A Consent Decree Cannot Revive Time-Barred Underlying Claims Through a Collateral Challenge

The appellants claimed rights in property bearing No. D-150, Okhla Industrial Area, Phase-I, New Delhi, which had been acquired by the partnership firm M/s Dayal Sales Corporation (“DSC”) under a perpetual lease deed dated 13 May 1986. Although appellant no.1 was not a partner of DSC, he claimed a 25% interest in the property based on a family settlement dated 8 July 2001 and subsequent oral arrangements, and asserted possession over the premises.

On 8 May 2006, DSC, through respondents no.3 and 4, executed an Agreement to Sell (“ATS”) in favour of respondents no.1 and 2. The appellants became aware of the ATS through a legal notice dated 29 September 2006 and responded on 5 October 2006, asserting that appellant no.1 was not bound by it.

The respondents thereafter instituted a specific-performance suit, CS(OS) No. 1403/2008, of which appellant no.1 admittedly obtained knowledge in July 2008 and to which he responded by letter dated 27 October 2008.

A consent decree dated 7 December 2012 was passed in the specific-performance suit, requiring payment of Rs.1.90 crore within three months and providing for specific performance in the event of default.

The appellants subsequently instituted CS No. 11835/2016 seeking a declaration that the consent decree was a nullity on the grounds of fraud, collusion and concealment of material facts, along with injunctive relief.

The Trial Court rejected the plaint under Order VII Rules 11(a) and 11(d) of the Code of Civil Procedure, 1908 (“CPC”), holding that the claim was barred by limitation and constituted an attempt to challenge the ATS and underlying rights through a circuitous route.

In the connected execution appeal, the appellants challenged the dismissal of their application for impleadment and objection to execution of the consent decree.

Whether the plaint seeking declaration that the consent decree dated 7 December 2012 was void on account of fraud and concealment disclosed a sustainable cause of action, or was liable to be rejected under Order VII Rule 11(a) CPC?

Whether the suit was barred by limitation under Order VII Rule 11(d) CPC, when the appellants had knowledge of the ATS in 2006 and of the specific-performance proceedings in 2008 but instituted the challenge only after the consent decree was passed?

Whether the appellants could resist or seek impleadment in the execution proceedings by substantially re-agitating the ownership and title claims already rejected in their civil suit?

The Court applied Order VII Rule 11(a) and (d) CPC, under which a plaint must be rejected where it does not disclose a cause of action or where the suit appears from the plaint to be barred by law.

In T. Arivandandam v. T.V. Satyapal, (1977) 4 SCC 467, the Supreme Court held that a plaint which is manifestly vexatious, meritless or discloses no clear right to sue may be rejected at the threshold on a meaningful reading.

Relying on Dahiben v. Arvindbhai Kalyanji Bhanusali, (2020) 7 SCC 366, and the principles in Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success I, Hardesh Ores (P) Ltd. v. Hede & Co. and D. Ramachandran v. R.V. Janakiraman, the Court held that the plaint must be read as a whole, its averments assumed to be correct, and its substance—not merely its form—examined; clever drafting cannot create an artificial cause of action or circumvent a statutory bar.

The Court further applied the principle that a later consent decree cannot furnish a fresh cause of action to revive an earlier, time-barred challenge to the underlying transaction.

The Court found that the appellants’ own pleadings and correspondence established knowledge of the ATS by October 2006 and knowledge of the specific-performance suit by October 2008.

The appellants’ substantive grievance was their alleged 25% interest under the family settlement and the respondents’ authority to execute the ATS, rather than any independent defect in the later consent decree.

Since appellant no.1 was not a partner of DSC and had not initiated proceedings to enforce the family settlement, challenge the ATS, or seek impleadment in the specific-performance suit, the Court held that the cause of action had accrued well before the consent decree.

The subsequent challenge to the decree was therefore viewed as clever drafting designed to bypass limitation and obtain indirectly the reliefs that had become time-barred.

Further, even if the consent decree were set aside, the appellants would not automatically acquire rights in the property.

Applying Order VII Rule 11, the Court upheld rejection of the plaint as barred by limitation and lacking a sustainable basis.

Consequently, the appellants could not reassert the same ownership claim at the execution stage or seek impleadment to obstruct execution of the decree.

It held that the appellants’ challenge was effectively directed against the ATS and the underlying property transaction, of which they had knowledge since 2006–2008, and that the 2012 consent decree did not revive the time-barred cause of action.

The Court also dismissed EX.F.A. 12/2019, holding that the appellants could not raise substantially the same rejected ownership claims in execution proceedings.

The interim order was vacated, and the Executing Court was directed to proceed with execution of the decree in accordance with law.