found out whether actually the MoU was or was not implemented by the appellant and if so, to what effect.

22. Learned counsel relied upon the proviso to Order 23 Rule 3 of the Code to canvass his case, which reads as under:

3. 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 satisfied the plaintiff in respect of the whole or any part of the subject-matter of the suit, the Court shall order such agreement, compromise satisfaction to be recorded, and shall pass a decree is 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 not 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.

23. It was, thus, submitted that whether the suit has been adjusted wholly or in part by any agreement or compromise would have to be investigated by the Court where it is alleged by one party and denied by the other party in terms of the said proviso.

24. Learned counsel for the respondent also referred to the judgment of the Hon'ble Supreme Court in Pushpa Devi Bhagat (D) Th.L.R.Smt.Sadhna Rai vs. Rajinder Singh and Others, supra, more specifically paras 13 and 14 to submit that the decree to be passed has to be confined to the rights of the parties in the suit and not of the third party. The Court has to be satisfied that the suit has to be adjusted to either wholly or in part of such agreement or compromise in writing and a decree to follow in terms thereof. While in the present case, there is no question of adjustment of the suit involved, as no claim of the respondent / plaintiff made in the original suit has been satisfied.

25. We have given our thoughtful consideration to the controversy in question.

26. The MoU dated 22.02.2002 is not in question. It is not a disputed document. Thus, the only thing to be seen is as to what is the effect of this MoU.

27. We may note that though the obligations by the third party, Thiru.E.Sambandham, being the father of the partner of the respondent, under the MoU had to be performed within 12 months, whereafter the rights of the third party stood extinguished, there is no mention of revival of the inter se obligations of the party under the agreement dated 18.06.1984. The amicable settlement referred to in the recital of the MoU records that the offer was for withdrawal of the suit for specific performance ''on condition'' that the third party be given the exclusive rights to canvass and market the sale of the rest of the plots. Such rights were undoubtedly given under the MoU. The terms of the MoU clearly provide for withdrawal of the suit. Not only that, the MoU categorically records ''In the meanwhile, the party of the first and second part confirm that on the signing of this MOU, the agreement dated 18.06.1984 remains cancelled and the party of the second part shall have no right and claim whatsoever against the party of the first part in respect of that agreement of sale.'' This was further implemented by the endorsement made on the agreement dated 18.06.1984 at its back that the agreement stood cancelled on 22.02.2002. Thus, by mutual consent, the agreement dated 18.06.1984 was buried and all rights extinguished. This agreement is the cause of action for filing of the suit. The cause of action was, thus, extinguished and is incapable of being revived, as there is no terms in the MoU which show that if the obligations are not performed under the MoU by any party, the agreement dated 18.06.1984 would stand revived. The option of the parties were restricted to enforcement of the obligations under the MoU dated 22.02.2002.

28. The endorsement made on the agreement aforesaid was in furtherance of the MoU. Not only that, the arrangement which the respondent had with M/s.Meenam Builders in pursuance to the agreement dated 11.05.1987 as a back to back contract was also extinguished on 01.08.2002 by a registered document. Thus, all further acts were done to ensure the burial of the agreement dated 18.06.1984 except the act of formally withdrawing the suit.

29. The requirements of Order 23 Rule 3 of the Code are, thus, squarely met by drawing up of the MoU signed by both the parties hereto, apart from the third party, containing the terms of settlement which stipulate cancellation of the agreement dated 18.06.1984 and withdrawal of the suit. We agree with the submission of the learned Senior Counsel for the appellant and merely because the third party was included in the MoU would not in any manner affect the compromise and in so far as the present suit is concerned, between the two parties, the obligation under the MoU is only for withdrawing the suit, simultaneous to the extinguishment of the rights under the agreement dated 18.06.1984.

30. We are also of the view that the MoU dated 22.02.2002 is clearly a novation of the agreement dated 18.06.1984 albeit with third party added. In fact, rights to market was conferred on the third party, who is the father of the partner of the respondent under the scheme of the MoU. The third party really took over the job of the respondent and thus, the MoU talks about remuneration to such third party, which amounted to the respondent nominating the third party for the said purpose under the MoU. This is, thus, clearly a case where by mutual agreement, the parties have put an end to the original contract and entered into a substituted one with one more party added (Union of India vs. Kishorilal Gupta and Bros., supra). The prior rights of the two parties has been extinguished, which, in turn, stand exchanged for new rights. The earlier contract was got rid of and thus, the principle that the original cause of action can be discharged by executory agreement if the intention is to that effect is clear would be a principle applicable in the facts of the present case, with the substituted agreement being the MoU governing the rights and obligations of the two parties herein as well as the third party. There is no doubt, in the present case, of the intention of the parties.

31. We are unable to persuade ourselves to agree with the submission of the learned counsel for the respondent that this is the matter where a trial should take place or the proviso to Order 23 Rule 3 of the Code comes into play. The execution of the MoU is not in question. The subsequent acts of the parties of endorsing the cancellation of the agreement dated 18.06.1984, the respondent cancelling the back to back contract vide cancellation agreement dated 01.08.2002, fresh rights being created under the MoU inter se the parties are all aspects which go against the respondent.

32. We are, thus, of the view that the impugned Judgment and Decree dated 20.06.2012 of the learned Single Judge cannot be sustained and the application filed by the appellant in A.No.4709 of 2011 is liable to be allowed with the MoU dated 22.02.2002 being placed on record and the suit being accordingly dismissed.

33. Original Side Appeal is, accordingly, allowed in terms aforesaid, leaving the parties to bear their own costs.

34. We, however, make it clear that in so far as any obligation of the parties to the tripartite compromise dated 22.02.2002 are concerned, they would be enforceable in independent proceedings, if the parties so choose.


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