Whether the endorsement of the Government pleader, accepting the compromise memo filed by a opposite party in a Section 34 proceedings under the Arbitration and conciliation Act,1996, is binding on the Government/Client was the issue before the Court.
Three Arbitration awards were challenged by the State of Tamil Nadu by filing three petitions under Section 34 of the Act, seeking to set aside these awards. While the proceedings were pending before the Principal District Judge, the negotiations took place between the parties for a settlement but they could not agree as the disagreement continued. The Government sought 10% percent reduction in Principle Award amount and the contractor was willing only to reduce 5 % of the principle amount, apart from 40 % reduction in interest amount which agreed by both the parties.
The matters, however, lingered in Courts for some reason or the other. After two years, again contractor came forward with a memorandum to the effect that, apart from the offer made during the negotiations on 09.01.2009 for foregoing the interest at 40%, he was also willing to forgo further accrued interest on the award amount after 09.01.2009. This offer appeared to be fair to the Government Pleader. He made a written endorsement on the said memorandum, on behalf of the Government that it had no objection for this memo. As a result thereof, acting on this compromise, the petitions were partly allowed and the awards of the Arbitrators were modified.
The modified award /disposal of the Section 34 proceedings were challenged by the State before the High Court, primarily on the ground that the Government had never agreed to the terms as endorsed by the Government Pleader, in as much as, he was never authorised for this purpose. It was argued that in the absence of any authorisation in favour of the Government Pleader, endorsement of the compromise given by him was not binding on the Government. The High Court accepted the contention if the State and set-aside the order of the District Judge and remanded the matter for disposal of the Section 34 proceedings, and this was under challenge before the Supreme Court.
Rejecting the argument of the State, the Supreme Court bench consisting of Justice J. Chelameswar and Justice A.K. Sikri allowed the appeal. Justice A.K. Sikri who penned the judgment held “ 15. The only ground which has prevailed with the High Court in accepting the appeals of the respondents against the aforesaid orders are that the Government pleader was not authorised by the respondents to enter into such a settlement. It is difficult to accept this reasoning, in the scenario which prevails on the record. In the first instance, it is to be kept in mind that nothing has been brought out by the respondents which would show that advocate was not authorised to enter into such a settlement. On the perusal of the grounds of appeal submitted before the High Court by the respondents and even in the counter affidavit filed in this appeal, there is no allegation of any sort against the Government pleader. On the contrary, a categorical statement has been made that “the action of the respondent was fair and just in this regard as the respondent has not initiated any proceeding against the District Government Pleader.” Furthermore, and most importantly, there is not even an iota of a pleading explaining as to how the Government Pleader was not authorised to record consent or that he in any manner lacked authority. It is not even remotely suggested in any of these grounds that the Government Pleader he acted improperly. On the contrary, what is sought to be suggested is that there was a failure of compromise, or that no compromise was recorded or agreed upon before the Court, which is contrary to the record of the Court and the statements recorded in the judgment of the District Court, and therefore impermissible as a ground of challenge “
It was further held “ 16. It is also pertinent to point out that here also, no application was filed by the respondents before the District Court immediately after the passing of decrees in compromise terms, or even thereafter, for recall of the compromise order with the plea that such a compromise was unacceptable as the Government Pleader was not authorised to enter into any such settlement. Instead appeals were filed before the High Court. We are of the opinion that respondents should have approached the trial court in the first instance as it is the trial judge before whom the compromise was recorded and as he was privy to events that led to the compromise order, he was in a better position to deal with this aspect”.
“ 19. We find that in the present case the Government Pleader was legally entitled to enter into a compromise with the appellant and his written endorsement on the Memo filed by the appellant can be deemed as a valid consent of the Respondent itself. Hence the Counsel appearing for a party is fully competent to put his signature to the terms of any compromise upon which a decree can be passed in proper compliance with the provisions of Order XXIII Rule 3 and such decree is perfectly valid “
Read the Judgment here