1. This is an appeal against an order recording a compromise.
The plaintiff-respondents filed a suit for the recovery of a sum of Rs. 9,600/- from the defendant-appellant, the Union of India. The sum claimed was in respect of loss incurred for nondelivery of goods delivered to the East Indian Railway. There was correspondence between the parties and during the course of this the Chief Commercial Manager of the E. I. R. wrote to the plaintiffs a letter offering a sum of Rs. 9,441/2/6 in full satisfaction of the plaintiffs' claim.
This offer was accepted by the plaintiffs and they applied to the Court to record it. The defendant, however, objected to the adjustment being recorded on the ground that after it had made the offer it discovered that it had been procured by the plaintiffs on the basis of a forged beejuk and that, therefore, it was not binding on them.
The defendants wanted to produce oral evidence to substantiate its plea of fraud but the lower court was of opinion that this question could not be gone into in those proceedings because the agreement being lawful upon the face of it, it had to be recorded irrespective of whether it could be established that it had been obtained by undue influence, fraud, coercion or misrepresentation. The agreement was consequently recorded and the claim to recover a sum of Rs. 9,441/2/6 was decreed against the defendant.
2. Against the order recording the compromise the defendant has come up in appeal to this court and it is urged on its behalf that the agreement having been obtained by fraud was not an adjustment at all and not binding upon the defendant and the court had no jurisdiction to re-cord it. It is urged that the court was bound to go into the question whether the adjustment was obtained by fraud or not.
3. Order 23, Rule 3, Civil P. C., under which an adjustment of a suit is recorded runs as follows:
'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, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject-matter of the suit, 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 suit.'
The phrase 'lawful agreement or compromise' in the aforesaid rule has been interpreted in a long series of decisions. In Qadri Jahan Begam v. Fazal Ahmad : AIR1928All494 Sulaiman and Kendall, JJ., observed :
'We think that the word 'lawful' in Order 23 Rule 3 refers to agreements which in their very terms or nature are not 'unlawful' and may therefore include agreements which are voidable at the option of one of the parties thereto, because they having been brought about by undue influence, coercion or fraud.'
4. This case was followed by a Division Bench of the Allahabad High Court in Husain Yar Beg v. Radha Kishen : AIR1935All137 where Niamatullah and Collister, JJ., after quoting the passage which we have quoted above from Qadri Jahan Begam's case (A) observed: --
'We are in entire agreement with the views expressed in the passages quoted above. A contract which has been induced by fraudulent conduct is, between the parties, not void but only voidable at the option of the party defrauded. Such contract is valid until it is set aside at the instance of the party at whose option it is voidable.
A contract vitiated by fraud can be set aside by a decree obtained in a regular suit instituted for that purpose. A mere repudiation by one of the parties, not acquiesced in by the other, is not avoidance of such contract. A judicial determination of facts on which the right to avoid rests is a necessary preliminary to the contract being set aside.
Order 23 Rule 3 does not provide for an enquiry into disputed facts collateral to the terms of the 'compromise. It is highly inexpedient that questions of the character raised in the present case should be enquired into a miscellaneous proceeding started by an application under Order 23, Rule 3, Civil P. C. If such an enquiry is allowed, all the various stages of a regular suit will have to be gone through in disposing of that application.
For these reasons, we do not think that a proceeding of the nature above referred to is within the purview of Order 23, Rule 3 and that a party alleging fraud cannot be allowed to avoid the compromise admittedly executed by it in proceedings started by an application under Order 23, Rule 3 Civil P. C. The Court, is bound to give effect to it forthwith if it is lawful having regard to its own terms'.
5. The view expressed in these cases was followed by the Madras High Court in Saraparaju v. Venkatarathnam : AIR1936Mad347 and in Kuppuswami Reddi v. Pavanambal : AIR1950Mad728 , by the Bombay High Court in Western Electric Co, v. Kailas Chand, AIR 1940 Bom 60 (E) decided by Kania, J., and by the Calcutta High Court in Harbans Singh v. Bawa Singh : AIR1952Cal73 . If the matter had been res Integra, we were inclined to take a different view.
6. When one party to a case alleges that an adjustment has taken place and the other denies the allegation the court has to go into the question whether the alleged adjustment has taken place. There is no sufficient reason why the Court should be debarred from going into the question whether the agreement is vitiated by fraud etc.
It was said that the word 'lawful' could have referred merely to the nature of the agreement and not to facts which rendered it invalid. Even if this is accepted, the question remains whether it can be said an adjustment by an agreement which had been obtained by fraud or undue influence etc., is an adjustment at all which can be enforced against the party defrauded when it has been repudiated by that party, because after all the Court is enforcing the compromise by recording and passing a decree in terms of it. It is conceded that a compromise and the decree based upon it can be set aside in a separate suit if fraud or any other vitiating factor is proved. The tendency of the law is against multiplicity of proceedings. Why should the law allow the enquiry regarding fraud to be held in a separate suit and not in the very proceedings in which the question is raised? Why should the law permit a decree to be passed at all when the agreement is ultimately bound to fail if the allegations are true
It is said that such questions are not fit for being enquired into in summary proceedings under Order 23 Rule 3. It does not appear to us that the proceedings under Order 23 Rule 3 are so summary that an allegation of fraud cannot be investigated. It can be investigated in the same manner as the denial of an adjustment can be investigated.
7. But in view of the fact that all the Courts In India have consistently for the last 28 years taken one particular view we do not consider that we should depart from the established practice in the present case. Accordingly we dismiss the appeal with costs.