of Maharashtra & Anr Vs. M/S National
Construction Company, Bombay & Anr  INSC 39 (9 January 1996)
A.M. (Cj) Ahmadi A.M. (Cj) Sen, S.C. (J) Ahmadi, Cji.
1996 SCC (1) 735 JT 1996 (1) 156 1996 SCALE (1)176
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.
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.
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
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").
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.
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.
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.
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.
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 :
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.
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.
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 =  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.
now deal with the issue involving Order 2 Rule 2 of the Code which reads as
Suit to include the whole claim. –
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
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.
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."
(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.
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.
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).
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 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.
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/-.
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.
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.
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 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.
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
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.
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.
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.
result, both the issues are decided in favour of the appellants. The appeal
succeeds. No costs.