Reciprocal Promises In Settlement Agreements Must Be Executed Simultaneously: Delhi High Court

The Delhi High Court bench of Justice Navin Chawla has held in a settlement agreement where both parties have made reciprocal promises, these promises must be executed simultaneously. Brief Facts: The dispute revolved around the execution of a decree from a 2005 suit filed to dissolve the partnership firm M/s Hotel Marina (Decree Holder). The decree, issued in March 2006 based on a settlement agreement, mandated the dissolution of the firm and outlined specific terms for execution, including the preparation of several legal documents and the payment of Rs. 2 crores to the Judgment Debtor (JD) who was one of the firm's partners. The parties involved were the Decree Holder (DH) and the JD, who are related as father-in-law and daughter-in-law. Both held 8% shares in the partnership firm. The JD initiated the suit seeking dissolution of the firm and an account of its assets. The settlement agreement that resolved the suit required the DH to prepare and execute various documents, including a Retirement Deed, Power of Attorney, and a Receipt acknowledging the payment, among others. Additionally, a demand draft for Rs. 2 crores was prepared by the DH but encountered objections from the JD regarding the execution of the documents and the conditions under which the payment should be made. The JD raised concerns that the settlement was merely for her share in the firm and did not cover other amounts due to her, such as those in her capital account. Disputes over the settlement led to a series of legal proceedings. The DH filed multiple applications seeking directions for the JD to execute the documents, while the JD contested the terms and timing of the payment. Court orders over the years addressed these disputes, with judgments ultimately holding that the settlement covered all claims and amounts due to the JD, including the capital account. The JD argued that the DH failed to pay the Rs. 2 crores by the stipulated deadline of March 30, 2006 which rendered the decree unenforceable. He contended that the settlement only addressed her 8% share in the firm, not her capital account, and that the DH's non-payment nullified the compromise. On the other hand, the DH argued that the JD's refusal to execute documents was unjustified and that the terms of the settlement included all claims. Observations by the High Court: At the outset, the High Court observed that: “This case reflects the old saying which is that it is easier to obtain a decree from a Court than to execute it”. The High Court noted that the JD's first objection was based on the claim that the DH failed to pay the agreed amount of Rs. 2 crores by the stipulated deadline of 30.03.2006. However, the evidence showed that the DH indeed prepared a demand draft of Rs. 2 crores on 20.03.2006 and also circulated the necessary documents for the JD's execution. The JD, through a letter dated 29.03.2006, raised objections to the documents. Consequently, the DH filed an application on 29.04.2006 seeking permission to deposit the amount in court. This sequence of events demonstrated that the DH was ready and willing to perform their part of the Settlement Agreement/Decree. The bench further observed that it was, in fact, the JD who failed to fulfill her obligation under the decree, which was unjustified. Thus, it held that the JD cannot claim that the DH's failure to meet the deadline disqualifies the DH from seeking execution of the decree. Further, the High Court observed that according to Section 51 of the Contract Act, where a contract involves reciprocal promises to be performed simultaneously, no promisor is obligated to perform their part unless the promisee is ready and willing to perform their reciprocal promise. Section 52 further specifies that if the contract expressly fixes the order of performance, it must be followed. The bench noted that the Settlement Agreement required the DH to pay Rs. 2 crores by 30.03.2006, and upon this payment, the JD was to sign and execute all necessary documents. The DH was ready to make the payment, but the JD was not prepared to fulfill her part even if the payment had been made on time. Therefore, the High Court held that the DH was not obliged to pay the amount if the JD was not ready to execute the documents. The High Court held that the JD's argument that the payment was a pre-condition to executing the documents cannot be sustained. The terms of the Settlement Agreement must be understood in their entirety, rather than as isolated provisions. It held that the intention of the parties was that the DH would pay Rs. 2 crores, and the JD would then complete the formalities required to finalize the settlement, including signing the Dissolution Deed. The High Court noted that in Rangnath Haridas v. Dr. Shrikant B. Hegde, (2006) 7 SCC 513 the Supreme Court noted that reciprocal promises should be performed simultaneously. The...

Reciprocal Promises In Settlement Agreements Must Be Executed Simultaneously: Delhi High Court

Rajesh Kumar

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