Case: State Of Maharashtra  Vs. National Constrn.Co Bombay

1. 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 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 30-3-1967.2. On 6-1-1968, the second respondent, the Central Bank of India (hereinafter called "the Bank"), executed performance guarantee No. 57/22 whereby it guaranteed that the contractor would faithfully conform to the terms and conditions of the contract to be entered into between the appellants and the contractor. Under the terms of the guarantee, the Bank was jointly and severally liable with the contractor for the latters default in performance; the liability of the Bank being limited to Rs.14,12,836/- i.e. 5% of the contract price. The guarantee was to remain in force till 3-7-1972. Soon thereafter, on 8-1-1968, the contract for commencing construction was executed. However, no work was initiated for almost two years. On 11-12-1969, the appellants gave an ultimatum to the contractor to begin work. It is alleged that instead of commencing work, the contractor abandoned the work on 19-12-1969. The appellants allege that the contractor did not respond to their repeated requests for recommencing work, forcing them to employ other agencies for completing the work. In the process, by 31-5-1972, they claim they had incurred expenses totalling Rs. 1,44,18,970.24.3. At this stage, on 21-6-1972, the appellants filed Short Cause Suit No.491/72 only against the Bank on the original side of the Bombay High Court praying for the recovery of Rs.14,12,836/-, which was the amount stipulated in performance guarantee No.57/22, with interest. It would be pertinent to note that the suit was filed before the guarantee lapsed on 3-7-1972. On 17-1-1983, the Bombay High Court dismissed the suit for non- joinder of parties, holding that the contractor was a necessary party for deciding the issue of default and the banks consequent liability. In appeal against this order. Appeal No. 303/83, the appellants included the contractor as a party in the cause title of the memo of appeal but the appeal was dismissed on 7-4-1983 on the very same ground. It may, however, be clarified that the contractor was not impleaded as a party by the Courts order.4. On the same day, 7-4-1983, the appellants filed Spl. Civil Suit No. 29/83 against both the contractor and the bank in the Court of the Civil Judge (Senior Division) at Aurangabad. In this suit, the appellants claimed Rs.1,13,27,298.16, with interest, from the contractor by way of damages for breach of contract. This was inclusive of their claim for Rs.14,12,836/- against the bank under the performance guarantee.5. 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 judicata 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 formal 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.

Court's reasoning:
7. In its impugned order, the High Court of Bombay has taken note of the fact that the Short Cause Suit was dismissed on the technical ground of non-joinder of a necessary party i.e. the contractor. It has, however, stressed the fact that in the appeal against the order of the lower Court, the appellants had made the contractor a party and yet the appeal was dismissed. The High Court has relied on this fact to come to the conclusion that the second suit was barred by res judicata. However, the High Court did not take note of the fact that in rejecting the appeal, the appellate Court had held that the suit was bad since there was no adjudication or legal determination of the plaintiffs dues and, for this reason, the suit was not maintainable against the 2nd Defendant only. the High Court, therefore, failed to take note of the fact that the appellate Court did not consider the merits of the case, but confirmed the dismissal of the suit by the lower Court on a technicalthe principle of res judicata and Rule 2 of Order 2 are based on the rule of law that a man shall not be twice vexed for one and the same cause.10. It is well settled that the cause of action for a suit comprises of all those facts which the plaintiff must aver, and if traversed, prove to support his right to the judgment.The legal position, therefore, is that a bank guarantee is ordinarily a contract quite distinct and independent of the underlying contract, the performance of which it seeks to secure. To that extent it can be said to give rise to a cause of action separate from that the underlying contract. However, in the present case we are handicapped because the High Court (both the learned single Judge and Division Bench) had no occasion to analyse the nature of the bank guarantee. We, therefore, refrain from making any observation regarding the true nature of the bank guarantee except pointing out that the two causes of action may not be identical. That would be a matter for the trial Court to consider on a true analysis of the bank guarantee at the appropriate stage.15. In the plaint of the Spl. Suit, the main relief sought by the appellants was on the basis of the contract entered into between the appellants and the contractor. The appellants alleged and laid out facts and particulars to the effect that the abandonment of work by the contractor was in breach of the contract and this had caused the appellants to suffer losses worth Rs.1,13,27,298.16. This amount was inclusive of the claim of Rs.14,12,836/- based on the performance guarantee No.57/22 for which the contractor and the Bank were jointly and severally liable.In Sidramppa v. Rajashetty, 1970(1) SCC 186, this Court held that where the cause of action on the basis of which the previous suit was brought, does not form the foundation of the subsequent suit, and in the earlier suit, the plaintiff could not have claimed the relief which he sought in the subsequent suit, the plaintiffs subsequent suit is not barred on Order 2, Rule 2. Applying this ruling to the facts of the present case, it is clear that, in the first suit, the appellants could not claim reliefs in respect of Rs.14,12,836/- which was the maximum amount stipulated in the performance guarantee. They could not have claimed reliefs of Rs.1,13,27,298.16 which they did in the second suit on the basis of the contract relating to the work to be performed by the contractor.It is, therefore, clear that when the appellants, by way of Short Cause Suit No. 491/72, sought to enforce the performance guarantee No.57/22, they were seeking reliefs on the basis of a cause of action which was distinct from the one upon which they subsequently based their claim in Spl. Civil Suit No. 29/83.