Order 23 Rule 3-A CPC | No Separate Suit to Challenge Compromise Decree, Even for Fraud or Lack of Authority : Bombay HC (Nagpur Bench)

The Bombay High Court has reaffirmed the absolute bar under Order 23 Rule 3-A of the Code of Civil Procedure against filing a separate suit to challenge a compromise decree, even when allegations of fraud or lack of authority are raised. This ruling clarifies the exclusive remedy available to aggrieved parties and reinforces judicial finality in compromise-based disposals.

Background & Facts

The Dispute

The dispute arises from a compromise decree passed in Special Civil Suit No. 178/2013, filed by M/s Madni Cooperative Housing Society Ltd. (Defendant No. 1) against Smt. Hashma Begum and others (Defendants No. 2 to 5). The Society claimed title and possession over a 5.297 H.R. plot in Yerkheda, Kamptee, based on an agreement of sale dated 15.04.1985 and 22.05.1987, and alleged that the defendants fraudulently sold the same property to third parties via a sale deed dated 22.11.2012. The suit sought declaration of title, protection of possession under Section 53-A of the Transfer of Property Act, and injunction against dispossession.

The suit was compromised and a decree was passed on 15.09.2022, reportedly for a consideration of Rs. 1,60,00,000, despite the property’s estimated market value of Rs. 40 Crores.

Key Facts

• The Madni Cooperative Housing Society was registered under the Maharashtra Co-operative Societies Act, 1960, with registration number NGP/KTE/HSG (TO) 778/85/86.
• The agreement of sale for the suit property was executed on 15.04.1985 and 22.05.1987.
• The property was declared surplus under the Urban Land (Ceiling and Regulation) Act, 1976, and exempted under Section 20 on 24.01.1995.
• The Executive Committee of the Society expired in 2019, and no elections were held thereafter.
• The compromise decree dated 15.09.2022 was entered into by the expired Executive Committee.
• The plaintiffs, who are members of the Society, were not parties to the compromise suit or the compromise proceedings.
• The plaintiffs allege the compromise was fraudulent, ultra vires, and entered into without authority or consent of members.

Procedural History

• 15.04.1985 and 22.05.1987: Agreement of sale executed between Society and Smt. Hashma Begum (then Defendant No. 2) and her deceased husband.
• 22.11.2012: Sale deed executed by Smt. Hashma Begum in favour of Dua Developers & Builders and its partners (Defendants No. 3 to 5).
• 2013: Special Civil Suit No. 178/2013 filed by Society against Defendants No. 2 to 5.
• 15.09.2022: Compromise decree passed in Special Civil Suit No. 178/2013.
• 2023: Plaintiffs (Society members) filed Special Civil Suit No. 165/2023 seeking to set aside the compromise decree.
• 29.07.2024: Trial Court rejected applications for rejection of plaint filed by Defendants No. 1 (Society) and Defendants No. 2 to 5.
• 07.11.2025: Leave granted by Court to delete certain respondents.
• 13.11.2025: Notices issued for final hearing of Civil Revision Applications.
• 30.04.2026: Judgment reserved.
• 22.05.2026: Judgment pronounced.

The Parties' Positions

Plaintiffs (Respondents in CRA): Argued that the compromise decree is void because:

• The Executive Committee had no authority after 2019.
• The compromise was obtained by fraud and for grossly inadequate consideration.
• They were not parties to the compromise suit and had not consented.
• The suit is maintainable under exception to Order 23 Rule 3-A CPC.

Defendants (Applicants in CRA): Contended that:

• Order 23 Rule 3-A CPC bars any separate suit challenging a compromise decree.
• Even if fraud is alleged, the remedy lies only before the court that passed the decree.
• The dispute does not fall under Section 91 of the MCS Act or require notice under Section 164.

Relief Sought

The plaintiffs sought:

• Declaration that the compromise decree dated 15.09.2022 is null and void.
• Declaration that the sale deed dated 22.11.2012 is null and void.
• Declaration that defendants have no right to transfer the suit property.
• Perpetual injunction restraining defendants from transferring the property.

The Legal Issue

Can a separate suit be maintained under Order 23 Rule 3-A of the Code of Civil Procedure to challenge a compromise decree on grounds of fraud or lack of authority by the parties who entered into it?

Arguments Presented

For the Appellant/Petitioner

The applicants (Defendants No. 1 and 2 to 5) relied on Horli v. Keshav (2012) 5 SCC 525 and Shri Mukund Bhavan Trust v. Shrimant Chhatrapati Udayan Raje Pratapsinh Maharaj Bhonsle (2024) 15 SCC 675 to argue that Order 23 Rule 3-A CPC creates an absolute bar against filing a fresh suit to set aside a compromise decree, regardless of whether the decree is alleged to be obtained by fraud or by persons without authority. They contended that the only remedy lies in filing an application under Order 23 Rule 3 before the same court that passed the decree. The jurisdictional objections under Section 91 of the MCS Act and Section 164 were also untenable, as the dispute concerned property rights, not the society’s business.

For the Respondent/State

The respondents (plaintiffs) argued that the compromise was void ab initio because the Executive Committee had ceased to hold office after 2019, rendering the compromise ultra vires. They relied on the principle that fraud vitiates all proceedings and that as non-parties to the compromise suit, they were not bound by the decree. They contended that Order 23 Rule 3-A does not bar suits filed by third parties who were not before the court and had no opportunity to object.

The Court's Analysis

The Court undertook a detailed examination of the statutory bar under Order 23 Rule 3-A CPC, which explicitly prohibits a separate suit to set aside a compromise decree. The Court emphasized that this bar is not conditional upon the nature of the challenge - whether based on fraud, lack of authority, or non-consent.

"Even in a case where a compromise decree is alleged to have been obtained by fraud, the only remedy available to the aggrieved party is to approach the court, which had passed the compromise decree, and that a separate suit in this regard will be barred."

The Court relied on Horli v. Keshav to affirm that fraud does not create an exception to the bar under Order 23 Rule 3-A. It further cited Shri Mukund Bhavan Trust to hold that even third parties, who were not parties to the original suit, cannot circumvent this bar by filing a fresh suit. The Court observed that the plaintiffs’ grievance - lack of authority of the Executive Committee - could have been raised before the court that passed the compromise decree, and their failure to do so does not justify a new suit.

Regarding jurisdiction under the Maharashtra Co-operative Societies Act, the Court distinguished between "affairs of the society" and its "business." It held that the dispute over the sale of land acquired under an agreement of sale does not constitute the business of a housing society, which is limited to development and allotment of housing units to members. Hence, Section 91 of the MCS Act and Section 164 notice were inapplicable.

The Court concluded that the trial court committed a jurisdictional error by allowing the suit to proceed, thereby violating the mandatory bar under Order 23 Rule 3-A CPC. The impugned orders were therefore unsustainable.

The Verdict

The Civil Revision Applications were allowed. The orders dated 29.07.2024 of the 3rd Joint Civil Judge, Senior Division, Nagpur, rejecting the applications for rejection of plaint, were quashed and set aside. The applications for rejection of plaint (Exhibits 9 and 20) were allowed, and the plaint in Special Civil Suit No. 165/2023 was rejected. Parties were directed to bear their own costs.

What This Means For Similar Cases

A Separate Suit Is Never a Remedy Against a Compromise Decree

• Practitioners must advise clients that no matter how egregious the alleged fraud or procedural irregularity, a fresh suit to set aside a compromise decree is statutorily barred.
• The only recourse is an application under Order 23 Rule 3 CPC before the court that passed the decree.
• This applies even if the party seeking relief was not a party to the original suit.

Fraud Does Not Override the Bar Under Order 23 Rule 3-A

• Allegations of fraud, collusion, or lack of authority must be raised in the original proceeding, not in a collateral suit.
• Courts will not entertain attempts to bypass the bar by framing the suit as one for declaration of nullity.
• This reinforces the finality of compromise decrees and prevents multiplicity of litigation.

Co-operative Society Disputes Require Precise Jurisdictional Analysis

• Disputes concerning property acquired by a co-operative society are not automatically within the jurisdiction of the Cooperative Court.
• Jurisdiction under Section 91 MCS Act arises only if the dispute relates to the society’s business - i.e., allotment, maintenance, or management of housing units.
• Disputes over title or sale of land acquired under agreement fall outside this scope and are triable in civil courts, subject to other procedural bars.