Karnataka HC Rejects Company And Directors’ Challenge To Signed ₹6.46-Crore Repayment Deal, Imposes ₹1 Lakh Costs

Respondents 1 and 2 sued the petitioners for recovery of ₹5,93,50,000 with interest, alleging investments made under a series of agreements.

During the suit, the parties filed a compromise under which the petitioners agreed to pay ₹6,46,40,565 with interest; four cheques for that amount were issued, although the respondents maintained that only one cheque was to be realised.

The Commercial Court disposed of the suit in terms of the compromise on 9 October 2025.

After execution proceedings commenced, the petitioners applied under Order XXIII Rule 3-A CPC to set aside the compromise decree; that application was rejected on 31 August 2026.

They then sought, under Articles 226 and 227, to quash both the decree and the rejection order, alleging fraud, coercion, procedural irregularity, and an excessive settlement amount.

Order XXIII Rule 3 CPC governs the recording of compromises and the passing of decrees in accordance with them; Order XXIII Rule 3-A CPC was the provision invoked by the petitioners to challenge the compromise decree before the Commercial Court.

The Court relied on Hemantha Kumar v. R. Mahadevaiah, 2022 (8) SCC 140, for the principle that the manner in which a court processes or records a compromise does not, by itself, establish fraud or invalidate the resulting consent decree.

The Court also applied the principle that a compromise voluntarily signed by educated parties represented by counsel, without material supporting allegations of coercion or fraud, is not liable to be set aside merely because a party later seeks to resile from it.

The Court held that recording the compromise in the suit’s order sheet was not, by itself, a ground to invalidate it, particularly in light of Hemantha Kumar.

The petitioners and their counsel had signed the compromise; the parties were educated, had access to legal advice, and were represented in the Commercial Court.

The Court found no material substantiating coercion or fraud and noted that no action had been taken against the petitioners’ counsel.

It rejected the contention that four cheques meant four separate payments, relying on the respondents’ position that only one cheque was to be realised, the handwritten note in the compromise, and the execution claim for ₹6,77,28,671, comprising the compromised sum and interest.

The timing of the challenge and the petitioners’ conduct in the execution proceedings further supported the Court’s conclusion that the petition was an attempt to delay recovery.

It imposed costs of ₹1,00,000, payable jointly or severally by the petitioners to the respondents and recoverable as part of the execution proceedings; pending applications were disposed of.