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Canara Bank vs N.G. Subbaraya Setty on 20 April, 2018

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4233 OF 2018
(ARISING OUT OF SLP (C) NO.25649 OF 2017)

CANARA BANK …APPELLANT

VERSUS

N.G. SUBBARAYA SETTY ANR. …RESPONDENTS

JUDGMENT

R.F. Nariman, J.

1. Leave granted.

2. Roma locuta est; causa finita est. Rome has spoken, the

cause is ended. Rome spoke through her laws. One of the

pillars of Roman law is contained in the maxim res judicata pro

veritate accipitur (a thing adjudicated is received as the truth).

This maxim of Roman law is based upon two other fundamental
Signature Not Verified

Digitally signed by
SWETA DHYANI
Date: 2018.04.20
maxims of Roman law, namely, interest reipublicae ut sit finis
15:56:51 IST
Reason:

litium (it concerns the State that there be an end to law suits)

1
and nemo debet bis vexari pro una at eadem causa (no man

should be vexed twice over for the same cause). Indeed, that

this maxim is almost universal in all ancient laws, including

ancient Hindu texts, was discussed by Sir Lawrence Jenkins in

Sheoparsan Singh v. Ramnandan Singh, AIR 1916 PC 78 at

80-81 as follows:

“There has been much discussion at the Bar as
to the application of the plea of res judicata as a
bar to this suit. In the view their Lordships take,
the case has not reached the stage at which an
examination of this plea and this discussion
would become relevant. But in view of the
arguments addressed to them, their Lordships
desire to emphasise that the rule of res judicata,
while founded on ancient precedent, is dictated
by a wisdom which is for all time. “It has been
well said,” declared Lord Coke, “interest
reipublicae ut sit finis litium, otherwise great
oppression might be done under colour and
pretence of law”: (6 Coke, 9a). Though, the rule
of the Code may be traced to an English source,
it embodies a doctrine in no way opposed to the
spirit of the law as expounded by the Hindu
commentators. Vijnanesvara and Nilakantha
include the plea of a former judgment among
those allowed by law, each citing for this purpose
the text of Katyayana, who describes the plea
thus: “If a person though defeated at law sue
again he should be answered, ‘You were
defeated formerly’. This is called the plea of
former judgment.” (See “The Mitakshara
(Vyavahara)” Bk. II, ch. i, edited by J.R.

2

Gharpure, p. 14, and “The Mayuka,” Ch. I., sec.

1, p. 11 of Mandlik’s edition.)
And so the application of the rule by the Courts
in India should be influenced by no technical
considerations of form, but by matter of
substance within the limits allowed by law.”

3. This Court in Daryao and others v. State of U.P. and

others, (1962) 1 SCR 574 at 583-584, put it very well when it

said:

“In considering the essential elements of res
judicata one inevitably harks back to the
judgment of Sir William De Grey (afterwards
Lord Walsingham) in the leading Duchess of
Kingston’s case [2 Smith Lead. Cas. 13th Ed. pp.
644, 645]. Said William De Grey, (afterwards
Lord Walsingham) “from the variety of cases
relative to judgments being given in evidence in
civil suits, these two deductions seem to follow
as generally true: First, that the judgment of a
court of concurrent jurisdiction, directly upon the
point, is as a plea, a bar, or as evidence,
conclusive between the same parties, upon the
same matter, directly in question in another
court; Secondly, that the judgment of a court of
exclusive jurisdiction, directly upon the point, is
in like manner conclusive upon the same matter,
between the same parties, coming incidentally in
question in another court for a different purpose”.

As has been observed by Halsbury, “the doctrine
of res judicata is not a technical doctrine
applicable only to records; it is a fundamental
doctrine of all courts that there must be an end of
litigation [Halsbury’s Laws of England, 3rd Ed.,
3
Vol. 15, para. 357, p. 185]”. Halsbury also adds
that the doctrine applies equally in all courts, and
it is immaterial in what court the former
proceeding was taken, provided only that it was
a Court of competent jurisdiction, or what form
the proceeding took, provided it was really for
the same cause (p. 187, paragraph 362). “Res
judicata”, it is observed in Corpus Juris, “is a rule
of universal law pervading every well regulated
system of jurisprudence, and is put upon two
grounds, embodied in various maxims of the
common law; the one, public policy and
necessity, which makes it to the interest of the
State that there should be an end to litigation —
interest republicae ut sit finis litium; the other, the
hardship on the individual that he should be
vexed twice for the same cause — nemo debet
bis vexari pro eadem causa” [Corpus Juris, Vol.
34, p. 743]. In this sense the recognised basis of
the rule of res judicata is different from that of
technical estoppel. “Estoppel rests on equitable
principles and res judicata rests on maxims
which are taken from the Roman Law” [Ibid p.
745]. Therefore, the argument that res judicata is
a technical rule and as such is irrelevant in
dealing with petitions under
Article 32 cannot be
accepted.”

4. The link between the doctrine of res judicata and the

prevention of abuse of process is very felicitously stated in

Virgin Atlantic Airways Ltd. v. Zodiac Seats UK Ltd. [2013] 4

All ER 715 (at 730-731) as follows:

“The principle in Henderson v Henderson has
always been thought to be directed against the
4
abuse of process involved in seeking to raise in
subsequent litigation points which could and
should have been raised before. There was
nothing controversial or new about this notion
when it was expressed by Lord Kilbrandon in the
Yat Tung case [1975] AC 581. The point has
been taken up in a large number of subsequent
decisions, but for present purposes it is enough
to refer to the most important of them, Johnson v
Gore-Wood Co [2002] 2 AC 1, in which the
House of Lords considered their effect. This
appeal arose out of an application to strike out
proceedings on the ground that the plaintiffs
claim should have been made in an earlier action
on the same subject matter brought by a
company under his control. Lord Bingham of
Cornhill took up the earlier suggestion of Lord
Hailsham of St Marylebone LC in Vervaeke
(formerly Messina) v Smith [1983] 1 AC 145, 157
that the principle in Henderson v Henderson was
“both a rule of public policy and an application of
the law of res judicata”. He expressed his own
view of the relationship between the two at p. 31
as follows: “Henderson v Henderson abuse of
process, as now understood, although separate
and distinct from cause of action estoppel and
issue estoppel, has much in common with them.
The underlying public interest is the same: that
there should be finality in litigation and that a
party should not be twice vexed in the same
matter. This public interest is reinforced by the
current emphasis on efficiency and economy in
the conduct of litigation, in the interests of the
parties and the public as a whole”.”

5

5. Res judicata is, thus, a doctrine of fundamental

importance in our legal system, though it is stated to belong to

the realm of procedural law, being statutorily embodied in

Section 11 of the Code of Civil Procedure, 1908. However, it is

not a mere technical doctrine, but it is fundamental in our legal

system that there be an end to all litigation, this being the public

policy of Indian law. The obverse side of this doctrine is that,

when applicable, if it is not given full effect to, an abuse of

process of the Court takes place. However, there are certain

notable exceptions to the application of the doctrine. One well

known exception is that the doctrine cannot impart finality to an

erroneous decision on the jurisdiction of a Court. Likewise, an

erroneous judgment on a question of law, which sanctions

something that is illegal, also cannot be allowed to operate as

res judicata. This case is concerned with the application of the

last mentioned exception to the rule of res judicata. The brief

facts necessary to appreciate the applicability of the said

exception to the doctrine of res judicata are as follows. In the

present case, respondent No.1 availed a credit facility from the

petitioner bank sometime in 2001. Respondent No.2, his son,

6
stood as a guarantor for repayment of the said facility. As

respondent No.1 defaulted in repayment of a sum of

Rs.53,49,970.22, the petitioner bank filed O.A. No. 440 of 2002

before the DRT Bangalore, against respondent Nos.1 and 2.

Respondent No.1, in order to repay the dues of the bank,

signed an assignment deed dated 8.10.2003 with the Chief

Manager, Basavanagudi Branch, Bangalore for assignment of

the trademark “EENADU” in respect of agarbathies (incense

sticks) on certain terms and conditions. Clauses 1 to 7 of the

aforesaid assignment are set out hereunder:

“NOW THIS DEED OF ASSIGNMENT OF
TRADE MARK “EENADU” WITNESSETH AS
FOLLOWS:

1. The Assignor hereby grant, transfer and
assign upon the Assignee upon the terms and
conditions mentioned hereunder, the exclusive
use and all benefits of the aforesaid trade mark
“Eenadu” in relation to the agarbathies (incense
sticks) for a period TEN years from the date of
this Agreement i.e. 1.10.03 to 30.9.13.

2. The Assignee shall pay the sum of Rs.
76,000.00 (Rupees seventy six thousand only)
per month payable for the period of first six
years: i.e. from 1.10.03 to 30.9.09:

(i) Rs. 40,000.00 shall be credited to the loan
amount of the Assignor every month and (ii) the
balance of Rs.36,000.00 (Rupees thirty six
7
thousand only) to be paid to the
Assignor/permitted to be drawn by him until the
expiry of first six years i.e. 1.10.03 to 30.9.09;
and

3. The Assignee shall pay the sum of
Rs.83,600.00 (Rupees Eighty three thousand six
hundred only) per month payable for the period
of next four years i.e. from 1.10.09 to 30.9.13.

(i) Rs. 40,000 shall be credited to the loan
account of the Assignor every month and (ii) the
balance of Rs.43,600.00 (Rupees forty three
thousand six hundred only) to be paid to the
Assignor/permitted to be drawn by him until the
expiry of next four years i.e. from 1.10.09 to
30.9.13.

4. The aforesaid payments shall be
unconditionally made by the Assignee

continuously and uninterruptedly for the aforesaid
period of TEN years.

5. The Assignee shall have the right to use the
trade mark “Eenadu” on its own and shall also be
entitled to grant permission to third party/parties
to use the same, subject to the said parties
agreeing to maintain the good quality and
reputation of the trade mark “Eenadu” during the
period of validity of assignment (the above said
ten years i.e. 1.10.03 to 30.9.13).

6. The Assignee shall be entitled to collect
“Royalty” from the permitted users during the
period of validity of assignment (the above said
ten years).

7. The period of assignment granted under this
deed shall come to an end on the expiry of the
period of ten years from the date of this
agreement i.e. on 30.9.13 and the agreement
shall stand terminated without any notice in
relation thereto and the licences, permissions,
8
etc. granted by the Assignee to the third parties
in respect of the trade mark of the Assignor
“Eenadu” shall also come to an end
simultaneously, without such notice.”

6. By a letter dated 27.1.2004, the Chief Manager wrote to

respondent No.1 stating that:

“We have been informed by our higher authorities
that as per the Banking Company’s
Regulation
Act, 1949, the bank cannot be “patent right
holder”.

Hence, please note that we are not interested in
holding the patent right of Eenadu and as such
by this letter, we are cancelling the above
assignment deed dated 8-10-2003.”

7. On 15.4.2004, respondent No.1 filed O.S. No.2832 of

2004 against the bank challenging the cancellation of the said

assignment deed and for recovery of Rs.2,16,000/- with interest

thereon for the period 1.10.2003 to 31.3.2004. On 17.9.2004,

the petitioner bank filed O.S. No.7018 of 2004 for a declaration

that the assignment deed entered into between it and

respondent No.1 is vitiated by mistake, undue influence and

fraud and that, therefore, the said deed is unenforceable in the

eye of law.

9

8. Meanwhile, the Chief Manager who signed the

assignment deed on behalf of the bank, namely, one N.V.

Narayana Rao, was dismissed from service pursuant to

disciplinary proceedings taken against him on 26.5.2005.

9. The two suits as aforestated were consolidated and

disposed of by a common judgment. Issues were framed

separately in both suits and it was found that the assignment

deed was not vitiated by fraud, misrepresentation or undue

influence. Consequently, the bank had no right to cancel or

rescind the aforesaid assignment deed. Respondent No.1’s

claim for a money decree for Rs.2,16,000/- was dismissed. It

was also held that the Civil Court had jurisdiction to entertain

the suits, despite the pendency of DRT proceedings. The

bank’s suit came to be dismissed. The ultimate order passed in

the two suits is as follows:

“O.S. 2832/2004 is hereby decreed in part,
granting a relief in favour of the plaintiff as
against the 1st defendant/bank, declaring that
the unilateral cancellation of the assignment
agreement dated 8.10.2003 by the 1st defendant
bank vide letter No. LPD/SSI/1034/2004 dated
27.1.2004, is illegal and unsustainable.

10

The further prayer of the plaintiff seeking money
decree against the 1st plaintiff bank, directing to
pay him Rs.2,16,000.00 together with interest at
18% p.a. is hereby rejected.

O.S. 7018/2004 is hereby dismissed, thereby the
prayer of the plaintiff/bank to declare that the
assignment agreement dated 8.10.2003 entered
into between the bank and the 1st defendant, as
vitiated by virtue of undue influence, fraud and
misrepresentation, practiced by the 1st
defendant on the bank, is hereby rejected.”

10. Respondent No.1 filed a review petition, being

miscellaneous petition No.324 of 2013, seeking review of the

aforesaid judgment to the extent that his prayer for payment of

Rs.2,16,000/- was rejected. On 16.3.2015, this petition was

allowed, and O.S. No.2832 of 2004 filed by respondent No.1

was fully decreed against the bank, including the prayer for

payment. Against the aforesaid review judgment dated

16.3.2015, an appeal was filed by the bank on 4.1.2016 with an

application for condoning the delay of 175 days. We are

informed that this appeal is still pending. Meanwhile,

respondent No.1, on the basis of the assignment deed, filed

another suit, being O.S. No.495 of 2008, against the bank for

recovery of a sum of Rs.17,89,915/- with interest for the period

11
1.4.2004 to 30.4.2007. By a judgment dated 30.10.2015, this

suit was decreed on the footing that the earlier judgment dated

27.4.2013, not having been appealed against, was res judicata

between the parties. An appeal filed against this judgment met

with the same fate in that, by the impugned judgment dated

31.7.2017, the High Court of Karnataka dismissed the appeal

filed by the bank on the self-same ground of res judicata. It

may be noted that on 14.7.2017, the hearing of the appeal,

which culminated in the impugned judgment, was concluded

and judgment was reserved. It was only after this that the

petitioner bank, for the first time on 26.7.2017, filed a review

petition against the judgment dated 27.4.2013 with a

condonation of delay application of 1548 days. This review

petition is also stated to be pending.

11. Shri Dhruv Mehta, learned senior advocate appearing on

behalf of the petitioner bank, has argued that no issue was

struck as to res judicata as the same had not specifically been

pleaded in the plaint of the suit of 2008. Indeed, the judgment

dated 27.4.2013 came long after the pleading in the second

12
suit, and no amendment of the plaint was sought so as to

incorporate the plea of res judicata. No issue having been

raised, it was impermissible, according to the learned senior

advocate, to have gone into this plea at all. It was also argued

that on the assumption that the said plea could be gone into,

there were two statutory bars to relief, namely, Section 45 of the

Trade Marks Act, 1999 and Sections 6 and 8 read with Section

46(4) of the Banking Regulation Act, 1949. The first statutory

bar made it clear that unless the assignment deed was

registered, it could not be received in evidence by any Court.

Sections 6 and 8 of the Banking Regulation Act interdicted the

bank from doing any business other than banking business and

that, therefore, the assignment deed which enabled the bank to

trade in goods and to earn royalty from an assignment of the

trademark would be hit by the aforestated provisions and,

therefore, would be void in law. For this purpose, he

relied strongly upon the judgment of this Court in

Mathura Prasad Bajoo Jaiswal Ors v. Dossibai N. B.

Jeejeebhoy, (1970) 1 SCC 613, and various other judgments

which have followed the law laid down by the aforesaid

13
judgment. According to him, therefore, these two statutory

prohibitions being pure questions of law, which are unrelated to

facts which give rise to a right, cannot be res judicata between

the parties. According to the learned senior advocate, both

points had been raised before the Courts below with no

success. Indeed, the very letter dated 27.1.2004 cancelling the

assignment deed would itself show that the plea of the

assignment deed being contrary to the Banking Regulation Act

was the very reason for cancelling the aforesaid deed. He also

referred to and relied upon the fact that the Bank Manager

responsible for signing the said deed had been dismissed from

service by an order dated 26.5.2005. Shri Mehta also strongly

relied upon a judgment dated 29.1.2011, by the Sessions Court

in Bangalore, by which the Chief Manager, one A. Sheshagiri

Rao, who was made accused No.1 in a special criminal case

filed by the CBI and respondent Nos. 1 and 2, who were made

accused nos. 2 and 3 respectively, were each sentenced to 6

months, three years and two years respectively by the learned

Sessions Judge, having been convicted under Sections 120B

and 420 of the Indian Penal Code. Accused No.1 was also

14
convicted of an offence under
Section 13 of the Prevention of

Corruption Act, 1988. According to the learned senior

advocate, therefore, the doctrine of res judicata cannot be

stretched to allow perpetuation of a fraud committed upon the

bank.

12. Shri Shanthakumar Mahale, learned advocate appearing

for respondent nos. 1 and 2, on the other hand, defended the

judgments of the Courts below. According to the learned

counsel, the judgment dated 27.4.2013 was delivered long after

the Chief Manager was dismissed and after the Sessions

Judge’s judgment dated 29.1.2011 convicting respondent Nos.

1 and 2. This judgment specifically held that there was no fraud

played, that the bank itself sought the assignment from

respondent Nos. 1 and 2, and that since there was no

misrepresentation, undue influence etc., the assignment deed

was valid in law, the cancellation of the said deed being illegal.

This judgment is final between the parties and has never been

challenged, except by way of a review which was filed belatedly

after hearing both parties in the appeal. The said review
15
petition, which is obviously an abuse of process with huge

delay, could not possibly render the res sub judice so as to

affect the judgments of the Courts below. According to the

learned counsel, neither Section 45 of the Trade Marks Act nor

Sections 6 and 8 of the Banking Regulation Act are capable of

only one obvious interpretation so that, on their application, the

assignment deed becomes illegal in law.

13. We had appointed Shri K.V. Viswanathan, learned senior

counsel, as Amicus Curiae to guide us in this matter. He has

referred to a large number of judgments and has rendered

invaluable assistance to this Court in order that we arrive at a

proper and just conclusion in this matter. He has argued that

the review petition that is filed belatedly against the judgment

dated 27.4.2013, being grossly belated with no chance of

success, would not take away the res judicata effect of the

judgment dated 27.4.2013. According to the learned senior

counsel, the case law makes it clear that if an appeal is filed

within limitation, the res never becomes judicata. In fact, until

the limitation for filing an appeal is over, the res remains sub
16
judice. It is only also when the limitation period is over that the

res can be considered to be judicata. Depending upon the

length of time for which delay is sought to be condoned, the

Court can either proceed with the matter and consider the case

on the footing of res judicata or stay further proceedings in

order to await the outcome of the proceedings in the appeal in

the other case. The test, according to the learned senior

counsel, is whether the delay in filing the appeal can be

considered by the Court to be without sufficient cause and,

therefore, an abuse of process. It is also important to find out

whether third party rights have arisen in the meanwhile. He has

cited a large number of judgments before us, including the

position in the U.K. and U.S. Interestingly, he cited judgments

to show that in the United States, res judicata attaches the

moment a judgment is pronounced, despite the fact that an

appeal may be filed against the said judgment.

14. We may first deal with the preliminary point urged by Shri

Mehta. He pressed into service the judgment in V. Rajeshwari

v. T.C. Saravanabava, (2004) 1 SCC 551 for the proposition
17
that a plea of res judicata not properly raised in the pleadings or

put in issue at the stage of trial could not be permitted to be

taken. A closer look at the said judgment shows that the

judgment dealt with such a plea not being permitted to be

raised for the first time at the stage of appeal. In the present

case, though an issue as to res judicata was not struck

between the parties, both parties argued the matter based upon

the pleadings and the judgment contained in the two suits of

2004. It is only after full arguments on both sides that the trial

Court in the judgment dated 30.10.2015 accepted the

respondent’s plea of res judicata. Even before the appellate

Court, the point of res judicata was argued by both parties

without adverting to the aforesaid objection. It is obvious,

therefore, that this ground raised for the first time before this

Court, cannot non-suit the respondents.

15. The doctrine of res judicata is contained in Section 11 of

the Code of Civil Procedure, 1908, which, though not

exhaustive of all the facets of the doctrine, delineates what

18
exactly the doctrine of res judicata is in the Indian context.

Section 11 reads as under:

“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.
Explanation I.—The expression “former suit” shall
denote a suit which has been decided prior to the
suit in question whether or not it was instituted
prior thereto.

Explanation II.—For the purposes of this section,
the competence of a Court shall be determined
irrespective of any provisions as to a right of
appeal from the decision of such Court.
Explanation III.—The matter above referred to
must in the former suit have been alleged by one
party and either denied or admitted, expressly or
impliedly, by the other.

Explanation IV.—Any matter which might and
ought to have been made ground of defence or
attack in such former suit shall be deemed to
have been a matter directly and substantially in
issue in such suit.

Explanation V.—Any relief claimed in the plaint,
which is not expressly granted by the decree,
shall, for the purposes of this section, be deemed
to have been refused.

19

Explanation VI.—Where persons litigate bona
fide in respect of public right or of a private right
claimed in common for themselves and others,
all persons interested in such right shall, for the
purposes of this section, be deemed to claim
under the persons so litigating.

Explanation VII.—The provisions of this section
shall apply to a proceeding for the execution of a
decree and reference in this section to any suit,
issue or former suit shall be construed as
references, respectively, to proceedings for the
execution of the decree, question arising in such
proceeding and a former proceeding for the
execution of that decree.

Explanation VIII.—An issue heard and finally
decided by a Court of limited jurisdiction,
competent to decide such issue, shall operate as
res judicata in a subsequent suit, notwithstanding
that such Court of limited jurisdiction was not
competent to try such subsequent suit or the suit
in which such issue has been subsequently
raised.”

16. This Court in Sheodan Singh v. Daryao Kunwar, (1966)

3 SCR 300 (at 304-305) has stated with some felicity the

conditions that need to be satisfied in order to constitute a

matter as res judicata. This Court held:

“A plain reading of Section 11 shows that to
constitute a matter res judicata, the following
conditions must be satisfied, namely—

(i) The matter directly and substantially in issue
in the subsequent suit or issue must be the same

20
matter which was directly and substantially in
issue in the former suit;

(ii) The former suit must have been a suit
between the same parties or between parties
under whom they or any of them claim;

(iii) The parties must have litigated under the
same title in the former suit;

(iv) The court which decided the former suit must
be a court competent to try the subsequent suit
or the suit in which such issue is subsequently
raised; and

(v) The matter directly and substantially in issue
in the subsequent suit must have been heard
and finally decided by the court in the first suit.
Further Explanation I shows that it is not the date
on which the suit is filed that matters but the date
on which the suit is decided, so that even if a suit
was filed later, it will be a former suit if it has
been decided earlier. In order therefore that the
decision in the earlier two appeals dismissed by
the High Court operates as res judicata it will
have to be seen whether all the five conditions
mentioned above have been satisfied.”

17. As to what happens when an appeal is filed against a

judgment in the first proceeding, a Full Bench of the Allahabad

High Court in Balkishan v. Kishan Lal, (1888) ILR 11 All 148 (at

159-161), is most instructive. Mahmood, J., speaking for the

Full Bench, referred to Explanation IV to Section 13 of the Code

21
of Civil Procedure, as it then stood. The learned Judge referred

to the said explanation in the following terms:

“The latter part of the Explanation IV of that
section has been framed in somewhat unspecific
language, and runs as follows:

“A decision liable to appeal may be final
within the meaning of this section until
the appeal is made.”
The language of the section is silent as to what
happens when an appeal has been preferred;

and no doubt much depends upon the
interpretation of two vague words “may” and
“until” as they occur in the sentence which I have
just quoted. I may perhaps say that more has
been aimed at by that sentence than the few
words of which that sentence consists could
convey. What has been left unsettled by that
sentence is the difficulty pointed out by a juristic
Judge of such eminence as Mr. Justice Holloway
of Madras in Sri Raja Kakarlapudi
Suriyanarayanarazu Garu v. Chellamkuri
Chellamma [5 M.H.C.R. 176] when that learned
Judge said:

“In the lower Court it seems to have
been taken for granted that the former
judgment could not be conclusive
because an appeal was pending. This
is not in accordance with English law,
as the judgment on the rejoinder in Doe
v. Wright [10 A. E. 763] shows. It
would, however, be perfectly sound
doctrine in the view of other jurists
(Unger Oct. Priv. Recht, II, 603, Sav.

Syst., 297, Seq. Waihier, II, 549). As an
Englishman I should be sorry to invite a
22
comparison between the reasons given
by these great jurists for their and those
embodied in the English cases for the
contrary doctrine.”
xxx xxx xxx
I hold that the views thus expressed by Pothier
and, as Mr. Justice Holloway has indicated,
adopted by other continental jurists as to the
doctrine of res judicata, are consistent with the
interpretation which I place upon Explanation IV
of s. 13 of the Code of Civil Procedure in relation
to the authority of judgments still liable to appeal.

Such judgments are not definitive adjudications.
They are only provisional, and not being final
cannot operate as res judicata. Such indeed
seems to be the view adopted by the learned
Judges of the Bombay High Court when they
said, in Nilvaru v. Nilvaru [ILR 6 Bom. 110.], “We
consider that when the judgment of a Court of
first instance upon a particular issue is appealed
against, that judgment ceases to be res judicata
and becomes res sub judice.”
In this case, therefore, both the Courts below
were wrong in law in holding that the previous
judgment of the 10th March, 1886, which at the
date of the institution of this suit was still liable to
appeal, and which at the date of the decision of
this suit by the first Court, as also at the date of
the decision by the lower appellate Court, was
the subject of a second appeal pending in this
Court (S.A. No. 973 of 1886) could operate as
res judicata in favour of the plaintiff in regard to
his title as to the malikana.”

23

18. The Privy Council, in an early judgment in S.P.A.

Annamalay Chetty v. B.A. Thornhill AIR 1931 PC 263 (at 264),

was faced with the question as to whether the filing of an appeal

would by itself take away the res judicata effect or whether a

matter heard and finally decided by the first Court was res

judicata until it was set aside on appeal. The Privy Council held:

“Section 207 of the Civil Procedure Code, 1889,
provides as follows:

“All decrees passed by the Court shall,
subject to appeal, when an appeal is
allowed, be final between the parties;

and no plaintiff shall be non-suited.”

The appellant maintained that, under this
provision, no decree, from which an appeal lies
and has in fact been taken, is final between the
parties so as to form res judicata, while the
respondent contended that such a decree was
final between the parties and formed res
adjudicata until it was set aside on appeal. In
their Lordships’ opinion the former view is the
correct one, and where an appeal lies the finality
of the decree on such appeal being taken, is
qualified by the appeal and the decree is not final
in the sense that it will form res adjudicata as
between the same parties. The opinion of the
learned Judges of the Supreme Court clearly
inclined to the same view, and their Lordships
have a difficulty in appreciating why the learned
24
Judges found it unnecessary to decide this point,
for this view still leaves it open to the Court to
see that the appellant does not get decree twice
over for the same sum, and it is inconsistent with
the other ground expressed by them for their
decision that the appellant’s cause of action had
been merged into the decree in Action No. 4122,
since, according to this view, that decree was not
final. Their Lordships regret that the second
action was not adjourned pending the decision of
the appeal in the first action, as that would have
simplified procedure and saved expense.”

19. Our law, therefore, is different from the American law – a

decree from which an appeal lies and has in fact been filed

would render the res sub judice and not judicata. This judgment

of the Privy Council has been repeatedly followed by the High

Courts in this country. See, Parshotam Parbhudas v. Bai Moti

AIR 1963 Gujarat 30 at para 8, Bhavani Amma v. Narayana

Acharya AIR 1963 Mysore 120 at para 2, Satyanarayan

Prosad Gooptu v. Diana Engineering Company AIR 1952

Calcutta 124 at para 10 and Venkateswarlu v. Venkata

Narasimham AIR 1957 Andhra Pradesh 557 at para 3.

20. In Chengalavala Gurraju v. Madapathy Venkateswara

Row Pantulu Garu AIR 1917 Madras 597 at 599-600, a

25
Division Bench of the Madras High Court referred to and relied

upon Balkishan (supra). The Court then held:

“Explanation 4 to Section 13 of the Civil
Procedure Code of 1882 which enacted that a
decision liable to appeal may be final within the
meaning of the Section until the appeal is made
has been omitted in the present Code (of 1908)
and the omission (which was in all probability
made in view of the decision in
Bal Kishan v.
Kishan Lal (1889) 11 All 148) removes any
doubts or difficulties in dealing with the question
and it is not necessary to speculate on the class
of cases to which this explanation can be applied
if a judgment liable to appeal is only held to be
provisional and not operative as res judicata.
In dealing with
Section 52 of the Transfer of
Property Act it has been held that a person who
purchases property between the date of the
disposal of the suit and the filing of the appeal
would be bound by the rule of lis pendens:
Gobind Chunder Roy v. Guru Churn Kurmokar
(1888) 15 Cal. 94,
Dinonath Ghose v. Shama
Bibi (1901) 28 Cal. 23, Sukhdeo Prasad v.
Jamna (1901) 23 All 60,
Settappa Gounden v.
Muthia Gounden (1908) 31 Mad. 268. If the
appeal is only a continuation of the original
proceedings and the suit is, for the purpose of
Section 52 of the Transfer of Property Act,
regarded as pending between the date of the
decree and that of the filing of an appeal, it is
difficult to see why the same rule should not
apply when dealing with Section 11 of the Civil
Procedure Code.

xxx xxx xxx

26
As regards appeals filed out of time and after
independent rights between the parties have
ripened, it is unlikely that courts would excuse
the delay, if during the interval other rights come
into existence, which would render it inequitable
that questions disposed of should be re-opened
at the instance of a party who seeks the
indulgence of the court: Esdaile v. Payne (1889)
40 Ch. D. 520. Following the decision in Bal
Kishen v. Kishen Lal, we are of opinion that the
Sub-Collector was wrong in holding that the
decision passed by him in Suits Nos. 466 of
1909 and 276 of 1910 had the force of res
judicata during the interval between the date of
his decree and the time allowed by law for filing
the appeal.”

21. This judgment was followed in Baijnath Karnani v.

Vallabhdas Damani, AIR 1933 Madras 511 at 514.

22. The conspectus of the above authorities shows that until

the limitation period for filing of an appeal is over, the res

remains sub judice. After the limitation period is over, the res

decided by the first Court would then become judicata. However,

questions arise as to what is to be done in matters where the

hearing in the second case is shortly after the limitation period

for filing an appeal in the first case has ended. At least two

judgments, one of the Privy Council and one of the Bombay
27
High Court, have referred to the fact that, in appropriate cases,

the hearing in the second case may be adjourned or may be

stayed in order to await the outcome of the appeal in the first

case. See, Chandra Singh Dudhoria v. Midnapore Zemindary

Co. Ltd. (1941) 69 IA 51 (PC) at 58-59 and Indra Singh and

Sons Ltd. v. Shiavax. C. Cambata, ILR 1948 Bom 346 at 352.

[[

23. If the period of limitation for filing an appeal has not yet

expired or has just expired, the Court hearing the second

proceeding can very well ask the party who has lost the first

round whether he intends to appeal the aforesaid judgment. If

the answer is yes, then it would be prudent to first adjourn the

second proceeding and then stay the aforesaid proceedings,

after the appeal has been filed, to await the outcome of the

appeal in the first proceeding. If, however, a sufficiently long

period has elapsed after limitation has expired, and no appeal

has yet been filed in the first proceeding, the Court hearing the

second proceeding would be justified in treating the first

proceeding as res judicata. No hard and fast rule can be

applied. The entire fact circumstance in each case must be

28
looked at before deciding whether to proceed with the second

proceeding on the basis of res judicata or to adjourn and/or stay

the second proceeding to await the outcome in the first

proceeding. Many factors have to be considered before

exercising this discretion – for example, the fact that the appeal

against the first judgment is grossly belated; or that the said

appeal would, in the ordinary course, be heard after many years

in the first proceeding; or, the fact that third party rights have

intervened, thereby making it unlikely that delay would be

condoned in the appeal in the first proceeding. As has been

stated, the judicious use of the weapon of stay would, in many

cases, obviate a Court of first instance in the second proceeding

treating a matter as res judicata only to find that by the time the

appeal has reached the hearing stage against the said judgment

in the second proceeding, the res becomes sub judice again

because of condonation of delay and the consequent hearing of

the appeal in the first proceeding. This would result in setting

aside the trial Court judgment in the second proceeding, and a

de novo hearing on merits in the second proceeding

commencing on remand, thereby wasting the Court’s time and

29
dragging the parties into a second round of litigation on the

merits of the case.

24. In the present case, a belated review petition was filed

after arguments were heard and judgment reserved by the

appellate Court. Would this Court have to await the outcome of

the said review petition before deciding whether the judgment

dated 27.4.2013 is res judicata? Obviously not. It is clear that a

review petition filed long after the judgment dated 27.4.2013,

with a condonation application for a delay of over four years,

could not possibly be held to be anything but an abuse of the

process of the Court. This being so, we proceed to examine

whether the judgment dated 27.4.2013 can be considered to be

res judicata in the second proceeding in this case, namely the

suit of 2008 filed by respondent No.1. We now come to the

argument of Shri Dhruv Mehta based on the application of the

principles contained in Mathura Prasad (supra).

25. In Mathura Prasad (supra), a question arose as to

whether an erroneous judgment on the jurisdiction of the Small

Causes Court in relation to a proceeding arising out of the

30
Bombay Rents, Hotel and Lodging House Rates Control Act,

1947 would be res judicata. The view expressed by the High

Court was overruled by this Court in 1962, by which time the trial

Judge and the High Court of Bombay rejected an application

filed by the appellant for an order determining standard rent of

the premises. This Court laid down:

“5. But the doctrine of res judicata belongs to the
domain of procedure: it cannot be exalted to the
status of a legislative direction between the
parties so as to determine the question relating
to the interpretation of enactment affecting the
jurisdiction of a Court finally between them, even
though no question of fact or mixed question of
law and fact and relating to the right in dispute
between the parties has been determined
thereby. A decision of a competent Court on a
matter in issue may be res judicata in another
proceeding between the same parties: the
“matter in issue” may be an issue of fact, an
issue of law, or one of mixed law and fact. An
issue of fact or an issue of mixed law and fact
decided by a competent Court is finally
determined between the parties and cannot be
re-opened between them in another proceeding.

The previous decision on a matter in issue alone
is res judicata: the reasons for the decision are
not res judicata. A matter in issue between the
parties is the right claimed by one party and
denied by the other, and the claim of right from
its very nature depends upon proof of facts and
application of the relevant law thereto. A pure
question of law unrelated to facts which give rise
31
to a right, cannot be deemed to be a matter in
issue. When it is said that a previous decision is
res judicata, it is meant that the right claimed has
been adjudicated upon and cannot again be
placed in contest between the same parties. A
previous decision of a competent Court on facts
which are the foundation of the right and the
relevant law applicable to the determination of
the transaction which is the source of the right is
res judicata. A previous decision on a matter in
issue is a composite decision: the decision on
law cannot be dissociated from the decision on
facts on which the right is founded. A decision on
an issue of law will be as res judicata in a
subsequent proceeding between the same
parties, if the cause of action of the subsequent
proceeding be the same as in the previous
proceeding, but not when the cause of action is
different, nor when the law has since the earlier
decision been altered by a competent authority,
nor when the decision relates to the jurisdiction
of the Court to try the earlier proceeding, nor
when the earlier decision declares valid a
transaction which is prohibited by law.

xxx xxx xxx

7. Where the law is altered since the earlier
decision, the earlier decision will not operate as
res judicata between the same parties: Tarini
Charan Bhattacharjee’s case. It is obvious that
the matter in issue in a subsequent proceeding is
not the same as in the previous proceeding,
because the law interpreted is different.

8. In a case relating to levy of tax a decision
valuing property or determining liability to tax in a
different taxable period or event is binding only in
that period or event, and is not binding in the
32
subsequent years, and therefore the rule of res
judicata has no application: See Broken Hill
Proprietary Company Ltd. v. Municipal Council of
Broken Hill [(1926) AC 94].

9. A question of jurisdiction of the Court, or of
procedure, or a pure question of law unrelated to
the right of the parties to a previous suit, is not
res judicata in the subsequent suit. Rankin, C.J.,
observed in Tarini Charan Bhattacharjee’s case:
“The object of the doctrine of res judicata
is not to fasten upon parties special
principles of law as applicable to them
inter se, but to ascertain their rights and
the facts upon which these rights directly
and substantially depend; and to prevent
this ascertainment from becoming
nugatory by precluding the parties from
reopening or recontesting that which has
been finally decided.”

10. A question relating to the jurisdiction of a
Court cannot be deemed to have been finally
determined by an erroneous decision of the
Court. If by an erroneous interpretation of the
statute the Court holds that it has no jurisdiction,
the question would not, in our judgment, operate
as res judicata. Similarly by an erroneous
decision if the Court assumes jurisdiction which it
does not possess under the statute, the question
cannot operate as res judicata between the
same parties, whether the cause of action in the
subsequent litigation is the same or otherwise.

11. It is true that in determining the application of
the rule of res judicata the Court is not
concerned with the correctness or otherwise of
the earlier judgment. The matter in issue, if it is
one purely of fact, decided in the earlier
33
proceeding by a competent Court must in a
subsequent litigation between the same parties
be regarded as finally decided and cannot be
reopened. A mixed question of law and fact
determined in the earlier proceeding between the
same parties may not, for the same reason, be
questioned in a subsequent proceeding between
the same parties. But, where the decision is on a
question of law i.e. the interpretation of a statute,
it will be res judicata in a subsequent proceeding
between the same parties where the cause of
action is the same, for the expression “the matter
in issue” in Section 11 of the Code of Civil
Procedure means the right litigated between the
parties i.e. the facts on which the right is claimed
or denied and the law applicable to the
determination of that issue. Where, however, the
question is one purely of law and it relates to the
jurisdiction of the Court or a decision of the Court
sanctioning something which is illegal, by resort
to the rule of res judicata a party affected by the
decision will not be precluded from challenging
the validity of that order under the rule of res
judicata, for a rule of procedure cannot
supersede the law of the land.”
[Emphasis Supplied]
(at pages 617-619)

26. Ultimately, the Court held that since the decision of the

Civil Judge that he had no jurisdiction to entertain the application

of standard rent, in view of the judgment of the Supreme Court,

was plainly erroneous, the decision in the previous proceedings

cannot be regarded as conclusive. The appeals were, therefore,
34
allowed and the orders passed by the High Court and the Court

of Small Causes were set aside and the proceedings were

remanded to the Court of first instance.

27. This judgment has been followed in a number of cases. In

Sushil Kumar Mehta v. Gobind Ram Bohra (1990) 1 SCC

193, the aforesaid judgment was referred to in paragraphs 20

and 21 and followed, holding that where there is an inherent lack

of jurisdiction, which depends upon a wrong decision, the earlier

wrong decision cannot be res judicata. Similarly, in Isabella

Johnson (Smt.) v. M.A. Susai (1991) 1 SCC 494, this Court,

after setting out the law contained in Mathura Prasad (supra),

stated that a Court which has no jurisdiction in law cannot be

conferred with jurisdiction by applying the principle of res

judicata, as it is well settled that there is no estoppel on a pure

question of law which relates to jurisdiction.

28. An instructive Full Bench decision of the Punjab and

Haryana High Court was cited before us by Shri Viswanathan,

State of Punjab v. Nand Kishore, AIR 1974 Punjab Haryana

303 at 308-309, which further explained the ratio of Mathura
35
Prasad (supra). What troubled the Full Bench, after referring to

Mathura Prasad (supra), was as to whether an issue of law

decided inter parties could be held to be res judicata in a

subsequent proceeding between the same parties. After

referring to Mohanlal Goenka v. Benoy Krishna Mukherjee,

(1953) SCR 377, which held that even an erroneous decision

on a question of law operates as res judicata between parties,

and various other Supreme Court judgments, the Full Bench of

the Punjab and Haryana High Court, by a majority decision,

went on to hold:

“17. What exactly then is the ratio decidendi in
Mathura Prasad’s case? It is manifest that the
sole issue in the appeal was as to the jurisdiction
of the Court of Small Causes for determining the
standard rent of premises constructed in
pursuance of a building lease of an open site.
Therefore, the authority is a precedent primarily
on the limited issue of the jurisdiction of a Court.

What directly arose for determination therein and
what has been specifically laid down by their
Lordships is that a patently erroneous decision
(directly contrary to a Supreme Court judgment)
in a previous proceeding in regard to the
jurisdiction of a Court could not becomes res
judicata between the parties. The weighty reason
for so holding was that such a result would create
a special rule of law applicable to the parties in
36
relation to the jurisdiction of the Court in violation
of rule of law declared by the legislature. It is
manifest that this enunciation was an engrafted
exception to the general principle noticed in the
judgment itself, i.e., a question of law including
the interpretation of a statute would be res
judicata between the same parties where the
cause of action is the same.

I am inclined to the view that it is unprofitable and
indeed unwarranted to extract an observation
and a sentence here and there from the
judgment and to build upon it on the ground that
certain results logically follow therefrom. Such a
use of precedent was disapproved by the Earl of
Halsbury L. C. in Quinn v. Leathem 1901 AC 405.
Approving that view and quoting extensively
therefrom their Lordships of the Supreme Court
in
State of Orissa v. Sudhansu Sekhar Misra AIR
1968 SC 647 have categorically observed as
follows:

“A decision is only an authority for what
it actually decides. What is of the
essence in a decision is its ratio and
not every observation found therein
nor what logically follows from the
various observations made in it.”

18. In strictness, therefore, the ratio decidendi of
Mathura Prasad’s case is confined to the issue of
jurisdiction of the Court but is equally well-settled
that the obiter dicta of their Lordships is entitled
to the greatest respect and weight and is indeed
binding if it can be found that they intended to lay
down a principle of law. The issue, therefore, is
as to what else, apart from the ratio, was sought
to be laid down by the Supreme Court in this
case. The very closely guarded language used
by their Lordships in the body of the judgment
37
leads me to conclude that they wished to confine
their observations within the narrowest limits. The
expression used (which is sought to be extended
on behalf of the respondent) is “a pure question
of law unrelated to the right of the parties to a
previous suit.” It is very significant that their
Lordships, with their meticulous precision of
language, have no where laid down in the
judgment that a pure question of law can never
be res judicata between the parties. Indeed it has
been said to the contrary in terms. The emphasis,
therefore, in the expression abovesaid is on the
fact that such a pure question of law must be
unrelated to the rights of the parties. It stands
noticed that a decision by a Court on a question
of law cannot be absolutely dissociated from the
decision on the facts on which the right is
founded. Consequently what was exactly to be
connoted by the expression “a pure question of
law unrelated to the rights of the parties” was
itself expounded upon by their Lordships. Without
intending to be exhaustive, the Court has
indicated specifically the exceptional cases in
which special considerations apply for excluding
them from the ambit of the general principle of
res judicata. The principle of law which their
Lordships herein have reiterated is that a pure
question of law including the interpretation of a
statute will be res judicata in a subsequent
proceeding between the same parties. To this
salutary rule, four specific exceptions are
indicated. Firstly, the obvious one, that when the
cause of action is different, the rule of res
judicata would not be attracted. Secondly, where
the law has, since the earlier decision, been
altered by a competent authority. Thirdly, where
the earlier decision between the parties related to
the jurisdiction of the Court to try the
earlier proceedings, the same would not be
allowed to assume the status of a special rule
38
of law applicable to the parties and therefore, the
matter would not be res judicata. Fourthly, where
the earlier decision declared valid a transaction
which is patently prohibited by law, that is to say,
it sanctifies a glaring illegality.”

On facts, the majority judgment of the Full Bench held that the

earlier decision inter parties was res judicata as it was on a

question of law which was not unrelated to the rights of the

parties. Sharma, J. dissented with this view, and held that the

decision rendered in the earlier case was erroneous and related

to the jurisdiction of the Court. Since a wrong decision on a point

of jurisdiction could not operate as res judicata, the learned

Judge dissented.

29. An appeal from the Division Bench judgment pursuant to

the Full Bench decision resulted in the decision in Nand

Kishore v. State of Punjab, (1995) 6 SCC 614. A brief resume

of the facts show that the appellant had been compulsorily

retired, having completed only ten years’ qualifying service in

pursuance of Rule 5.32(b) of the Punjab Civil Services Rules,

Volume II. A writ petition that was moved by the appellant

39
against the compulsory retirement order was dismissed on

2.2.1962. The appellant had not questioned the validity of Rule

5.32(b) in the aforesaid writ petition. However, in Moti Ram

Deka v. General Manager, N.E. Frontier Railways, (1964) 5

SCR 683, this Court held that if the compulsory retirement rule

permitted an authority to retire a public servant at a very early

stage of his career, such rule might be constitutionally invalid.

The appellant, spurred by the decision in Moti Ram Deka

(supra), filed a suit in 1964 for a declaration that Rule 5.32 of the

aforesaid rules was constitutionally invalid. A pari materia rule to

that of Rule 5.32 was struck down by this Court in Gurdev

Singh Sidhu v. State of Punjab, (1964) 7 SCR 587. However,

since a writ petition had been filed by the appellant earlier, the

State of Punjab, in its written statement to the suit filed by the

appellant, took up the plea of constructive res judicata. This

plea found favour with the Full Bench of the High Court on

8.5.1974, following which a Division Bench allowed the appeal

of the State of Punjab on 13.8.1974. It is from this judgment that

an appeal landed up before this Court, as is stated hereinabove.

This Court, on 6.12.1990, advised the appellant to file a special

40
leave petition from the order of the High Court dismissing his

writ petition dated 5.2.1962, with an appropriate application for

condonation of delay. The delay was condoned by this Court in

the interest of justice in the special circumstances of this case

under Article 142, and the said belated appeal was allowed

following Gurdev Singh (supra) and striking down the order of

compulsory retirement of the appellant. Despite having so

decided, this Court went into the doctrine of constructive res

judicata and decided that the constitutionality of a provision of

law stands on a different footing from other questions of law. As

there is a presumption of constitutionality of all statutes, the

“might and ought” rule of constructive res judicata cannot be

applied. Instead what was applied by this Court was that part of

the decision in Mathura Prasad (supra) which stated that when

the law has, since the earlier decision in the appellant’s writ

petition, been altered by a competent authority, res judicata

cannot apply. The Full Bench of the Punjab High Court was

expressly overruled on the point that a “competent authority” can

also be a Court. Hence, a changed declaration of law would

also fall within an earlier decision being altered by a competent

41
authority. This Court, therefore, held that since this Court itself

had altered the law when it declared the pari materia rule as

unconstitutional, the doctrine of res judicata could not apply.

30. In Allahabad Development Authority v. Nasiruzzaman

(1996) 6 SCC 424, this Court held that when the previous

decision was found to be erroneous on its face, such judgment

cannot operate as res judicata, as to give effect to such

judgment would be to counter a statutory prohibition. On the

facts of that case, it was held that in a land acquisition case,

after vesting has taken place in favour of the State, obviously,

the lapse of a notification under Section 6 of the Land

Acquisition Act, 1894 could not possibly arise.

31. In Shakuntla Devi v. Kamla (2005) 5 SCC 390, this Court

held that in view of the changed position in law consequent to a

contrary interpretation put on Section 14 of the Hindu

Succession Act, 1956 by V.Tulasamma vs. V.Sesha Reddy

(1977) 3 SCC 99, the earlier decree based on judgments that

were overruled cannot operate as res judicata. This is in

42
consonance with the law laid down by this Court in Nand

Kishore (supra).

32. Since Mathura Prasad (supra) followed the Full Bench

judgment of the Calcutta High Court in Tarini Charan

Bhattacharjee and others v. Kedar Nath Haldar, AIR 1928

Calcutta 777 (at 781-782), it is important to set out what the Full

Bench said in answer to the question posed by it – namely,

whether an erroneous decision on a pure question of law

operates as res judicata in a subsequent suit where the same

question is raised. The answer given by the Full Bench is in four

propositions set out hereinbelow:

“(1) The question whether the decision is correct
or erroneous has no bearing upon the question
whether it operates or does not operate as res
judicata. The doctrine is that in certain
circumstances, the Court shall not try a suit or
issue, but shall deal with the matter on the
footing that it is a matter no longer open to
contest by reason of a previous decision. In
these circumstances, it must necessarily be
wrong for a Court to try the suit or issue, come to
its own conclusion thereon, consider whether the
previous decision is right and give effect to it or
not accordingly, as it conceives the previous
decision to be right or wrong. To say as a result
43
of such disorderly procedure that the previous
decision was wrong and that it was wrong on a
point of law, or on a pure point of law, and that,
therefore, it may be disregarded, is an
indefensible form of reasoning. For this purpose,
it is not true that a point of law is always open to
a party.

(2) In India, at all events, a party who takes a
plea of res judicata has to show that the matter
directly and substantially in issue has been
directly and substantially in issue in the former
suit and also that it has been heard and finally
decided. This phrase “matter directly and
substantially in issue” has to be given a sensible
and businesslike meaning, particularly in view of
Ex. 4,
Section 11, Civil P.C., which contains the
expression “grounds of defence or attack”.
Section 11 of the Code says nothing about
causes of action, a phrase which always requires
careful handling. Nor does the section say
anything about points or points of law, or pure
points of law. As a rule parties do not join issue
upon academic or abstract questions but upon
matters of importance to themselves. The section
requires that the doctrine be restricted to matters
in issue and of these to matters which are directly
as well as substantially in issue.

(3) Questions of law are of all kinds and cannot
be dealt with as though they were all the same.
Questions of procedure, questions affecting
jurisdiction, questions of limitation, may all be
questions of law. In such questions the rights of
parties are not the only matter for consideration.
The Court and the public have an interest. When
plea of res judicata is raised with reference to
such matters, it is at least a question whether
special considerations do not apply.

44
(4) In any case in which it is found that the matter
directly and substantially in issue has been
directly and substantially in issue in the former
suit and has been heard and finally decided by
such Court, the principle of res judicata is not to
be ignored merely on the ground that the
reasoning, whether in law or otherwise of the
previous decision can be attacked on a particular
point. On the other hand it is plain from the terms
of
Section 11 of the Code that what is made
conclusive between the parties is the decision of
the Court and that the reasoning of the Court is
not necessarily the same thing as its decision.
The object of the doctrine of res judicata is not to
fasten upon parties special principles of law as
applicable to them inter se, but to ascertain their
rights and the facts upon which these rights
directly and substantially depend; and to prevent
this ascertainment from becoming nugatory by
precluding the parties from reopening or
recontesting that which has been finally decided.”

33. Given the conspectus of authorities that have been

referred to by us hereinabove, the law on the subject may be

stated as follows:

(1) The general rule is that all issues that arise directly

and substantially in a former suit or proceeding between the

same parties are res judicata in a subsequent suit or

proceeding between the same parties. These would include

45
issues of fact, mixed questions of fact and law, and issues of

law.

(2) To this general proposition of law, there are certain

exceptions when it comes to issues of law:

(i) Where an issue of law decided between the same

parties in a former suit or proceeding relates to the

jurisdiction of the Court, an erroneous decision in the former

suit or proceeding is not res judicata in a subsequent suit or

proceeding between the same parties, even where the issue

raised in the second suit or proceeding is directly and

substantially the same as that raised in the former suit or

proceeding. This follows from a reading of Section 11 of the

Code of Civil Procedure itself, for the Court which decides

the suit has to be a Court competent to try such suit. When

read with Explanation (I) to Section 11, it is obvious that

both the former as well as the subsequent suit need to be

decided in Courts competent to try such suits, for the

“former suit” can be a suit instituted after the first suit, but

which has been decided prior to the suit which was

instituted earlier. An erroneous decision as to the
46
jurisdiction of a Court cannot clothe that Court with

jurisdiction where it has none. Obviously, a Civil Court

cannot send a person to jail for an offence committed under

the Indian Penal Code. If it does so, such a judgment would

not bind a Magistrate and/or Sessions Court in a

subsequent proceeding between the same parties, where

the Magistrate sentences the same person for the same

offence under the Penal Code. Equally, a Civil Court cannot

decide a suit between a landlord and a tenant arising out of

the rights claimed under a Rent Act, where the Rent Act

clothes a special Court with jurisdiction to decide such suits.

As an example, under Section 28 of the Bombay Rent Act,

1947, the Small Causes Court has exclusive jurisdiction to

hear and decide proceedings between a landlord and a

tenant in respect of rights which arise out of the Bombay

Rent Act, and no other Court has jurisdiction to embark

upon the same. In this case, even though the Civil Court, in

the absence of the statutory bar created by the Rent Act,

would have jurisdiction to decide such suits, it is the

statutory bar created by the Rent Act that must be given

47
effect to as a matter of public policy. (
See, Natraj Studios

(P) Ltd. v. Navrang Studios Anr., (1981) 2 SCR 466 at

482). An erroneous decision clothing the Civil Court with

jurisdiction to embark upon a suit filed by a landlord against

a tenant, in respect of rights claimed under the Bombay

Rent Act, would, therefore, not operate as res judicata in a

subsequent suit filed before the Small Causes Court

between the same parties in respect of the same matter

directly and substantially in issue in the former suit.

(ii) An issue of law which arises between the same

parties in a subsequent suit or proceeding is not res judicata

if, by an erroneous decision given on a statutory prohibition in

the former suit or proceeding, the statutory prohibition is not

given effect to. This is despite the fact that the matter in

issue between the parties may be the same as that directly

and substantially in issue in the previous suit or proceeding.

This is for the reason that in such cases, the rights of the

parties are not the only matter for consideration (as is the

case of an erroneous interpretation of a statute inter parties),

as the public policy contained in the statutory prohibition

48
cannot be set at naught. This is for the same reason as that

contained in matters which pertain to issues of law that raise

jurisdictional questions. We have seen how, in Natraj

Studios (supra), it is the public policy of the statutory

prohibition contained in Section 28 of the Bombay Rent Act

that has to be given effect to. Likewise, the public policy

contained in other statutory prohibitions, which need not

necessarily go to jurisdiction of a Court, must equally be

given effect to, as otherwise special principles of law are

fastened upon parties when special considerations relating to

public policy mandate that this cannot be done.

(iii) Another exception to this general rule follows from

the matter in issue being an issue of law different from that in

the previous suit or proceeding. This can happen when the

issue of law in the second suit or proceeding is based on

different facts from the matter directly and substantially in

issue in the first suit or proceeding. Equally, where the law is

altered by a competent authority since the earlier decision,

the matter in issue in the subsequent suit or proceeding is

49
not the same as in the previous suit or proceeding, because

the law to be interpreted is different.

34. On the facts of this case, Shri Mehta referred us to the

statutory prohibition contained in the Trade Marks Act and the

Banking Regulation Act. The relevant provisions are Section 45

of the Trade Marks Act and Sections 6 and 8 of the Banking

Regulation Act read with Section 46(4) thereto. The aforesaid

statutory provisions are set out hereinbelow:

“TRADE MARKS ACT, 1999

45. Registration of assignments and
transmissions
(1) Where a person becomes entitled by
assignment or transmission to a registered trade
mark, he shall apply in the prescribed manner to
the Registrar to register his title, and the
Registrar shall, on receipt of the application and
on proof of title to his satisfaction, register him as
the proprietor of the trade mark in respect of the
goods or services in respect of which the
assignment or transmission has effect, and shall
cause particulars of the assignment or
transmission to be entered on the register.
Provided that where the validity of an assignment
or transmission is in dispute between the parties,
the Registrar may refuse to register the
assignment or transmission until the rights of the
parties have been determined by a competent
court.

50

(2) Except for the purpose of an application
before the Registrar under sub-section (1) or an
appeal from an order thereon, or an application
under
section 57 or an appeal from an order
thereon, a document or instrument in respect of
which no entry has been made in the register in
accordance with sub-section (1), shall not be
admitted in evidence by the Registrar or the
Appellate Board or any court in proof of title to
the trade mark by assignment or transmission
unless the Registrar or the Appellate Board or the
Court, as the case may be, otherwise directs.
xxx xxx xxx

BANKING REGULATION ACT, 1949

6. Forms of business in which banking
companies may engage
(1) In addition to the business of banking, a
banking company may engage in any one or
more of the following forms of business, namely:

(a) the borrowing, raising, or taking up of money;
the lending or advancing of money either upon or
without security; the drawing, making, accepting,
discounting, buying, selling, collecting and
dealing in bills of exchange, hundies, promissory
notes, coupons, drafts, bills of lading, railway
receipts, warrants, debentures, certificates,
scrips and other instruments and securities
whether transferable or negotiable or not; the
granting and issuing of letters of credit, traveller’s
cheques and circular notes; the buying, selling
and dealing in bullion and specie; the buying and
selling of foreign exchange including foreign
bank notes; the acquiring, holding, issuing on
commission, underwriting and dealing in stock,
51
funds, shares, debentures, debenture stock,
bonds, obligations, securities and investments of
all kinds; the purchasing and selling of bonds,
scrips or other forms of securities on behalf of
constituents or others, the negotiating of loans
and advances; the receiving of all kinds of bonds,
scrips or valuables on deposit or for safe custody
or otherwise; the providing of safe deposit vaults;
the collecting and transmitting of money and
securities;

(b) acting as agents for any Government or local
authority or any other person or persons; the
carrying on of agency business of any
description including the clearing and forwarding
of goods, giving of receipts and discharges and
otherwise acting as an attorney on behalf of
customers, but excluding the business of a
Managing Agent or Secretary and Treasurer of a
company;

(c) contracting for public and private loans and
negotiating and issuing the same;

(d) the effecting, insuring, guaranteeing,
underwriting, participating in Managing and
carrying out of any issue, public or private, of
State, municipal or other loans or of shares,
stock, debentures, or debenture stock of any
company, corporation or association and the
lending of money for the purpose of any such
issue;

(e) carrying on and transacting every kind of
guarantee and indemnity business;

(f) Managing, selling and realising any property
which may come into the possession of the
company in satisfaction or part satisfaction of any
of its claims;

52

(g) acquiring and holding and generally dealing
with any property or any right, title or interest in
any such property which may form the security or
part of the security for any loans or advances or
which may be connected with any such security;

(h) undertaking and executing trusts;

(i) undertaking the administration of estates as
executor, trustee or otherwise;

(j) establishing and supporting or aiding in the
establishment and support of associations,
institutions, funds, trusts and conveniences
calculated to benefit employees or ex-employees
of the company or the dependents or
connections of such persons; granting pensions
and allowances and making payments towards
insurance; subscribing to or guaranteeing
moneys for charitable or benevolent objects or
for any exhibition or for any public, general or
useful object;

(k) the acquisition, construction, maintenance
and alteration of any building or works necessary
or convenient for the purposes of the company;

(l) selling, improving, managing, developing,
exchanging, leasing, mortgaging, disposing of or
turning into account or otherwise dealing with all
or any part of the property and rights of the
company;

(m) acquiring and undertaking the whole or any
part of the business of any person or company,
when such business is of a nature enumerated or
described in this sub-section;

(n) doing all such other things as are incidental or
conducive to the promotion or advancement of
the business of the company;

53

(o) any other form of business which the Central
Government may, by notification in the Official
Gazette, specify as a form of business in which it
is lawful for a banking company to engage.
(2) No banking company shall engage in any
form of business other than those referred to in
sub-section (1).

xxx xxx xxx

8. Prohibition of trading
Notwithstanding anything contained in
section 6
or in any contract, no banking company shall
directly or indirectly deal in the buying or selling
or bartering of goods, except in connection with
the realisation of security given to or held by it, or
engage in any trade, or buy, sell or barter goods
for others otherwise than in connection with bills
of exchange received for collection or negotiation
or with such of its business as is referred to in
clause (i) of sub-section (1) of
section 6:
PROVIDED that this section shall not apply to
any such business as is specified in pursuance
of clause (o) of sub-section (1) of
section 6.
Explanation- For the purposes of this section,
“goods” means every kind of movable property,
other than actionable claims, stocks, shares,
money, bullion and specie, and all instruments
referred to in clause (a) of sub-section (1) of
section 6.

xxx xxx xxx

46. Penalties
(1) – (3) xxx xxx xxx
(4) If any other provision of this Act is
contravened or if any default is made in-
54

(i) complying with any requirement of this Act or
of any order, rule or direction made or condition
imposed there under, or

(ii) carrying out the terms of, or the obligations
under, a scheme sanctioned under sub-section
(7) of
section 45, by any person, such person
shall be punishable with fine which may extend
to one crore rupees or twice the amount involved
in such contravention or default where such
amount is quantifiable, whichever is more, and
where a contravention or default is a continuing
one, with a further fine which may extend to one
lakh rupees for every day, during which the
contravention or default continues.”

35. Insofar as Section 45 of the Trade Marks Act is concerned,

it is clear that this plea was raised throughout both the

proceedings. Insofar as the suits of 2004 were concerned, the

judgment dated 27.4.2013 expressly recorded the aforesaid plea

taken on behalf of the bank, but turned it down in paragraphs 44

and 56 as follows:

“44. The bank has also taken further steps by
virtue of the assignment deed dated 8.10.2003
obtained by them from N.G. Subbaraya Setty
and filed an application to the Trademark
Registry as per Ex.D2, seeking for registration of
the assignment of the trademark obtained by
them from N. Subbaraya Setty, the registered
owner of the trademark, and the bank has also
paid Rs.5,000-00 towards the registration fee.

But the Trademark Registry returned the said
55
application contending that, deficit registration
fee is payable by the assignee and the
assignor/registered owner of the trademark has
to file an affidavit confirming the assignment of
the trademark in favour of the bank.

Subsequently, it appears no further steps have
been taken by the bank to comply with the
objections raised by the Trademark Registry, and
hence the said assignment of the trademark in
favour of the bank, could not be registered with
the Trademark Registry.

xxx xxx xxx

56. So far as issue no.1 and 2 raised in O.S.
No.7018/2004 is concerned, since the plaintiff
bank, has miserably failed to establish the
allegations of misrepresentation, fraud and
undue influence alleged to have been played, by
N.G. Subbaraya Setty on the bank, the plaintiff
bank cannot escape from the legal
consequences of assignment deed obtained by
them dated 8.10.2003 and it cannot be held that
the assignment deed obtained, by the bank from
N.G. Subbaraya Setty is unenforceable.
Therefore, I answer both the issues 1 and 2
raised in O.S. 7018/2004 in the negative.”

(Issue No.2 in O.S. No.7018 of 2004 read as follows: Whether

plaintiff proves that the deed of assignment of trademark,

entered into between plaintiff and 1 st defendant is not

enforceable in law?)

56

36. Equally, insofar as the trial Court judgment in the second

suit of 2008 is concerned, the said plea was expressly raised

and turned down in the following manner:

“…The defendant No.1 himself has produced the
original Assignment Deed and in this case
defendant No.1 himself has taken up the
contention that said Assignment Deed is not
registered as per Trade Mark Act and as such,
the said document cannot be considered. There
are certain procedures that within 5 days the
Assignor file an affidavit to the Trade Mark
Authority in respect of change of user of the
Trade Mark and defendant No.1 himself has
moved application by paying Rs.5,000/- D.D. for
registering the document. Inspite of that, the
Trade Mark Authorities have not registered the
Trade Mark and as such, the learned counsel for
defendant No.1 vehemently argued that the said
Trade Mark “Eenadu” is not registered in
accordance with law and as such, same cannot
be considered for any of the purposes. Further, it
is contended that the Assignment Deed is not
registered in accordance with laws. But when
the Assignment Deed has been relied upon in the
earlier judgments and parties have accepted the
execution of the document, then defendant No.1
cannot again contend that said Assignment Deed
is not registered and cannot be considered for
any of the purposes, does not hold good. It is
nothing but res judicata as contended by the
plaintiff in the decisions cited above.”

37. The impugned judgment dated 31.7.2017 also records the

aforesaid submission and turns it down stating:

57
“…Indisputably, the grounds regarding
insufficiently stamped assignment deed and
non-registration of the trade mark were argued
by the Bank which were considered and
addressed by the trial Court in O.S.

No.2832/2004 and O.S. No.7018/2004. In such
circumstances, raising the very same grounds in
the second round of proceedings, the issue in
which the matter directly and substantially has
been heard and finally decided in a former suit
between the same parties, litigating under the
same title amounts to res judicata. Defendant
No.1-Bank is precluded from raising the same
objection in the present proceedings which is
finally decided holding the assignment deed as
legal and binding on the defendant No.1-Bank…”

38. We are of the opinion that both the trial Court and the first

appellate Court were entirely wrong in treating the statutory

prohibition contained in Section 45(2) of the Trade Marks Act as

res judicata. It is obvious that neither Court has bothered to

advert to Section 45 and/or interpret the same. The second

proceeding contained in O.S. No.495 of 2008 prayed for

payment of a sum of Rs.17,89,915/- along with interest thereon

for the period 1.4.2004 to 30.4.2007. Paragraph 8 of the plaint

in the said suit reads as under:

“8. The plaintiff has already filed a suit in O.S.
No.2832/2004 against the 1st defendant for the
58
recovery of the amount payable by it under the
said Assignment Deed till the end of 31.3.2004.
The cause of action for the present suit claim had
not arisen by then as the amount had not
become payable by then i.e. for the period
1.4.2004 to 30.4.2007.”

39. Clearly, therefore, the subsequent suit of 2008 raises an

issue which is different from that contained in the earlier suit

filed by the same party in 2004. Also, the earlier decision in the

judgment dated 27.4.2013 has declared valid a transaction

which is prohibited by law. A cursory reading of Section 45(2)

of the Trade Marks Act makes it clear that the assignment

deed, if unregistered, cannot be admitted in evidence by any

Court in proof of title to the trademark by the assignment,

unless the Court itself directs otherwise. It is clear, therefore,

that any reliance upon the assignment deed dated 8.10.2003

by the earlier judgment cannot be sanctified by the plea of res

judicata, when reliance upon the assignment deed is prohibited

by law.

40. Equally, a reference to Sections 6, 8 and 46(4) of the

Banking Regulation Act would also make it clear that a bank

cannot use the trademark “Eenadu” to sell agarbathies. This

59
would be directly interdicted by
Section 8, which clearly

provides that notwithstanding anything contained in Section 6

or in any contract, no banking company shall directly or

indirectly deal in the selling of goods, except in connection with

the realisation of security given to or held by it. Also, granting

permission to third parties to use the trademark “Eenadu” and

earn royalty upon the same would clearly be outside Section

6(1) and would be interdicted by Section 6(2) which states that

no bank shall engage in any form of business other than those

referred to in sub-section (1).

41. Shri Shanthakumar Mahale, however, exhorted us to read

Sections 6(1)(f) and (g) as permitting the sale of goods under

the trademark and/or earning royalty from a sub-assignment

thereto. We are of the view that the trademark cannot be said

to be property which has come into the possession of the bank

in satisfaction or part satisfaction of any of the claims of the

bank. We are further of the view that the trademarks are not

part of any security for loans or advances that have been made

to the first respondent, or connected with the same. It is thus

clear that the assignment deed dated 8.10.2003 is clearly hit by
60
Section 6(2) and Section 8 read with the penalty provision

contained in Section 46(4) of the Banking Regulation Act.

42. The appeal is allowed and the judgment of the trial Court

and the first appellate Court are set aside. Consequently, O.S.

No.495 of 2008 filed by respondent No.1 will stand dismissed.

………………………..J.

(Adarsh Kumar Goel)

………………………..J.

(R.F. Nariman)

New Delhi;

April 20, 2018.

61

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