Byram Pestonji Gariwala v Union Bank of India (1991)

In 1976 Parliament amended Order XXIII Rule 3 so that a compromise had to be "in writing and signed by the parties". Read literally, that would mean a compromise signed only by counsel is not a compromise the court can record — and every consent decree ever passed on counsel's signature would be open to attack as a nullity.

The Supreme Court refused that reading. It held that "parties" includes their counsel and recognised agents, so the advocate's long-recognised implied authority to compromise survived the amendment. For professional ethics the case matters twice over: it restates what the advocate's authority is and where it comes from, and it adds a pointed warning that a careful advocate should not rely on that implied authority at all when written instructions can be obtained.

The appellant was the defendant in Suit No. 309 of 1972 in the Bombay High Court. On 18 June 1984 a decree was passed against him in terms of a compromise that was in writing and signed by the counsel representing the parties, but not by the parties in person.

In execution, a notice under Order XXI Rule 22 was personally served on the defendant. He did not appear or show cause, and on 23 January 1990 the notice was made absolute and the plaintiff was given leave to execute. Only then — about six years after the decree — did the defendant challenge it by chamber summons, arguing that since the 1976 amendment a compromise had to be signed by the parties themselves, so the decree was a nullity and could not be executed.

The High Court held the decree valid and binding and held that, not having challenged the order allowing execution, the defendant could no longer resist execution by chamber summons. He appealed by special leave.

1. After the CPC (Amendment) Act 1976, must a compromise under Order XXIII Rule 3 be signed by the parties in person, or is signature by their counsel enough?
2. Did the amendment cut down counsel's implied authority to compromise, including on matters outside the subject-matter of the suit?
3. Could the defendant, six years later, resist execution of the consent decree?

The appeal was dismissed, with no order as to costs.

What changed in 1976

Before the amendment, counsel's authority to compromise was understood to be confined to matters within the scope of the suit. The Court explained that "a compromise decree may incorporate not only matters falling within the subject matter of the suit, but also other matters which are collateral to it"; before 1976 the decree was executable as to the first but not the second. After the amendment, "a consent decree, as seen above, is executable in terms thereof even if it comprehends matters falling outside the subject-matter of the suit, but concerning the parties."

The appellant's argument rejected

The appellant said Parliament must have wanted the parties themselves to bear responsibility for such a compromise. The Court asked why the legislature would have "suddenly interfered with the time-honoured role of lawyers in the conduct of cases without specifically so stating, but by implication", and found no indication in the Law Commission's 54th Report, the Statement of Objects and Reasons, or the words of the rule that the concept of agents and pleaders in Order III had been altered.

Relying on the principle that law is altered deliberately rather than casually, the Court held: "There is no reason to assume that the legislature intended to curtail the implied authority of counsel, engaged in the thick of proceedings in court, to compromise or agree on matters relating to the parties, even if such matters exceed the subject-matter of the suit." The relationship of counsel and client is "a matter of contract", and the legislature does not interfere with it except where public policy warrants and the intent is made manifest.

On the wider system: "So long as the system of judicial administration in India continues unaltered, and so long as Parliament has not evinced an intention to change its basic character, there is no reason to assume that Parliament has, though not expressly, but impliedly reduced counsel's role or capacity to represent his client as effectively as in the past."

Why a party may act through counsel

"To insist upon the party himself personally signing the agreement or compromise would often cause undue delay, loss and inconvenience, especially in the case of non-resident persons." And: "If a power-of-attorney holder can enter into an agreement or compromise on behalf of his principal, so can counsel, possessed of the requisite authorisation by vakalatnama, act on behalf of his client." The words "in writing and signed by the parties" were therefore read with Order III Rule 1, which allows any act required of a party to be done by the party in person, by his recognised agent, or by a pleader on his behalf.

The professional caution

The Court added a warning addressed to the Bar: "it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immediate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay." It went on: "A wise and careful counsel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingencies in order that neither his authority nor integrity is ever doubted."

On the facts

The decree of 18 June 1984 was a valid decree and "it constituted res judicata". A judgment by consent "is intended to stop litigation between the parties just as much as a judgment resulting from a decision of the court at the end of a long drawn out fight." The appellant never alleged fraud, misrepresentation or lack of authority in his counsel; his challenge after six years "was an unsuccessful challenge by reason of delay, estoppel or res judicata, and was rightly so held by the High Court."

The words "signed by the parties" in Order XXIII Rule 3 CPC, as amended in 1976, include the parties' counsel and recognised agents acting on their behalf (read with Order III Rule 1). The amendment did not curtail counsel's implied authority to compromise, which extends to matters relating to the parties even beyond the subject-matter of the suit; Parliament does not make such a fundamental change by implication. A consent decree so passed is binding and operates as res judicata and estoppel.

• Direct question: Discuss the authority of an advocate to compromise a suit on behalf of his client. Start with implied authority arising from the engagement, give the 1976 amendment and the "signed by the parties" argument, then Byram Pestonji's answer and the Court's caution to counsel.
• Ethics angle: use the "wise and careful counsel" passage to show that the professional duty is higher than the legal minimum — take written instructions before compromising.
• Problem question: a client says his advocate compromised without his signature and wants the decree set aside years later. The compromise binds unless there is fraud, misrepresentation or want of authority; delay, estoppel and res judicata stand in the way.
• Cross-reference: later cases on advocates' conduct in compromises (for example D.P. Chadha v Triyugi Narain Mishra) build on this statement of counsel's authority.