When a suit is instituted by a plaintiff, it is generally observed that since, the plaintiff has a cause of action; he is to make all his claims in his prayer which he will be entitled to. Such claim will be awarded to him if the case is decided in his favour upon the execution of such decree. But a situation might arise where there is a compromise between the parties after the institution of suit. Rule 3-3B of Order XXIII of Code of Civil Procedure, 1908 deals with the provisions as to compromise in civil suits.
Basically it is upon the discretion of the parties to compromise, adjust or settle their dispute by an agreement or compromise. It has been observed as a general principle that all the matters which can be decided in a suit can also be settled by means of a compromise. Where the court is satisfied that a suit has been adjusted wholly or in part by any lawful agreement in writing and signed by the parties or where the defendant satisfies the plaintiff in respect of the whole or any part of subject matter of the suit, the court shall record such agreement, compromise or satisfaction and pass a compromise decree accordingly.
Therefore there are few conditions which must be satisfied for a valid compromise between the parties to the suit which includes an agreement or compromise, which must be in writing and signed by the parties. Not only that, but such agreement must be a lawful one. The same shall also be recorded by the court. And most importantly, such a compromise decree must be passed by that court. Therefore it is to be kept in mind that such a decree of compromise must be recorded in the court where such proceeding was pending before compromise. In case of a suit, it can be recorded by the trial court where as in case of an appeal or revision, such recording of a compromise decree is to be done at the appellate court or the revisional court thereof. In case of an execution proceeding, such recording must be made by the executing court itself.
Any objection or challenge to the decree of compromise may be made in effect of non compliance to the conditions which are required to be fulfilled. For instance, if such compromise agreement is not in writing, or not appropriately signed or lawfulness of such decree is questioned, etc. And the same shall be decided by the court which recorded such compromise decree.
Lawfulness of the agreement of compromise carries paramount importance since it is the satisfaction of the court which must be realised so that a compromise of the same can be recorded upon. At the same time it is the duty of the court to consider such a compromise decree to be enforceable against all the parties to the suit. The court has to consider all the evidences and affidavits with respect to such compromise agreement so that the court can determine lawfulness of the same and in case, satisfaction of the court is not meted out, the court may even recall its decree of compromise. Explanation to Rule 3 of the foregoing provision has also provided that an agreement or compromise which is void or voidable under the Indian Contract Act, 1872, shall not be deemed to be lawful within the meaning of Rule 3.
There are certain special provisions with regard to the compromise in a suit in which parties to the suit include a minor, pleader or a representative suit. In case of a compromise by minor, it is provided that no next friend or guardian of minor shall, without the leave of the court, enter into any agreement or compromise on behalf of the minor with reference to the suit, unless such leave is expressly recorded in the proceeding. While in case of a suit by a pleader on behalf of his client, he holds the same position as his client. It is an implied authority of the pleader to appear and enter into a compromise on behalf of his client. Whereas no agreement or compromise in a representative suit can be entered into without the leave of the court and before granting such leave, the court should give notice to the persons interested.
It is also peculiar to notice that though compromise observed by a court is called a decree, it shall not have an effect of actual decree. Therefore, principle of res judicata shall not apply on the mere acceptance by the court of something to which the parties had agreed upon. It is not the decision of the court since it merely sets the seal of the court on the agreement of parties. But in some cases it is held that a consent decree operates res judicata. At the same time such a decree may even create an estoppel between the parties.
While not being an actual decree, the process of execution of a compromise decree is analogous to the execution of the actual one. But at the same time, if the decree gives effect to an unlawful compromise or is passed by the court having no jurisdiction to pass it, it is a nullity and its validity can be set up even in the execution. Henceforth, appeal lies only against the decree and as it has already been mentioned, compromise decree is not an actual decree, so no appeal lies against it.
However, Order 43 provides that an order recording or refusing to record a compromise can be questioned. In fact, section 96 of the Code also provides that a party challenging the compromise decree can file an appeal. A case for revision can also be made, since it is an order which has significance of a case decided and thus a High court can also revise such order of compromise.
 Hiralal Moolchand v. Barot Raman Lal AIR 1993 SC 1449
 Banwari Lal v. Chando Devi (1993) 1 SCC 581
 Order XXXII Rule 6 and 7
 Order XXIII Rule 3-B
 Byram Pestonji v. Union Bank of India (1992) 1 SCC 31
 Mohanlal Goenka v. Benoy Krishna AIR 1953 SC 65
 Nai Bahu v. Lala Ramnarayan AIR 1978 SCC22