BANK OF AMERICA Versus MAIRAJ SONS LTD

By this order I propose to dispose of the two interconnected applications, C.M.No.2356‑C of 1984 and C.M.No.134‑B of 1985, filed by defendants. The first of these applications, viz. C.M.No.2356‑C of 1984 under Order XXIII, Rule 3 and section 151, C.P.C. prays for recording a fresh compromise and adjustment of the suit in terms of paras. 7, 11 and 18 of the application; whilst the second which is under sections 141 and 151, C.P.C. prays for framing of issues on the pleadings in the first application and for recording of evidence therein.

2. It has been asserted by the defendants in C . M. No. 2356‑C of 1984 that in reply, to the plaintiff‑bank's application under Order XXXIV Rule 4, C.P.C.. for passing of a final mortgage decree and sale of mortgaged properties the defendants had challenged the vires of. the preliminary mortgage decree dated 3‑2‑1981 on various grounds ad pursuant thereto the parties, filed applications, cross‑applications, affidavits and counter‑affidavits against each other which ultimately led to fresh negotiations between the parties for amicable settlement of the dispute and in September, 1982 Syed Ali Raza, Manager of the plaintiff‑bank offered to defendant No.3, the Chief Executive of defendant No.1 Company, that the bank would be prepared to accept the arrangement as detailed in paras. 7(i), (ii), (iii), (iv) and (v) of the application and that after a few more meetings held between the officials of the plaintiff‑bank and the defendants the offer was accepted which has resulted in the emergence of a new lawful agreement and adjustment of the suit in terms of the offer aforementioned subject to the confirmation thereof by a sub‑committee of the bank and the bank's Area Controlling Office at London. The further averments in the application are that defendants on similar lines compromised a suit filed against them by the Citibank and that this compromise with the Citibank was reached after discussions between an official of the Citibank and his counterpart of the plaintiff‑bank. It has also been alleged that the plaintiff‑bank received necessary approval from the Area Controlling Office for effecting the compromise, but it has not converted the same into writing although the bank officials had been encouraging the defendants to raise the agreed amount of Rs.l crore to be paid by the defendants to the plaintiff‑bank in liquidation of latter's total liability by sale of the mortgaged properties or through raising loans from other resources. Some steps are alleged to have been taken in part performance of the compromise which have been detailed in para. 18 of the application. Lastly, it has been asserted that the positive response of the plaintiff‑bank to reduce the agreement into writing is still awaited and the attitude of the plaintiff‑bank in avoiding to reduce the agreement into writing would in no way adversely affect the rights and obligations of the parties under the agreement.

3. The contents of this application have been categorically controverted by the plaintiff‑bank. In the prelude to the reply on merits the plaintiff‑bank has asserted that the sole object of the defendants in making the application is to further delay the proceedings in the suit; that the contents of the application are based on imaginary discussions, meetings, agreements, compromise, sub‑committee of officers etc. and that the position, in fact, is that defendant No.3 expressed his opinion to the plaintiff‑bank that the machinery, land, and building of the defendants' factory could hardly fetch a crore of rupees, if sold, and, therefore, he had negotiated sale of machinery with one Machinery Dealer of Karachi as also with Mr. Zahoor Elahi who, according to him, held sanction for setting up a textile mill but the plaintiff‑bank told the said defendant No.3 that in the presence of a consent preliminary decree and the Court orders he should not negotiate sale or transfer of the machinery, land and buildings which are securities for repayment of loan without permission of the Court and that if the application envisaged by him is filed in the High Court the bank would request the Court for sale of the property through public auction and the persons who are negotiating with him could also participate therein. It has also been asserted in the reply that defendant No.3 was categorically told that the bank has no authority to negotiate sale or transfer of the land; building, and machinery without prior permission of the Court. In the reply, it has also been asserted that on earlier such suggestions of defendant No.3 every time he was advised to place these suggestions/ proposals before the Court and he was discouraged from discussing these matters with the plaintiff‑bank. The alleged offer of Syed Ali Raza to defendant No.3 has been emphatically denied and it has been asserted that in the presence of a preliminary consent decree the question of another compromise could not and in fact did not arise. The very existence of a sub‑committee of the bank to grant approval to the alleged compromise has also been denied. The offer, acceptance, compromise, agreements, meetings, and reference to Controlling Office at London have also been repudiated. The reference about settlement with other banks etc. and arrangements with the B.C.C.I. for obtaining loan has also been denied.

4. After about 11 years of the filing of the above application the defendants made the second application C.M. No.134‑B of 1985 with the prayer for framing issues and for taking evidence in the first application. This application has also been resisted by the plaintiff bank, inter alia, on the ground that the application is not maintainable in law; that the same has been filed with motive to delay the decision in the application of the plaintiff for passing of the final decree; that the controversy involved in the application being only imaginary and the intention being only to delay the main proceedings which is evident from the fact that this application has been filed highly belatedly disentitles the applicants‑defendants from making the prayer.

5. Mr. Aitzaz Ahsan, the learned counsel for the plaintiff raised a preliminary objection to the maintainability of the first mentioned application. He submitted that no application under Order XXIII, Rule 3, C.P.C. for recording of a compromise in a suit can be entertained, in which already a decree has been passed. He elaborated his contention by saying that the only request that can be made in such a situation is for the adjustment of a decree as provided by Order XXI, Rules 1 and 2 C.P.C. He argued that Order XXIII, Rule 4 C.P.C. provides that Order XXIII, is not applicable after a decree has been passed. Adverting to Order XXI, Rules 1 and 2, C.P.C., the learned counsel for the plaintiff contended that under these rules the procedure and manner in which the payment under a decree could be made has been elaborated and the rules squarely apply to the present consent decree in which the mode and manner of adjustment had been prescribed.

6. Mr. Raza Kazim, the learned counsel for the applicants defendants in reply to the preliminary objection submitted that the same has no valid basis in that the preliminary decree being not a determination by the Court and being only in the nature of an agreement is open to modification. He in this regard relied on Habib and. 8 others v. Haji Muhammad and 3 others reported as P L D 1970 Kar. 495 and Ram Niwas v. Ram Dayal reported as A I R 1939 All. 174.

7. On the merits of the first application the learned counsel for the applicants‑defendants submitted that a compromise decree is only an ordinary compromise and if a situation arises where the parties have changed their minds as in the present case there should be no impediment in the way of recording a further compromise so as to alter the preliminary decree and bring it in line with the subsequent agreement. He referred to Sourendra Nath Mitra and others v. Tarubala Dasi reported as A I R 1930 Privy Council 158 in support of the above contention.

8. The learned counsel for the applicants‑defendants relying on Sri Krishan v. Jamna Narain and others reported as A I R 1938 Oudh 103 contended that an oral agreement between the parties for varying a decree can be given effect to by the Court.

9. The learned counsel for the applicants‑defendants in support of the second application, viz. C.M.No.134‑B of 1985, contended that since the controversies that have arisen out of the pleadings of the parties are such which can be decided by recording evidence it is just and proper that this application be first allowed and after the parties have been given an opportunity of adducing evidence it should be determined whether the compromise sought to be recorded through the first application viz. C . M . No. 2356‑C of 1984 merits to be recorded.

10. In reply the learned counsel for the plaintiff submitted:

(1) That there being a categorical denial by the plaintiff about the very ,existence of any fresh compromise and even of negotiations therefor after the first compromise which has since been recorded and followed by a preliminary decree the question of framing any issues and recording evidence or for that matter recording the alleged second compromise does not arise.

(2) That Article 103 of the Qanun‑e‑Shahadat Order, 1984 prohibits the entertainment of the two applications and more strongly the second one which asks for permission to lead oral evidence to contradict the preliminary decree which by law is required to be and has in fact been reduced into writing. Referring to Article 2 of Qanun‑e‑Shahadat Order, the learned counsel submitted that a "document" includes a decree.

(3) That Article 85 of Qanun‑e‑Shahadat Order, 1984 defines a public document which by virtue of sub‑articles 2 and 3, a decree also is and, therefore, when read conjunctively with Article 103 ibid no oral evidence could at all be led to contradict, vary or alter the decree by adding or substracting therefrom.

(4) That proviso 4 of Article 103 of the Qanun‑e‑Shahadat Order is not applicable to a decree as a compromise under Order XXIII, Rule 3, C.P.C. is by law required to be in writing.

(5) That in any case a written agreement cannot be allowed to be altered through an alleged subsequent oral agreement. Reference in support of this contention has been made to Gopal Madhorao Deshpande v. Achut Sadasheo Deshpande reported as A 1, R 1941 Nagpur 271 and Shibcharan Das v. Gulabchand Chhotey Lai reported as A I R 1936 All. 157.

(6) That even a bare reading of the application itself shows that no conclusive agreement was reached between the parties and what at best could be inferred is that negotiations were entered into for some alleged compromise and that the negotiations have not borne fruit.

(7) That the alleged modifications of the previously recorded compromise since transformed into a decree by themselves show that those could never have been agreed to by the plaintiff‑bank as they not only do not give any further benefit to the plaintiff but on the contrary tend to deprive the plaintiff of what it had already gained through the compromise decree to which the bank would not have ever agreed.

(8) That Order XXIII, Rule 3, C.P.C. requires proof of adjustment of suit by an agreement but the application of the applicants defendants does not, show even an adjustment by inference what to say of proof thereof.

(9) That the applications are only intended to delay the final adjudication of the dispute and to keep the plaintiff away from bearing the fruits of the decree.

11. In reply the learned counsel for the applicants‑defendants submitted that the application proves a concluded second agreement wherein the first five paras. enumerate the background and para. 6 gives the terms.

12. The learned counsel for the applicants‑defendants next contended that under Article 103 of the Qanun‑e‑Shahadat Order decree is not a document. He referred to Ananda Priya Baishnavi v. Bijoy Krishna Ray reported as A I R 1926 Cal. 643 and S. Udham Singh v. S. Atma Singh reported as A I R 1941 Lah. 149 in support of the above contention.

13. The principal rather the only question which emerges for determination out of the arguments advanced by the learned counsel for the parties may be formulated as under:‑

"Could a consent preliminary decree passed after recording a compromise filed in Court by the parties be altered, varied or rescinded on the basis of an alleged subsequent oral agreement asserted by one party but categorically denied by the other?"

To answer the above question a close examination of the provisions of Order XXIII, Rule 3, C.P.C. will have to be made. For facility of reference the said provision is reproduced hereunder:‑

"Where it is proved to the satisfaction on 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, 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 suit."

From the above provision it is manifest that before any agreement or compromise is recorded by the Court it is imperative to ascertain whether there exists a compromise/agreement/adjustment which is lawful. A compromise /agreement to be lawful has of necessity to be a finally concluded compromise reached between the parties voluntarily. There can also be no dispute to the proposition that inconclusive/ inchoate negotiations/ talks between the parties directly or between the parties and some third persons cannot be termed as a finally concluded lawful agreement because if such inconclusive /inchoate negotiations are allowed to be made the basis for even taking pro‑ A proceedings for recording alleged compromises this will amount to encouraging unscrupulous parties to make applications under the above provision and thereby gain, if nothing else, at least the keeping in abeyance of the final adjudication of the causes which 1 have no doubt in my mind the Courts will loathe to permit. The situation would stand more aggravated ii an already concluded compromise between the parties which has been formed the basis of a compromise preliminary decree is allowed to be agitated again on the premises of some inconclusive talks between the parties and thereby promote multiplicity of proceedings which again, if I may say so, is the duty of the Courts to discourage.

14. The safest method to record compromises between the parties and passing decree thereon is where a compromise is embodied with all its terms in a document signed by all the parties and their Advocates and a petition is filed to record the same. From my above observation it may not be inferred that in no circumstance an oral agreement cannot be allowed to be recorded. An oral agreement may be recorded and a decree passed on the basis thereof when the parties appear before the Court and voluntarily accept the terms of the asserted oral agreement and there is no contentious stance taken by any of them as regards the terms of compromise.

15. Whilst on the subject I may observe that although it is legally permissible that a suit can be compromised or adjusted orally between the parties it is the duty of the Court to be very cautious in recording oral compromises. The fundamental. duty of the Court in recording a compromise is that it must come to the conclusion that the agreement is lawful which necessarily implies that it has been voluntarily and finally concluded between the parties.

16. It may also be observed that It would be hazardous to allow negotiations conducted with a view to settlement to be held as admission or to allow them to be used as evidence against a party. Where negotiations are being conducted with a view to reaching a settlement it has got to be held that these negotiations are being conducted "without prejudice". It would, therefore, be not lawful for one party to give evidence of admission made by another in such negotiations. Otherwise persons would not be able to make offers during negotiations with a view to reach settlement.

17. Keeping in view the above background for recording compromises I would now advert to the case in hand to see if oral agreement asserted by the applicants‑defendants to have been reached can be taken into consideration for the purpose of recording the same. A close examination of the application under adjudication clearly shows that the contents thereof at the most go to show (though. this has also been controverted by the plaintiff) that efforts were being made to reach some further arrangement to settle the main dispute of payment of the determined amount by the defendants and that there was an indication on the part of the plaintiff that it may agree to the disposal of the property of defendants through private negotiations provided the Court allows the same but it can in no circumstances be said that the plaintiff had in any manner agreed to or entered into a fresh agreement with the defendants in supersession of the agreement/ compromise already reached between the parties and which compromise has been converted into a preliminary compromise decree.

18. The application of the applicants‑defendants has been made under Order XXIII, Rule 3, C.P.C. which as already observed by me envisages in absolutely clear and unambiguous terms that a compromise may be recorded where it is proved to the satisfaction of the Court that a suit has been compromised /adjusted wholly or in part by any lawful agreement or compromise. The pre‑condition for giving effect to the compromise by the Court, i.e. the existence of a finally concluded lawful agreement between the parties, has not only been not proved in any manner but even the negotiations for such an agreement have not in any manner been established.

19. Without referring to the reply to this application, which in emphatical and categorical terms denies almost in toto the contents of the application, even a conjunctive reading of the application itself shows that no finally concluded compromise had been reached between the parties. In para. 19 of the application itself the applicants defendants have clearly admitted as under:‑

"The positive response of the plaintiff‑bank for reducing the agreement into writing is still awaited".

From the above averment in the application it is beyond any shadow of doubt established that no compromise had at all been finally concluded between the parties 'and even if it be assumed that there were some negotiations held between them on which there was some tentative agreement, the plaintiff had not responded to the finalization of the agreement and that being so there would be no question of recording the alleged compromise.

20. The learned counsel for the applicants‑defendants when asked to give the specific terms of the alleged compromise relied on para. 6 of the application to assert that it contains terms thereof. Perusal of this para. shows that it is absolutely vague, for example, it gives no time for payment of the agreed reduced amount of Rs.l crore in lump sum or for that matter for furnishing of bank guarantee although it has been asserted that the plaintiff‑bank had allegedly agreed to accept the aforementioned reduced amount by foregoing a huge sum of Rs.1,39,00,000. Now it does not sound to reason that a party which is possessed of a preliminary decree for recovery of a huge amount of Rs.2,39,00,000 will forego more than half of the amount without there being any certainty as to the payment of the reduced amount especially when the party foregoing the huge amount is getting no other benefit out of the alleged oral agreement. It may pertinently be pointed out here that the‑ learned counsel for the applicants defendants was confronted with the above position and was specifically asked as to whether any 'date was agreed between the parties for payment of the aforementioned sum of Rs.l crore but he was unable to give any date.

21. The learned counsel for the plaintiff had also pointed out that the bank Could not have even entered into negotiations of the nature as are set up by the applicants‑defendants in their application because the bank would sustain a colossal loss thereby as the bank would not have only lost the alleged foregone amount of Rs.1,39,00,000 but in the given circumstances may have to pay income‑tax thereon if. it had voluntarily reduced the decretal amount whereas if any amount out of the decretal anr3unt had been left un-recovered through process of the Court it could be written off as bad debt and thus not subjected to tax. I do see force in this submission in that it is not expected of a financial institution that it would lose recovery of an outstanding amount and in addition thereto incur the expenditure of payment of tax on the lost amount.

22. I also do not feel inclined to accept the situation that any oral agreement would have been reached by the plaintiff detrimental to its own interest after being possessed of a decree especially when the failure to make payment of even the reduced amount of Rs.1 crore would entail no further penalty on the applicants‑defendants and the security for recovery remains the same which is already available to the plaintiff for the total amount of Rs. 2, 39, 00, 000 by virtue of the compromise preliminary decree.

23. It also does not sound to reason that there was no exchange of correspondence in writing between the parties in the alleged negotiations of compromise involving a huge amount of Rs.2,50,00,000 which had further increased on account of interest chargeable thereon by efflux of time. It is noteworthy that not one letter or communication of the plaintiff‑bank has been placed on record by the applicants defendants remotely indicating any talk or negotiations on the subject of compromise after the passing of the preliminary decree.

24. Yet another aspect of the matter that lends support to the contention of the learned counsel for the plaintiff that the application under discussion is only intended to keep in abeyance the final adjudication of the matter and which also proves that the application is just an afterthought is the fact that though the application of the plaintiff‑bank for making the preliminary decree as final had been made as far back as 4th of May, 1981 i.e. soon after the passing of the preliminary decree dated 3‑2‑1981, the applicants‑defendants had been completely silent on this aspect of the matter and never asserted the negotiations or for that matter the existence of the alleged compromise till May, 1984 when the present application was made by them. '

25. The only logical inference that can be drawn from the attendant circumstances of the case as discussed above is that applicant defendant No.3 may have approach‑ed the plaintiff‑bank for sale of the property in pursuance of the compromise preliminary decree through private negotiations with parties instead of selling the property through public auction but the plaintiff‑bank being possessed of the preliminary decree had not shown any inclination to agree to this suggestion and in the ultimate in order to be lenient with the defendants suggested to him that he may route the request for sale by private negotiations through the process of Court in order to eliminate the giving rise to further controversies between the parties.

26. 1 have, therefore, no hesitation in holding that not only there does not exist any lawfully concluded agreement between the parties which could be ordered to be recorded there was no partial agreement even between them in supersession of the earlier compromise between the parties which has been transformed into a compromise preliminary decree.

27. Still another aspect which has prevailed with me to reach the above finding is the admitted position that the alleged compromise was between the applicants‑defendants and the plaintiff without there being any mention about the defendnats who are not applicants in this application and on the contrary assert that the compromise preliminary decree should be made absolute and the mortgaged properties sold in pursuance of the final decree.

28. Having dealt as a matter of judicial propriety with the various arguments raised on behalf of the parties respectively I feel it necessary .to make certain observations in order to restore the perspective.

In so far as the suit ended in a compromise leading to a preliminary decree under Order XXIII, Rule 3, C.P.C. the said provision can no more be invoked. In the nature of things, therefore, there cannot be a. compromise in a suit which stands already compromised. Thus, so long as the preliminary decree subsists there is no further chance for recording of a fresh compromise. The existence of preliminary decree as an impediment has to be removed before a fresh compromise is conceptually possible.

With the preliminary decree in existence and having remained unchanged by way of appeal or review, a fresh compromise of the suit between the parties which compromise is at variance with the previous one and which has already culminated in a preliminary decree is thus out of question and obviously .cannot be given effect to. This does not, however, exclude the possibility of adjustment of a decree under Order XXI, Rule 2, C.P.C. but for that purpose a writing signed by both the parties is an essential prerequisite under Order XXI, Rule 2(3), C.P.C. The said prerequisite being lacking and not fulfilled in the instant case, the plea of adjustment of decree would also be not available.

29. Before parting with the matter I may point out that the various authorities cited on behalf of the applicants‑defendants are either not relevant to the controversy or are distinguishable on the facts of the case as will be .presently shown. .

P L D 1970 Kar. 495 cited on behalf of the applicants‑defendants is not applicable to the facts of the case in hand in that in the cited case the second order of the Court which was questioned was on the basis of an admitted consent of the parties whereas in the Case in hand the compromise subsequent to the first compromise which has been made the basis of consent decree has been categorically denied by the plaintiff.

A I R 1939 Allahabad 174 is also distinguishable. In this case the preliminary mortgage decree was not a consent decree but what happened was that after the Court had passed the preliminary mortgage decree one of the defendants. filed an application before the trial Court that an adjustment had been .arrived at between him and the plaintiff, that the plaintiff had agreed to accept amount less than the amount which was due to the plaintiff from him and that out of the reduced amount as well he had paid Rs.1,800 leaving a balance of Rs.300 only, which fact should be certified as provided by Order XXI, Rule 2, C . P. C . It was in the above circumstances held that since a preliminary decree is not executable, adjustment could not be recorded by the Court in accordance with the provisions of Order XXI, Rule 2, C.P.C but that the application of Ram Dayal fell within the purview of either Rule 1, or 3 of Order XXIII, C.P.C. The question before the Court was, therefore, not whether a compromise decree in a matter could be modified by another alleged compromise which is being completely denied by one of 'the parties.

A I R 1930 Privy Council 158 has no relevance to the controversy in support of which this was cited.

A I R 1938 Oudh 103 also does not apply to the attendant circumstances of the case in hand and cater for an absolutely different situation where detection of an omission by the parties in the compromise which formed the basis of preliminary decree was held to be a situation where the decree could be varied by consent of the parties.

30. In view of the foregoing discussion I find no merit in the applications (C.M. No.2356‑C of 1984 and C.M. No.134‑B of 1985)G filed by the applicants‑defendants and dismiss the same.

A.A./B‑80/L Applications dismissed.