Full Judgment Text
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PETITIONER:
STATE OF MAHARASHTRA & ANR.
Vs.
RESPONDENT:
M/S NATIONAL CONSTRUCTION COMPANY,BOMBAY & ANR.
DATE OF JUDGMENT: 09/01/1996
BENCH:
AHMADI A.M. (CJ)
BENCH:
AHMADI A.M. (CJ)
SEN, S.C. (J)
CITATION:
1996 SCC (1) 735 JT 1996 (1) 156
1996 SCALE (1)176
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
Ahmadi, CJI.
The appellants are the State of Maharashtra and its
Executive Engineer who was posted at the Masonry Dam
Division, Nathnagar, during the relevant period. In 1967,
the appellants invited tenders for performing work on the
masonry portion of the Paithan Dam on Godavari River, as
part of the Jayakwadi Project, Stage-I (hereinafter called
"the work"). The first respondent, M/s National Construction
Company, Bombay (hereinafter called "the contractor")
submitted its tender offer for the work which was
conditionally accepted by the appellants on 30.3.1967.
On 6.1.1968, the second respondent, the Central Bank of
India (hereinafter called "the Bank"), executed performance
guarantee No.57/22 whereby it guaranteed that the contractor
would faithfully conform to the terms and conditions of the
contract to be entered into between the appellants and the
contractor. Under the terms of the guarantee, the Bank was
jointly and severally liable with the contractor for the
latter’s default in performance; the liability of the Bank
being limited to Rs.14,12,836/-, i.e. 5% of the contract
price. The guarantee was to remain in force till 3.7.1972.
Soon thereafter, on 8.1.1968, the contract for commencing
construction was executed. However, no work was initiated
for almost two years. On 11.12.1969, the appellants gave an
ultimatum to the contractor to begin work. It is alleged
that instead of commencing work, the contractor abandoned
the work on 19.12.1969. The appellants allege that the
contractor did not respond to their repeated requests for
recommencing work, forcing them to employ other agencies for
completing the work. In the process, by 31.5.1972, they
claimed Rs. 1,13,27,298.16, with interest, from the
contractor by way of damages for breach of contract. This
was inclusive of their claim for Rs.14,12,836/- against the
bank under the performance guarantee.
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On 28.7.1992, the learned Civil Judge dismissed the
suit holding that as the cause of action was identical to
the one in the former suit, it was barred by res judicate
under Explanation IV to S.11 as also Order 2 Rule 2 of the
Civil Procedure Code, 1908 (hereinafter called "the Code").
The appellants appealed against this order on the ground
that the two suits were based on separate causes of action
and the dismissal of the former on a technical ground could
not act as a bar against the latter. On 9.7.1993, a Division
Bench of the Bombay High Court by the decision impugned
herein dismissed the appeal. Feeling aggrieved, the
appellants have approached this Court by way of special
leave.
We may first dispose of the plea based on Section 11,
Explanation IV, of the Code. That section deals with the
doctrine of res judicate and provides that any matter which
might or ought to have been made a ground claim they had
incurred expenses totalling Rs.1,44,18,970.24.
At this stage, on 21.6.1972, the appellants filed Short
Cause Suit No. 491/72 only against the Bank on the original
side of the Bombay High Court praying for the recovery of
Rs.14,12,836/-, which was the amount stipulated in
performance guarantee No.57/22, with interest. It would be
pertinent to note that the suit was filed before the
guarantee lapsed on 3.7.1972. On 17.1.1983, the Bombay High
Court dismissed the suit for non-joinder of parties, holding
that the contractor was a necessary party for deciding the
issue of default and the bank’s consequent liability. In
appeal against this order, Appeal No.303/83, the appellants
included the contractor as a party in the cause title of the
memo of appeal but the appeal was dismissed on 7.4.1983 on
the very same ground. It may, however, be clarified that the
contractor was not impleaded as a party by the Court’s
order.
On the same day, 7.4.1983, the appellants filed Spl.
Civil Suit No.29/83 against both the contractor and the bank
in the Court of the Civil Judge (Senior Division) at
Aurangabad. In this suit, the appellants for defence or
attack in the former suit shall be deemed to have been a
matter directly and substantially in issue in such suit.
Since the plea of res judicate can be disposed of on a
narrow ground, it is not necessary to examine the ambit of
Explanation IV. The main text of Section 11 reads thus :
S.11 Res Judicata. -- No Court shall try
any suit or issue in which the matter
directly and substantially in issue has
been directly and substantially in issue
in a former suit between the same
parties, or between parties under whom
they or any of them claim, litigating
under the same title, in a Court
competent to try such subsequent suit or
the suit in which such issue has been
subsequently raised, and has been heard
and finally decided by such Court."
The important words are "has been heard and finally
decided". The bar applies only if the matter directly and
substantially in issue in the former suit has been heard and
finally decided by a Court competent to try such suit. That
clearly means that on the matter or issue in question there
has been an application of the judicial mind and a final
adjudication made. If the former suit is dismissed without
any adjudication on the matter in issue merely on a
technical ground of non-joinder, that cannot operate as res
judicate.
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In its impugned order, the High Court of Bombay has
taken note of the fact that the Short Cause Suit was
dismissed on the technical ground of non-joinder of a
necessary party i.e. the contractor. It has, however,
stressed the fact that in the appeal against the Order of
the lower Court, the appellants had made the contractor a
party and yet the appeal was dismissed. The High Court has
relied on this fact to come to the conclusion that the
second suit was barred by res judicata. However, the High
Court did not take note of the fact that in rejecting the
appeal, the appellate Court had held that the suit was bad
since there was no adjudication or legal determination of
the plaintiff’s dues and, for this reason, the suit was not
maintainable against the 2nd Defendant only. The High Court,
therefore, failed to take note of the fact that the
appellate court did not consider the merits of the case, but
confirmed the dismissal of the suit by the lower court on a
technical ground.
This statement of the law by the High Court is, with
respect, incorrect in view of the decision of this Court in
Sheodhan Singh V. Daryao Kuanwar [AIR 1966 SC 1332 at p.1336
= [1966] 3 S.C.R. 300 at 307] where, while considering the
meaning of the words "heard and finally decided", used in
S.11 of the Code, it was held:-
"Where, for example, the former suit was
dismissed by the Trial Court for want of
jurisdiction .... or on the ground of
non-joinder of parties .... and the
dismissal is confirmed in appeal (if
any), the decision, not being on the
merits, would not be res judicata in a
subsequent suit"
(Emphasis supplied)
This Court in its recent decision, Inacio Martins v. Narayan
Hari Naik [(1993) 3 SCC 123] has reiterated this
proposition. It is, therefore, clear that the dismissal of
the Short Cause Suit and the subsequent appeal could not
have operated as a bar to Spl. Civil Suit No. 27/83. The
plea based on the principle of res judicata fails.
We may now deal with the issue involving Order 2 Rule 2
of the Code which reads as under:
"2. Suit to include the whole claim. -
(1) Every suit shall include the whole
of the claim which the plaintiff is
entitled to make in respect of the cause
of action; but a plaintiff may
relinquish any portion of his claim in
order to bring the suit within the
jurisdiction of any court.
(2) Relinquishment of part of claim. -
Where a plaintiff omits to sue in
respect of, or intentionally
relinquishes, any portion of his claim,
he shall not afterwards sue in respect
of the portion so omitted or
relinquished.
(3) Omission to sue for one of several
reliefs. - A person entitled to more
than one relief in respect of the same
cause of action may sue for all or any
of such reliefs; but if he omits, except
with the leave of the Court, to sue for
all such reliefs, he shall not
afterwards sue for any relief so
omitted."
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(Explanation omitted)
Both the principle of res judicata and Rule 2 of Order 2 are
based on the rule of law that a man shall not be twice vexed
for one and the same cause. In the case of Mohd. Khalil Khan
v. Mahbub Ali Khan [AIR 1949 PC 78 at p.86], the Privy
Council laid down the tests for determining whether Order 2
Rule 2 of the Code would apply in a particular situation.
The first of these is, "whether the claim in the new suit is
in fact founded upon a cause of action distinct from that
which was the foundation for the former suit." If the answer
is in the affirmative, the rule will not apply. This
decision has been subsequently affirmed by two decisions of
this Court in Kewal Singh v. Lajwanti [AIR 1980 SC 16] at
p.163 = (1980) 1 SCC 290] and in Inacio Martins’s case
(supra).
It is well settled that the cause of action for a suit
comprises of all those facts which the plaintiff must over
and, if traversed, prove to support his right to the
judgment.
It is the contention of the appellants that the two
suits are in respect of two separate causes of action. The
first suit was filed to enforce the bank guarantee, while
the second suit was filed to claim damages for breach of the
contract relating to the work.
In the plaint of the Short cause suit, the foundation
of the appellants claim rested upon the performance
guarantee No.57/22. The basis of the appellants’ claim was
that under the terms of the bank guarantee, the Bank was
liable to make good to the appellants all losses that became
due by reason of any default on the part of the contractor
in the proper performance of the terms of the contract. The
appellants annexed particulars and laid out facts to show
that the contractor had, by allegedly abandoning the work,
failed to observe the terms of the contract. The appellants
further alleged that these actions of the contract had
caused them to incur losses of Rs.76,37,557.76. However, in
view of the limitation prescribed in the bank guarantee, the
appellants had limited their claim to Rs.14,12,836/-.
At this juncture it seems necessary to analysis the law
relating to bank guarantees. The rule is well established
that a bank issuing a guarantee is not concerned with the
underlying contract between the parties to the contract. The
duty of the bank under a performance guarantee is created by
the document itself. Once the documents are in order, the
bank giving the guarantee must honour the same and make
payment. Ordinarily, unless there is an allegation of fraud
or the like, the Courts will not interfere, directly or
indirectly, to withhold payment, otherwise trust in
commerce, internal and international, would be irreparably
damaged. But that does not mean that the parties to the
underlying contract cannot settle their disputes with
respect to allegations of breach by resorting to litigation
or arbitration as stipulated in the contract. The remedy
arising ex-contract is not barred and the cause of action
for the same is independent of enforcement of the guarantee.
See UCO Bank vs. Bank of India, (1981) 3 SCR 300 at 325;
Centax (India) Ltd. V. Vinmar Impex Inc. (1986) 4 SCC 136;
and U.P. Cooperative Federation Ltd. V. Singh Consultants &
Engineers (P) Ltd. (1988) 1 SCC 174.
The legal position, therefore, is that a bank guarantee
is ordinarily a contract guite distinct and independent of
the underlying contract, the performance of which it seeks
to secure. To that extent it can be said to give rise to a
cause of action separate from that of the underlying
contract. However, in the present case we are handicapped
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because the High Court (both the learned Single Judge and
Division Bench) had no occasion to analysis the nature of
the bank guarantee. We, therefore, refrain from making any
observation regarding the true nature of the bank guarantee
except pointing out that the two causes of action may not be
identical. That would be a matter for the Trial Court to
consider on a true analysis of the bank guarantee at the
appropriate stage.
In the plaint of the Spl. Suit, the main relief sought
by the appellants was on the basis of the contract entered
into between the appellants and the contractor. The
appellants alleged and laid out facts and particulars to the
effect that the abandonment of work by the contractor was in
breach of the contract and this had caused the appellants to
suffer losses worth Rs. 1,13,27,298.16. This amount was
inclusive of the claim of Rs.14,12,836/- based on the
performance guarantee No.57/22 for which the contractor and
the Bank were jointly and severally liable.
The relief sought in the Short Cause Suit was therefore
based on a different cause of action from that upon which
the primary relief in the Spl. Suit was founded.
In Sidramappa v. Rajashetty [AIR 1970 SC 1059 at pp.
1060-61 = (1970) 1 SCC 186 at 189], this Court held that
where the cause of action on the basis of which the previous
suit was brought, does not form the foundation of the
subsequent suit, and in the earlier suit, the plaintiff
could not have claimed the relief which he sought in the
subsequent suit, the plaintiff’s subsequent suit is not
barred by order 2 Rule 2. Applying this ruling to the facts
of the present case, it is clear that, in the first suit,
the appellants could only claim reliefs in respect of
Rs.14,12,836/- which was the maximum amount stipulated in
the performance guarantee. They could not have claimed
reliefs of Rs.1,13,27,298.16 which they did in the second
suit on the basis of the contract relating to the work to be
performed by the contractor.
It is, therefore, clear that when the appellants, by
way of Short Cause Suit No.491/72, sought to enforce the
performance guarantee no.57/22, they were seeking reliefs on
the basis of a cause of action which was distinct from the
one upon which they subsequently based their claim in Spl.
Civil Suit No. 29/83.
In the result, both the issues are decided in favour of
the appellants. The appeal succeeds. No costs.