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High Court Of Calcutta
A. N. Ray, D. P. KUNDU
UNITED BANK OF INDIA - Appellant
Versus
ABHIJIT TEA CO.(PVT.) LTD. - Respondent
A. P. D. 458 Of 1994
Decided On : 08/11/1998
COMPROMISE - RECORDING - WITHOUT PREJUDICE PROPOSAL - ACCEPTANCE - FORMAL COMMUNICATION - ESTOPPEL - RESTITUTION - PRINCIPLES - CIVIL PROCEDURE CODE, 1908 - ORDER 23 RULE 3.
Fact of the Case:
The Tea Company wrote a "without prejudice" proposal to the Bank to pay off its principal dues of Rs. 335 lac and interest in a certain manner. The Bank's Board resolved to accept the proposal subject to the approval of the Reserve Bank of India (RBI). RBI informed the Bank that its permission was not necessary. However, the Bank's Board passed another resolution changing the terms of recovery. The Tea Company applied for recording of compromise based on the initial proposal and Board resolution. The Trial Court recorded the compromise.
Finding of the Court:
The Court held that there was no finalized agreement between the parties and recording of compromise was inappropriate. It found that the Bank never officially communicated its acceptance of the Tea Company's proposal. The Court also held that the Tea Company's application for recording of compromise was delayed and motivated by the Bank's mortgage suit against it. The Court further held that the Trial Court erred in staying the mortgage suit as part of the compromise decree.
Issues: 1. Whether there was a finalized agreement between the Bank and the Tea Company for recording of compromise? 2. Whether the Tea Company was estopped from challenging the compromise decree by accepting payments under it? 3. Whether restitution of payments made under the compromise decree was appropriate?
Ratio Decidendi: 1. An agreement for compromise must be finalized and communicated in a formal or official manner to be recorded under Order 23 Rule 3 of the Civil Procedure Code, 1908. 2. Acceptance of payments under a compromise decree does not necessarily estop a party from challenging the decree, especially when the payments are made to prevent default and preserve the status quo. 3. Restitution of payments made under a compromise decree may be inappropriate if the recipient party admits to owing a substantial portion of the amount paid.
Final Decision: The appeal was allowed, and the judgment and decree recording the compromise were set aside. The Court directed the parties to proceed with the mortgage suit and ordered discovery of documents. The Court also awarded costs to the Bank.
( 1 ) THIS is an appeal from a judgement and decree passed on 29th March, 1994 recording a compromise between the plaintiff bank and the respondent Tea Company. .
( 2 ) THE Bank, the appellant, has pressed the case that there was no finalized agreement and such recording of compromise by invoking Order 23 Rule 3 was inappropriate. .
( 3 ) IT is well known, that in the present amended state of the Code, parties are free to enter into a compromise in relation to their suit, and even settle matters outside the suit, provided the agreement is in writing and signed by the parties. Needless to mention that the agreement must also be lawful.
( 4 ) THE facts of this case are short and simple. On the 2nd day of July, 1990, following several negotiations the Tea Company wrote "without prejudice" to the bank proposing to pay off its principal dues of Rs. 335 lac and interest in a certain manner.
( 5 ) THE scheme is detailed but the basics are as follows :on the principal sum for the five years immediately passed, interest would be Rs. 9 lac only. Rs. 335 lac would again be divided into two parts and one part would not carry interest at all. Payment also would spread over 15 years. .
( 6 ) ON the basis of that without prejudice pay up proposal, the Deputy General Manager (Credit) and the General Manager (Credit) prepared a note dated 25th July, 1990 and put it up to the Board. The Board favoured the acceptance of the proposal.
( 7 ) ON the 4th day of August, 1990 the Board of the bank resolved that they would accept the proposal subject to the approval of the Reserve Bank of India.
( 8 ) THE Reserve Bank of India was written to by the bank. They communicated to the bank on or about 9th October, 1990 that Reserve Bank of India' permission was not necessary and the bank was to look after its own financial interest.
( 9 ) THEREAFTER another note was prepared by the Deputy General Manager (Credit), this being dated 2nd March, 1991. Here C. B. I. investigation was mentioned. Different terms of recovery were thought of than those which were then approved by the bank in July and August, 1990.
( 10 ) THE Board of the bank passed another resolution on 5th March, 1991 regarding the dues from the Tea Company. This time they again fixed the principal at Rs. 355 (335) lac but they decided to charge 6 per cent interest on the full amount from 1st July, 1990 on an yearly basis and thought of allowing 8 years time for liquidation instead of 15 years which had been allowed by the earlier Board resolution.
( 11 ) THE case of the Tea Company was that after the passing of the Board resolution of 4th August, 1990, Reserve Bank of India permission being unnecessary, the parties had entered into a contract. They applied for recording of it. They succeeded in the Court below.
( 12 ) THE point of primary importance is that all the events relating to the bank and the Reserve Bank of India starting right from the note of 25th July, 1990 up to the second resolution of the Board dated March, 1991, these were all internal matters. Not a single official communication issued in regard to this to the outside Tea Company; the Board resolutions were not forwarded; so 'ecret' were these that the Trial Court had to bring out the Board resolutions by allowing subpoena to be served on the bank by the Tea Company.
( 13 ) THE respondent applicant has boldly stated in its petition for recording of compromise that it was informed of the internal bank matters by 'the said officers' being the then General Manager (Credit) and the Deputy General Manager (Credit); we are of the opinion that such gaining of inside information by the private party cannot take the place of an official communication of an acceptance of an offer by the offeree.
( 14 ) THE application for recording was made in December, 1991. It was one year and four months after the alleged agreement for payment of dues came into being. Why was it so delayed? The answer is simple. The ba
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