A consent decree cannot be frustrated under Section 56 of the Contract Act: Delhi High Court
The doctrine of frustration of contract does not apply to a consent decree and that a decree remains binding on the parties till set aside. A compromise, even if a contract, once has the imprimatur of the Court, is a decree of the Court and to be enforced as a decree and not as a contract. Vide Section 56 of the Contract Act, a contract to do an act which, after the contract is made, becomes impossible, becomes void when the act becomes impossible or unlawful. This was held by Hon’ble Justice Rajiv Sahai Endlaw in the case of Sarabjit Singh Chadha Vs. Dinesh Sehgal [CS(OS) 610/2018] on the 11th of August 2021 before the Hon’ble High Court of Delhi at New Delhi. The brief facts of the case are, The present suit was filed, seeking recovery of Rs.5,98,40,000/- along with interest @ 10% per annum from the defendant/applicant. It was inter alia the case of the plaintiff/non-applicant, (i) that the plaintiff was a proprietor of M/s Jagat Overseas, which was closed in the year 2014 and the balances of which proprietorship firm were transferred to the personal account of the plaintiff which included closing stock of raw gold and gold/diamond jewellery weighing around 39,307.551 grams; (ii) that the plaintiff had been carrying on the business of gold and diamond for a very long period of time; (iii) that the defendant was also in the business of selling, making and designing of the plain gold jewellery; (iv) that the son of the plaintiff and the son of the defendant were friends and had also carried on many businesses together; (v) that in first week of September 2017, the son of the defendant approached the son of the plaintiff and made a business proposal that the defendant would offer services of making gold jewellery at a reasonable/lesser price than what was the prevailing rate in the market; (vi) that upon the son of the plaintiff not responding to the said offer, the defendant himself approached the plaintiff and offered to make gold jewellery for less than the market price prevailing at the time; (vii) that it was agreed, that the plaintiff would provide raw gold to the defendant for the job of making jewellery and thereafter a majority portion of the jewellery would be given back to the plaintiff and some items will be kept at the store of the defendant for display and sale and out of which the plaintiff would be entitled to a part of the profits and cost of his raw gold; (viii) that on 17th October, 2017, under cover of a voucher, the plaintiff handed over 20 Kg pure raw gold to the defendant, out of the stocks which the plaintiff had in his personal account after winding up of the business of M/s Jagat Overseas; (ix) that the said voucher was duly acknowledged by the defendant; (x) that the defendant also signed an order dated 17th October, 2017 bearing the complete list/description of the gold given by the plaintiff and the description of the jewellery to be made by the defendant; (xi) that the defendant also issued a receipt dated 17th October, 2017 whereby the defendant acknowledged receiving of 20 Kg of gold from the plaintiff; (xii) that the defendant also handed over a post-dated cheque dated 17th January, 2018 to the plaintiff for an amount of Rs.6 crores, as a performance guarantee; (xiii) that the defendant failed to deliver the jewellery/articles to the plaintiff within the agreed time; (xiv) that the cheque of the defendant was also dishonoured; and, (xv) that on complaint of the plaintiff, FIR No.85/2018 was also registered against the defendant. Accordingly, the suit for recovery of Rs.5,98,40,000/- came to be filed by the plaintiff. The defendant has filed this application, seeking setting aside of the consent decree dated 13th February, 2020 and consequently, restoration of the suit to its original position. The counsel for the defendant submitted that, that a compromise decree is nothing but an agreement between the parties and its validity needs to be tested as per the principles governing the validity of an agreement, as enshrined in the Indian Contract Act, 1872. It was also submitted that that the compromise agreement has become impossible to perform on account of reasons which the defendant/applicant could not prevent and has therefore become void. Furthermore, that the compromise between the parties, which was essentially a contract, has become void under Section 56 of the Contract Act. The leaned judge heard the submissions and observed that Order XXIII Rule 3 of the CPC does not mandate the Court to pass a decree and dispose of the suit in terms of any compromise between the parties. The Court is mandated to pass a decree only if finds the contract to be “lawful”. It is not the plea of the defendant/applicant that the contract in the present case was not lawful. The plea is, of the contract, after the making thereof, having been frustrated. The judge held that, “De hors the merits of the plea of frustration, I am unable to agree that a compromise decree can be said to have been frustrated. CPC being the codified law qua proceedings in a suit and in execution of decrees passed in such suit, is a self-contained code and does not provide for a lawful consent decree being frustrated. Thus, the very premise on which the application has been filed i.e. of a compromise decree, having its genesis in a contract, which is found to be lawful by the Court, can be frustrated owing to subsequent events, falls and has no legs to stand on.”
 IN THE HIGH COURT OF DELHI AT NEW DELHI CS(OS) 610 2018 Date of decision: 11th August 2021 SARABJIT SINGH CHADHA Through None. .....Plaintiff DINESH SEHGAL ..... Defendant Through Mr. Aditya Wadhwa and Mr. Siddharth Sunil Advs. HON BLE MR. JUSTICE RAJIV SAHAI ENDLAW VIA VIDEO CONFERENCING] RAJIV SAHAI ENDLAW J. IA No.10043 2021& IA No.10044 2021 610 2018 so listed. I have heard the counsel for the defendant applicant. None appears for the plaintiff non applicant though the counsel for the defendant applicant on enquiry states that he had sent an advance copy. The present suit was filed seeking recovery of Rs.5 98 40 000 along with interest @ 10% per annum from the defendant applicant. It was inter alia the case of the plaintiff non applicant that the plaintiff was a proprietor of M s Jagat Overseas which was closed in the year 2014 and the balances of which proprietorship firm were transferred to the personal account of the plaintiff which included closing stock of raw gold and gold diamond jewellery weighing around 39 307.551 grams that the plaintiff had been carrying on the business of gold and diamond for a very long period of time that the defendant was also in the business of selling making and designing of the plain gold jewellery that the son of the plaintiff and the son of the defendant were friends and had also carried on many businesses together that in first week of September 2017 the son of the defendant approached the son of the plaintiff and made a business proposal that the defendant would offer services of making gold jewellery at a reasonable lesser price than what was the prevailing rate in the market that upon the son of the plaintiff not responding to the said offer the defendant himself approached the plaintiff and offered to make gold jewellery for less than the market price prevailing at the time that it was agreed that the plaintiff would provide raw gold to the defendant for the job of making jewellery and thereafter a majority portion of the jewellery would be given back to the plaintiff and some items will be kept CS(OS) 610 2018 at the store of the defendant for display and sale and out of which the plaintiff would be entitled to a part of the profits and cost of his raw gold viii) that on 17th October 2017 under cover of a voucher the plaintiff handed over 20 Kg pure raw gold to the defendant out of the stocks which the plaintiff had in his personal account after winding up of the business of M s Jagat Overseas that the said voucher was duly acknowledged by the defendant that the defendant also signed an order dated 17th October 2017 bearing the complete list description of the gold given by the plaintiff and the description of the jewellery to be made by the defendant xi) that the defendant also issued a receipt dated 17th October 2017 whereby the defendant acknowledged receiving of 20 Kg of gold from the plaintiff that the defendant also handed over a post dated cheque dated 17th January 2018 to the plaintiff for an amount of Rs.6 crores as a performance guarantee that the defendant failed to deliver the jewellery articles to the plaintiff within the agreed time that the cheque of the defendant was also dishonoured and that on complaint of the plaintiff FIR No.85 2018 was also registered against the defendant. Accordingly the suit for recovery of Rs.5 98 40 000 came to be filed by the plaintiff. On 16th September 2019 arguments on an application of the plaintiff non applicant under Order XII Rule 6 of the CPC for a decree forthwith in the suit were commenced but hearing was adjourned on request of the counsel for the defendant applicant and the matter posted on 17th September 2019 directing the personal presence of CS(OS) 610 2018 On 17th September 2019 the defendant applicant appeared before this Court and his statement on oath was recorded. The defendant applicant admitted his signatures on the documents of the plaintiff non applicant but stated that he had taken a loan of Rs.5 crores from the plaintiff non applicant and that he was paying interest @ 1.5% per month thereon to the plaintiff non applicant. It was further stated that the entire transaction was in cash and the defendant applicant though was an income tax assessee had not reflected the transaction including payment of interest thereon in his books of account. On 17th September 2017 on request of the counsel for the defendant applicant the matter was again adjourned. Thereafter on several dates the counsels took adjournments to settle the matter. Ultimately on 13th February 2020 the following order was passed: The plaintiff and the defendant in this suit for recovery of money since after 16th September 2019 when arguments were partly heard and since 17th September 2019 when the statement on oath of the defendant was recorded have been seeking time to settle the matter. The counsel for the plaintiff and the counsel for the defendant today state that a settlement has been arrived at and the counsel for the defendant states that the defendant is also personally present in the Court. It has been agreed that the defendant in full and final settlement of the claim of the plaintiff shall deliver to the plaintiff 15 Kg of 24 carat gold metal in 10 quarterly instalments of equal quantity with the first instalment being delivered on or before 30th June 2020. I have enquired from the counsels the form of the decree sought and the consequence of the default if any by the defendant in delivery of any of the instalments of gold metal. The counsels state that if there is any default the plaintiff shall be entitled to recover from the defendant the CS(OS) 610 2018 value as on that date of the balance gold due with the entire remaining quantity of gold being valued on the date of default and a decree for recovery of the said money shall be executed against the defendant with interest thereon from the date of default and till date of recovery @ 10% per annum. A decree is accordingly passed in favour of the plaintiff and against the defendant of delivery by the defendant to the plaintiff of 15 Kg of 24 carat gold in 10 quarterly instalments commencing from 30th June 2020 and the next instalment being due on 30th September 2020 and executable in the event of default as a money decree for the value as on the date of default of the entire remaining gold together with interest @ 10% per annum from the date of default till the date of realisation. The plaintiff through counsel also undertakes that the plaintiff will not precipitate action in FIR No.0085 2018 of Economic Offence Wing Delhi Police and the complaint under Section 138 of the Negotiable Instruments Act 1881 against the defendant and shall after delivery of three instalments of gold take steps for having the said FIR as well as the complaint under Section 138 of the Negotiable Instruments Act The parties are left to bear their own costs. Decree sheet be drawn up." and decree sheet drawn up. 10. The defendant applicant has now filed this application being IA No.10043 2021 pleading that a compromise decree is nothing but an agreement between the parties and its validity needs to be tested as per the principles governing the validity of an agreement as enshrined in the Indian Contract Act 1872(b) that the compromise arrived at between the parties and in terms whereof decree sheet was drawn up was void being in contravention to Section 29 and CS(OS) 610 2018 Section 56 of the Contract Act that alternatively it was voidable on account of contravention of Section 19 read with Sections 15 and 16 of the Contract Act that the plaintiff non applicant besides filing the suit aforesaid had also lodged an FIR under Section 406 and Section 420 of the Indian Penal Code 1860 against the defendant applicant that the defendant applicant was fearful of his safety and security that the compromise agreement has become impossible to perform on account of reasons which the defendant applicant could not prevent and has therefore become void that impracticability in performing a contract on account of an untoward event or change of circumstance which totally upsets the very foundation upon which the parties rest their bargain render a contract void under Section 56 of the Contract Act that though the defendant applicant had taken a cash loan from the plaintiff non applicant but was unable to return the same and owing to multiplicity of actions initiated by the plaintiff non applicant against the defendant applicant was fearing his safety and entered into the compromise aforesaid with the plaintiff non applicant that on 11th March 2020 novel Coronavirus 2019 was declared as a pandemic that on 24th March 2020 the Central Government announced a nationwide lockdown which remained in effect till 15th May 2020 that the defendant applicant who is a garment retailer had to shut operations and could open his outlet only on 1st June 2020 that owing to the pandemic the sales of the defendant applicant have drastically fallen that these changes in circumstances totally upset the very foundation upon which the parties had rested their bargain that the price of gold which on 13th February 2020 was Rs.4 076 per gram by 1st July 2020 rose by 30% to Rs.5 243.67 per gram that the parties had CS(OS) 610 2018 not contemplated such increase in prices that the contract between the parties in pursuance to which the decree is drawn is void for uncertainly as the parties failed to identify the mode and manner which was to be used to value the gold and that the plaintiff non applicant taking an arbitrary valuation of gold of Rs.5 243.67 per gram was now seeking to quantify the value of 15 Kg of gold at Rs.7 86 55 050 . 11. The only argument of the counsel for the defendant applicant is that the compromise between the parties which was essentially a contract has become void under Section 56 of the Contract Act. I have enquired from the counsel for the defendant applicant whether a contract compromise between the parties to a lis even after the Court putting its imprimatur thereon and the same becoming a decree remains voidable under Section 56 of the Contract Act. 13. The counsel for the defendant applicant states that though he is not aware of any direct judgment on this aspect but in Pushpa Devi Bhagat Vs. Rajinder Singh5 SCC 566 it has been held that "a consent decree is nothing but contract between parties superimposed with the seal of approval of the court". 14. A word here or there in a judgment cannot be picked up to draw inferences therefrom. A judgment of the Court is in the context of the facts for disposal before the Court and the words thereof are not to be treated as a precedent de hors the facts. Supreme Court in Pushpa Devi Bhagat supra was concerned with the question whether the compromise resulting in a consent decree in that case was not a valid compromise under Order XXIII Rule 3 of the CPC. It was in the said context that it was held that the CS(OS) 610 2018 only remedy available to a party to a consent decree to avoid such consent decree is to approach the Court which recorded the compromise and made a decree in terms thereof and establish that there was no compromise that in that event the Court which recorded the compromise will itself consider and decide the question as to whether there was a valid compromise or not this is so because a consent decree is nothing but a contract between parties superimposed with the seal of approval of the Court that the validity of a consent decree depends wholly on the validity of the agreement or compromise on which it is made and that the defendant in that case who was seeking setting aside of the consent decree by alleging that there was no compromise was fully aware of the position thereof. It would thus be seen that what was observed in Pushpa Devi Bhagat supra was in the context of making of the contract. The said judgment cannot be read as a precedent for the validity and executability of a consent decree being also governed by the Contract Act. 16. Order XXIII Rule 3 of the CPC does not mandate the Court to pass a decree and dispose of the suit in terms of any compromise between the parties. The Court is mandated to pass a decree only if finds the contract to be “lawful”. It is not the plea of the defendant applicant that the contract in the present case was not lawful. The plea is of the contract after the making thereof having been frustrated. 17. De hors the merits of the plea of frustration I am unable to agree that a compromise decree can be said to have been frustrated. CPC being the codified law qua proceedings in a suit and in execution of decrees passed in CS(OS) 610 2018 such suit is a self contained code and does not provide for a lawful consent decree being frustrated. Thus the very premise on which the application has been filed i.e. of a compromise decree having its genesis in a contract which is found to be lawful by the Court can be frustrated owing to subsequent events falls and has no legs to stand on. In Shankar Sitaram Sontakke Vs. Balkrishna Sitaram Sontakke AIR 1954 SC 352 though earlier a family comprising of six brothers was living and messing together and the income of the family used to be kept with one brother but subsequently the situation changed and each of the brother began to appropriate the proceeds of the various businesses carried on by them separately to themselves in a suit for partition of all joint properties including all the businesses a compromise was arrived at declaring that the various accounts of businesses had been correctly maintained till a certain date and providing for appointment of arbitrators for examining accounts for the subsequent period and of division of all the joint assets equally between the six brothers. However one of the brothers filed another suit seeking accounts of a business being carried on by two other brothers claiming that the comprise in the earlier suit was made in a hurry and that the parties had omitted to provide in the compromise about the future conduct of the said business carried on by other two brothers and claiming the said business to have remained joint between the parties. Supreme Court held that the compromise arrived at in the earlier suit closed once and for all the controversy about taking any account of the joint family businesses including the business of which account was sought ii) that the second suit was barred by principles of res judicata and the brother who had brought the second suit was barred from re agitating the CS(OS) 610 2018 question a consent is as binding upon the parties thereto as a decree passed invitum and the compromise having been found not to be vitiated by fraud misrepresentation misunderstanding or mistake the decree passed thereon had the binding force of res judicata. A Division Bench of the High Court of Calcutta in Rani Pravabati Roy Vs. Saileshnath Roy AIR 1978 Cal 147 was concerned with the plea that one of the properties subject matter of the settlement compromise decree being no longer available as the same vested in the State and no income or benefit had been obtained from the said property whether the execution of the compromise decree was not maintainable and whether there had been a frustration of contract subject matter of the consent decree. It was held that the doctrine of frustration of contract does not apply to a consent decree and that a decree remains binding on the parties till set aside. It was further held that once a Court puts its seal of approval of the comprise arrived at between the parties it ceases to be a contract simplicitor and becomes binding upon the parties to it. Reliance was placed on Shankar Sitaram Sontakke supra. I respectfully concur with the view aforesaid of the Calcutta High Court. A compromise even if a contract once has the imprimatur of the Court is a decree of the Court and to be enforced as a decree and not as a contract. In Tomorrow Land Technologies Exports Limited Vs. HUDCO MANU DE 3271 2018 I was concerned with an application for recall of a consent order pleading subsequent events. Relying upon Shankar Sitaram Sontakke supra it was held that once the compromise had been arrived at between the parties the parties could not be permitted to re open the same that in passing the decree by consent the Court adds its mandate to the CS(OS) 610 2018 decree. falls. consent that by passing a decree in terms of a consent order the Court authorises and approves the course of action consented to and that the consent decrees are also executable. It was further held that once a decree is passed by the Court the Court become functus offcio to modify the I thus hold that a consent decree cannot be frustrated under Section 56 of the Contract Act and the edifice on which this application is filed 21. Vide Section 56 of the Contract Act a contract to do an act which after the contract is made becomes impossible becomes void when the act impossible or unlawful. It is neither the case of defendant applicant in the application that compliance of the decree by the defendant applicant has become impossible or unlawful. The only thing which is pleaded is the economic constraints of the defendant applicant owing whereto the defendant applicant is unable to comply with the decree and or owing whereto the value under the decree has multiplied. 22. Gold has not only been a standard of measure of inflation but also the measure by which the worth in the world of countries is assessed computed. The worth of the countries is measured by their gold reserves and it is not as if the phenomenal rise in the value of gold as pleaded has taken place now for the first time. Gold has been appreciating for a number of years since much before the date of the decree. It thus cannot be said that there has been unforeseen increase in the value of the gold. Merely because the defendant applicant may be unable to comply with the decree also does not fall in the category of “impossibility’ envisioned under Section 56 of the CS(OS) 610 2018 Contract Act. 23. Thus neither is any foundation laid in law for the ground on which the decree is sought to be voided nor that ground is even otherwise made It cannot be lost sight of that the claim of the plaintiff non applicant and admitted by the defendant applicant was of the monies for recovery of which the suit was filed being due from the defendant applicant to the plaintiff non applicant towards the value of the gold handed over by the plaintiff non applicant to the defendant applicant for job work. There was thus nothing unusual in the parties in the compromise agreeing to the defendant applicant returning plaintiff non applicant. As a reading of the order dated 13th February 2020 the agreed quantity of gold shows the parties before the Court had only sought recording of the compromise arrived at between them of delivery by the defendant applicant to the plaintiff non applicant of 15 Kg of 24 carat gold in ten quarterly instalments of equal quantity with the first instalment being delivered on or before 30th June 2020. It was only on the asking of the Court that it was agreed that in the event of any default the plaintiff non applicant shall be entitled to recover from the defendant applicant the value of the gold balance gold as on that date. I have enquired from the counsel for the defendant applicant that even if there was any unforeseen increase in value of gold why the defendant applicant did not tender deposit the money value of gold prior to such increase in full and final satisfaction of the decree. The same would have stopped the clock from running and save the defendant applicant from CS(OS) 610 2018 further increase in prices of gold. 26. No answer is forthcoming. It is thus quite evident that the Court had passed the decree in terms of the compromise after being fully satisfied of the lawfulness of the compromise arrived at between the parties. 28. The application is thoroughly misconceived and is dismissed. AUGUST 11 2021 bs .. RAJIV SAHAI ENDLAW J. CS(OS) 610 2018 