How to prove plea of constructive res judicata?

 Both proceeded on the basis that the suit was not barred by res judicata, but barred by principle of constructive res judicata without assigning any reasons. Plea of res judicata is a restraint on the right of a plaintiff to have an adjudication of his claim. The plea must be clearly established, more particularly where   the bar sought is on the basis of constructive res judicata. The plaintiff who is sought to be prevented by the bar of constructive res judicata should have notice about the plea and have an opportunity to put forth his contentions against the same. In this case, there was no plea of constructive res judicata, nor had the appellant plaintiff an opportunity to meet the case based on such plea.  Res judicata means `a thing adjudicated' that is an issue that is finally settled by judicial decision.
                      IN THE SUPREME COURT OF INDIA

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.8321 OF 2010 

Alka Gupta Vs. Narender Kumar Gupta

O R D E R 
 R.V.RAVEENDRAN, J.
Leave granted. Heard. For convenience the appellant and respondent will also be referred to by their ranks in the suit, as `plaintiff' and `defendant' respectively. 2. The appellant and respondent entered into a partnership as per deed dated 5.4.2000 to run an Institute for preparing students for competitive examinations, under the name and style of `Takshila Institute', at No.F-19, LSC, Bhera Enclave, Paschim Vihar, New Delhi. 2 3. On 29.6.2004, the appellant entered into an "agreement to sell" (Bayana Agreement) under which she agreed to sell the property described as follows: "An undivided half share, second floor (without roof rights) of built up property bearing No.8, Pocket & Block C9, Sector-8, Rohini, Delhi - 110 085, built on a plot of land area measuring 158.98 Sq.m and 50% share of M/s Takshila Institute established in the above said property which is hereby agreed to be sold includes all rights, titles, interests, goodwill, electricity equipment, furniture, fixtures including passages, easements facilities privileges etc., which attached thereto or connected therewith." Clause 13 of the said agreement clarified that the property agreed to be sold included the goodwill of the firm M/s Takshila Institute, having its office at C-9/8, Sector 8, Rohini, Delhi-85 in which the first party is also the partner of 50% and included all rights, interest, claims, title, fittings, furniture, fixtures and all equipment. 4. Under the said agreement, the total consideration agreed was Rs.21,50,000/- and the appellant received Rs.750,000/- as advance. The appellant claimed that in pursuance of the said agreement, she executed a sale deed in regard to the immovable property for Rs.200,000/- and that the respondent promised to pay the balance of Rs.12 lakhs in regard to the other rights and interest agreed to be sold under agreement of sale dated 29.6.2004. She filed Suit No.16/2006 in the District Court, Delhi for 3 recovery of Rs.12 lakhs under the said agreement dated 29.6.2004, alleging that respondent had paid in all Rs.9.5 lakhs towards the agreed price. The said Suit No.16/2006 was decreed in favour of the appellant on 25.11.2006, directing respondent to pay Rs.12 lakhs with interest at 7% per annum with effect from 30.8.2004. 5. Thereafter the appellant filed another suit - C.S. (O.S.)No.302/2007 - in the Delhi High Court against the respondent, for rendition of accounts for the period 5.4.2000 to 31.7.2004, in regard to the partnership firm of Takshila Institute constituted under deed of partnership dated 5.4.2000. In that suit, the appellant alleged that the said partnership was at will and it was dissolved by implication on 31.7.2004, when respondent filed Suit No. 438/2004 against the appellant (and others) for an injunction. She also sought a decree against the respondent for her share of profits in the said partnership and for a decree for Rs.25.28 lakhs or higher amount in regard to the share of plaintiff with interest thereon. The said suit was resisted by the respondent. Three preliminary grounds of objections were raised in regard to the maintainability of the suit: (a) that the suit was barred by res judicata; (b) that the suit was barred under Section 69 of the Partnership Act, 1932, as it related to an unregistered partnership; and (c) that the suit was liable to be 4 dismissed for material suppression of facts and approaching the court with unclean hands. It was alleged that parties were close relatives and appellant being a government servant, was only a sleeping partner. It was contended that by the agreement of sale dated 29.6.2004, the partnership under deed dated 5.4.2000 was dissolved and all claims of appellant were settled. 6. The issues in the said suit were framed on 17.1.2008 with a direction that the first issue, extracted below, be treated as a preliminary issue: "Whether the suit is barred by the principle of res judicata as issue raised in the Suit has been directly and substantially been adjudicated between the plaintiff and the defendant in suit no.16/2006 titled as Alka Gupta vs. Narender Kumar Gupta vide an order dated 25.11.2006 by a competent court? By order dated 13.3.2009, the trial bench (learned Single Judge of the High Court) held that the suit was liable to be dismissed summarily on the following grounds: (i) The appellant had abused the process of court; (ii) the appellant was an unscrupulous person and the suit was based on falsehoods; (iii) the partnership dated 5.4.2000 was illegal and unenforceable as appellant was a government servant; (iv) the suit was barred by Order 2 Rule 2 of the Code of Civil Procedure (`Code' for short); and (v) the suit was barred by principle of constructive res judicata. The suit was accordingly dismissed with costs of Rupees Fifty Thousand. In the preamble to the said 5 order, the trial court observed that on 12.1.2009, when arguments were on the preliminary issue, it was clarified that arguments were being heard not only on the said preliminary issue, but also the question as to why independent of section 11 and Order 2 Rule 2 of the Code, the suit should not be dismissed summarily on the ground of re-litigation and abuse of process of court. It is further stated that on 16.1.2009, the statement of plaintiff (appellant herein) was recorded and arguments on various aspects were heard on 16.1.2009 and 21.1.2009. 7. Feeling aggrieved, the appellant filed an appeal. An appellate bench of the High Court, by the impugned judgment dated 7.9.2009, dismissed the appeal. The appellant bench affirmed the decision of the trial bench. It however held that as it was agreeing with the learned Single Judge that the suit was barred by Order 2 Rule 2 of the Code and that the appellant had settled all her claims with the respondent under the Bayana Agreement dated 29.6.2004, it was not necessary to decide upon the question as to whether the partnership deed dated 5.4.2000 could be enforced in a court or not. The said order is challenged in this appeal by special leave. For the reasons following, we are of the view that the orders of the learned Single Judge and the 6 Division Bench which ignore several basic principles of Code of Civil Procedure cannot be sustained. I. A suit cannot be dismissed as barred by Order 2 Rule 2 of the Code in the absence of a plea by the defendant to that effect and in the absence of an issue thereon. 8. We may extract Order 2 Rules 1 and 2 of the Code for ready reference: "1. Frame of suit: Every suit shall as far as practicable be framed so as to afford ground for final decision upon the subjects in dispute and to prevent further litigation concerning them. 2. Suit to include the whole claim: (1) Every suit shall include the whole of the claim which the plaintiff is entitled to make in respect of the cause of action; but a plaintiff may relinquish any portion of his claim in order to bring the suit within the jurisdiction of any Court. (2) Relinquishment of part of claim: Where a plaintiff omits to sue in respect of, or intentionally relinquishes, any portion of his claim, he shall not afterwards sue in respect of the portion so omitted or relinquished. (3) Omission to sue for one of several reliefs: A person entitled to more than one relief in respect of the same cause of action may sue for all or any of such reliefs; but if he omits, except with the leave of the court, to sue for all such reliefs, he shall not afterwards sue for any relief so omitted." The object of Order 2 Rule 2 of the Code is two-fold. First is to ensure that no defendant is sued and vexed twice in regard to the same cause of action. Second is to prevent a plaintiff from splitting of claims and remedies based on the same cause of action. The effect of Order 2 Rule 2 of the Code is to bar a plaintiff who had earlier claimed certain remedies in regard to a cause 7 of action, from filing a second suit in regard to other reliefs based on the same cause of action. It does not however bar a second suit based on a different and distinct cause of action. 9. This Court in Gurbux Singh v. Bhoora Lal [AIR 1964 SC 1810] held : "In order that a plea of a bar under O. 2, R. 2(3), Civil Procedure Code should succeed the defendant who raises the plea must make out (1) that the second suit was in respect of the same cause of action as that on which the previous suit was based; (2) that in respect of that cause of action the plaintiff was entitled to more than one relief; (3) that being thus entitled to more than one relief the plaintiff without leave obtained from the Court omitted to sue for the relief for which the second suit had been filed. From this analysis it would be seen that the defendant would have to establish primarily and to start with, the precise cause of action upon which the previous suit was filed for unless there is identity between the cause of action on which the earlier suit was filed and that on which the claim in the latter suit is based there would be no scope for the application of the bar." Unless the defendant pleads the bar under Order 2 Rule 2 of the Code and an issue is framed focusing the parties on that bar to the suit, obviously the court can not examine or reject a suit on that ground. The pleadings in the earlier suit should be exhibited or marked by consent or at least admitted by both parties. The plaintiff should have an opportunity to explain or demonstrate that the second suit was based on a different cause of action. In this case, the respondent did not contend that the suit was barred by Order 2 Rule 2 of the Code. No issue was framed as to whether the suit was barred by Order 2 Rule 2 of the Code. But the High Court (both the trial bench and 8 appellate bench) have erroneously assumed that a plea of res judicata would include a plea of bar under Order 2 Rule 2 of the Code. Res judicata relates to the plaintiff's duty to put forth all the grounds of attack in support of his claim, whereas Order 2 Rule 2 of the Code requires the plaintiff to claim all reliefs flowing from the same cause of action in a single suit. The two pleas are different and one will not include the other. The dismissal of the suit by the High Court under Order 2 Rule 2 of the Code, in the absence of any plea by the defendant and in the absence of an issue in that behalf, is unsustainable. II. The cause of action for the second suit being completely different from the cause of action for the first suit, the bar under order 2 Rule 2 of the Code was not attracted. 10. The first suit was for recovery of balance price under an agreement of sale. The agreement dated 29.6.2004 was not an agreement relating to dissolution of the firm constituted under deed of partnership dated 5.4.2000, or settlement of the accounts of the said partnership. The agreement of sale made it clear that it related to sale of the undivided half share in the second floor at Rohini, 50% (property bearing No.8, Pocket & Block C-9, Sector-8, Rohini, Delhi-110085) and 50% share of the business that was being run in that premises, that is premises at Rohini. The second suit was for rendition 9 of accounts in pursuance of the dissolution of the firm of Takshila Institute constituted under deed of partnership dated 5.4.2000, carrying on business at Bhera Enclave, Paschim Vihar, Delhi-110087 and for payment of the amounts due on dissolution of the said firm. 11. The pleadings in the two suits make it clear that both parties proceeded on the basis that the partnership between appellant and respondent under deed dated 5.4.2000 was only in regard to the business run under the name and style of `Takshila Insittue' at Bhera Enclave, Paschim Vihar, Delhi-110087. The appellant proceeded on the basis that the property at Rohini and the business carried therein under the name of Takshila Institute, was not a part of the partnership business under deed dated 5.4.2000. Even the respondent in his written statement in the first suit asserted that the partnership dated 5.4.2000 between appellant and respondent did not extend to Takshila Institute at Rohini or other places. In fact appellant clearly contended that respondent was carrying on business under the same name of Takshila Institute at Janakpuri, Ashok Vihar and Kalu Sarai in Delhi and also at Dehradun and Palampur, but they were not partnership businesses. The respondent in his written statement asserted that he alone was carrying on business at those places under the name of 10 Takshila Institute. Therefore, the court could not, before trial, assume that the sale of appellant's share in the immovable property at Rohini and the goodwill and assets of the business carried on at Rohini under the name of Takshila Institute should be taken as relinquishment or retirement or settlement of share in regard to the partnership business of Paschim Vihar Takshila Institute. 12. The cause of action for the first suit was non-payment of price under the agreement of sale dated 29.6.2004, whereas the cause of action for the second suit was non-settling of accounts of a dissolved partnership constituted under deed dated 5.4.2000. The two causes of action are distinct and different. Order 2 Rule 2 of the Code would come into play only when both suits are based on the same cause of action and the plaintiff had failed to seek all the reliefs based on or arising from the cause of action in the first suit without leave of the court. Merely because the agreement of sale related to an immovable property at Rohini and the business run therein under the name of `Takshila Institute' and the second suit referred to a partnership in regard to business run at Pachhim Vihar, New Delhi, also under the same name of Takshila Institute, it cannot be assumed that the two suits relate to the same cause of action. Further, while considering whether a second suit 11 by a party is barred by Order 2 Rule 2 of the Code, all that is required to be seen is whether the reliefs claimed in both suits arose from the same cause of action. The court is not expected to go into the merits of the claim and decide the validity of the second claim. The strength of the second case and the conduct of plaintiff are not relevant for deciding whether the second suit is barred by Order 2 Rule 2 of the Code. III. The second suit was not barred by constructive res judicata. 13. The learned trial bench passed the order on 13.3.2009 on the preliminary issue (Issue No.1) relating to res judicata. But there is absolutely no discussion in the order of the learned Single Judge in regard to the bar of res judicata except the following observation at the end of the order: "Of course it cannot be said that the present suit is barred by res judicata inasmuch as the said claims were not decided in that case. But the principle of constructive res judicata is applicable." This was not interfered by the appellate bench. Both proceeded on the basis that the suit was not barred by res judicata, but barred by principle of constructive res judicata without assigning any reasons. Plea of res judicata is a restraint on the right of a plaintiff to have an adjudication of his claim. The plea must be clearly established, more particularly where the bar sought is on the basis of 12 constructive res judicata. The plaintiff who is sought to be prevented by the bar of constructive res judicata should have notice about the plea and have an opportunity to put forth his contentions against the same. In this case, there was no plea of constructive res judicata, nor had the appellant plaintiff an opportunity to meet the case based on such plea. 14. Res judicata means `a thing adjudicated' that is an issue that is finally settled by judicial decision. The Code deals with res judicata in section 11, relevant portion of which is extracted below (excluding Explanations I to VIII): "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" Section 11 of the Code, on an analysis requires the following essential requirements to be fulfilled, to apply the bar of res judicata to any suit or issue: (i) The matter must be directly and substantially in issue in the former suit and in the later suit. (ii) The prior suit should be between the same parties or persons claiming under them. 13 (iii) Parties should have litigated under the same title in the earlier suit. (iv) The matter in issue in the subsequent suit must have been heard and finally decided in the first suit. (v) The court trying the former suit must have been competent to try particular issue in question. To define and clarify the principle contained in Section 11 of the Code, eight Explanations have been provided. Explanation I states that the expression `former suit' refers to a suit which had been decided prior to the suit in question whether or not it was instituted prior thereto. Explanation II states that the competence of a court shall be determined irrespective of whether any provisions as to a right of appeal from the decision of such court. Explanation III states that the matter directly and substantially in issue in the former suit, must have been alleged by one party or either denied or admitted expressly or impliedly by the other party. Explanation IV provides that any matter which might and ought to have been made a 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. The principle of constructive res judicata emerges from Explanation IV when read with Explanation III both of which explain the concept of "matter directly and substantially in issue". 14 15. Explanation III clarifies that a matter is directly and substantially in issue, when it is alleged by one party and denied or admitted (expressly or impliedly) by the other. Explanation IV provides that where any matter which might and ought to have been made a ground of defence or attack in the former suit, even if was not actually set up as a ground of attack or defence, shall be deemed and regarded as having been constructively in issue directly and substantially in the earlier suit. Therefore, even though a particular ground of defence or attack was not actually taken in the earlier suit, if it was capable of being taken in the earlier suit, it became a bar in regard to the said issue being taken in the second suit in view of the principle of constructive res judicata. Constructive res judicata deals with grounds of attack and defence which ought to have been raised, but not raised, whereas Order 2 Rule 2 of the Code relates to reliefs which ought to have been claimed on the same cause of action but not claimed. The principle underlying Explanation IV to Section 11 becomes clear from Greenhalgh v. Mallard [1947 (2) All ER 257] thus: "....it would be accurate to say that res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them. (emphasis supplied) 15 In Direct Recruit Class II Engineering Officers' Association v. State of Maharashtra [1990 (2) SCC 715], a Constitution Bench of this Court reiterated the principle of constructive res judicata after referring to Forward Construction Co. v. Prabhat Mandal [1986 (1) SCC 100) thus: "an adjudication is conclusive and final not only as to the actual matter determined but as to every other matter which the parties might and ought to have litigated and have had decided as incidental to or essentially connected with subject matter of the litigation and every matter coming into the legitimate purview of the original action both in respect of the matters of claim and defence." In this case the High Court has not stated what was the ground of attack that plaintiff-appellant ought to have raised in the first suit but had failed to raise, which she raised in the second suit, to attract the principle of constructive res judicata. The second suit is not barred by constructive res judicata. IV. A suit cannot be dismissed without trial merely because the court feels dissatisfied with the conduct of the plaintiff. 16. Code of Civil Procedure is nothing but an exhaustive compilation- cum-enumeration of the principles of natural justice with reference to a proceeding in a court of law. The entire object of the Code is to ensure that an adjudication is conducted by a court of law with appropriate opportunities at appropriate stages. A civil proceeding governed by the Code will have to be proceeded with and decided in accordance with law and the provisions of 16 the Code, and not on the whims of the court. There are no short-cuts in the trial of suits, unless they are provided by law. A civil suit has to be decided after framing issues and trial permitting the parties to lead evidence on the issues, except in cases where the Code or any other law makes an exception or provides any exemption. 17. The Code enumerates the circumstances in which a civil suit can be dismissed without trial. We may refer to them (not exhaustive): (a) Dismissal as a consequence of rejection of plaint under Order 7 Rule 11 of the Code in the following grounds : (i) where it does not disclose a cause of action; (ii) where the relief in the plaint is undervalued and plaintiff fails to correct the valuation within the time fixed; (iii) where the court fee paid is insufficient and plaintiff fails to make good the deficit within the time fixed by court: (iv) where the suit appears from the statement in the plaint to be barred by law; (v) where it is not filed in duplicate and where the plaintiff fails to comply with the provisions of Order 7 Rule 9 of the Code. (b) Dismissal under Order 9 Rule 2 or Rule 3 or Rule 5 or Rule 8 for non- service of summary or non-appearance or failure to apply for fresh summons. (c) Dismissal under Order 11 Rule 21 for non-compliance with an order to answer interrogatories, or for discovery or inspection of documents. 17 (d) Dismissal under Order 14 Rule 2(2) where issues both of law and fact arise in the same suit and the court is of opinion that the case or any part thereof may be disposed of on an issue of law only and it tries such issue relating to jurisdiction of the court or a bar to a suit created by any law for the time being in force first and dismisses the suit if the decision on such preliminary issue warrants the same. (e) Dismissal under Order 15 Rule 1 of the Code when at the first hearing of the suit it appears that the parties are not at issue on any question of law or fact. (f) Dismissal under Order 15 Rule 4 of the Code for failure to produce evidence. (g) Dismissal under Order 23 Rules 1 and 3 of the Code when a suit is withdrawn or settled out of court. 18. The following provisions provide for expeditious disposal in a summary manner : (i) Order V Rule 5 of the Code requires the court to determine, at the time of issuing the summons, whether it shall be for the settlement of issues only, or for the final disposal of the suit (and the summons shall have to contain a direction accordingly). In suits to be heard by a court of small causes, the summons shall be for the final disposal of the suit. (ii) Order 15 Rule 3 of the Code provides where the parties are at issue on some question of law or of fact, and issues have been framed by the court as hereinbefore provided, if the court is satisfied that no further argument or evidence than the parties can at once adduce is required upon such of the issues as may be sufficient for the decision of the suit, and that no injustice 18 will result from proceeding with the suit forthwith, the court may proceed to determine such issues, and, if the finding thereon is sufficient for the decision, may pronounce judgment accordingly, whether the summons has been issued for the settlement of issues only or for the final disposal of the suit. (But where the summons has been issued for the settlement of issues only, such a summary course could be adopted only where the parties or their pleaders are present and none of them objects to such a course). (iii) Order 37 Rule 1 read with Rules 2& 3 of the relating to summary suits. 19. But where the summons have been issued for settlement of issues, and a suit is listed for consideration of a preliminary issue, the court cannot make a roving enquiry into the alleged conduct of the plaintiff, tenability of the claim, the strength and validity and contents of documents, without a trial and on that basis dismiss a suit. A suit cannot be shortcircuited by deciding issues of fact merely on pleadings and documents produced without a trial. In this case, the learned Single Judge has adjudicated and decided questions of fact and rendered a judgment, without evidence tested by cross- examination. We extract below some of the reasonings, findings, assumptions and conclusions of the learned Single Judge leading to the dismissal of the suit when hearing a preliminary issue relating to res judicata, thereby demonstrating assumption of a jurisdiction not vested in it 19 and also acting in the exercise of its jurisdiction illegally and with material irregularity: "What emerges from the aforesaid is that the plaintiff at the time of inception of the partnership and till date is a government teacher and under the terms of her employment was not entitled to enter into the partnership and was not entitled to earn any profits therefrom. Not only under the terms of her employment, the plaintiff before the Service Tax Authorities also represented that she had only academic interest. It can only mean that she had no profit interest in the partnership. Though the plaintiff has denied that she has filed the clearance certificate aforesaid with the government school in which she is employed but the purpose of plaintiff obtaining the said clearance certificate from the defendant can only be to use the same in the event of any complaint of breach of terms of employment being made against her. x x x x x x x x x The question which arises for adjudication is whether a litigant can be permitted to take a stand in the court, diametrically opposite to the stand of that litigant elsewhere. Can there be different stands before the government as employer and before the Taxation Authorities and before the court. Should the courts permit such stand to be taken in the course of judicial proceedings and should the courts come to the rescue of such a litigant in recovering dues which that litigant elsewhere has represented are not due to her. The aforesaid circumstances leave no manner of doubt that the plaintiff in contravention of the terms of her employment was carrying on business as a partner with the defendant. The question is of enforcement of such a partnership and or the terms thereof by the court. x x x x x x x x x In the present case the condition in the term of the employment of the plaintiff as a government teacher, admittedly prohibit her from carrying on any business activity or other vocation for profits. Such condition has been imposed to ensure that the teachers of the government school devote their full energy and time to developing the young minds, rather than treating the government service as a mere source of income and utilizing their time and skill in earning/making money elsewhere. The plaintiff by entering into the agreement of partnership with the defendant had clearly violated her terms of employment and this Court cannot come to her assistance to enable her to earn profits which she otherwise is not entitled. The plaintiff 20 has admitted to having not shown any profits whatsoever in her Income Tax return. It is inconceivable that the plaintiff who has claimed to be in partnership since the year 1999 or 2000 would not have earned any profits from the partnership and/or if would not have earned would have sat quietly for four years. The plaintiff cannot be permitted to take different stands before different fora. The condition/term of employment prohibiting the plaintiff from entering into partnership is found to be in public interest and the action of the plaintiff of breaching/violating the same is found to be immoral and opposed to public policy. The breach is not found to be trivial or venial. Further, the conduct of the plaintiff thereafter also, as noted above is found to be of subterfuge and plaintiff has been found to be misstating facts. The plaintiff is found to be an unscrupulous person and her case is found to be based on falsehood. This Court refuses to come to the aid of plaintiff and her case is liable to be dismissed summarily. That even on the facts of this case, I have no doubt that the plaintiff has abused the process of the court. The plaintiff in the Bayana Agreement aforesaid had clearly agreed to the sum of Rs. 21.50 lacs towards her share in the partnership firm inclusive of the value of the Rohini property where the partnership business was being carried on. As far as the Paschim Vihar property is concerned, the issue with respect whereto was raised, the same also finds mention in the said Bayana Agreement and the receipt. The conduct of the plaintiff also shows that all accounts had been settled and no accounts remained to be taken and for which purpose the suit had been filed. Had the accounts not been settled, the question of the plaintiff instructing the bank to delete her name from the account in the name of the firm and of receiving the original Bayana Agreement and of obtaining the clearance certificate aforesaid would not have arisen. The case set up by the plaintiff is contrary to all the admitted documents. x x x x x x x x x I find the present case to be clear beyond all reasonable doubts. The Bayana Agreement and Receipt admittedly executed by plaintiff and the averments of plaintiff in plaint in earlier suit instituted by plaintiff, permit of no controversy. The consideration mentioned therein was in settlement of all claims of plaintiff with respect to her share in partnership. The contemporaneous conduct of plaintiff, of statement on 13th August, 2004 in suit No. 438/2004 instituted by defendant; of taking clearance certificate dated 13th August, 2004 from defendant, of having her name as signatory deleted from the bank account of firm are also in consonance with said documents. The facts of this case do not require any opportunity for leading evidence to be given to the plaintiff. This Court cannot put a case contrary to such documents and conduct to be put to trial. The 21 explanations now given during arguments do not form the basis of suit and pleadings." (emphasis supplied) The observation of the learned Single Judge that "the facts of this case do not require any opportunity for leading evidence to be given to the plaintiff" violates Order 15 Rule 3 of the Code. Where summons have been issued for settlement of issues and where issues have been settled, unless the parties agree, the court cannot deny the right of parties to lead evidence. To render a final decision by denying such opportunity would be highhanded, arbitrary and illegal. 20. Even the division bench committed the same error. We extract below para 14 of the impugned order which shows that the decision was based on assumption without basis and in the absence of evidence freely referring to and relying upon unexhibited documents : "This is not the case of the plaintiff/appellant that the firm was maintaining separate accounts, one for the business being run by it in Rohini and the other for the business being run in Paschim Vihar. Ordinarily, when there is a Settlement between the partners of the firm whereby they agree to part ways, the Settlement effected between them would cover accounts of the entire business being run by them in partnership and it would not be confined only to one part of the business. This is more so when the document executed between the parties at the time of parting ways and setting the disputes does not reserve any right in favour of the outgoing partner, to receive any further payment from the partner who retains the business of the erstwhile firm. In none of the documents executed between the parties, there is an averment that the accounts of business being run in Paschim Vihar had not been settled or that the plaintiff/appellant would not, in addition to the sum referred in the document, also be entitled to share of the profit earned by the firm 22 from its business in Paschim Vihar. Vide endorsement made on the receipt dated 29.6.2004, the husband of the appellant recorded that Paschim Vihar Institute Deed would be settled in the name of Dr.Rashmi Gupta for the consideration of Rs.15 lakhs. This is yet another proof of the fact that the matter relating to Paschim Vihar Institute had also been finally settled between the parties. During the course of arguments before us, it was contended by learned counsel for the appellant that the endorsement was made by the husband of the appellant without authority from her. Since we noticed a gentleman giving instructions to the learned counsel for the appellant, during the course of the hearing before us, we asked her as to who the gentleman was and we were told that he was none other than the husband of the appellant. This leaves no doubt in our mind that the husband of the appellant was acting on authority from her when he made endorsements on the Bayana Agreement and Receipt dated 29.6.2004. The shifting stands taken before him have been noted in detail, by the learned Single Judge. (emphasis supplied) 21. The High Court recorded factual findings on inferences from the plaintiff's (appellant) conduct and branded her as an unscrupulous person who abuses the process of court and as a person who utters falsehoods and manipulates documents without there being a trial and without there being an opportunity to the plaintiff to explain her conduct. To say the least, such a procedure is opposed to all principles of natural justice embodied in the Code of Civil Procedure. At all events, the alleged weakness of the case of the plaintiff or unscrupulousness of plaintiff are not grounds for dismissal without trial. 23 22. We also fail to understand how costs of Rs.50,000/- could be levied. This Court has repeatedly stated that in dealing with civil suits, courts will have to follow the provisions of Code of Civil Procedure in levying costs. 23. This order should not be construed as a finding on the conduct of the appellant one way or the other. We have examined the matter only for the limited purpose of finding out whether the High Court had proceeded in accordance with law and the provisions of Code of Civil Procedure. If on evidence, the conduct of the plaintiff or the defendant is found to be unscrupulous or unbecoming, it is open to the court at that stage to decide upon the consequences that should be visited upon her or him. 24. We therefore allow this appeal, set aside the order of the Division Bench of the High Court dated 7.9.2009 affirming the order dated 13.3.2009 of the learned Single Judge and restore the suit to the file of the High Court with a direction to decide the same in accordance with law, after giving due opportunity to the parties to lead evidence. ____________________J. [R.V. RAVEENDRAN] NEW DELHI ___________________J. SEPTEMBER 27, 2010 [H.L. GOKHALE] IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.8321 OF 2010 [Arising out of SLP [C] No.11328/2010] Alka Gupta ... Appellant Vs. Narender Kumar Gupta ... Respondent O R D E R R.V.RAVEENDRAN, J. Leave granted. Heard. For convenience the appellant and respondent will also be referred to by their ranks in the suit, as `plaintiff' and `defendant' respectively. 2. The appellant and respondent entered into a partnership as per deed dated 5.4.2000 to run an Institute for preparing students for competitive examinations, under the name and style of `Takshila Institute', at No.F-19, LSC, Bhera Enclave, Paschim Vihar, New Delhi. 2 3. On 29.6.2004, the appellant entered into an "agreement to sell" (Bayana Agreement) under which she agreed to sell the property described as follows: "An undivided half share, second floor (without roof rights) of built up property bearing No.8, Pocket & Block C9, Sector-8, Rohini, Delhi - 110 085, built on a plot of land area measuring 158.98 Sq.m and 50% share of M/s Takshila Institute established in the above said property which is hereby agreed to be sold includes all rights, titles, interests, goodwill, electricity equipment, furniture, fixtures including passages, easements facilities privileges etc., which attached thereto or connected therewith." Clause 13 of the said agreement clarified that the property agreed to be sold included the goodwill of the firm M/s Takshila Institute, having its office at C-9/8, Sector 8, Rohini, Delhi-85 in which the first party is also the partner of 50% and included all rights, interest, claims, title, fittings, furniture, fixtures and all equipment. 4. Under the said agreement, the total consideration agreed was Rs.21,50,000/- and the appellant received Rs.750,000/- as advance. The appellant claimed that in pursuance of the said agreement, she executed a sale deed in regard to the immovable property for Rs.200,000/- and that the respondent promised to pay the balance of Rs.12 lakhs in regard to the other rights and interest agreed to be sold under agreement of sale dated 29.6.2004. She filed Suit No.16/2006 in the District Court, Delhi for 3 recovery of Rs.12 lakhs under the said agreement dated 29.6.2004, alleging that respondent had paid in all Rs.9.5 lakhs towards the agreed price. The said Suit No.16/2006 was decreed in favour of the appellant on 25.11.2006, directing respondent to pay Rs.12 lakhs with interest at 7% per annum with effect from 30.8.2004. 5. Thereafter the appellant filed another suit - C.S. (O.S.)No.302/2007 - in the Delhi High Court against the respondent, for rendition of accounts for the period 5.4.2000 to 31.7.2004, in regard to the partnership firm of Takshila Institute constituted under deed of partnership dated 5.4.2000. In that suit, the appellant alleged that the said partnership was at will and it was dissolved by implication on 31.7.2004, when respondent filed Suit No. 438/2004 against the appellant (and others) for an injunction. She also sought a decree against the respondent for her share of profits in the said partnership and for a decree for Rs.25.28 lakhs or higher amount in regard to the share of plaintiff with interest thereon. The said suit was resisted by the respondent. Three preliminary grounds of objections were raised in regard to the maintainability of the suit: (a) that the suit was barred by res judicata; (b) that the suit was barred under Section 69 of the Partnership Act, 1932, as it related to an unregistered partnership; and (c) that the suit was liable to be 4 dismissed for material suppression of facts and approaching the court with unclean hands. It was alleged that parties were close relatives and appellant being a government servant, was only a sleeping partner. It was contended that by the agreement of sale dated 29.6.2004, the partnership under deed dated 5.4.2000 was dissolved and all claims of appellant were settled. 6. The issues in the said suit were framed on 17.1.2008 with a direction that the first issue, extracted below, be treated as a preliminary issue: "Whether the suit is barred by the principle of res judicata as issue raised in the Suit has been directly and substantially been adjudicated between the plaintiff and the defendant in suit no.16/2006 titled as Alka Gupta vs. Narender Kumar Gupta vide an order dated 25.11.2006 by a competent court? By order dated 13.3.2009, the trial bench (learned Single Judge of the High Court) held that the suit was liable to be dismissed summarily on the following grounds: (i) The appellant had abused the process of court; (ii) the appellant was an unscrupulous person and the suit was based on falsehoods; (iii) the partnership dated 5.4.2000 was illegal and unenforceable as appellant was a government servant; (iv) the suit was barred by Order 2 Rule 2 of the Code of Civil Procedure (`Code' for short); and (v) the suit was barred by principle of constructive res judicata. The suit was accordingly dismissed with costs of Rupees Fifty Thousand. In the preamble to the said 5 order, the trial court observed that on 12.1.2009, when arguments were on the preliminary issue, it was clarified that arguments were being heard not only on the said preliminary issue, but also the question as to why independent of section 11 and Order 2 Rule 2 of the Code, the suit should not be dismissed summarily on the ground of re-litigation and abuse of process of court. It is further stated that on 16.1.2009, the statement of plaintiff (appellant herein) was recorded and arguments on various aspects were heard on 16.1.2009 and 21.1.2009. 7. Feeling aggrieved, the appellant filed an appeal. An appellate bench of the High Court, by the impugned judgment dated 7.9.2009, dismissed the appeal. The appellant bench affirmed the decision of the trial bench. It however held that as it was agreeing with the learned Single Judge that the suit was barred by Order 2 Rule 2 of the Code and that the appellant had settled all her claims with the respondent under the Bayana Agreement dated 29.6.2004, it was not necessary to decide upon the question as to whether the partnership deed dated 5.4.2000 could be enforced in a court or not. The said order is challenged in this appeal by special leave. For the reasons following, we are of the view that the orders of the learned Single Judge and the 6 Division Bench which ignore several basic principles of Code of Civil Procedure cannot be sustained. I. A suit cannot be dismissed as barred by Order 2 Rule 2 of the Code in the absence of a plea by the defendant to that effect and in the absence of an issue thereon. 8. We may extract Order 2 Rules 1 and 2 of the Code for ready reference: "1. Frame of suit: Every suit shall as far as practicable be framed so as to afford ground for final decision upon the subjects in dispute and to prevent further litigation concerning them. 2. Suit to include the whole claim: (1) Every suit shall include the whole of the claim which the plaintiff is entitled to make in respect of the cause of action; but a plaintiff may relinquish any portion of his claim in order to bring the suit within the jurisdiction of any Court. (2) Relinquishment of part of claim: Where a plaintiff omits to sue in respect of, or intentionally relinquishes, any portion of his claim, he shall not afterwards sue in respect of the portion so omitted or relinquished. (3) Omission to sue for one of several reliefs: A person entitled to more than one relief in respect of the same cause of action may sue for all or any of such reliefs; but if he omits, except with the leave of the court, to sue for all such reliefs, he shall not afterwards sue for any relief so omitted." The object of Order 2 Rule 2 of the Code is two-fold. First is to ensure that no defendant is sued and vexed twice in regard to the same cause of action. Second is to prevent a plaintiff from splitting of claims and remedies based on the same cause of action. The effect of Order 2 Rule 2 of the Code is to bar a plaintiff who had earlier claimed certain remedies in regard to a cause 7 of action, from filing a second suit in regard to other reliefs based on the same cause of action. It does not however bar a second suit based on a different and distinct cause of action. 9. This Court in Gurbux Singh v. Bhoora Lal [AIR 1964 SC 1810] held : "In order that a plea of a bar under O. 2, R. 2(3), Civil Procedure Code should succeed the defendant who raises the plea must make out (1) that the second suit was in respect of the same cause of action as that on which the previous suit was based; (2) that in respect of that cause of action the plaintiff was entitled to more than one relief; (3) that being thus entitled to more than one relief the plaintiff without leave obtained from the Court omitted to sue for the relief for which the second suit had been filed. From this analysis it would be seen that the defendant would have to establish primarily and to start with, the precise cause of action upon which the previous suit was filed for unless there is identity between the cause of action on which the earlier suit was filed and that on which the claim in the latter suit is based there would be no scope for the application of the bar." Unless the defendant pleads the bar under Order 2 Rule 2 of the Code and an issue is framed focusing the parties on that bar to the suit, obviously the court can not examine or reject a suit on that ground. The pleadings in the earlier suit should be exhibited or marked by consent or at least admitted by both parties. The plaintiff should have an opportunity to explain or demonstrate that the second suit was based on a different cause of action. In this case, the respondent did not contend that the suit was barred by Order 2 Rule 2 of the Code. No issue was framed as to whether the suit was barred by Order 2 Rule 2 of the Code. But the High Court (both the trial bench and 8 appellate bench) have erroneously assumed that a plea of res judicata would include a plea of bar under Order 2 Rule 2 of the Code. Res judicata relates to the plaintiff's duty to put forth all the grounds of attack in support of his claim, whereas Order 2 Rule 2 of the Code requires the plaintiff to claim all reliefs flowing from the same cause of action in a single suit. The two pleas are different and one will not include the other. The dismissal of the suit by the High Court under Order 2 Rule 2 of the Code, in the absence of any plea by the defendant and in the absence of an issue in that behalf, is unsustainable. II. The cause of action for the second suit being completely different from the cause of action for the first suit, the bar under order 2 Rule 2 of the Code was not attracted. 10. The first suit was for recovery of balance price under an agreement of sale. The agreement dated 29.6.2004 was not an agreement relating to dissolution of the firm constituted under deed of partnership dated 5.4.2000, or settlement of the accounts of the said partnership. The agreement of sale made it clear that it related to sale of the undivided half share in the second floor at Rohini, 50% (property bearing No.8, Pocket & Block C-9, Sector-8, Rohini, Delhi-110085) and 50% share of the business that was being run in that premises, that is premises at Rohini. The second suit was for rendition 9 of accounts in pursuance of the dissolution of the firm of Takshila Institute constituted under deed of partnership dated 5.4.2000, carrying on business at Bhera Enclave, Paschim Vihar, Delhi-110087 and for payment of the amounts due on dissolution of the said firm. 11. The pleadings in the two suits make it clear that both parties proceeded on the basis that the partnership between appellant and respondent under deed dated 5.4.2000 was only in regard to the business run under the name and style of `Takshila Insittue' at Bhera Enclave, Paschim Vihar, Delhi-110087. The appellant proceeded on the basis that the property at Rohini and the business carried therein under the name of Takshila Institute, was not a part of the partnership business under deed dated 5.4.2000. Even the respondent in his written statement in the first suit asserted that the partnership dated 5.4.2000 between appellant and respondent did not extend to Takshila Institute at Rohini or other places. In fact appellant clearly contended that respondent was carrying on business under the same name of Takshila Institute at Janakpuri, Ashok Vihar and Kalu Sarai in Delhi and also at Dehradun and Palampur, but they were not partnership businesses. The respondent in his written statement asserted that he alone was carrying on business at those places under the name of 10 Takshila Institute. Therefore, the court could not, before trial, assume that the sale of appellant's share in the immovable property at Rohini and the goodwill and assets of the business carried on at Rohini under the name of Takshila Institute should be taken as relinquishment or retirement or settlement of share in regard to the partnership business of Paschim Vihar Takshila Institute. 12. The cause of action for the first suit was non-payment of price under the agreement of sale dated 29.6.2004, whereas the cause of action for the second suit was non-settling of accounts of a dissolved partnership constituted under deed dated 5.4.2000. The two causes of action are distinct and different. Order 2 Rule 2 of the Code would come into play only when both suits are based on the same cause of action and the plaintiff had failed to seek all the reliefs based on or arising from the cause of action in the first suit without leave of the court. Merely because the agreement of sale related to an immovable property at Rohini and the business run therein under the name of `Takshila Institute' and the second suit referred to a partnership in regard to business run at Pachhim Vihar, New Delhi, also under the same name of Takshila Institute, it cannot be assumed that the two suits relate to the same cause of action. Further, while considering whether a second suit 11 by a party is barred by Order 2 Rule 2 of the Code, all that is required to be seen is whether the reliefs claimed in both suits arose from the same cause of action. The court is not expected to go into the merits of the claim and decide the validity of the second claim. The strength of the second case and the conduct of plaintiff are not relevant for deciding whether the second suit is barred by Order 2 Rule 2 of the Code. III. The second suit was not barred by constructive res judicata. 13. The learned trial bench passed the order on 13.3.2009 on the preliminary issue (Issue No.1) relating to res judicata. But there is absolutely no discussion in the order of the learned Single Judge in regard to the bar of res judicata except the following observation at the end of the order: "Of course it cannot be said that the present suit is barred by res judicata inasmuch as the said claims were not decided in that case. But the principle of constructive res judicata is applicable." This was not interfered by the appellate bench. Both proceeded on the basis that the suit was not barred by res judicata, but barred by principle of constructive res judicata without assigning any reasons. Plea of res judicata is a restraint on the right of a plaintiff to have an adjudication of his claim. The plea must be clearly established, more particularly where the bar sought is on the basis of 12 constructive res judicata. The plaintiff who is sought to be prevented by the bar of constructive res judicata should have notice about the plea and have an opportunity to put forth his contentions against the same. In this case, there was no plea of constructive res judicata, nor had the appellant plaintiff an opportunity to meet the case based on such plea. 14. Res judicata means `a thing adjudicated' that is an issue that is finally settled by judicial decision. The Code deals with res judicata in section 11, relevant portion of which is extracted below (excluding Explanations I to VIII): "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" Section 11 of the Code, on an analysis requires the following essential requirements to be fulfilled, to apply the bar of res judicata to any suit or issue: (i) The matter must be directly and substantially in issue in the former suit and in the later suit. (ii) The prior suit should be between the same parties or persons claiming under them. 13 (iii) Parties should have litigated under the same title in the earlier suit. (iv) The matter in issue in the subsequent suit must have been heard and finally decided in the first suit. (v) The court trying the former suit must have been competent to try particular issue in question. To define and clarify the principle contained in Section 11 of the Code, eight Explanations have been provided. Explanation I states that the expression `former suit' refers to a suit which had been decided prior to the suit in question whether or not it was instituted prior thereto. Explanation II states that the competence of a court shall be determined irrespective of whether any provisions as to a right of appeal from the decision of such court. Explanation III states that the matter directly and substantially in issue in the former suit, must have been alleged by one party or either denied or admitted expressly or impliedly by the other party. Explanation IV provides that any matter which might and ought to have been made a 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. The principle of constructive res judicata emerges from Explanation IV when read with Explanation III both of which explain the concept of "matter directly and substantially in issue". 14 15. Explanation III clarifies that a matter is directly and substantially in issue, when it is alleged by one party and denied or admitted (expressly or impliedly) by the other. Explanation IV provides that where any matter which might and ought to have been made a ground of defence or attack in the former suit, even if was not actually set up as a ground of attack or defence, shall be deemed and regarded as having been constructively in issue directly and substantially in the earlier suit. Therefore, even though a particular ground of defence or attack was not actually taken in the earlier suit, if it was capable of being taken in the earlier suit, it became a bar in regard to the said issue being taken in the second suit in view of the principle of constructive res judicata. Constructive res judicata deals with grounds of attack and defence which ought to have been raised, but not raised, whereas Order 2 Rule 2 of the Code relates to reliefs which ought to have been claimed on the same cause of action but not claimed. The principle underlying Explanation IV to Section 11 becomes clear from Greenhalgh v. Mallard [1947 (2) All ER 257] thus: "....it would be accurate to say that res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them. (emphasis supplied) 15 In Direct Recruit Class II Engineering Officers' Association v. State of Maharashtra [1990 (2) SCC 715], a Constitution Bench of this Court reiterated the principle of constructive res judicata after referring to Forward Construction Co. v. Prabhat Mandal [1986 (1) SCC 100) thus: "an adjudication is conclusive and final not only as to the actual matter determined but as to every other matter which the parties might and ought to have litigated and have had decided as incidental to or essentially connected with subject matter of the litigation and every matter coming into the legitimate purview of the original action both in respect of the matters of claim and defence." In this case the High Court has not stated what was the ground of attack that plaintiff-appellant ought to have raised in the first suit but had failed to raise, which she raised in the second suit, to attract the principle of constructive res judicata. The second suit is not barred by constructive res judicata. IV. A suit cannot be dismissed without trial merely because the court feels dissatisfied with the conduct of the plaintiff. 16. Code of Civil Procedure is nothing but an exhaustive compilation- cum-enumeration of the principles of natural justice with reference to a proceeding in a court of law. The entire object of the Code is to ensure that an adjudication is conducted by a court of law with appropriate opportunities at appropriate stages. A civil proceeding governed by the Code will have to be proceeded with and decided in accordance with law and the provisions of 16 the Code, and not on the whims of the court. There are no short-cuts in the trial of suits, unless they are provided by law. A civil suit has to be decided after framing issues and trial permitting the parties to lead evidence on the issues, except in cases where the Code or any other law makes an exception or provides any exemption. 17. The Code enumerates the circumstances in which a civil suit can be dismissed without trial. We may refer to them (not exhaustive): (a) Dismissal as a consequence of rejection of plaint under Order 7 Rule 11 of the Code in the following grounds : (i) where it does not disclose a cause of action; (ii) where the relief in the plaint is undervalued and plaintiff fails to correct the valuation within the time fixed; (iii) where the court fee paid is insufficient and plaintiff fails to make good the deficit within the time fixed by court: (iv) where the suit appears from the statement in the plaint to be barred by law; (v) where it is not filed in duplicate and where the plaintiff fails to comply with the provisions of Order 7 Rule 9 of the Code. (b) Dismissal under Order 9 Rule 2 or Rule 3 or Rule 5 or Rule 8 for non- service of summary or non-appearance or failure to apply for fresh summons. (c) Dismissal under Order 11 Rule 21 for non-compliance with an order to answer interrogatories, or for discovery or inspection of documents. 17 (d) Dismissal under Order 14 Rule 2(2) where issues both of law and fact arise in the same suit and the court is of opinion that the case or any part thereof may be disposed of on an issue of law only and it tries such issue relating to jurisdiction of the court or a bar to a suit created by any law for the time being in force first and dismisses the suit if the decision on such preliminary issue warrants the same. (e) Dismissal under Order 15 Rule 1 of the Code when at the first hearing of the suit it appears that the parties are not at issue on any question of law or fact. (f) Dismissal under Order 15 Rule 4 of the Code for failure to produce evidence. (g) Dismissal under Order 23 Rules 1 and 3 of the Code when a suit is withdrawn or settled out of court. 18. The following provisions provide for expeditious disposal in a summary manner : (i) Order V Rule 5 of the Code requires the court to determine, at the time of issuing the summons, whether it shall be for the settlement of issues only, or for the final disposal of the suit (and the summons shall have to contain a direction accordingly). In suits to be heard by a court of small causes, the summons shall be for the final disposal of the suit. (ii) Order 15 Rule 3 of the Code provides where the parties are at issue on some question of law or of fact, and issues have been framed by the court as hereinbefore provided, if the court is satisfied that no further argument or evidence than the parties can at once adduce is required upon such of the issues as may be sufficient for the decision of the suit, and that no injustice 18 will result from proceeding with the suit forthwith, the court may proceed to determine such issues, and, if the finding thereon is sufficient for the decision, may pronounce judgment accordingly, whether the summons has been issued for the settlement of issues only or for the final disposal of the suit. (But where the summons has been issued for the settlement of issues only, such a summary course could be adopted only where the parties or their pleaders are present and none of them objects to such a course). (iii) Order 37 Rule 1 read with Rules 2& 3 of the relating to summary suits. 19. But where the summons have been issued for settlement of issues, and a suit is listed for consideration of a preliminary issue, the court cannot make a roving enquiry into the alleged conduct of the plaintiff, tenability of the claim, the strength and validity and contents of documents, without a trial and on that basis dismiss a suit. A suit cannot be shortcircuited by deciding issues of fact merely on pleadings and documents produced without a trial. In this case, the learned Single Judge has adjudicated and decided questions of fact and rendered a judgment, without evidence tested by cross- examination. We extract below some of the reasonings, findings, assumptions and conclusions of the learned Single Judge leading to the dismissal of the suit when hearing a preliminary issue relating to res judicata, thereby demonstrating assumption of a jurisdiction not vested in it 19 and also acting in the exercise of its jurisdiction illegally and with material irregularity: "What emerges from the aforesaid is that the plaintiff at the time of inception of the partnership and till date is a government teacher and under the terms of her employment was not entitled to enter into the partnership and was not entitled to earn any profits therefrom. Not only under the terms of her employment, the plaintiff before the Service Tax Authorities also represented that she had only academic interest. It can only mean that she had no profit interest in the partnership. Though the plaintiff has denied that she has filed the clearance certificate aforesaid with the government school in which she is employed but the purpose of plaintiff obtaining the said clearance certificate from the defendant can only be to use the same in the event of any complaint of breach of terms of employment being made against her. x x x x x x x x x The question which arises for adjudication is whether a litigant can be permitted to take a stand in the court, diametrically opposite to the stand of that litigant elsewhere. Can there be different stands before the government as employer and before the Taxation Authorities and before the court. Should the courts permit such stand to be taken in the course of judicial proceedings and should the courts come to the rescue of such a litigant in recovering dues which that litigant elsewhere has represented are not due to her. The aforesaid circumstances leave no manner of doubt that the plaintiff in contravention of the terms of her employment was carrying on business as a partner with the defendant. The question is of enforcement of such a partnership and or the terms thereof by the court. x x x x x x x x x In the present case the condition in the term of the employment of the plaintiff as a government teacher, admittedly prohibit her from carrying on any business activity or other vocation for profits. Such condition has been imposed to ensure that the teachers of the government school devote their full energy and time to developing the young minds, rather than treating the government service as a mere source of income and utilizing their time and skill in earning/making money elsewhere. The plaintiff by entering into the agreement of partnership with the defendant had clearly violated her terms of employment and this Court cannot come to her assistance to enable her to earn profits which she otherwise is not entitled. The plaintiff 20 has admitted to having not shown any profits whatsoever in her Income Tax return. It is inconceivable that the plaintiff who has claimed to be in partnership since the year 1999 or 2000 would not have earned any profits from the partnership and/or if would not have earned would have sat quietly for four years. The plaintiff cannot be permitted to take different stands before different fora. The condition/term of employment prohibiting the plaintiff from entering into partnership is found to be in public interest and the action of the plaintiff of breaching/violating the same is found to be immoral and opposed to public policy. The breach is not found to be trivial or venial. Further, the conduct of the plaintiff thereafter also, as noted above is found to be of subterfuge and plaintiff has been found to be misstating facts. The plaintiff is found to be an unscrupulous person and her case is found to be based on falsehood. This Court refuses to come to the aid of plaintiff and her case is liable to be dismissed summarily. That even on the facts of this case, I have no doubt that the plaintiff has abused the process of the court. The plaintiff in the Bayana Agreement aforesaid had clearly agreed to the sum of Rs. 21.50 lacs towards her share in the partnership firm inclusive of the value of the Rohini property where the partnership business was being carried on. As far as the Paschim Vihar property is concerned, the issue with respect whereto was raised, the same also finds mention in the said Bayana Agreement and the receipt. The conduct of the plaintiff also shows that all accounts had been settled and no accounts remained to be taken and for which purpose the suit had been filed. Had the accounts not been settled, the question of the plaintiff instructing the bank to delete her name from the account in the name of the firm and of receiving the original Bayana Agreement and of obtaining the clearance certificate aforesaid would not have arisen. The case set up by the plaintiff is contrary to all the admitted documents. x x x x x x x x x I find the present case to be clear beyond all reasonable doubts. The Bayana Agreement and Receipt admittedly executed by plaintiff and the averments of plaintiff in plaint in earlier suit instituted by plaintiff, permit of no controversy. The consideration mentioned therein was in settlement of all claims of plaintiff with respect to her share in partnership. The contemporaneous conduct of plaintiff, of statement on 13th August, 2004 in suit No. 438/2004 instituted by defendant; of taking clearance certificate dated 13th August, 2004 from defendant, of having her name as signatory deleted from the bank account of firm are also in consonance with said documents. The facts of this case do not require any opportunity for leading evidence to be given to the plaintiff. This Court cannot put a case contrary to such documents and conduct to be put to trial. The 21 explanations now given during arguments do not form the basis of suit and pleadings." (emphasis supplied) The observation of the learned Single Judge that "the facts of this case do not require any opportunity for leading evidence to be given to the plaintiff" violates Order 15 Rule 3 of the Code. Where summons have been issued for settlement of issues and where issues have been settled, unless the parties agree, the court cannot deny the right of parties to lead evidence. To render a final decision by denying such opportunity would be highhanded, arbitrary and illegal. 20. Even the division bench committed the same error. We extract below para 14 of the impugned order which shows that the decision was based on assumption without basis and in the absence of evidence freely referring to and relying upon unexhibited documents : "This is not the case of the plaintiff/appellant that the firm was maintaining separate accounts, one for the business being run by it in Rohini and the other for the business being run in Paschim Vihar. Ordinarily, when there is a Settlement between the partners of the firm whereby they agree to part ways, the Settlement effected between them would cover accounts of the entire business being run by them in partnership and it would not be confined only to one part of the business. This is more so when the document executed between the parties at the time of parting ways and setting the disputes does not reserve any right in favour of the outgoing partner, to receive any further payment from the partner who retains the business of the erstwhile firm. In none of the documents executed between the parties, there is an averment that the accounts of business being run in Paschim Vihar had not been settled or that the plaintiff/appellant would not, in addition to the sum referred in the document, also be entitled to share of the profit earned by the firm 22 from its business in Paschim Vihar. Vide endorsement made on the receipt dated 29.6.2004, the husband of the appellant recorded that Paschim Vihar Institute Deed would be settled in the name of Dr.Rashmi Gupta for the consideration of Rs.15 lakhs. This is yet another proof of the fact that the matter relating to Paschim Vihar Institute had also been finally settled between the parties. During the course of arguments before us, it was contended by learned counsel for the appellant that the endorsement was made by the husband of the appellant without authority from her. Since we noticed a gentleman giving instructions to the learned counsel for the appellant, during the course of the hearing before us, we asked her as to who the gentleman was and we were told that he was none other than the husband of the appellant. This leaves no doubt in our mind that the husband of the appellant was acting on authority from her when he made endorsements on the Bayana Agreement and Receipt dated 29.6.2004. The shifting stands taken before him have been noted in detail, by the learned Single Judge. (emphasis supplied) 21. The High Court recorded factual findings on inferences from the plaintiff's (appellant) conduct and branded her as an unscrupulous person who abuses the process of court and as a person who utters falsehoods and manipulates documents without there being a trial and without there being an opportunity to the plaintiff to explain her conduct. To say the least, such a procedure is opposed to all principles of natural justice embodied in the Code of Civil Procedure. At all events, the alleged weakness of the case of the plaintiff or unscrupulousness of plaintiff are not grounds for dismissal without trial. 23 22. We also fail to understand how costs of Rs.50,000/- could be levied. This Court has repeatedly stated that in dealing with civil suits, courts will have to follow the provisions of Code of Civil Procedure in levying costs. 23. This order should not be construed as a finding on the conduct of the appellant one way or the other. We have examined the matter only for the limited purpose of finding out whether the High Court had proceeded in accordance with law and the provisions of Code of Civil Procedure. If on evidence, the conduct of the plaintiff or the defendant is found to be unscrupulous or unbecoming, it is open to the court at that stage to decide upon the consequences that should be visited upon her or him. 24. We therefore allow this appeal, set aside the order of the Division Bench of the High Court dated 7.9.2009 affirming the order dated 13.3.2009 of the learned Single Judge and restore the suit to the file of the High Court with a direction to decide the same in accordance with law, after giving due opportunity to the parties to lead evidence. ____________________J. [R.V. RAVEENDRAN] NEW DELHI ___________________J. SEPTEMBER 27, 2010 [H.L. GOKHALE]
                        CIVIL APPELLATE JURISDICTION


                         CIVIL APPEAL NO.8321 OF 2010

                      [Arising out of SLP [C] No.11328/2010]




Alka Gupta                                                              ... Appellant


Vs.


Narender Kumar Gupta                                                    ... Respondent




                                         O R D E R




R.V.RAVEENDRAN, J.




        Leave granted. Heard. For convenience the appellant and respondent


will   also   be   referred   to   by   their   ranks   in   the   suit,   as   `plaintiff'   and


`defendant' respectively.





2.      The  appellant  and respondent  entered  into a partnership  as per deed


dated   5.4.2000   to   run   an   Institute   for   preparing   students   for   competitive


examinations, under the name and style of `Takshila Institute', at No.F-19,


LSC, Bhera Enclave, Paschim Vihar, New Delhi.


                                                      2



3.      On   29.6.2004,   the   appellant   entered   into   an   "agreement   to   sell"


(Bayana Agreement) under which she agreed to sell the property described


as follows:


        "An   undivided   half   share,   second   floor  (without   roof  rights)   of  built   up

        property bearing No.8, Pocket & Block C9, Sector-8, Rohini, Delhi - 110

        085, built on a plot of land area measuring 158.98 Sq.m and 50% share of

        M/s   Takshila   Institute   established   in   the   above   said   property   which   is

        hereby   agreed   to   be   sold   includes   all   rights,   titles,   interests,   goodwill,

        electricity   equipment,   furniture,   fixtures   including   passages,   easements

        facilities privileges etc., which attached thereto or connected therewith."





Clause 13 of the said agreement clarified that the property agreed to be sold


included the goodwill of the firm M/s Takshila Institute, having its office at


C-9/8, Sector 8, Rohini, Delhi-85 in which the first party is also the partner


of   50%   and   included   all   rights,   interest,   claims,   title,   fittings,   furniture,


fixtures and all equipment.





4.      Under   the   said   agreement,   the   total   consideration   agreed   was


Rs.21,50,000/-   and   the   appellant   received   Rs.750,000/-   as   advance.   The


appellant   claimed  that  in   pursuance   of  the  said   agreement,  she   executed   a


sale deed in regard to the immovable property for Rs.200,000/- and that the


respondent promised to pay the balance of Rs.12 lakhs in regard to the other


rights   and   interest   agreed   to   be   sold   under   agreement   of   sale   dated


29.6.2004.   She   filed   Suit   No.16/2006   in   the   District   Court,   Delhi   for


                                                3



recovery of Rs.12 lakhs under the said agreement dated 29.6.2004, alleging


that respondent had paid in all Rs.9.5 lakhs towards the agreed price.  The


said Suit No.16/2006 was decreed in favour of the appellant on 25.11.2006,


directing respondent to pay Rs.12 lakhs with interest at 7% per annum with


effect from 30.8.2004.





5.      Thereafter the appellant filed another suit - C.S. (O.S.)No.302/2007 -


in the Delhi High Court against the respondent, for rendition of accounts for


the   period   5.4.2000   to   31.7.2004,   in   regard   to   the   partnership   firm   of


Takshila   Institute   constituted   under   deed  of   partnership   dated   5.4.2000.  In


that suit, the appellant alleged that the said partnership was at will and it was


dissolved   by   implication   on   31.7.2004,   when   respondent   filed   Suit   No.


438/2004   against   the   appellant   (and   others)   for   an   injunction.   She   also


sought   a   decree   against   the  respondent   for   her  share   of  profits   in   the   said


partnership and for a decree for Rs.25.28 lakhs or higher amount in regard to


the share of plaintiff with interest thereon.  The said suit was resisted by the


respondent. Three preliminary grounds of objections were raised in regard to


the maintainability of the suit: (a) that the suit was barred by res judicata; (b)


that the suit was barred under Section 69 of the Partnership Act, 1932, as it


related to an unregistered partnership; and (c) that the suit was liable to be


                                                 4



dismissed for material suppression of facts and approaching the court with


unclean hands. It was alleged that parties were close relatives and appellant


being a government servant, was only a sleeping partner. It was contended


that   by   the   agreement   of   sale   dated   29.6.2004,  the   partnership   under  deed


dated 5.4.2000 was dissolved and all claims of appellant were settled.





6.      The issues in the said suit were framed on 17.1.2008 with a direction


that the first issue, extracted below,  be treated as a preliminary issue:


        "Whether the suit is barred by the principle of res judicata as issue raised

        in the Suit has been directly and substantially been adjudicated  between

        the plaintiff and the defendant in suit no.16/2006 titled as Alka Gupta vs.

        Narender   Kumar   Gupta   vide   an   order   dated   25.11.2006   by  a   competent

        court?




By order dated 13.3.2009, the trial bench (learned Single Judge of the High


Court)   held   that   the   suit   was   liable   to   be   dismissed   summarily   on   the


following grounds: (i) The appellant had abused the process of court; (ii) the


appellant was an unscrupulous person and the suit was based on falsehoods;


(iii)   the   partnership   dated   5.4.2000   was   illegal   and   unenforceable   as


appellant was a government servant; (iv) the suit was barred by Order 2 Rule


2   of  the   Code   of  Civil   Procedure   (`Code'   for   short);   and   (v)   the   suit   was


barred   by   principle   of   constructive   res   judicata.   The   suit   was   accordingly


dismissed with costs of Rupees Fifty Thousand. In the preamble to the said


                                                5



order, the trial court observed that on 12.1.2009, when arguments were on


the preliminary issue, it was clarified that arguments were being heard not


only   on   the   said   preliminary   issue,   but   also   the   question   as   to   why


independent of section 11 and Order 2 Rule 2 of the Code, the suit should


not   be   dismissed   summarily   on   the   ground   of   re-litigation   and   abuse   of


process   of   court.   It   is   further   stated   that   on   16.1.2009,   the   statement   of


plaintiff (appellant herein) was recorded and arguments on various aspects


were heard on 16.1.2009 and 21.1.2009.





7.      Feeling aggrieved, the appellant filed an appeal.   An appellate bench


of the High Court, by the impugned judgment dated 7.9.2009, dismissed the


appeal.   The   appellant   bench   affirmed   the   decision   of   the   trial   bench.   It


however held that as it was agreeing with the learned Single Judge that the


suit was barred by Order 2 Rule 2 of the Code  and that the appellant  had


settled all her claims with the respondent under the Bayana Agreement dated


29.6.2004, it was not necessary to decide upon the question as to whether the


partnership deed dated 5.4.2000 could be enforced in a court or not. The said


order is challenged in this appeal by special leave. For the reasons following,


we   are   of   the   view   that   the   orders   of   the   learned   Single   Judge   and   the


                                              6



Division   Bench   which   ignore   several   basic   principles   of   Code   of   Civil


Procedure cannot be sustained.




I.     A suit cannot be dismissed as barred by Order 2 Rule 2 of the Code in

the absence of a plea by the defendant to that effect and in the absence of an

issue thereon.




8.     We   may   extract   Order   2   Rules   1   and   2   of   the   Code   for   ready


reference:


       "1. Frame of suit: Every suit shall as far as practicable be framed so as to

       afford ground for final decision upon the subjects in dispute and to prevent

       further litigation concerning them.


       2. Suit to include the whole claim: (1) Every suit shall include the whole

       of the claim which the plaintiff is entitled to make in respect of the cause

       of action; but a plaintiff may relinquish any portion of his claim in order to

       bring the suit within the jurisdiction of any Court.


       (2)  Relinquishment of part of claim:  Where a plaintiff omits to sue in

       respect of, or intentionally relinquishes, any portion of his claim, he shall

       not afterwards sue in respect of the portion so omitted or relinquished.


       (3) Omission to sue for one of several reliefs: A person entitled to more

       than one relief in respect of the same cause of action may sue for all or any

       of such reliefs; but if he omits, except with the leave of the court, to sue

       for all such reliefs, he shall not afterwards sue for any relief so omitted."





The object of Order 2 Rule 2 of the Code is two-fold. First is to ensure that


no defendant is sued and vexed twice in regard to the same cause of action.


Second is to prevent a plaintiff from splitting of claims and remedies based


on the same cause of action. The effect of Order 2 Rule 2 of the Code is to


bar a plaintiff who had earlier claimed certain remedies in regard to a cause


                                                      7



of action,  from  filing a  second  suit  in  regard  to other  reliefs   based  on the


same   cause   of   action.   It   does   not   however   bar   a   second   suit   based   on   a


different and distinct cause of action.




9.      This Court in Gurbux Singh v. Bhoora Lal [AIR 1964 SC 1810] held :




        "In order that a plea of a bar under O. 2, R. 2(3), Civil Procedure Code

        should succeed the defendant who raises the plea must make out (1) that

        the second suit was in respect of the same cause of action as that on which

        the previous suit was based; (2) that in respect of that cause of action the

        plaintiff was entitled to more than one relief; (3) that being thus entitled to

        more than one relief  the plaintiff without leave  obtained from the Court

        omitted to sue for the relief for which the second suit had been filed. From

        this analysis it would be seen that the defendant would have to establish

        primarily   and   to   start   with,   the   precise   cause   of   action   upon   which   the

        previous   suit   was  filed  for  unless  there  is  identity   between  the  cause  of

        action on which the earlier suit was filed and that on which the claim in

        the latter suit is based there would be no scope for the application of the

        bar."




Unless the defendant pleads the bar under Order 2 Rule 2 of the Code and an


issue   is   framed   focusing   the   parties   on   that   bar   to   the   suit,   obviously   the


court can not examine or reject a suit on that ground. The pleadings in the


earlier suit should be exhibited or marked by consent or at least admitted by


both   parties.   The   plaintiff   should   have   an   opportunity   to   explain   or


demonstrate that the second suit was based on a different cause of action. In


this case, the respondent did not contend that the suit was barred by Order 2


Rule 2 of the Code. No issue was framed as to whether the suit was barred


by Order 2 Rule 2 of the Code.  But the High Court (both the trial bench and


                                             8



appellate bench) have erroneously assumed that a plea of res judicata would


include a plea of bar under Order 2 Rule 2 of the Code. Res judicata relates


to the plaintiff's duty to put forth all the grounds of attack in support of his


claim, whereas Order 2 Rule 2 of the Code requires the plaintiff to claim all


reliefs flowing from the same cause of action in a single suit. The two pleas


are different and one will not include the other. The dismissal of the suit by


the High Court under Order 2 Rule 2 of the Code, in the absence of any plea


by   the   defendant   and   in   the   absence   of   an   issue   in   that   behalf,   is


unsustainable.




II.    The   cause   of   action   for   the   second   suit   being   completely   different

from the cause of action for the first suit, the bar under order 2 Rule 2 of the

Code was not attracted.




10.    The first suit was for recovery of balance price under an agreement of


sale.   The   agreement   dated   29.6.2004   was   not   an   agreement   relating   to


dissolution of the firm constituted under deed of partnership dated 5.4.2000,


or settlement of the accounts of the said partnership. The agreement of sale


made it clear that it related to sale of the undivided half share in the second


floor at Rohini, 50% (property bearing No.8, Pocket & Block C-9, Sector-8,


Rohini, Delhi-110085) and 50% share of the business that was being run in


that premises, that is premises at Rohini. The second suit was for rendition


                                              



of accounts in pursuance of the dissolution of the firm of Takshila Institute


constituted under deed of partnership dated 5.4.2000, carrying on business at


Bhera   Enclave,   Paschim   Vihar,   Delhi-110087   and   for   payment   of   the


amounts due on dissolution of the said firm.





11.    The   pleadings   in   the   two   suits   make   it   clear   that   both   parties


proceeded   on   the   basis   that   the   partnership   between   appellant   and


respondent under deed dated 5.4.2000 was only in regard to the business run


under the name and style of `Takshila Insittue' at Bhera Enclave, Paschim


Vihar, Delhi-110087. The appellant proceeded on the basis that the property


at   Rohini   and   the   business   carried   therein   under   the   name   of   Takshila


Institute,   was   not   a   part   of   the   partnership   business   under   deed   dated


5.4.2000.   Even   the   respondent   in   his   written   statement   in   the   first   suit


asserted   that   the   partnership   dated   5.4.2000   between   appellant   and


respondent did not extend to Takshila Institute at Rohini or other places. In


fact   appellant   clearly   contended   that   respondent   was   carrying   on   business


under   the   same   name   of   Takshila   Institute   at   Janakpuri,   Ashok   Vihar   and


Kalu Sarai in Delhi and also at Dehradun and Palampur, but they were not


partnership businesses. The respondent in his written statement asserted that


he   alone   was   carrying   on   business   at   those   places   under   the   name   of


                                              



Takshila  Institute.  Therefore,  the court  could not, before trial,  assume  that


the   sale   of   appellant's   share   in   the   immovable   property   at   Rohini   and   the


goodwill and assets of the business carried on at Rohini under the name of


Takshila   Institute   should   be   taken   as   relinquishment   or   retirement   or


settlement of share in regard to the partnership  business of Paschim Vihar


Takshila Institute.





12.     The cause of action for the first suit was non-payment of price under


the agreement of sale dated 29.6.2004, whereas the cause of action for the


second   suit   was   non-settling   of   accounts   of   a   dissolved   partnership


constituted under deed dated 5.4.2000. The two causes of action are distinct


and different. Order 2 Rule 2 of the Code would come into play only when


both suits are based on the same cause of action and the plaintiff had failed


to seek all the reliefs based on or arising from the cause of action in the first


suit without leave of the court. Merely because the agreement of sale related


to an immovable property at Rohini and the business run therein under the


name of `Takshila Institute' and the second suit referred to a partnership in


regard to business run at Pachhim Vihar, New Delhi, also under the same


name of Takshila Institute, it cannot be assumed that the two suits relate to


the same cause of action. Further, while considering whether a second suit


                                                  11



by a party is barred by Order 2 Rule 2 of the Code, all that is required to be


seen is whether the reliefs claimed in both suits arose from the same cause of


action.   The   court   is   not   expected   to   go   into   the   merits   of   the   claim   and


decide the validity of the second claim. The strength of the second case and


the conduct of plaintiff are not relevant for deciding whether the second suit


is barred by Order 2 Rule 2 of the Code.




III.    The second suit was not barred by constructive res judicata.




13.     The   learned   trial   bench   passed   the   order   on   13.3.2009   on   the


preliminary issue (Issue No.1) relating to res judicata. But there is absolutely


no discussion in the order of the learned Single Judge in regard to the bar of


res   judicata   except   the   following   observation   at   the   end   of   the   order:   "Of


course   it   cannot   be   said   that   the   present   suit   is   barred   by   res   judicata


inasmuch as the said claims were not decided in that case. But the principle


of   constructive   res   judicata   is   applicable."   This   was   not   interfered   by   the


appellate bench. Both proceeded on the basis that the suit was not barred by


res   judicata,   but   barred   by   principle   of   constructive   res   judicata   without


assigning   any   reasons.   Plea   of   res   judicata   is   a   restraint   on   the   right   of   a


plaintiff   to   have   an   adjudication   of   his   claim.   The   plea   must   be   clearly


established,   more   particularly   where   the   bar   sought   is   on   the   basis   of


                                                      



constructive res judicata. The plaintiff who is sought to be prevented by the


bar of constructive res judicata should have notice about the plea and have


an   opportunity   to   put   forth   his   contentions   against   the   same.   In   this   case,


there was no plea of constructive res judicata, nor had the appellant plaintiff


an opportunity to meet the case based on such plea.





14.       Res judicata means `a thing adjudicated' that is an issue that is finally


settled by judicial decision. The Code deals with res judicata in section 11,


relevant   portion   of   which   is   extracted   below   (excluding   Explanations   I   to


VIII):


          "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"





Section   11   of   the   Code,   on   an   analysis   requires   the   following   essential


requirements  to be fulfilled, to apply the bar of res judicata  to any suit or


issue:


(i)       The  matter   must  be  directly  and  substantially  in  issue in  the former

          suit and in the later suit.


(ii)      The prior suit should be between the same parties or persons claiming

          under them.


                                                 13



(iii)    Parties should have litigated under the same title in the earlier suit.


(iv)     The matter in issue in the subsequent suit must have been heard and

         finally decided in the first suit.


(v)      The   court   trying   the   former   suit   must   have   been   competent   to   try

         particular issue in question.




To define and clarify the principle contained in Section 11 of the Code, eight


Explanations   have   been   provided.   Explanation   I   states   that   the   expression


`former   suit'   refers   to   a   suit   which   had   been   decided   prior   to   the   suit   in


question whether or not it was instituted prior thereto. Explanation II states


that the competence of a court shall be determined irrespective of whether


any   provisions   as   to   a   right   of   appeal   from   the   decision   of   such   court.


Explanation III states that the matter directly and substantially in issue in the


former   suit,   must   have   been   alleged   by   one   party   or   either   denied   or


admitted expressly or impliedly by the other party. Explanation IV provides


that   any   matter   which   might   and   ought   to   have   been   made   a   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. The principle of constructive


res judicata  emerges from Explanation IV when read with Explanation III


both   of  which   explain   the   concept   of  "matter   directly   and   substantially   in


issue".


                                                     



15.     Explanation III clarifies  that a matter is directly  and substantially in


issue, when it is alleged by one party and denied or admitted (expressly or


impliedly)   by   the   other.   Explanation   IV   provides   that   where   any   matter


which might and ought to have been made a ground of defence or attack in


the   former   suit,   even   if   was   not   actually   set   up   as   a   ground   of   attack   or


defence,   shall   be   deemed   and   regarded   as   having   been   constructively   in


issue directly and substantially in the earlier suit. Therefore, even though a


particular ground of defence or attack was not actually taken in the earlier


suit, if it was capable of being taken in the earlier suit, it became a bar in


regard   to   the   said   issue   being   taken   in   the   second   suit   in   view   of   the


principle   of   constructive   res   judicata.  Constructive   res   judicata  deals   with


grounds   of   attack   and   defence   which   ought   to   have   been   raised,   but   not


raised, whereas Order 2 Rule 2 of the Code relates to reliefs which ought to


have   been   claimed   on   the   same   cause   of   action   but   not   claimed.   The


principle   underlying   Explanation   IV   to   Section   11   becomes   clear   from


Greenhalgh v. Mallard  [1947 (2) All ER 257] thus:


        "....it   would   be   accurate   to   say   that   res   judicata   for   this   purpose   is   not

        confined to the issues which the court is actually asked to decide, but that

        it covers issues or facts which are so clearly part of the subject matter of

        the   litigation   and   so   clearly   could   have   been   raised   that  it   would   be   an

        abuse of the process of the court to allow a new proceeding to be started

        in respect of them.

                                                                               (emphasis supplied)


                                                     15



In  Direct   Recruit   Class   II   Engineering   Officers'   Association   v.   State   of


Maharashtra  [1990   (2)   SCC   715],   a   Constitution   Bench   of   this   Court


reiterated   the   principle   of   constructive   res   judicata   after   referring   to


Forward Construction Co. v. Prabhat Mandal [1986 (1) SCC 100) thus:


       "an  adjudication  is conclusive  and final  not only as  to the  actual matter

       determined but as to every other matter which the parties might and ought

       to   have   litigated   and   have   had   decided   as   incidental   to   or   essentially

       connected  with  subject  matter  of  the  litigation   and every matter  coming

       into   the   legitimate   purview   of   the   original   action   both   in   respect   of   the

       matters of claim and defence."




In this case the High Court has not stated what was the ground of attack that


plaintiff-appellant ought to have raised in the first suit but had failed to raise,


which she raised in the second suit, to attract the principle of constructive res


judicata. The second suit is not barred by constructive res judicata.




IV.    A   suit   cannot   be   dismissed   without   trial   merely   because   the   court

feels dissatisfied with the conduct of the plaintiff.




16.    Code   of   Civil   Procedure   is   nothing   but   an   exhaustive   compilation-


cum-enumeration   of   the   principles   of   natural   justice   with   reference   to   a


proceeding in a court of law. The entire object of the Code is to ensure that


an adjudication is conducted by a court of law with appropriate opportunities


at appropriate stages.  A civil proceeding governed by the Code will have to


be proceeded with and decided in accordance with law and the provisions of


                                               



the Code, and not on the whims of the court. There are no short-cuts in the


trial of suits, unless they are provided by law. A civil suit has to be decided


after framing issues and trial permitting the parties to lead evidence on the


issues, except in cases where the Code or any other law makes an exception


or provides any exemption.





17.     The Code enumerates the circumstances in which a civil suit can be


dismissed without trial. We may refer to them (not exhaustive):




(a)     Dismissal as a consequence of rejection of plaint under Order 7 Rule


11 of the Code in the following grounds : (i)  where it does not disclose  a


cause of action; (ii) where the relief in the plaint is undervalued and plaintiff


fails to correct the valuation within the time fixed; (iii) where the court fee


paid   is   insufficient   and   plaintiff   fails   to   make   good   the   deficit   within   the


time  fixed   by   court:   (iv)   where   the   suit   appears   from  the  statement  in   the


plaint to be barred by law; (v) where it is not filed in duplicate and where the


plaintiff fails to comply with the provisions of Order 7 Rule 9 of the Code.



(b)     Dismissal under Order 9 Rule 2 or Rule 3 or Rule 5 or Rule 8 for non-


service   of   summary   or   non-appearance   or   failure   to   apply   for   fresh


summons.




(c)     Dismissal under Order 11 Rule 21 for non-compliance with an order


to answer interrogatories, or for discovery or inspection of documents.


                                                 17



(d)     Dismissal under Order 14 Rule 2(2) where issues both of law and fact


arise in the same suit and the court is of opinion that the case or any part


thereof may be disposed of on an issue of law only and it tries such issue


relating to jurisdiction of the court or a bar to a suit created by any law for


the time being in force first and dismisses the suit if the decision  on such


preliminary issue warrants the same.




(e)     Dismissal under Order 15 Rule 1 of the Code when at the first hearing


of the suit it appears that the parties are not at issue on any question of law


or fact.




(f)     Dismissal under Order 15 Rule 4 of the Code for failure to produce


evidence.



(g)     Dismissal under Order 23 Rules 1 and 3 of the Code when a suit is


withdrawn or settled out of court.




18.     The   following   provisions   provide   for   expeditious   disposal   in   a


summary manner :


(i)     Order   V   Rule   5   of   the   Code   requires   the   court   to   determine,   at   the

time of issuing the summons, whether it shall be for the settlement of issues

only,   or   for   the   final   disposal   of   the   suit   (and   the   summons   shall   have   to

contain   a   direction   accordingly).   In   suits   to   be   heard   by   a   court   of   small

causes, the summons shall be for the final disposal of the suit.


(ii)    Order 15 Rule 3 of the Code provides where the parties are at issue on

some question of law or of fact, and issues have been framed by the court as

hereinbefore   provided,   if   the   court   is   satisfied   that   no  further  argument  or

evidence  than  the  parties  can  at  once  adduce  is required  upon  such  of the

issues as may be sufficient for the decision of the suit, and that no injustice


                                                 



will result from proceeding with the suit forthwith, the court may proceed to

determine   such   issues,   and,   if   the   finding   thereon   is   sufficient   for   the

decision, may pronounce judgment accordingly, whether the summons  has

been issued for the settlement of issues only or for the final disposal of the

suit. (But where the summons  has been issued for the settlement of issues

only,   such   a   summary   course   could   be   adopted   only   where   the   parties   or

their pleaders are present and none of them objects to such a course).


(iii)      Order   37   Rule   1   read   with   Rules   2&   3   of   the   relating   to   summary


suits.





19.        But where the summons have been issued for settlement of issues, and


a suit is listed for consideration of a preliminary issue, the court cannot make


a roving  enquiry  into the  alleged conduct of the plaintiff,  tenability  of the


claim, the strength and validity and contents of documents,  without a trial


and on that basis dismiss a suit. A suit cannot be shortcircuited by deciding


issues of fact merely on pleadings and documents produced without a trial.


In this case, the learned Single Judge has adjudicated and decided questions


of   fact   and   rendered   a   judgment,   without   evidence   tested   by   cross-


examination.   We   extract   below   some   of   the   reasonings,   findings,


assumptions   and   conclusions   of   the   learned   Single   Judge   leading   to   the


dismissal   of   the   suit   when   hearing   a   preliminary   issue   relating   to   res


judicata, thereby demonstrating assumption of a jurisdiction not vested in it


                                                      19



and also acting in the exercise of its jurisdiction illegally and with material


irregularity:




       "What   emerges   from   the   aforesaid   is   that   the   plaintiff   at   the   time   of

       inception of the partnership and till date is a government teacher and under

       the terms of her employment was not entitled to enter into the partnership

       and   was   not   entitled   to   earn   any   profits   therefrom.   Not   only   under   the

       terms of her employment,  the plaintiff before the Service Tax Authorities

       also   represented   that   she   had   only   academic   interest.   It   can   only   mean

       that she had no profit interest in the partnership. Though the plaintiff has

       denied   that   she   has   filed   the   clearance   certificate   aforesaid   with   the

       government school in which she is employed but the purpose of plaintiff

       obtaining the said clearance certificate from the defendant can only be to

       use   the   same   in   the   event   of   any   complaint   of   breach   of   terms   of

       employment being made against her.  


                          x x x              x x x              x x x


       The  question   which   arises   for  adjudication  is   whether   a   litigant   can   be

       permitted to take a stand in the court, diametrically opposite to the stand of

       that   litigant   elsewhere.   Can   there   be   different   stands   before   the

       government as employer  and before the Taxation Authorities and before

       the court. Should the courts permit such stand to be taken in the course of

       judicial  proceedings and should the courts come to the rescue of such a

       litigant   in   recovering   dues   which   that   litigant   elsewhere   has   represented

       are not due to her.


       The aforesaid circumstances leave no manner of doubt that the plaintiff in

       contravention of the terms of her employment was carrying on business as

       a   partner   with   the   defendant.   The   question   is   of   enforcement   of   such   a

       partnership and or the terms thereof by the court.


                         


       In   the   present   case   the   condition   in   the   term   of   the   employment   of   the

       plaintiff as a government teacher, admittedly prohibit her from carrying on

       any business activity or other vocation for profits. Such condition has been

       imposed to ensure that the teachers of the government school devote their

       full energy and time to developing the young minds, rather than treating

       the government service as a mere source of income and utilizing their time

       and   skill   in   earning/making   money   elsewhere.   The   plaintiff   by   entering

       into the agreement of partnership with the defendant had clearly violated

       her terms of employment and this Court cannot come to her assistance to

       enable her to earn profits which she otherwise is not entitled. The plaintiff


                                             



has admitted  to having not shown any profits whatsoever in her Income

Tax return. It is inconceivable that the plaintiff who has claimed to be in

partnership since the year 1999 or 2000 would not have earned any profits

from   the   partnership   and/or   if   would   not   have   earned   would   have   sat

quietly for four years. The plaintiff cannot be permitted to take different

stands   before   different   fora.   The   condition/term   of   employment

prohibiting   the  plaintiff   from  entering  into   partnership   is  found  to  be  in

public   interest   and   the   action   of   the   plaintiff   of   breaching/violating   the

same is found to be immoral and opposed to public policy. The breach is

not   found   to   be   trivial   or   venial.   Further,   the   conduct   of   the   plaintiff

thereafter also, as noted above is found to be of subterfuge and plaintiff

has   been   found   to   be   misstating   facts.  The   plaintiff   is   found   to   be   an

unscrupulous person and her case is found to be based on falsehood. This

Court refuses to come to the aid of plaintiff and her case is liable to be

dismissed summarily.


That even on the facts of this case, I have no doubt that the plaintiff has

abused   the   process   of   the   court.   The   plaintiff   in   the   Bayana   Agreement

aforesaid had clearly agreed to the sum of Rs. 21.50 lacs towards her share

in the partnership firm inclusive of the value of the Rohini property where

the partnership business was being carried on. As far as the Paschim Vihar

property is concerned, the issue with respect whereto was raised, the same

also   finds   mention   in   the   said   Bayana   Agreement   and   the   receipt.  The

conduct of the plaintiff also shows that all accounts had been settled and

no accounts remained to be taken and for which purpose the suit had been

filed.   Had   the   accounts   not   been   settled,   the   question   of   the   plaintiff

instructing the bank to delete her name from the account in the name of

the firm and of receiving the original Bayana Agreement and of obtaining

the clearance certificate aforesaid would not have arisen. The case set up

by the plaintiff is contrary to all the admitted documents.


                  


I   find   the   present   case   to   be   clear   beyond   all   reasonable   doubts.   The

Bayana  Agreement and Receipt admittedly executed  by plaintiff and the

averments of plaintiff in plaint in earlier suit instituted by plaintiff, permit

of no controversy. The consideration mentioned therein was in settlement

of   all   claims   of   plaintiff   with   respect   to   her   share   in   partnership.   The

contemporaneous conduct of plaintiff, of statement on 13th August, 2004

in   suit   No.   438/2004   instituted   by   defendant;   of   taking   clearance

certificate dated 13th August, 2004 from defendant, of having her name as

signatory  deleted  from   the  bank  account   of  firm  are   also  in  consonance

with said documents. The facts of this case do not require any opportunity

for leading evidence to be given to the plaintiff. This Court cannot put a

case   contrary   to   such   documents   and   conduct   to   be   put   to   trial.  The


                                                   



       explanations now given during arguments do not form the basis of suit and

       pleadings."


                                                                            (emphasis supplied)


The observation of the learned Single Judge that "the facts of this case do


not require any opportunity for leading evidence to be given to the plaintiff"


violates Order 15 Rule 3 of the Code. Where summons have been issued for


settlement of issues   and where  issues  have  been settled,   unless  the  parties


agree, the court cannot deny the right of parties to lead evidence. To render a


final decision by denying such opportunity would be highhanded, arbitrary


and illegal.




20.    Even the division bench committed the same error. We extract below


para 14 of the impugned order which shows that the decision was based on


assumption without basis and in the absence of evidence freely referring to


and relying upon unexhibited documents :


       "This   is   not   the   case   of   the   plaintiff/appellant   that   the   firm   was

       maintaining   separate   accounts,   one   for   the   business   being   run   by   it   in

       Rohini   and   the   other   for   the   business   being   run   in   Paschim   Vihar.

       Ordinarily,   when   there   is   a   Settlement   between   the   partners   of   the   firm

       whereby   they  agree   to   part   ways,  the   Settlement   effected   between   them

       would   cover   accounts   of   the   entire   business   being   run   by   them   in

       partnership and it would not be confined only to one part of the business.

       This is more so when the document  executed  between the parties  at the

       time of parting ways and setting the disputes does not reserve any right in

       favour  of  the  outgoing  partner,  to  receive   any  further  payment  from  the

       partner   who   retains   the   business   of   the   erstwhile   firm.  In   none   of   the

       documents   executed   between   the   parties,   there   is   an   averment   that   the

       accounts of business being run in Paschim Vihar had not been settled or

       that the plaintiff/appellant  would not, in addition  to the  sum  referred  in

       the   document,  also  be   entitled  to   share  of   the  profit   earned  by  the   firm


                                                   



       from its business in Paschim Vihar. Vide endorsement made on the receipt

       dated 29.6.2004, the husband of the appellant recorded that Paschim Vihar

       Institute Deed would be settled in the name of Dr.Rashmi Gupta for the

       consideration of Rs.15 lakhs. This is yet another proof of the fact that the

       matter   relating   to   Paschim   Vihar   Institute   had   also   been   finally   settled

       between   the   parties.   During   the   course   of   arguments   before   us,   it   was

       contended by learned counsel for the appellant that the endorsement was

       made by the husband of the appellant without authority from her. Since we

       noticed   a   gentleman   giving   instructions   to   the   learned   counsel   for   the

       appellant, during the course of the hearing before us, we asked her as to

       who the gentleman was and we were told that he was none other than the

       husband   of   the   appellant.  This   leaves   no   doubt   in   our   mind   that   the

       husband of the appellant was acting on authority from her when he made

       endorsements on the Bayana Agreement and Receipt dated 29.6.2004. The

       shifting stands taken before him have been noted in detail, by the learned

       Single Judge.


                                                                           (emphasis supplied)





21.    The   High   Court   recorded   factual   findings   on   inferences   from   the


plaintiff's   (appellant)   conduct   and   branded   her   as   an   unscrupulous   person


who abuses the process of court and as a person who utters falsehoods and


manipulates  documents  without there being a trial and without there being


an opportunity to the plaintiff to explain her conduct. To say the least, such a


procedure   is   opposed   to   all   principles   of   natural   justice   embodied   in   the


Code of Civil Procedure. At all events, the alleged weakness of the case of


the plaintiff   or unscrupulousness of plaintiff   are not grounds for dismissal


without trial.


                                            



22.    We also fail to understand how costs of Rs.50,000/- could be levied.


This Court has repeatedly stated that in dealing with civil suits, courts will


have to follow the provisions of Code of Civil Procedure in levying costs.




23.    This order should not be construed as a finding on the conduct of the


appellant one way or the other. We have examined the matter only for the


limited   purpose   of   finding   out   whether   the   High   Court   had   proceeded   in


accordance  with law and the provisions  of Code  of Civil  Procedure.  If on


evidence,   the   conduct   of   the   plaintiff   or   the   defendant   is   found   to   be


unscrupulous or unbecoming, it is open to the court at that stage to decide


upon the consequences that should be visited upon her or him.




24.    We   therefore   allow   this   appeal,   set   aside   the   order   of   the   Division


Bench of the High Court dated 7.9.2009 affirming the order dated 13.3.2009


of the learned Single Judge and restore the suit to the file of the High Court


with a direction to decide the same in accordance with law, after giving due


opportunity to the parties to lead evidence.




                                                              ____________________J.

                                                                 [R.V. RAVEENDRAN]




NEW DELHI                                                      ___________________J.

SEPTEMBER 27, 2010                                                     [H.L. GOKHALE]




                 

       

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