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Consent Decree Would Not Serve As An Estoppel Where The Compromise Was Vitiated By Fraud, Misrepresentation Or Mistake: SC

                                          While shedding full light on the question of whether a consent decree would or would not serve as an estoppel, a two Judge Bench of the Apex Court comprising of Justice Mohan M Shantanagoudar and Justice Vineet Saran in Compack Enterprises India (P) Ltd vs Beant Singh in Special Leave Petition (Civil) Nos. 2224-2225 of 2021 delivered on February 17, 2021 have minced just no words to observe clearly, cogently and convincingly that a consent decree would not serve as an estoppel, where the compromise was vitiated by fraud, misrepresentation, or mistake. Very rightly so! This case arose out of a suit for possession and mesne profits filed by one Beant Singh against Compack Enterprises with respect to the ground floor of the property owned by the former.

                                To start with, the ball is set rolling in para 1 of this notable judgment authored by Justice Mohan M Shantanagoudar for himself and Justice Vineet Saran wherein it is put forth that, “These petitions arise out of judgments of the High Court of Delhi (hereinafter ‘High Court’) dated 14.02.2019 and 25.07.2019. By the first impugned judgment dated 14.02.2019, the High Court disposed of the regular first appeal RFA No. 253/2018 filed by the Petitioner against judgment and order of the Ld Additional District Judge, Rohini (‘Trial Court’) dated 23.09.2017 in Suit No. 58395/2016 filed by the Respondent. Whereas by the second impugned judgment dated 25.7.2019, the High Court disposed of Review Petition No. 177/2019 filed by the Petitioner against the judgment in RFA No. 253/2018.”

                                        While dwelling on the background facts, the Bench then points out in para 2 that, “These cases concern a suit for possession and mesne profits filed by the Respondent/plaintiff against the Petitioner/defendant, with respect to the ground floor of the property bearing No. 860, Ground Floor, GT Karnal Road, Industrial Area, Delhi 110033, admeasuring 608 sq. yards (or, 5,472 sq. ft.) (hereinafter ‘suit property’).”

                        While delving still deeper, the Bench then aptly observes in para 3 that, “The Respondent, Beant Singh, is the owner of the suit property. He, through M/s Channa Auto Agencies (P) Ltd. (of which he is a Director), executed a license agreement dated 1.11.2000 in respect of a portion of the suit property in favour of M/s Compack Enterprises (the Petitioner’s predecessor), for a period of 30 months in consideration for a monthly license fee of Rs. 28,000/ (hereinafter, ‘2000 Agreement’). On 1.04.2003, Compack Enterprises merged with Compack Enterprises India (P) Ltd. (i.e., the Petitioner herein), and the 2000 Agreement continued with mutual consent of parties. The license arrangement was renewed on 1.07.2003 for another 30 months, with a 10% increase in monthly license fee to Rs. 30,800/- (hereinafter, ‘2003 Agreement’). The 2003 Agreement was renewed for the last time effective from 1.04.2006 and expiring on 30.09.2008, with a further 10% increase in monthly license fee to Rs.33,900/ (hereinafter ‘2006 Agreement).”

                                 Truth be told, the Bench then states in para 4 that, “However, even after the expiry of the 2006 Agreement on 30.09.2008, and nonrenewal of the same, the Petitioner continued to occupy the suit property. Consequently, the Respondent brought O.S. No. 58395/2016 against the Petitioner on 13.02.2009 for recovering possession of the entire suit property and mesne profits thereon from 1.10.2008 till the vacation of the suit property.”

                            Now regarding the Trial Court’s judgment dated 23.09.2017, the Bench states in para 8 that, “On the question of vacating possession, the Trial Court held that the issue had already been decided by the High Court in C.M.(M) No. 193/2013 by judgment dated 12.11.2014, and could not be reopened.”

                          Be it noted, the Bench then brings out in para 9 that, “The Respondent had earlier filed an application before the Trial Court under Order XII Rule 6 of the Code of Civil Procedure, 1908 (hereinafter, ‘CPC’), praying for a judgment on admission decreeing the suit for possession in favour of the Respondent. Upon the Trial Court’s dismissal of this application, the Respondent approached the Trial Court’s dismissal of this application, the Respondent approached the High Court under Article 227 of the Constitution in C.M.(M) No. 193/2013 praying for the aforesaid relief. Therein, the High Court by its judgment dated 12.11.2014 reversed the Trial Court’s dismissal, and held that the admissions made by the parties justify decreeing the Respondent’s suit for possession. It had thus directed that the possession of the entire suit property measuring 5,472 sq. ft. be handed over to the Respondent by the Petitioner.”

                                     It is also worth noting that it is then specified in para 10 that, “On the question of mesne profits, the Trial Court noted that it is an admitted fact between the parties that the possession of the suit property has still not been handed over to the Respondent despite the High Court’s order dated 12.11.2014. Instead, the Petitioner claimed to have handed over possession to Mr. Gosain  in July, 2015. The following further observations of the Trial Court are relevant for our purposes:

a.  What is the area of the suit property for which Petitioner is liable?

         The High Court’s order dated 12.11.2014 had settled the dispute qua the area that was in possession of the Petitioner, decreeing the Respondent’s suit for possession for the entire suit property area of 5,472 sq. ft (and not only the 2,200 sq. ft. portion claimed to be possessed by the Petitioner). The view taken by the aforesaid order has attained finality as far back as on 12.11.2014 and is binding.

b. What is the quantum of compensation payable?

For the period between 1.10.2008 to 27.04.2009, the Respondent is entitled to license fee @ Rs. 37,290/ p.m., i.e., the license fee agreed upon in the 2006 Agreement (Rs. 33,900/) with a hike of 10%. For the period of unlawful possession between 28.04.2009 till vacation of possession, Petitioner shall pay mesne profits @ Rs. 60,000/ p.m. with 10% increase on the 1st April of each alternate year, till the suit property is handed over to Respondent.”

                 What next follows is then stated in para 11 that, “Aggrieved by the decision on mesne profits, both the Petitioner and Respondent filed cross appeals before the High Court against the judgment of the Trial Court dated 23.09.2017, seeking respectively, reduction and enhancement in the quantum of mesne profits.”

               Of course, while pertaining to the first impugned judgment of the High Court dated 14.02.2019 in the above cross­-appeals it is then very rightly  stipulated in para 12 that, “The High Court passed a consent decree, directing that the Petitioner shall pay to the Respondent, by way of mesne profits, an enhanced sum of Rs. 1,00,000/- p.m., with a 10% increase “after every 12 months, i.e. from 1.10.2009, 1.10.2011 etc etc” w.e.f. 1.10.2008 (i.e., the date on which the 2006 Agreement expired) till the date the Petitioner hands over actual possession of the suit property measuring 5,472 sq. ft. to the Respondent.”

                                     What next follows is then stated in para 13 that, “Aggrieved that the terms of the consent decree were recorded incorrectly in the aforesaid order, the Petitioner filed Review Petition No. 177/2019, which was dismissed by the High Court.”

          Now regarding the second impugned judgment of the High Court in the above review petition dated 25.07.2019, the Bench then points out in para 14 that, “The Petitioner contended in its review petition that the High Court in the first appeal had erred in recording the terms of the consent decree agreed to by the Petitioner. First, the judgment records that the mesne profits be increased by 10% every 12 months, instead of recording a 10% increase every 24 months. Second, the judgment erroneously records that the Petitioner will hand over possession of the entire suit property measuring 5,472 sq. ft., when the documents on record would show that the Petitioner was only ever in possession of 2,200 sq. ft.”

                                       No doubt, the Bench then rightly mentions in para 15 that, “The High Court, rejecting the Petitioner’s contentions, held that there was no error apparent on the face of the record to justify its review jurisdiction, and that the Petitioner was dishonestly trying to wriggle out of the consent decree by attempting to overreach the Court. The review petition was dismissed with exemplary costs of Rs.1,00,000/- payable by the Petitioner to the Respondent.”

                                   Now regarding the Apex Court’s analysis, the Bench then enunciates in para 18 that, “Before adverting to the specific contentions raised by the learned senior counsel for the Petitioner, it may be useful to briefly summarise the law governing consent decrees that shall inform our conclusions on the present matter. It is well settled that consent decrees are intended to create estoppels by judgments against the parties, thereby putting an end to further litigation between the parties. Resultantly, this Court has held that it would be slow to unilaterally interfere in, modify, substitute or modulate the terms of a consent decree, unless it is done with the revised consent of all the parties thereto. (Gupta Steel Industries v. Jolly Steel Industries Pvt. Ltd. & anr., (1996) 11 SCC 678; Suvaran Rajaram Bandekar & ors. v. Narayan R. Bandekar & ors., (1996) 10 SCC 255).”

                         While adding a caveat, the Bench then adds significantly in para 19 that, “However, this formulation is far from absolute and does not apply as a blanket rule in all cases. This Court, in Byram Pestonji Gariwala v. Union Bank of India & ors., (1992) 1 SCC 31, has held that a consent decree would not serve as an estoppel, where the compromise was vitiated by fraud, misrepresentation, or mistake. Further, this Court in the exercise of its inherent powers may also unilaterally rectify a consent decree suffering from clerical or arithmetical errors, so as to make it conform with the terms of the compromise.”

                             Quite significantly, the Bench then holds in para 28 that, “At this stage, it is relevant to note that even the judgment dated 23.09.2017 and the final decree dated 15.11.2007 passed by the Trial Court also awards a 10% increase only on each alternative year, i.e. 01.04.2011, 01.04.2013, 01.04.2015 and so on. Further, the original terms of the licence agreement between the parties also incorporated a 10% increase in license fee once every 30 months/2.5 years. Thus, the learned Single Judge’s order dated 14.02.2019 has given rise to a lot of confusion. Given this background, and looking at the preponderance of probabilities, we are inclined to give benefit of doubt to the Petitioner. Therefore, we hold that the intention of the compromise between the parties was that there should be a 10% increase in mesne profits every alternate year. The recording of a 10% increase after every 12 months in the consent decree was an inadvertent error, which we have now rectified.”

                              As a corollary, it is then stated in paras 29 that, “To this limited extent, the second impugned judgment dated 25.07.2019 is overturned, and the consent decree recorded by the learned Single Judge’s judgment dated 14.02.2019 stands modified.”

                                 In its final conclusions, the Bench then holds aptly in para 30 that, “At this stage, this Bench would like to register its displeasure at the Petitioner’s repeated and persistent efforts to reagitate the question of delivery of possession to the Respondent, in an attempt to circumvent complying with the view taken by the High Court in the judgment dated 12.11.2014, which has now attained finality. Despite the clear direction in that judgment to vacate possession in favour of the Respondent, pending any adjudication on the separate proceedings for possession and specific enforcement initiated by Mr. Gosain, the Petitioner handed over possession to Mr. Gosain in July, 2015. Possession has to this date not been handed over to the Respondent, who has been dragged to the court time and again due to the Petitioner’s conduct. This is an instance of blatant disregard for the Court’s orders, and an abuse of judicial process.”

                              Before parting the Bench then holds in para 31 that, “Hence the present petitions are disposed of, with direction to the Petitioner to take steps for handing over possession of the suit property measuring 5,472 sq. ft. to the Respondent within eight weeks from today, without fail. Further, the Registry is directed to expeditiously release the arrears of mesne profits, if any, already deposited by the Petitioner before this Court to the Respondent. The Petitioner is further directed to pay to the Respondent all arrears as directed in order dated 14.2.2019, with the limited modification that the mesne profits are to be treated as increasing by 10% every alternate year, from 2009 till the date of handover of possession.”

                                In addition, the Bench then also directs in para 32 that, “The Petitioner is additionally directed to pay costs of Rs. 1 lakh to the Respondent as stated in the impugned order dated 25.7.2019.” Finally, it is then held in last para 33 that, “The Special Leave Petitions stand disposed of accordingly.”

                      In conclusion, even a cursory look at this latest, learned, landmark and laudable judgment will make it quite obvious that a consent decree would not serve as an estoppel, where the compromise was vitiated by fraud, misrepresentation, or mistake. For the compromise to be binding, it should not be vitiated by fraud, misrepresentation or mistake! We also see in this commendable judgment that the Judges are not happy with the petitioner’s approach and recorded its displeasure at the petitioner’s repeated and persistent efforts to reagitate the question of delivery of possession to the Respondent. The Apex Court termed it as an instance of blatant disregard for the Court’s orders and an abuse of judicial process.

Sanjeev Sirohi,

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