Case: Changadeo Sugar Mills Limited Vs. Belapur Sugar &amp; Allied Industries Limited

This is an appeal from an order of Bharucha. J., dated 9th October, 1979 recording the agreement or compromise set out in the said order to which we shall refer in some detail a little later and passing an order in terms thereof. The appellant before us is a company registered under the Companies Act, 1956 and was the defendant in the aforesaid Summary Suit No. 1003 of 1972. The respondent is another Company registered under the same Act and was the plaintiff in the said suit. For the sake of convenience, we propose to refer to the parties by their description in the suit.

Court's reasoning:
In our view, this submission cannot be sustained. We have referred to the contents of the relevant letters. It is not disputed that the persons who addressed these letters had the authority from the parties on whose behalf they addressed these letters to settle the dispute. In our view, the defendant by its letter dated 22nd February, 1974 made a proposal to settle the suit on the terms that the defendant would pay to the plaintiff a sum of Rs. 12,00,000/in the manner set out in the said letter, that on such payment, the last payment being made by 30th April, 1974, the plaintiff was to withdraw the suit and, as far as the balance of the amount was concerned it would be paid in mutually agreed instalments. By its letter dated 28th February, 1974 addressed to the defendant, the plaintiff accepted the said offer, but on certain conditions with the result that, in effect, by the said letter, the plaintiff made a counter offer that on the defendant paying a sum of Rs. 12,00,000/by 30th April, 1974 in the manner set out in the defendants letter dated 22nd February, 1974, and further agreeing to pay the balance of Rs. 10,42,800/by monthly instalment of not less than Rs. 50,000/together with interest on the amount remaining unpaid at the date of each monthly payment from out of the amount of Rs 22,42,500/at the same rate which the plaintiff was required to pay to its bankers in its cash credit account and the costs and out of pocket expenses of the suit, the suit would be treated as settled on that footing. By its said letter dated 28th February, 1974, the defendant accepted that other unconditionally and sent a cheque for Rs. 4,00,000/in pursuance of the settlement. There has been thereafter no further agreement as such between the parties. However, it appears that by its letter dated 27th April, 1974 addressed to the defendant, the plaintiff agreed that the rate of interest charged would be 14% per annum which admittedly was less that the rate of interest paid by the plaintiff to its bankers in its cash credit account. By its letter dated 8th July, 1974 addressed to the defendant, the plaintiff confirmed having agreed that interest would be charged at 14% per annum on the amount of Rs. 26,23,701.50 as recorded in the first para of the draft consent terms at 14% per annum but the payment of interest would commence on 28th February, 1974 and not 6th December, 1973. By Mundkurs said letter dated 23rd September, 1978 addressed as the Managing Director of the plaintiff, the plaintiff decided to withdraw its claim for compound interest and confirmed that the interest payable by the defendant to the plaintiff would be simple interest at the rate of 14% per annum. It is true, as pointed out by Mr. Madon that in the said letter there is reference to a statement sent by the said Mundkur on behalf of the plaintiff showing the calculations of the amount payable on the footing of simple interest being 14% per annum and further on the footing that the payments made by the defendant would be first adjusted towards the principal and recording that, on that footing the sum payable worked out at Rs. 6,84,654.52. It was urged by Mr. Madon that in view of this urged it. If there was a compromise, under the compromise only a sum of Rs. 6,84,654.52 remains payable by the defendant to the plaintiff. We are unable to accept that contention it is true that in the statement it is shown that the sum of Rs. 6,84,654.52 remains payable by the defendant to the plaintiff on the footing just set out earlier, but the latter part of the letter makes it quite clear that this calculations was made by way of a without prejudice offer and that the plaintiff was willing to accept the said amount and proceed on the footing that the payments by the defendant to the plaintiff should be first adjusted towards the principal and then interest on condition that the defendant agreed that the said amount had to be paid and agreed to pay the same to the plaintiff at an early date. It is common ground that the defendant agreed to no such payment and no payment of this amount was made within a reasonable time from 23rd September, 1978. In view of this all that can be said about the said letter September, 1978 is that under that letter, the plaintiffs claim for compound interest was given up. In our view, therefore, there was a compromise of the suit on the basis of the terms set out in the letters both dated 28th February, 1974 subject to modification as aforesaid by the plaintiffs letter dated 8th July, 1974 which are of Exhibits A and B (collectively) to the affidavit of V.S. Somaya and with the further modification that the interest was to be calculated at 14% per annum simple interest and was to begin from 28th February, 1974 and not 6th December,our view, there is no substance whatever in this contention. What is relied on by Mr. Madon is really a part of a sentence in paragraph 3 of the said letter. A plain reading of the said paragraph makes it clear that the aforesaid proposal made in the defendants said letter dated 22nd February, 1974 was accepted only on certain conditions regarding the payment of balance amount, costs and interest as we have set out earlier and hence letter was no acceptance at all of the defendants said offer by the plaintiffs letter dated 28th February, 1974 and, in law, the said letter of the plaintiff dated 28th February, 1974 amounted to a counter offer as we have already pointedthat case, the appellant who was the decree holder had instituted a suit for the recovery of Rs. 7,018.66 against the defendant on a bahi khata. Before the disposal of the suit, a compromise was affected between the parties and a petition was put in embodying the terms of the compromise. It was agreed that the defendant should pay to the plaintiff the sum of Rs. 2,500/on or before 30th June, 1915 and that the money was paid by that date, interest should run at the rate of 12 annas per cent, per mensem. It was further agreed that if the money was not paid on before 30th June, 1915, interest should run at the rate of 24 percent per annum from the date of compromise to the date of realisation. A decree was prepared in terms of the compromise and the plaintiff put that decree into execution and in doing as calculated the interest at the rate of 24 per cent per annum. The defendant raised on objection under section 47, Civil P.C. The executing Court allowed the objection holding that the higher rate of interest was a penalty. An appeal was preferred against that decision to the High Court. Sharfuddin, J., in the leading judgment, held that from the compromise terms themselves, it was very clear that the rate of interest agreed upon the really 9 percent per annum and the decree holder was entitled to obtain from the defendant Rs. 2500/with interest at the rate of 9 percent per annum. As to the stipulation that the rate of interest will be 24 per cent per annum upon failure to pay the money agreed upon on the date agreed upon it was a matter which according to Sharfuddin, J., was to quote this own words, "altogether superfluous." Roe, J. in his concurring Judgment held that the agreement to pay after the specified period a rate of interest not claimed in the plaint was outside the scope of the suit, was invalid, and ought not to have been included in the decree and could not be executed as part of the decree.7. We find it difficult to accept the submission of Mr. Madon. It is well settled that under Rule 3 of Order XXIII of the Code of Civil Procedure, prior to its amendment in 1976, only an agreement or compromise, which related to the suit could be recorded in the form of a decree. If an agreement compromising the dispute did not relate to the suit or went beyond the scope of the suit as such, that part of agreement, which went beyond the scope of the suit, could not be incorporated in the decree. In our view in the present case, the scope of the suit is the claim for the amount lent and advanced by the plaintiff to the defendant and the rate of interest is merely incidental. Therefore, even through a higher rate of interest is provided in the compromise than claimed in the suit, it could not be said that it went beyond that the scope of the suit. A distinction has to be borne in mind between the prayers in the plaint and the scope of the subject matter of the suit. Although the provision for higher rate of interest went beyond the prayers in the plaint, we fail to see how it can be said that it goes beyond the scope of the suit or the subject matter of the suit. As far the decision of the Patna High Court, referred to earlier, we find that in the leading judgment, Sharfuddin, J., has said really nothing on this point at all. What Sharfuddin, J., held in the terms was only that in so far as the rate of interest provided for in the compromise was higher than the rate of interest which was really agreed upon between the parties it was "Super fluous". As far as the decision of Roe, J. is concerned, with respect, we are unable to agree with the same. It appears to us with respect, that the learned Judge has restricted the scope of the suit to the prayers in the suit which in our view, is not warranted in law. We find that the view, which we are taking, finds support from the decision of a Division Bench of this Court in (Vishnu Sitaram Auchat v. Ramchandra Govind Joshi)2, (1932)34 Bom.L.R. 849. Patkar, J., who delivered the judgement of the Court stated that the law not merely entitles the parties but compels the Court to record a compromise in accordance with the terms "so far as it relates to the suit" under Order XXIII, Rule 3, but where the compromise is plainly outside the suit, the Court might refuse to incorporate it in the decree; but where a term in the compromise is a consideration of the compromise and therefore intimately connected with it, the words "relates to the suit" are wide enough to embrace such a term of the compromise, as for instance, the consideration for the compromise even though this consideration may be entirely outside the scope of the suit. In the case before us, under the compromise the plaintiff who has already become entitled to have the suit set on board for andecree by reason of the failure of the defendant to comply with the condition on which leave to defend was granted, agreed to give a much longer time to the defendant to pay the amount in question and also granted the facility of payment by instalments. In view of this, it is quite clear that the higher rate of interest provided was really a consideration for the other terms of the compromise being agreed to by the plaintiff and it cannot be said that such a term went beyond the scope of the suit. A similar view has been taken by a learned Single Judge of the Court in a (Bajirao Narhat Peshwe v. Sakharam Balvant Peshwa)3, (1931)33 Bom.L.R. 463. In fact we find that in (Ramjanam Tewary v. Bindeshwari Bai)4, A.I.R. 1951 Patna 299 a Division Bench of the Patna High Court has taken the view that the question whether a particular term of a compromise relates to theof the suit has to be answered on the frame to the suit the relief claimed and the matter which arose for decision in the case on the pleadings of the parties. It was further held that there is a large body of authority to show that where a compromise relating to matters outside the scope of the suit is a part of the consideration for the agreement as to matters in suit the entire compromise as an integrate whole must be recorded and decreed as relating to the suit (para 16 of the report). In view of this, the last submission of Mr. Madon must also be rejected.