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Smart Summary

Factual and Procedural Background

This opinion addresses an application concerning the validity of a compromise entered into between parties in a second appeal, and whether the petitioner should be impleaded as a party to oppose the compromise petition. The District Munsif was called upon to report on two questions: whether an agreement of sale was executed by the first respondent in favour of the petitioner and whether the petitioner was put in possession of the properties, and whether the compromise dated 30-7-56 was collusive and fraudulent. The District Munsif found that the agreement of sale was executed and the petitioner was in possession, and further held that the compromise was collusive and fraudulent. The petitioner contested the impleadment under certain procedural provisions, and the court examined the application of various procedural rules and the lawfulness of the compromise.

Legal Issues Presented

  1. Whether the compromise dated 30-7-56 entered into between the parties in the second appeal was collusive and fraudulent.
  2. Whether the petitioner ought to be impleaded as a party to the second appeal for opposing the compromise petition under the provisions of Order 1 Rule 10 and Order 22 Rule 10 of the Civil Procedure Code.
  3. Whether the filing of the compromise petition should be regarded as terminating the second appeal before a decree is drawn up in terms of the compromise.
  4. Whether the possessory interest of the petitioner under the agreement of sale is sufficient to attract the provisions of Order 22 Rule 10 C.P.C.
  5. Whether a decree can be passed in terms of the compromise when it is alleged to be unlawful under Section 23 of the Indian Contract Act.

Arguments of the Parties

Third Respondent's Arguments

  • Contended that the conclusion of the District Munsif that the compromise was collusive and fraudulent was wrong.
  • Argued that the provisions of Order 22 Rule 10 would not apply as no registered sale deed had been executed in favour of the petitioner by the first respondent.
  • Relied on Privy Council decisions to support the contention that an agreement of sale does not create an interest in immovable property under Section 54 of the Transfer of Property Act.
  • Asserted that the District Munsif had no power to add any party after a lawful and valid compromise, only to pass a decree in terms of the compromise.
  • Relied on a decision of the Allahabad High Court to contend that a third party's application to oppose the compromise should be rejected and a decree passed in terms of the compromise.

Petitioner's Arguments

  • Contended that provisions of Order 1 Rule 10 and Order 22 Rule 10 did not apply and the petitioner should not be impleaded as a party to oppose the compromise petition.
  • Argued that since the petitioner was put in possession of the property under the agreement of sale, there was sufficient creation of interest to invoke Order 22 Rule 10, supported by Section 53(a) of the Transfer of Property Act.
  • Maintained that the possessory title was a sufficient interest to attract Order 22 Rule 10 C.P.C., supported by Madras High Court precedent.
  • Asserted that the petitioner was a proper party to the second appeal and entitled to object to the compromise decree.
  • Contended that the compromise was unlawful and void under Section 23 of the Indian Contract Act because its object was fraudulent and intended to injure the petitioner's rights.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Lakhan Chunder Day v. Sm. Nikunjamoni Dassi, 27 Cal. Weekly Notes 755 Decree not drawn up in terms of compromise means suit remains pending. Preferred by the court as correctly establishing that litigation continues until a compromise decree is passed.
B. Raja Rajeswara Muthuramalinga Sethupathi Acl v. Secretary of State for India, 50 M.L.J 59 Compromise being lawful and valid prevents adding parties; only decree in terms of compromise can be passed. Not followed by the court; court preferred Calcutta High Court view.
C. Narayana Swamy Naidu v. N. Subbaramulu Naidu, 68 M.L.J 236 Approval of the view that no party can be added after valid compromise. Referenced but court did not consider it decisive over Calcutta High Court's view.
Seetai Achi v. Meyyappa Chetti, 66 M.L.J 517 Preferred Calcutta High Court's view over Madras single judge decision on compromise effect. Supported court's approach that litigation continues until decree is passed.
Nanjammal v. Eswaramurthu Goundar, 1954 M.L.J 530 Expressed no final opinion but discussed the question of compromise effect on litigation. Used to support the court's inclination towards Calcutta High Court's principle.
Rajarathnam Iyer Alias Bapuranjan v. Halasyaundaram Aiyar, 44 M.L.J 322 Proper party to second appeal includes those who ought to be joined to adjudicate all questions. Supported the court's view that petitioner is a proper party under Order 1 Rule 10.
Basant Singh v. Mahabir Prasad (Privy Council decision) Agreement of sale alone does not create interest under Section 54 Transfer of Property Act. Referenced by third respondent; court distinguished this by possession under Section 53(a).
S.V.S Nelleappa Pillai v. Sethuramalingam Pillai Similar principle about agreement of sale and interest in property. Referenced by third respondent; court emphasized possession as creating interest.
Mrs. Saradambal Ammal v. E.R Kandaswamy Goundar Possessory interest under agreement of sale sufficient for Order 22 Rule 10. Supported court's holding that possessory title is sufficient interest.
Veeraraghava Reddy v. Subba Reddy Alienee pendente lite added as party can object to compromise decree. Applied to hold petitioner entitled to oppose compromise decree.
Laraiti v. Ch. Sham Sunder Lal (Allahabad High Court) Third party's application to oppose compromise affecting his rights should be rejected. Distinguished by court for not considering Section 23 of Indian Contract Act.

Court's Reasoning and Analysis

The court first confirmed the findings of the District Munsif that the agreement of sale was executed and that the petitioner was put in possession, and further that the compromise between respondents 1 and 3 was collusive and fraudulent. The court rejected the third respondent’s contention that the compromise was lawful, concluding that both respondents acted fraudulently to injure the petitioner’s rights.

Regarding procedural questions, the court analyzed whether the compromise petition filed should be regarded as terminating the second appeal before a decree is drawn. Relying on the Calcutta High Court’s decision in Lakhan Chunder Day, the court held that until a compromise decree is passed, litigation continues, and thus applications under Order 1 Rule 10 and Order 22 Rule 10 remain maintainable.

The court found that the petitioner’s possessory interest under the agreement of sale, supported by Section 53(a) of the Transfer of Property Act, was sufficient interest within the meaning of Order 22 Rule 10 C.P.C., enabling the petitioner to be impleaded as a proper party to the second appeal. Even if this were not accepted, the court held that the application under Order 1 Rule 10 was maintainable.

On the question of the compromise’s validity, the court applied Section 23 of the Indian Contract Act, which prohibits contracts with unlawful or fraudulent objects. The court concluded that the compromise was unlawful and void as it was intended to injure the petitioner’s rights, rejecting the argument that only partial unlawfulness would not invalidate the entire compromise.

Accordingly, the court ordered dismissal of the compromise petition and proceeded to hear the second appeal.

Holding and Implications

Holding: The court dismissed the compromise petition (C.M.P No. 4748 of 1956) and confirmed that the petitioner is a proper party to the second appeal under Order 1 Rule 10 and Order 22 Rule 10. It also held that the compromise entered into was collusive, fraudulent, unlawful, and void under Section 23 of the Indian Contract Act, and no decree can be passed in terms of that compromise.

Implications: The decision directly affects the parties by allowing the petitioner to oppose the compromise and continue the second appeal. No decree shall be passed based on the fraudulent compromise. The opinion does not set any new precedent beyond the application of existing procedural and substantive law principles to the facts.

    Alluri Venkatanarasimharaju And Another v. Kattaboyina Yellamanda And Others

    1. By order dated 21st August 1956, I called for a report from the District Munsif, Narasaraopet on the following two questions:

    (1) Whether the agreement of sale was executed by the 1st respondent in the application (C.M.P 4747-56) and whether the petitioner was put in possession of the properties; and

    (2) Whether the Compromise dated 30-7-56 entered into between the parties in the second appeal was a collusive and fraudulent one.

    2. The learned District Munsif by his order dated 14th December 1956 held that the agreement of sale was executed by the first respondent in favour of the petitioner. In paragraph 10 he found that the petitioner was in possession of the suit properties in pursuance of the agreement of sale. He further held in paragraph 11 that the compromise entered into between the respondents Nos. 1 and 3 was a collussive and fraudulent one.

    3. The finding on point No. 1 is not attacked before me. So far as point No. 2 is concerned, Sri Konda Kotayya, the learned advocate for the third respondent contended that the conclusion drawn by the District Munsif was wrong. Having carefully gone through the report I have no doubt that the conclusion arrived at by the District Munsif on point No. 2 is right. The first respondent succeeded in both the Courts. He was also entitled to recover mesne profits from the third respondent and in the circumstances there was no need for the first respondent to enter into compromise but for cheating the rights of the petitioner. The next question is whether the third respondent did not have a similar fraudulent intention to affect the rights of the petitioner. The facts discussed in the report clearly lead to the conclusion that the third respondent was also a party to the fraud. I, therefore, confirm the finding of the District Munsif on this question.

    4. Sri Konda Kotayya, the learned advocate for the petitioner strenuously contended that the provisions of Order 1 Rule 10 and order 22 Rule 10 did not apply to the facts of this case, and that the petitioner ought not to be impleaded as a party to the second appeal for the purposes of opposing the compromise petition. Order 23 Rale 3 enacts 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, the court shall older such agreement or compromise to be recorded and shall pass a decree in accordance therewith so far as it relates to the suit. The first question to be determined is whether by reason of the filing of the compromise petition on 30th June, the second appeal should be regarded as having come to an end and no application under Order 1 Rule 10 and order 22 Rule 10 should be entertained. In Lakhan Chunder Day v. Sm. Nikunjamoni Dassi . 27 Cal. weekly notes 755., a Bench of the Calcutta High Court held that as the decree has not been drawn up in terms of the compromise the suit should be regarded as pending at the time of the application. A contrary view has been taken by a single judge of the Madras High Court in B. Raja Rajeswara Muthuramalinga Sethupathi Acl v. Secretary of State fur India . 50 M.L.J 59.. Kumara swami Sastri J. states at page 61 that as the compromise between the Union Board and the plaintiff was a lawful and valid one, the District Munsif had no power to add any party but he had only power to pass a decree in terms of the compromise. This decision is referred to with approval in C. Narayana suamy Naidu v. N. Subbaramulu Naidu . 68 M.L.J 236., by Pakenham Walsh, J. In both the cases no reference is made to the decision of the Calcutta High Court. In Seetai Achi v. Meyyappa Chetti . 66 M.L.J 517., a Bench of the Madras High Court preferred the view of the Calcutta High Court to the decision in B. Raja Rajeswara Muthuramalinga Sethupathi avl v. Secretary of State of India. The same point arose for decision once again in Nanjammal v. Eswaramurthu Goundar . 1954 M.L.J 530.. The learned Judges stated that it was necessary for them to express any final opinion on the question. Having carefully perused the authorities on this question I am inclined to think that on principle the view laid down by the Calcutta High Court is right. Having regard to the terms of Order 23 Rule 3 Civil Procedure Code I hold that till a compromise decree is passed, the litigation cannot be regarded to have terminated.

    5. The next question for consideration is whether the terms of Order 1 Rule 10 C.P.C apply to this case. Order 1 Rule 10, Sub-clause (2) provides that the court may at any stage of proceedings either upon or without the application of either party and on such terms as may appear to the Court to be just order that the name of any person who ought to have been joined whether as plaintiff or defendant or whose presence before the court is necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the suit, be added. The petitioner who claims under the first defendant would certainly be bound by the decision in the second appeal. He would, therefore be a proper party to the second appeal. This view was taken by Oldfield J. in Rajarathnam lyer Alias Bapuranjan v. Halasyaundaram Aiyar . 44 M.L.J 322..

    6. It was strongly contended on behalf of the third respondent that the provisions of Order 22 rule 10 would not apply to the case as no registered sale deed had been executed in favour of the petitioner by the first respondent. In support of his contention reliance was placed on the decision of the Privy Council in Basant Singh v. Mahabir Prasad, and in S.V.S Nelleappa Pillai v. Sethuramalingam Pillai. There can be no doubt that an agreement of sale by itself does not create an interest in the immoveable property under Section 54 of the Transfer of Property Act and the petitioner cannot therefore claim that an interest has been created in his favour by reason of the agreement of sale.

    7. Sri Rajeswararao, however, contended on behalf of the petitioner that as his client has been put in possession of the suit property under the agreement of sale it must be held that there was sufficient creation of interest in his favour so as to attract the terms of Order 22 Rule 10 C.P.C It is found by the court below that in pursuance of the agreement of sale the petitioner was put in possession of the suit property. Under those circumstances he is entitled to invoke the provisions of Section 53(a) of the Transfer of Property Act. His possessory title is, in my opinion, sufficient interest within the meaning of Order 22 Rule 10 C.P.C This view receives support from the decision of a Bench of the Madras High Court reported in Mrs. Saradambal Ammal v. E.R Kandaswamy Goundar. At page 375 are the relevant observations and are as follows:—

    “The words ‘any interest’ in this rule include, in our opinion, any transferable ‘right to sue’ spoken of in the earlier rules of the order which provides for its devolution in cases of death. The contention, therefore, that the ‘assignment, creation or devolution of any interest’ referred in rule 10 mean an assignment, creation or devolution of an interest in tangible property cannot be accepted.”

    8. The possessory right created in favour of the petitioner is heritable and assignable. I am clearly of opinion that the right, conferred upon him by putting him in possession falls within the terms of Order 22 Rule 10 C.P.C Even assuming that this view is not right I have no doubt that the application under Order 1 Rule 10 is maintainable and the petitioner is a proper party to the second appeal.

    9. The further question that arises for consideration is whether it is open to the petitioner to attack the compromise and contend that no decree should be passed in terms thereof. In Veeraraghava Reddy v. Subba Reddy it was held that an alienee pendente lite who had been added as a party to the litigation was entitled to object to a decree being passed in terms of a compromise arrived at between an alienor and the opposite party and the same principle would apply to the facts of this case. Sri Konda Kotayya strongly relied upon the decision of the Allahabad High Court in Laraiti v. Ch. Sham Sunder Lal. It was held therein that an application by a third party that the compromise between the parties to sue should not be accepted as it affected his, rights acquired by purchase pendente lite and that he should be made a party to the suit should be rejected and a decree in terms of the compromise should be passed. No reference is made therein to the terms of clauses (c) and (d) of Section 23(3) of the Indian Contracts Act. If the compromise is void under the terms of Section 23 of the Indian Contract Act, the applicant would be a proper party and no compromise decree could be passed. The view taken in the above decision has also not been followed by the Madras High Court in Seetai Achi v. Meyyappa Chetti.

    10. The next question that remains to be considered is whether the compromise entered into between defendants 1 and 3 is a lawful one within the terms of Order 23 Rule 3. Section 23 of the Contract Act provides that the consideration of object of an agreement is not lawful if it is fraudulent or involves or implies injury to the person or property of another. It is found in this case that the object of the compromise was fraudulent and was intended to injure the rights of the petitioner in the suit property. There can, therefore, be no doubt that the contract is unlawful and is consequently void. Sri Konda Kotayya contended that as the object of the agreement in the instant case was not unlawful, in entirety but only partially the terms of section 23 do not apply but I do not agree with this contention. Even if the object of the first and third respondents was unlawful, in part, the compromise would be affected under Section 23 of the Contract Act. In this view no decree can be passed in terms of the compromise.

    11. For the reasons aforesaid I order C.M.P No. 4747 of 1956 and dismiss C.M.P No. 4748 of 1956 and I proceed to hear the second appeal.

    Ch. R.

    12. Petition ordered.

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    Alluri Venkatanarasimharaju And Another v. Kattaboyina Yellamanda And Others
    (Feb 28, 1957)