The Bombay High Court has delivered a stern rebuke against litigants who exploit judicial goodwill by making false settlement representations, imposing a cost penalty for undermining court proceedings. This order reinforces that courts will not tolerate procedural bad faith, even in civil disputes framed as amicable negotiations.
Background & Facts
The Dispute
The petitioners, tenants of premises owned by the Life Insurance Corporation (LIC), sought regularisation of their tenancy after years of informal occupation. The dispute arose when LIC, through its Zonal Negotiating Committee (ZNC), proposed a one-time compensation of Rs. 10,00,000 to resolve the matter, subject to execution of a new agreement.
Procedural History
The case progressed through multiple adjournments aimed at facilitating settlement:
- October 2025: ZNC decided to offer Rs. 10,00,000 as one-time compensation
- November 2025: Petitioners agreed to pay the amount in installments and requested tenancy regularisation under pre-2014 terms
- December 2025: Petitioners paid Rs. 5,00,000 and issued a post-dated cheque for the balance
- February 2026: Respondent’s counsel, in open court, stated that tenancy would be regularised upon payment, subject to fresh terms
- March 2026: Respondent filed a leave and license agreement instead of a tenancy agreement, contradicting its prior statement
Relief Sought
The petitioners sought enforcement of the settlement terms as represented in court, including regularisation of tenancy and return of the post-dated cheque if the agreement was not honoured.
The Legal Issue
The central question was whether a party’s unequivocal statement made in court during settlement proceedings, upon which the opposite party relies, can be later retracted without consequence - and if not, what remedy exists to deter such conduct.
Arguments Presented
For the Petitioner
The petitioners argued that the respondent’s statement on 27th February 2026 was a binding representation made in open court, inducing them to file an undertaking to vacate if the cheque bounced. They relied on the principle that courts must protect parties who act in good faith on judicial assurances. They cited the e-mail trail and payment history to demonstrate consistent intent to settle on terms of tenancy regularisation.
For the Respondent
The respondent contended that the statement made in court was merely procedural and did not constitute a legal commitment to regularise tenancy. Counsel argued that the term "tenancy" was used colloquially and that the actual intent was always to execute a leave and license agreement, which they claimed was legally distinct and permissible.
The Court's Analysis
The Court rejected the respondent’s attempt to recharacterise its prior statement as informal or non-binding. It held that statements made in court during settlement proceedings carry weight, especially when they induce reliance by the opposing party. The Court observed that the respondent’s conduct amounted to a deliberate misrepresentation designed to manipulate the judicial process.
"Respondent no.2 has no regards to the statement made before this court."
The Court emphasized that repeated adjournments granted for settlement are not a license to delay or deceive. It noted that the e-mail correspondence, payment history, and the specific language of the court record all corroborated the petitioners’ understanding that tenancy regularisation was the agreed outcome. The substitution of a leave and license agreement - a temporary, revocable arrangement - after inducing reliance was found to be an abuse of process.
The Court further held that such conduct erodes public confidence in judicial mechanisms for dispute resolution and must be deterred through financial penalty.
The Verdict
The petitioners did not obtain the tenancy regularisation they sought, but the Court held that the respondent’s conduct warranted punishment. The Court ordered the respondent to deposit Rs. 50,000 as cost for wasting judicial time and making false representations, and directed the return of all payments and the post-dated cheque.
What This Means For Similar Cases
Settlement Representations Are Binding
- Practitioners must treat any statement made in court during settlement discussions as legally significant
- Courts will not permit parties to backtrack on representations that induce reliance
- Oral or written assurances made in open court, even during settlement, may form the basis for cost imposition
Cost Penalties Are a Deterrent Tool
- Courts now have clear authority to impose costs for procedural bad faith, even in civil disputes
- The Rs. 50,000 penalty here signals that courts will not tolerate manipulation of settlement processes
- Advocates must advise clients against making strategic misstatements to gain leverage
Documentary Evidence Trumps Oral Retractions
- E-mails, payment records, and contemporaneous correspondence will be weighed heavily against later denials
- A party’s conduct over time (e.g., accepting partial payment, confirming terms via email) will override post-hoc reinterpretations
- Legal drafting must align with court representations to avoid accusations of bad faith
