Case Note & Summary
The State of Maharashtra and its Executive Engineer invited tenders for masonry work on the Paithan Dam on the Godavari River as part of the Jayakwadi Project, Stage-I. The first respondent, National Construction Company, submitted a tender which was conditionally accepted on 30.3.1967. The second respondent, Central Bank of India, executed performance guarantee No.57/22 on 6.1.1968 for Rs.14,12,836 (5% of the contract price), valid till 3.7.1972. The contract was executed on 8.1.1968. The contractor did not commence work for almost two years, and on 11.12.1969 the appellants gave an ultimatum. It is alleged that the contractor abandoned the work on 19.12.1969, forcing the appellants to employ other agencies to complete the work, suffering losses of Rs.1,13,27,298.16 including the guarantee amount. On 21.6.1972, before the guarantee lapsed, the appellants filed Short Cause Suit No.491/72 against the Bank alone for recovery of Rs.14,12,836 with interest. That suit was dismissed on 17.1.1983 by the Bombay High Court for non-joinder of the contractor as a necessary party. The appeal, in which the contractor was shown in the cause title but not impleaded by court order, was dismissed on 7.4.1983 on the same ground. On the same day, the appellants filed Spl. Civil Suit No.29/83 against both the contractor and the Bank for damages of Rs.1,13,27,298.16. The Civil Judge dismissed that suit on 28.7.1992 holding it barred by res judicata under Explanation IV to Section 11 and Order 2 Rule 2 CPC. The Division Bench of the Bombay High Court dismissed the appeal on 9.7.1993, leading to the present appeal by special leave. The Supreme Court considered whether the subsequent suit was barred by res judicata and Order 2 Rule 2. The appellants argued that the two suits were based on separate causes of action: the first on the bank guarantee and the second on breach of contract; and that dismissal of the first suit on a technical ground could not bar the second. The respondents relied on res judicata and Order 2 Rule 2. The Court held that for res judicata under Section 11 the matter must have been heard and finally decided by a competent court; dismissal for non-joinder is not an adjudication on merits. The High Court erred by relying on the appeal dismissal when the appellate court also dismissed on technical grounds without considering merits. The Court cited Sheodan Singh v. Daryao Kuanwar and Inacio Martins v. Narayan Hari Naik. On Order 2 Rule 2, the Court noted that a bank guarantee is ordinarily a contract distinct and independent of the underlying contract, giving rise to a separate cause of action. It refrained from making a final observation on the true nature of the bank guarantee, leaving that for the trial court. Applying Sidramappa v. Rajashetty, the Court held that where the cause of action in the earlier suit did not form the foundation of the subsequent suit and the plaintiff could not have claimed the relief sought in the subsequent suit, the subsequent suit is not barred by Order 2 Rule 2. The Supreme Court allowed the appeal, set aside the High Court order, and held that the suit was not barred, remitting the matter for trial on merits including analysis of the bank guarantee.
Headnote
A) Civil Procedure - Res Judicata - Dismissal on Technical Ground Does Not Bar Subsequent Suit - Code of Civil Procedure, 1908, Section 11 - The first suit was dismissed for non-joinder of necessary party and confirmed in appeal without adjudication on merits. The Supreme Court held that for res judicata the matter must have been heard and finally decided; dismissal on technical ground like non-joinder is not a decision on merits and does not bar a subsequent suit. Relied on Sheodan Singh v. Daryao Kuanwar and Inacio Martins v. Narayan Hari Naik. (Paras 1-5) B) Banking Law - Bank Guarantee - Independent Contract and Distinct Cause of Action - Indian Contract Act, 1872, Section 126 - A bank issuing a guarantee is not concerned with the underlying contract between the parties; its duty under a performance guarantee is created by the document itself. The cause of action for enforcement of the guarantee is separate from that for breach of the underlying contract; remedy ex-contract is not barred. The Court refrained from final analysis of the bank guarantee leaving it to the trial court. (Paras 1-5) C) Civil Procedure - Order 2 Rule 2 - Separate Causes of Action Prevent Bar - Code of Civil Procedure, 1908, Order 2 Rule 2 - The bar under Order 2 Rule 2 applies only if the claim in the new suit is founded on the same cause of action as the former suit. If first suit was to enforce bank guarantee and second suit for damages for breach of contract, causes are distinct; the earlier suit could not have claimed the larger damages, so subsequent suit is not barred. Applied Sidramappa v. Rajashetty. (Paras 1-5)
Issue of Consideration
Whether the subsequent suit was barred by res judicata under Section 11 CPC; whether the subsequent suit was barred by Order 2 Rule 2 CPC
Final Decision
The Supreme Court allowed the appeal, set aside the Bombay High Court order, and held that the suit was not barred by res judicata or Order 2 Rule 2 CPC. The Court remitted the matter to the trial court for trial on merits, including analysis of the true nature of the bank guarantee.
Law Points
- res judicata requires hearing and final decision on merits
- dismissal on technical ground of non-joinder does not bar subsequent suit
- bank guarantee is independent of underlying contract
- cause of action for bank guarantee distinct from breach of contract
- Order 2 Rule 2 CPC applies only if same cause of action
- earlier suit inability to claim larger relief prevents bar
