Punjab-Haryana High Court
Canara Bank vs Scanomax India Ltd. And Others on 15 September, 1999
Equivalent citations: [2000]99COMPCAS285(P&H), (1999)123PLR374
Author: V.S. Aggarwal
Bench: V.S. Aggarwal
JUDGMENT V.S. Aggarwal, J.
1. Canara Bank (hereinafter described as "the petitioner") has filed a civil suit against Scanomax India Ltd., and others for recovery of Rs. 1,32,41,767.50 besides interest. The said civil suit is being contested and a written statement has been filed.
2. On behalf of respondents Nos. 2 to 4 an application has been filed seeking stay of the suit. It has been asserted that the respondent Scanomax India Ltd., was a joint sector undertaking with the Punjab State Industrial Development Corporation and private co-promoters comprising Dr. B. S. Grewal and other shareholders. The said project was set up for the manufacture of bulk drugs. The private shareholders comprising B. S. G. Associates sold their shares and rights to the Raunaq group in pursuance of the agreement dated November 2, 1994, executed by B. S. G. Associates. The agreement was done with the approval and consent of the financial institutions, namely, respondents Nos. 5 to 7 and also consortium of banks, i.e., State Bank of Patiala. The petitioner-bank was the lead bank. In terms of the agreement dated November 2, 1994, it was stipulated that B. S. G. Associates will get the ratification of the change in the management and control to Raunaq group from the financial institutions. The said approval was drafted by the Punjab State Industrial Development Corporation on November 17, 1994, and by the Industrial Finance Corporation of India respondent No. 7 on January 31, 1995. A formal letter in this regard was issued by the Industrial Finance Corporation of India. The consortium of banks with the petitioner-bank as lead bank granted their necessary approval and consent for transfer of the control and management of respondent No. 1, Scanomax India Ltd., in favour of the Raunaq group.
3. There were communications interaction and dealing with the financial institutions, the consortium of banks on the one hand and the Raunaq group on the other. In pursuance of the interaction and deliberation between the parties, it was agreed that the project for the manufacturing of Ibuprofen, Ampicillin, Trihydrate and their formulations be changed and restructured. It was to be rehashed for manufacture of the bulk drugs of Acyclovir and others. As a result of this change and restructure of the initial project, the terms and conditions of the alleged guarantee deed between the petitioner-bank and the applicant-respondents were varied. They claimed that in this process they were discharged from their liability. It has further been alleged that in pursuance of the agreement dated November 2, 1994, the Raunaq group had also agreed to indemnify respondents Nos. 2 to 4 from their liability towards their financial institutions and the consortium of banks. The relevant clause of the said agreement reads :
"(i) Raunaq group shall take steps for the release of the members of BSG Associates from all personal guarantees and undertaking given by them for Scanomax to banks, financial institutions and authorities and for this purpose provide substitute and/or arrange for personal guarantees of the Raunaq group members to be furnished to the said banks, financial institutions and authorities to their satisfactions.
Furthermore, upon the completion of the transactions and pending the release of the personal guarantees as aforesaid Raunaq group shall indemnify and hold harmless BSG Associates from all claims, losses, etc., to which BSG Associates may be subjected to or suffer on account of enforcement of such personal guarantees."
4. It is asserted that even otherwise there have been such acts of omission and commission on the part of Canara Bank that the project and manufacturing process of Scanomax stood considerably delayed in these circumstances, it is claimed that respondents Nos. 2 to 4 stood discharged. However, the financial institutions, i.e., Industrial Financial Corporation of India sent a legal notice to them to enforce the guarantee. Respondents Nos. 2 to 4 filed a civil suit in the court of the learned senior Sub-judge, Chandigarh for a declaration that their alleged liability, if any, stood discharged. In said civil suit Canara Bank, State Bank of Patiala and also the financial institutions besides the Raunaq group have been impleaded as parties.
5. The applicants' case is that the said civil suit is comprehensive which would determine the rights of the parties including the alleged rights, if any, of the Canara Bank. The said civil suit which has been filed in the court of the Senior Sub-judge, Chandigarh is a previously instituted suit. The parties are identical and, therefore, it was prayed that the said civil suit be stayed under section 10 of the Code of Civil Procedure, 1908.
6. Contest has been offered by the Canara Bank. It was pointed in the reply that there is no intimation to Canara Bank with respect to the alleged change of the management or agreement dated November 2, 1994. It is not disputed that respondents Nos. 2 to 4 had preferred the civil suit before the learned Senior Sub-judge, Chandigarh, but it has been pointed that it is on a different perspective altogether. The Raunaq group is not a necessary party in the civil suit filed by the Canara Bank. A winding up order had been passed against the company besides the borrower of the company. There were none other than the guarantors who are necessary parties to the civil suit. The questions involved are stated to be different. Learned counsel for the applicants-respondents Nos. 2 to 4 while pressing for stay of the civil suit pending, urged that the questions involved in the present civil suit filed by the Canara Bank and the one filed by respondents Nos. 2 to 4 are identical. Therefore, he pressed that in terms of section 10 of the Code of Civil Procedure, when there is identity of the controversy, the subsequently instituted suit which is pending in this court should be stayed. As pointed out above, the defence of Canara Bank is that not only the parties are different but the controversy involved in the civil suits, one filed by respondents Nos. 2 to 4 and the other by Canara Bank is totally different.
7. Section 10 of the Code of Civil Procedure, reads as under
"Stay of suit. - No court shall proceed with the trial of any suit in which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties, or between parties under whom they or any of the them claim litigating under the same title where such suit is pending in the same or any other court in India having jurisdiction to grant the relief claimed, or in any court beyond the limits of India established or continued by the Central Government and having like jurisdiction, or before the Supreme Court.
Explanation. - The pendency of a suit in a foreign court does not preclude the courts in (India) from trying a suit founded on the same cause of action."
8. It is abundantly clear from a perusal of section 10 of the Code of Civil Procedure that before it can come into play, certain conditions must be satisfied :
(a) The matter/matters in issue should substantially be the same in the two suits;
(b) The previously instituted suit should be pending in another court in India or the same court; and
(c) The two suits should be between the same parties or their representatives and these parties should be litigating in the two suits under the same title.
9. Regarding the said principles, there is little controversy. The Supreme Court in Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal, AIR 1962 SC 527, 536, held that the provisions of section 10 of the Code of Civil Procedure are mandatory. It was concluded :
"The suit at Indore which had been instituted later, could be stayed in view of section 10 of the Code. The provisions of that section are clear, definite and mandatory. A court in which a subsequent suit has been filed is prohibited from proceeding with the trial of that suit in certain specified circumstances."
10. In fact this is the consistent view and reference to some of the precedents in this regard can conveniently be made. In the case of Shaw Wallace and Co. Ltd. v. Bholanath Mandanlal Sherawala, AIR 1975 Cal 411, an appointment was made to the person to sell goods at Farrukhabad. Dealership agreement was executed. The alleged dealer had put up the claim that the agreement was cancelled by mutual consent. He filed a suit at Farrukhabad to recover the amount out of the transactions. The said person also filed a suit claiming damages for wrongful repudiation of the agreement. At Calcutta an application was filed that the suit at Farrukhabad was previously instituted. Section 10 of the Code of Civil Procedure was pressed into service. The Calcutta High Court held that mere identity of some of the issues is not sufficient to attract section 10 of the Code of Civil Procedure. It was concluded (page 412) :
"One of the most essential conditions of section 10 is that the matter in issue in the later suit which is sought to be stayed must be directly and substantially in issue in the earlier suit which is pending in the same or in any other court of concurrent jurisdiction. A mere identity of some of the issues in both the suits is not sufficient to attract this section in view of the law laid down by Sir Ashutosh Mookerjee' Unless the decision of the suit operates as res judicata in the other suit it cannot be said that the matter in issue is 'directly and substantially' the same in both the suits. In other words, the decision in one suit must non-suit the other suit before it can be said that the matter in issue in both the suits is directly and substantially the same."
11. Similarly in the case of Fulchand Motilal v. Manhar Lall Jetha Lall Mehta, AIR 1973 Patna 196, the question in controversy was as to whether in the subsequently instituted suit, the matter was directly and substantially the same or not ? It was held that the acid test is that the decision in the previously instituted suit should operate as res judicata in the subsequently instituted suit. The court concluded (page 197) :
"Under this section, the court is prohibited from proceeding with the trial of a suit where two conditions exist, namely, (i) where there is a previously instituted suit between the same parties, and (ii) where the matter directly and substantially in issue in both the suits is the same. The first of these requirements of section 10 can present no difficulty, and, for determining whether the second one exists or not, the court has to direct its attention to the pleadings of both the suits and to determine what is the matter directly and substantially in issue in the two suits.
Having ascertained this, the court has further to consider whether or not the matter directly and substantially in issue in both the suits is the same. The test to be applied for this purpose is not whether the cause of action or the reliefs claimed in both the suits are the same, nor whether one of the issues arising in both of them is the me. The test is whether the decision of the matter directly and substantially arising in the former suit will decide not merely that suit but will also operate as res judicata in the subsequent suit between the same parties."
12. The Madras High Court in P. S. Kandasami Mudaliar v. T. N. Ranganathan, AIR 1973 Mad 476, applied the same test and held (page 477) :
". . . the test for applicability of section 10 is to see whether the final decision in a previous suit would operate as res judicata in the subsequent suit. It is not necessary that the subject-matter and cause of action in the two suits should be identical. In the present case, there is substantial identity between the matters in dispute in the earlier and the later suit."
13. In the matter of C. L. Tandon v. Prem Pal Singh Rawat, AIR 1978 Delhi 221, the same test that the decision in the earlier suit must operate as res judicata to attract the rigours of section 10 was reiterated in the following words (page 226) :
"One valuable touchstone for determining whether the matters in issue are directly and substantially the same is whether the decision in the prior suit will bring the principle of res judicata into operation in the subsequent suit. Because the removal of Prem Pal Singh Rawat by Mataji and the nomination in his place of Satya Pal Singh Rawat and the competence of Mataji to do the same, issues of utmost importance, are alien to the Patna suit, the disposal of the suit at Patna will not stand in the way of the trial of the said issues by the appropriate courts."
14. A Division Bench of the Calcutta High Court in Bishwanath Balkrishna v. Smt. Rampeyari Devi, AIR 1979 Patna 159, was concerned with a situation where a first suit for eviction was filed on the ground of personal requirement. A subsequent suit for eviction was filed on the ground of non-payment of rent. An application was filed for stay of subsequent suit of eviction. It was held that the causes of action in both the suits were different and, therefore, it did not require to be stayed.
15. This court in the case of Jagan Nath Jagdish Lal v. Piara Mal Gobind Ram Sachdev [1979] PLJ 231 accepted the above well known principle that the decision in the earlier suit should operate as res judicata in the sub-sequent suit and held :
"To judge as to whether the subject-matter in the two suits is substantially the same, the test universally accepted is that the decision in the prior suit should operate as res judicata in the suit instituted later and shut out its trial. This test is fully satisfied in the present case because if the High Court at Delhi holds that the respondents are liable to render accounts and taking those accounts, nothing is found due from the petitioners that decision would operate as res judicata and would render the present suit incompetent. Apart from preventing the multiplicity of the proceedings, the other principal object of section 10 of the Code of Civil Procedure is the prevention of contradictory decrees by courts of concurrent jurisdiction. This object would also be defeated if the present suit is not stayed."
16. The same view prevailed with this court in the case of Jaswant Singh v. Surjant Singh [1984] CLJ 679 that where the questions involved are not substantially the same, only in that event the subsequently instituted suit need not be stayed. Similarly, this court in the case of O.P. Steel Traders v. Steel Strips, AIR 1992 P & H 217, held (page 219) :
"After hearing the counsel for the parties, I hold that the suit filed by the petitioner-firm at Ludhiana relates to the same transaction regarding which a suit has been filed by the respondent-company at Chandigarh. One of the tests of the applicability of section 10 of the Code of Civil Procedure to a particular case is whether, on the final decision being reached in the previous suit, such decision operates as res judicata in the subsequent suit and there can be no doubt that if this test is applied, section 10 of the Civil Procedure Code must be held to be applicable to the present case. Since the suit filed by the respondent-company is prior to the suit filed by the petitioner-firm at Ludhiana, therefore, the trial court was bound to stay the proceedings of the suit of the petitioner-firm under section 10 read with section 151 of the Code of Civil Procedure."
17. The Madras High Court in R. Srinivasan v. Southern Petrochemical Industries Corporation Ltd., AIR 1992 Mad 363, concluded that the key words in section 10 of the Code of Civil Procedure are that the matter in issue should be directly and substantially the same. There has to be identity of the matter in issue in both the suits. The test in this regard drawn was the same and in the words of the Hon'ble judge of that court it was held (page 366) :
"One test of the applicability of section 10 to a particular case is whether on the final decision being reached in the previous suit such decision would operate as res judicata in the subsequent suit. What is essential is that there must be substantial identity between the matters in dispute and parties in the earlier and later suits."
18. It is abundantly clear from the aforesaid that the matters in question substantially should be the same in both the suits and that the decision in the earlier suit should operate as res judicata in the subsequently instituted suit.
19. In this backdrop one can conveniently refer to the nature of the suit filed by the Canara Bank. Scanomax India Ltd. has been ordered to be wound up. In the civil suit for recovery of amount referred to above, the Canara Bank had asserted that in connection with the business of Scanomax India Ltd., it needed credit facility. The board of directors passed a resolution dated March 3, 1989. It was resolved to avail of credit facility from the Canara Bank and the State Bank of Patiala. They wanted credit facility in a sum of Rs. 5 crores. The facility initially sanctioned was open cash credit of Rs. 20 lakhs, secured demand business Rs. 21 lakhs and non-fund base including bank guarantees Rs. 25 lakhs. Consequent upon sanctioning of the facility, Scanomax India Ltd., through the managing director executed certain documents and request was made for overdraft facility. Scanomax India Ltd., needed more funds. It requested for enhancement of the cash credit limit. Canara Bank agreed to enhance the same to Rs. 25 lakhs. Since the earlier resolution had an agreement of Rs. 5 crores, a fresh resolution was not obtained. B. S. Grewal executed certain documents. Scanomax India Ltd., availed of the facility and Canara Bank maintained its accounts in the regular course of business. Since the factory was situated in a village, the facility was permitted to be utilized from Patiala Main Branch of Canara Bank. On March 31, 1992, Scanomax India Ltd., needed the facility by executing the letter of renewal mentioning the existing facility as well as liability as on March 31, 1992. An acknowledgment of debt was made. Scanomax India Ltd., needed more funds. It requested for opening of cash credit facility to Rs. 75 lakhs. The request was acceded to and it executed a fresh set of documents. The interest was liable to be paid at 16.5 per cent. per annum. In order to secure the interest of Canara Bank, certain personal guarantees were executed by respondents Nos. 2 to 4. They made themselves personally and severally liable for the amount due. The civil suit had been filed for recovery against the said respondents besides Punjab State Industrial Development Corporation, Punjab Financial Corporation, Industrial Finance Corporation of India and the State Bank of Patiala.
20. It is abundantly clear from the aforesaid that while the civil suit has been filed for recovery of a specific amount with respondents Nos. 2 to 4 being the guarantors also, the civil suit filed by Dr. B. S. Grewal and others in the court of the Senior Sub-judge, Chandigarh is only for a declaration that the plaintiffs in that suit stood discharged as sureties against the term loan and instead some of the other defendants in that suit are liable. They prayed for a permanent injunction that the Industrial Finance Corporation, the Canara Bank and certain other financial institutions are not entitled to invoke the guarantees against them and further that they should be restrained from initiating recovery proceedings.
21. As already pointed out above, the questions involved in the subsequently instituted suit and previously instituted suit should be substantially the same. As one glances through the pleadings of both the suits, it is clear that one is a civil suit for recovery of a specific amount. The said suit is pending in this court. Even if the civil suit pending before the learned Senior Sub-judge, Chandigarh is decided, it will not operate as res judicata on all the controversies between the parties in the two suits. It may have some repercussions but the recovery suit still have to be continued. Therefore, one is constrained to observe that the question in controversy in the subsequently instituted suit is not substantially the same. Merely because one or two issues may be identical that will not be a ground to stay the subsequently instituted suit. That would be contrary to the plain language of section 10 of the Civil Procedure Code.
22. As an off-shoot of these reasons, it is clear that there is no good ground to allow the application because section 10 of the Civil Procedure Code is not attracted. The application filed under section 10 of the Civil Procedure Code is dismissed. List the company petition for statement of the parties before issues and for framing of the issues on November 18, 1999.