CIVIL PROCEDURE CODE

IRAC Analysis of the case

“State of Maharashtra

Vs.

National Construction Company AIR 1996 SC 2637”

Submitted by

SIMRAN SWAROOP

BBA-LLD “D”

18010324139

SYMBIOSIS LAW SCHOOL, HYDERABAD

In

August, 2019

Under the guidance of

Mr. Pankaj Umbarkar

Assistant Prof,

Symbiosis Law School, Hyderabad

Symbiosis International University, Hyderabad

 TABLE OF CONTENT

SR. NO. DESCRIPTION PAGE NO.

1 Introduction 3
2 Brief Facts 4
3 Issues 5
4 Rule 5
5 Analysis 6-7
6 Conclusion 8
 STATE OF MAHARASHTRA & ANR Vs. NATIONAL
CONSTRUCTION COMPANY, BOMBAY & ANR
[AIR 1996 SCC 2637]

INTRODUCTION:
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 appellant invited
tenders on the masonry portion of the Paithan Dam on Godavari River, as part of the
Jayakwadi Project, Stage-I (hereinafter called "the work").

First respondent submitted its tender which was conditionally accepted by the appellants here
it executed a performance guarantee whereby it guaranteed the contractor as per the terms
and conditions of the contract. The guaranteed was supposed to remain in force till 3. 7. 1972.
The contract was executed on 19. 12. 1968 however there was no such actions undertaken
that would prove that the contract was executed for two years. After giving an ultimatum on
19th of Dec 1969, respondent abandoned the work and was also alleged that the contractor
forced then for appointing other agencies for initiating the work. By 31st May 1972 the
appellants filed a suit claiming Rs. 113, 27, 298. 16 with interest of Damages for breach of
contract and this also include the other 5% which the bank was supposed to give. Meanwhile
on 21. 6. 1972, the appellants filed a suit against the Bank claiming for the recovery of Rs.
14, 12, 836 which also bank was supposed to give if the contractor does any breach of
contract with interest. On 7. 4. 1983 the appeal got dismissed on the ground of non-joinder of
parties holding respondent no. 2 was a necessary part of the suit. Another appeal was filed
against this order but this time including contractor as a party in this cause but again it got
dismissed by the court on the same ground. On the same day the appellants filed a Spl Civil
Suit against both the contractor and the bank in the Senior Division at Aurangabad.

Feeling aggrieved, the appellant have approached this court by way of special leave.
FACTS:

 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. 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.

 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.
ISSUES:
The issues pointed out by the court are:

1. Whether the case would fall under the ambit of Res Judicata or not?
2. Whether the respondents need to incur all the losses?

RULE OF LAW:

Rule here applied is Order 2 Rule 2 of the Civil Procedure Code, 1908 (hereinafter called
“the code”)

Order II is Frame of Suit and rule 2 is Relinquishment of part of claim- Where a plaintiff
omits to sue in respect of, or internationally relinquishes, any portion of his claim, he shall
not afterwards sue in respect of the portion so omitted or relinquished.

EXPLANATION:

For the purposes of this rule an obligation and a collateral security for its performance and
successive claims arising under the same obligation shall be deemed respectively to constitute
but one cause of action.
ANALYSIS:
Initially on 28.7.1992 the court dismissed the suit on the basis of Res-Judicata which bars this
suit as there was another suit of the same cause of action which was filed by the appellant on
21.6.1972, a short cause suit against the bank for recovery on Rs 14, 12,836 on the grounds of
performance guarantee. And this suit was filed before the guarantee lapsed on 3.7.1972. And
this suit was dismissed by the Bombay High Court on the grounds of Non-Joinder of parties
holding the contractor was necessary for the parties on 17.1.1983. An appeal against this was
also filed which included the contractor as a party in the cause title of the memo again it got
dismissed on the same basis.

On that same day the appellants filed another suit, i.e. special Civil Suit against both the
contractor and the bank in the court of civil judge.

Here the learned Civil Judge held that this matter is directly and substantially in issue in such
a suit previously and called for the dismissal on the grounds of Res Judicata, but the
argument given against this order was the mention of the important words that is “has been
clearly heard and finally decided”

Section 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.

Thus the bar applies only if the matter directly and substantially in issue in any of the former
suit and the case is finally decided and heard and the final adjudication is being made then
only this doctrine of res judicata is supposed to be applied.

In an Impugned order HC of Bombay has taken clear notice of the fact that the short cause
suit which was filed against the bank was only on technical grounds that is non-joinder of
parties. But then it has however, stressed the fact that the appellant had made the contractor a
party and still the suit was dismissed. Thus the HC relied on the fact that the 2nd suit was
barred by res judicata.

However the HC has not taken into notice that on rejecting the appeal the court has held that
the appeal was bad in nature and there was no adjudication or legal definition of the
plaintiff’s dues and for that it was not maintainable on the contractor or the 2nd Defendant
only. Thus the HC did not consider or take account of the fact that the appellant court did not
see the merit of the case but confirmed that dismissal of the suit by the lower court on the
basis of 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"
In a recent case, Inacio Martins v. Narayan Hari Naik it has been held that dismissal of
Short case suit will not be a bar to Special Civil Suit.
And the plea based on Res Judicata fails in this case with which we are dealing.
Based on this, the appellants contention was that the two suits filed were not for the same
reason both of them were for different reasons. So both of the suits were valid. The 1st suit
was for enforcing the bank to perform its guarantee and the 2nd suit was the claim for the
damages from the contractor. And thus the 1st one would not in any way put a bar on the
other suit filed. The appellants now put their claim on the damages up to 76, 37, and 5557.76
but then the claim for bank guarantee was the same, 14, 12, and 836.

Now the court looks into the laws relating the performance of bank guarantee. The rule
clearly states that a bank issuing a guarantee has no connection with the actual contract. The
duty of the bank is to check whether the documents are in order or not and then performs the
guarantee and makes the payment, usually court do not directly interfere in any such
guarantee cases till there is some kind of fraud or something like that. But that does not mean
that the parties to the contract cannot settle their disputes to the contract with respect to
breach of contract by litigation or arbitration. Thus the remedy arising of the ex-contract
would not bar the cause of action for the same is independent of enforcing a guarantee.

The legal position is that a bank guarantee is independent of the underlying contract, the
performance of which it seeks to secure. And thus to that extent it can be said that it can give
rise to a cause of action, but then the HC of Bombay as well as the senior civil judge do not
have any jurisdiction over determining the true nature of the bank guarantee. It is totally a
matter or trial court to analyse the nature of the bank guarantee.

Further the other suit which is the Spl. Suit filed, the main relief that the appellant demanded
was on the basis of Breach of contract that the Contractor that is the 2nd respondent
committed. It was clearly mentioned that the respondent has to incur the losses faced by them
and the amount claimed was, Rs. 1, 13, 27, 298.16 which included the money which the bank
supposed to give, so it was basically a joint liability.

So the court held that the short cause suit was the foundation of the spl. Civil suit which was
on the basis of primary relief.

It was clear that in the way of short cause suit, sought to enforce the performance guarantee,
they were seeking reliefs on the basis of cause of action and is distinct from the subsequent
suit that is the Spl. Civil Suit which was totally based on their basic damages.

The result, both the issues are decided in favour of the appellants. And thus the appeal
succeeds and they get the money claimed.
CONCLUSION:
It is clear from the facts that there was proper Breach of Contract by the Contractor or
Respondent no. 2, there were so many reminders from the appellant before filing the case but
then they did not replay to any of the reminders. Respondent no. 2 did not co-operate with the
appellant after so many requests as well. Then coming to the bank guarantee, the bank needs
to perform his guarantee if the respondent no. 2 fails to perform his duty then it’s the duty of
the bank (respondent no. 1) to perform his guarantee.

There were 2 suits filed that is one short cause suit and other spl. Civil suit, here the 1st suit
cannot bar the 2nd suit on the basis of res- judicata and this was even given as judgement in
the case Inacio Martins v. Narayan Hari Naik [(1993) 3 SCC 123]. Moreover both the
suits were filed on different contentions so the 1st one cannot be a bar on the 2nd issue.

Another most important contention made by the appellant that the 1st suit was dismissed on
the basis on technical error or non-joinder issue. Thus according to res-judicata it cannot be
an issue to bar the 2nd suit. According to res-judicata it is supposed to be any case which is
heard and adjudicated cannot be brought in front of a competent court the 2nd time. It has not
mentioned if the suit is being dismissed on technical issues.