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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.