Case: CANARA BANK Vs. N.G. SUBBARAYA SETTY

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, 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 trademarkin 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 MARK1. 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 markin relation to the agarbathies (incense sticks) for a period TEN years from the date of this Agreement i.e. 1.10.03 to 30.9.132. 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 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; and3. 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 30.9.134. The aforesaid payments shall be unconditionally made by the Assignee continuously and uninterruptedly for the aforesaid period of TEN years5. The Assignee shall have the right to use the trade markon 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 markduring 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 collectfrom 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, etc. granted by the Assignee to the third parties in respect of the trade mark of the Assignorshall also come to an end simultaneously, without such notice6. 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 Companys Regulation Act, 1949, the bank cannot be7. 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 law8. 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 26.5.20059. 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.1s 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 banks 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. 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 rejected10. 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 period1.4.2004 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 thee 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.

Court's reasoning:
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 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 of2004. It is only after full arguments on both sides that the trial Court in the judgment dated 30.10.2015 accepted the respondents 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, cannot22. 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.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 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 Courts time and 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.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 thefor the 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 period39. 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 law40. 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 trademarkto sell agarbathies. This 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 trademarkearn 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 Section 6(2) and Section 8 read with the penalty provision contained in Section 46(4) of the Banking Regulation Act.