New York Courts’ Long-Arm Jurisdiction

The Harvard Corporate Governance Blog has a postdiscussing a recent judgment that confers significant long-arm jurisdiction to the New York Courts. Here is the summary:

On November 20, 2012, the New York Court of Appeals issued an opinion that is of substantial importance to international banks and financial institutions that maintain and use correspondent banking accounts in New York. In Licci v. Lebanese Canadian Bank, SAL (N.Y. Nov. 20, 2012), the Court of Appeals held that a non-U.S. bank’s maintenance and use of such an account to effect “dozens” of wire transfers, worth millions of dollars, on behalf of a non-U.S. client was sufficient to form the basis for personal jurisdiction under the New York State long-arm statute, N.Y. C.P.L.R. § 302(a)(1). Due to the prevalence of U.S. dollar-denominated financial transactions, many non-U.S. banks maintain and use correspondent accounts in New York. As a result, the Licci decision has the potential to increase plaintiffs’ ability to establish personal jurisdiction over non-U.S. financial intuitions in state and federal courts in New York.

This development may be of particular interest to Indian banks without any direct presence in New York, but who may be dealing through correspondent banks within that state. They could potentially be exposed to actions before a New York court.

Fuerst Day Lawson: S. 50 Arbitration Act, and "consolidating legislation"

On Friday, a two-judge Bench of the Supreme Court (Alam and Lodha JJ.) gave judgment in Fuerst Day Lawson v Jindal Exports [hereinafter “FDL”]. The judgment contains a careful and comprehensive examination of a long line of authorities, and an authoritative analysis of two very important issues in arbitration law and civil procedure—whether a Letters Patent Appeal [“LPA”] is maintainable in circumstances in which an appeal does not lie under either s. 37 or s. 50 of the Arbitration and Conciliation Act, 1996 [“the 1996 Act”], and more generally, what it means to say (correctly) that the 1996 Act is a consolidating legislation. This post provides a detailed account of the reasons the Court gave (omitting a preliminary objection), with paragraph numbers to facilitate easy reference; a second post will discuss some of those reasons in more detail.

The case arose out of a batch of appeals from the Delhi and Calcutta High Courts in which an order of a single judge on an application to enforce a foreign award had been challenged before a Division Bench, under Letters Patent Rules. The Delhi High Court had held that such appeals are not maintainable; the Calcutta High Court had taken the contrary view. The Supreme Court’s conclusion that an LPA is not maintainable in these circumstances was based on its analysis of three broad sets of issues, of which the second and the third are the most important.

First, the Court examined cases in which it had been argued that an order passed by a single judge under various special legislation is immune from challenge under the Letters Patent Rules. These cases did not fall into any pattern. For example, the Supreme Court had held that an LPA is maintainable against a judgment given by a single judge under: (a) s. 76(1) of the Trademarks Act, 1940 (National Sewing Thread Co v James Chadwick—a three-judge Bench); (b) s. 6 of the Specific Relief Act, 1963 (Vinita Khanolkar v Pai—a two-judge Bench); (c) s. 54 of the Land Acquisition Act, 1894 (Sharda Devi v State of Bihar—a three-judge Bench); (d) s. 299 of the Indian Succession Act, 1925 (Subal Paul v Malina Paul—a three-judge Bench) and (e) order 21 of the Civil Procedure Code [“CPC”], for example in an application to set aside a sale (PS Sathappan v Andhra Bank—a Constitution Bench). Several reasons were given in these cases—that exclusion of jurisdiction cannot be readily inferred (Subal Paul); the general principle that an appeal, once it is before a court, must be regulated in accordance with the rules of practice of that court, including Letters Patent (James Chadwick) and that Letters Patent jurisdiction must be excluded expressly, because it was preserved by the Government of India Act and the Constitution of India (Sharda Devi; Vinita Khanolkar). On the other hand, the Court had held, for example, that an LPA is not maintainable against a judgment given by a single judge under s. 39(1) of the Arbitration Act, 1940 (Union of India v Mohindra Supply and other cases), principally because the provision indicated that the legislature intended to create a self-contained code of adjudication. In FDL, the Supreme Court demonstrated (¶29) that these cases do not really conflict, and noted that Subal and PS Sathappan expressly recognised that a self-contained code can have the effect of excluding any general rule of civil procedure, including LPA. In other words, the question had to be resolved by simply asking on which side of the line the legislature intended s. 50 of the Arbitration Act to fall, and not by resort to any general principle that LPA can, or cannot, be easily excluded.

Secondly, this led the Court to examine the relationship between three arbitration legislations—s. 39 of the Arbitration Act, 1940 [“the 1940 Act”], s. 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 [“the 1961 Act”] and ss. 37, 49 and 50 of the 1996 Act. S. 39 of the 1940 Act corresponds to s. 37 of the 1996 Act, which provides, in Part I of the Act, that an appeal “shall lie from the following orders (and from no others)”, and proceeds to list those orders. S. 50 of the 1996 Act provides, in Part II of the Act, that “an appeal shall lie from the order” refusing to refer the parties to arbitration under s. 45 or enforce a foreign award under s. 48. It does not contain the expression “and from no others”. Senior counsel for FDL therefore conceded that Mohindra Supply would apply pro tanto to an appeal against a judgment under s. 37, but argued that s. 50 is different because of the omission of the crucial expression “and from no others”. The Supreme Court held that even if ss. 37 and 50 are to be treated differently (¶51), it is not because of the expression “and from no others”. For one, it is possible that it was merely clarificatory, since it was used in “brackets” by the legislature (¶¶ 36, 37), and more importantly, a close analysis of the 1961 Act, the predecessor to s. 50, demonstrated that there was a powerful reason to construe s. 50 narrowly. Under s. 6(1) of the 1961 Act, a foreign award was enforced in India by a court pronouncing judgment “according to the award”. In other words, it was the decree of an Indian court embodying a foreign award that was enforced, and s. 6(2) provided that no appeal would lie from that decree except where the decree is “in excess of or not in accordance with the award”. The 1996 Act makes a fundamental change to this scheme, because s. 49 provides that a foreign award that a court is satisfied is enforceable “shall be deemed to be a decree of that Court.” The result, as the Supreme Court observes in FDL (¶58), is not only to eliminate the intervening procedural step of giving judgment embodying the foreign award, but also to “completely remove” the possibility of an appeal even on the limited ground that s. 6(2) previously provided. The inference from this is best expressed in the words of the Supreme Court (¶59): “[i]t would be futile, therefore, to contend that though the present Act even removes the limited basis on which the appeal was earlier maintainable, yet a Letters Patent Appeal would lie notwithstanding the limitations imposed by Section 50 of the Act.” An important question, of course, is whether an LPA was excluded under s. 6(1) of the 1961 Act, notwithstanding s. 6(2), and will be discussed in more detail subsequently.

The third reason the Supreme Court gave for its conclusion is of even wider significance—it held that an LPA must be taken to have been excluded by the legislature because the 1996 Act is a consolidating legislation. In support of this proposition, the Court referred to the Statement of Objects and Reasons and the Bill that preceded the Act, and in particular to the limited “supervisory” jurisdiction envisaged for the courts, in line with the goals of the UNCITRAL Model Law. In addition, the Court noticed that the 1940 Act, which was itself the successor legislation to the Arbitration Act, 1899, had raised similar questions, and that the courts had almost uniformly taken the view that there was no room to bring an ordinary civil suit to enforce an arbitration agreement “outside” the definition of that term in the 1940 Act (Meredith J., Gauri Singh v Ramlochan Singh and Chagla C.J., Natverlal Bhalakia)—this was a close analogy to the question whether an appeal under “ordinary civil law” is maintainable notwithstanding a specific appeal mechanism under the 1996 Act (¶60). Furthermore, the very question before the Supreme Court—whether an LPA is maintainable—had been answered in the negative in Mohindra Supply in the context of the 1940 Act. The conclusion the Supreme Court drew from this (¶72) was as follows:

72. It is, thus, to be seen that Arbitration Act 1940, from its inception and right through 2004 (in P.S. Sathappan) was held to be a self-contained code. Now, if Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it "a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done" (emphasis mine).

In summary, this important judgment of the Supreme Court clarifies that (a) s. 50 of the 1996 Act is even narrower than its predecessor, s. 6 of the 1961 Act; (b) more generally, that implied exclusion of ordinary civil jurisdiction depends on a close analysis of the structure of the special legislation as evidence of the likely intention of the legislature; and (b) that a consolidating legislation is more likely to have so intended than other special legislation. A subsequent post will discuss these reasons in more detail, and the implications for other areas of the Arbitration Act of the use the Court made of the fact that it is a consolidating legislation.

Restraining the Breach of a Negative Covenant

It is common knowledge that an injunction is granted only if the applicant satisfies the court on the three-pronged test of prima facie case, irreparable injury and balance of convenience. While there is controversy over the scope of some of these elements, notably prima facie case, and over the relationship between these elements, there are also circumstances in which an applicant may be able to obtain an injunction without satisfying the three-pronged test. The recent judgment of the Court of Appeal in Araci v Fallon contains a clear exposition of this point.

The case arose out of rather unusual circumstances. As is well-known, the 2011 edition of the Epsom Derby, one of the most prestigious horse races in Britain (“the Derby”) took place on 4 June, 2011. The claimant, Mr Araci, was the owner of one of the favourites (“Native Khan”) which he expected would be ridden by Mr Fallon, a highly regarded jockey. Mr Araci and Mr Fallon had entered into a Rider Retainer Agreement (“RRA”) on 1 April 2011, under which Mr Fallon received £10,000 for undertaking two important obligations: first, to ride Mr Araci’s horse whenever requested by him to do so, and secondly, to not ride a rival horse in any race in which he has been requested by Mr Araci to ride the latter’s horse. In other words, the RRA contained a positive as well as a negative covenant. Invoking these provisions, Mr Araci asked Mr Fallon to ride Native Khan at the Derby. Mr Fallon communicated his refusal to do so on 30 May 2011, and indicated that he intended to ride “Recital”, owned by a rival and also a favourite. Mr Araci promptly sought an injunction to restrain him from acting in breach of the negative covenant.

The judge at first instance dismissed the application, finding that there was an adequate remedy in damages, and that it was unjust in all the circumstances to grant the equitable relief sought. The Court of Appeal, in an instructive judgment, reversed. Jackson LJ began by noticing that the practice of considering the strength of a party’s case on the merits and the balance of convenience is rarely appropriate when an injunction is sought to restrain a clear breach of a negative covenant. This principle goes back to Lord Cairns LC’s classic, albeit obiter, observations in Doherty v Allman:

If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a court of equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done … It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury – it is the specific performance, by the court, of that negative bargain which the parties have made, with their eyes open, between themselves

The clear rationale that emerges from this passage is that it is inappropriate to require the applicant to demonstrate that the balance of convenience favours the grant of an injunction when the defendant has contractually agreed to refrain from doing the very thing in respect of which the injunction is sought. However, Doherty was a perpetual injunction case and it was not clear whether the same approach would prevail so far as interim injunctions are concerned. In granting an injunction restraining the defendant from playing a musical instrument in breach of a negative covenant, Megarry J. confirmed that it does, because there is “…no reason for allowing a covenantor who stands in clear breach of an express prohibition to have a holiday from the enforcement of his obligations until the trial” [Hampstead and Suburban Properties Limited v Diomedous (1969) 1 Ch 248].

Thus the rule is that an injunction will be granted to restrain a clear breach of a negative covenant unless there are “special circumstances”. In this case, Jackson LJ concluded that Mr Araci did not have an adequate remedy in damages, and Elias LJ made the additional point that it was not even necessary to decide that question, because adequacy of damages is not relevant when an applicant seeks to merely hold the respondent to his negative covenant. Nor did there exist special circumstances making it oppressive to grant the relief sought. Mr Fallon suggested that granting an injunction would adversely affect the public, because some may have made bets on the assumption that Mr Fallon would ride, while for others it would detract from the quality of a major national event. Jackson LJ rejected the first point because a member of the betting public runs the risk of an unexpected change in sporting variables, and the second because there was no risk that the Derby would not take place, although Mr Fallon himself could not participate. Mr Fallon’s loss was disregarded because he had “brought this predicament upon himself by his own deliberate and cynical disregard of a contract.” It was accepted that the position would have been different if the injunction could have affected the event itself.

Res Judicata, Venture Global and s. 48 of the Arbitration Act

It was commonly believed until the well-known decision of the Supreme Court in Venture Global that s. 34 of the Arbitration and Conciliation Act, 1996 did not apply to foreign awards. We have discussed at length the subsequent development of the law on implied exclusion and a challenge to a foreign award. A single judge of the Delhi High Court, in Anita Garg v Glencore, recently considered a different issue arising out of this controversy – the interaction between s. 11 of the Code of Civil Procedure (res judicata) and ss. 34 and 48 of the Arbitration Act. In short, the question was whether a failure to challenge a foreign award under s. 34 before Venture Global was decided bars a subsequent challenge by virtue of constructive res judicata.

Glencore had obtained an interim award upholding jurisdiction and a final award against M/s Shivnath Rai Harnarain, a registered partnership firm, from the Grain and Feed Trade Association [“GAFTA”] in 1997. This arbitration qualified as an international commercial arbitration and it appears that the seat of arbitration was outside India. The firm filed a civil suit in the Delhi High Court in 1997 challenging the validity of the underlying contracts that formed the subject matter of the arbitration [“the firm suit”]. An identical challenge had been rejected by the GAFTA Tribunal in its interim award. Glencore also filed a civil suit in the Delhi High Court, to enforce the foreign award. That was treated as a suit under ss. 47 and 48 of the Arbitration Act and decreed on 27 November, 2008 [“the first suit”]. The firm’s civil suit was consequently dismissed and its appeal was found to be not maintainable. Glencore commenced execution proceedings against the firm and its partners. The partners attempted to challenge the decree but were held not entitled to do so because Order 21 Rule 50 CPC only permits objections, collusion apart, as to the status of the judgment-debtor as a partner at the relevant date. The partners then filed a petition under s. 34 of the Arbitration Act, relying on Venture Global, which was decided on 10 January, 2008, and the question that arose was whether the challenge to the legality of the underlying contracts was barred by res judicata.

Before turning to the judgment of the single judge, a preliminary point should be noted, although it is not expressly considered in the judgment. S. 11 of the CPC, which applies to a “suit”, may nevertheless be a bar to an arbitration “petition” under s. 34. In Smita Conductors v Euro Alloy, the Supreme Court held, in the context of the 1940 Arbitration Act, that a decision as to the existence or validity of the contract by a court in an arbitration petition is binding on the parties because the court has jurisdiction under the Act to adjudicate such questions. In any event, it is settled law that s. 11 is a manifestation of a principle of public policy and that res judicata may therefore be invoked even when s. 11 is not in terms applicable (Lal Chand v Radha Kishan).

The single judge (Sanghi J.) upheld the res judicata objection for three reasons. First, Sanghi J. noted that the fact that the firm suit had been filed in the name of the partnership firm was immaterial, because the implied authority of a partner under the Partnership Act extends to the resolution of disputes. Secondly, Sanghi J. held that the issue in the s. 34 application had been “directly and substantially in issue” in the first suit and in the firm suit. Thirdly, it was held that the dismissal of the objections preferred by the partners in execution proceedings was binding in the s. 34 proceeding as well. In addition, the application was found to be time-barred. Of these, the second and the third conclusions are of some importance, and are discussed below in turn.

The test under s. 11 CPC is inter alia that what is directly and substantially in issue in the subsequent suit must have been directly and substantially in issue in the former suit. In the firm suit, the case of M/s Shivnath Harnarain was that the underlying contracts were invalid and that very issue was raised in its s. 34 application. The objection had been rejected in the first suit (and therefore in the firm suit) on the ground that s. 48 of the Act, under which that suit had been filed, required the court to construe “public policy” narrowly, and that it must necessarily involve the element of fraud or corruption. A challenge under s. 34 had not been made, because the first suit pre-dated Venture Global and it was thought that s. 34 was inapplicable. Sanghi J. held that this is irrelevant, because Explanation IV to s. 11 provides that any matter which ought to have been raised in the former suit as a ground of defence or attack shall be deemed to have been a matter directly or substantially in issue in that suit. This is the well-known doctrine of constructive res judicata. Nor did the fact that Venture Global was decided subsequently matter, because the Supreme Court only “declared the pre-existing legal position and did not vest or create any fresh right” (para 25). This is a close point. Although the theory that a court merely declares pre-existing law has been described by no less an authority than Lord Browne-Wilkinson as a “fairy tale in which no one any longer believes”, it is clear, as Lord Goff noted (Kleinwort Benson v Lincoln City Council), that retrospectivity of decisionmaking is inevitable in a system that is committed to the doctrine of precedent. Nevertheless, there is room for the view that it is not appropriate to apply constructive res judicata to a ground of defence or attack that at the time was contrary to the “settled understanding of the law”. It might also be said that the object of constructive res judicata is that a party cannot be permitted to disturb the finality of proceedings by raising subsequently points he ought to have raised earlier, but failed to do so for reasons of negligence or strategy. The obvious difficulty with this approach is that it requires the court trying the subsequent suit to investigate whether the plaintiff’s failure to raise the point in the former suit arose out of a settled understanding or strategy, especially where it was possible to have attacked the settled understanding itself (for example through interlocutory proceedings). Sanghi J. appears to have had this in mind as well, for his alternative reason for rejecting the s. 34 application was that the plaintiffs had failed to rely on Venture Global in the first suit although the suit was decreed eight months after Venture Global was decided.

A corollary to this problem is jurisdiction, because s. 11 also requires that the parties must have litigated under the same title, that the former suit must have been finally decided, and that the court that tried the former suit must have had jurisdiction to try the subsequent suit. In this case, it was argued that the court that tried the firm suit did not have jurisdiction to try that suit, because s. 5 of the Act mandates that there is to be no judicial interference in arbitration except as provided in Part I. Sanghi J. rejected this contention (para 23) reasoning that the “petitioner cannot blow hot and cold at the same time” and in any event that the first suit was delivered by a court of competent jurisdiction. The point was moot in this case because the court that tried the first suit (the Delhi High Court) would have had jurisdiction to entertain a s. 34 application, if maintainable (Fountain Head Developers v Maria Arcangela Sequeira, ¶ 14). However, it is not clear that s. 11 will apply in a case where constructive res judicata is pleaded in the subsequent suit in respect of an issue that could not have been raised before the court that tried the former suit.

The third reason Sanghi J. gave is, with respect, more doubtful, because it is difficult to see why the bar on challenging a decree in execution proceedings under Order 21 Rule 50 constitutes res judicata if the challenge is subsequently brought in a civil suit. It may be the case – as it was in Glencore – that the decree that was sought to be executed may itself constitute res judicata, but if it does not, Order 21 Rule 50, it is submitted, cannot come to the rescue.

Exclusion of Jurisdiction of Civil Courts under the SEBI Act

Legally India has made available certain expert witness statements filed before US Courts in the class action litigation concerning Satyam, which was recently settled. One of the witness statements, by Mr. Sandeep Parekh, makes an interesting point; but I am not entirely sure of the tenability in law of that point. Mr. Parekh’s declaration / statement as an expert witness is available here. I am concerned in this post particularly with the claim made by Mr. Parekh in para 11(a) of his statement: “Private parties have no right to sue to recover damages resulting from the Satyam fraud under Indian statutory or common law because the Indian civil courts have no power to hear disputes where, as in this case, SEBI is empowered to act.” Essentially, this means that a private party cannot maintain a suit in tort in respect of the “Satyam fraud”. Mr. Parekh’s reasoning is effectively based on the bar on jurisdiction in Section 15Y and Section 20A of the SEBI Act. He also places reliance on a Bombay High Court judgment in support of this proposition. With great respect, it is submitted that none of these reasons are strong enough to support Mr. Parekh’s conclusion.

Section 15Y says:

“No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an adjudicating officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.”

The key phrases here are, (a) “no court shall have jurisdiction” (b) “to entertain any suit or proceeding” (c) “in respect of any matter which an adjudicating officer appointed under this Act… is empowered by or under this Act to determine.” The issue turns on the scope of (c) above. Are tort claims within the scope of “any matter” which an adjudicating officer or SAT is entitled to determine? In my submission, no. The adjudicating officer is entitled to examine violations of the Act; he has no powers to determine any tortuous liability whatsoever. The same facts which give rise to a statutory violation may very well also constitute a tort claim – this does not mean that the adjudicating officer has jurisdiction to hear and decide the tort claim as well as the statutory violation.

To get over this reasoning, Mr. Parekh relies on the judgment of the Bombay High Court in Kesha Appliances v. Royal Holdings Services Ltd. He relies specifically on this sentence: “The contention of the learned counsel for the plaintiff that there was a pre-existing common law right under section 9 of the CPC and that pre-existing common law right is not taken away by the provisions of sections 15Y and 20A also cannot be accepted.” In Kesha, however, the right in question was a right of rectification. The very next sentence in the judgment says, “It is because the common law right of rectification which is sought to be enforced and exercised by the plaintiff in the present case arises out of the right conferred on the basis of Take Over Regulations and once the provisions of the Take Over Regulations are invoked then the entire jurisdiction by virtue of the provisions of Section 15Y and 20A is exclusively conferred on the SEBI authorities.” 

The right to maintain an action in deceit or in negligence does not arise out of any provision in the SEBI Act. In Kesha Appliances, the case of the plaintiff was that certain preference share allotments to one defendant by another defendant were violative of Regulation 12 of the Takeover Regulations and hence illegal. Accordingly, the plaintiff sought for rectification. Thus, the actual right which the plaintiff was exercising was a right arising out of statute/regulation – in other words, the statutory violation was an essential basis for challenging the allotment and seeking for rectification. 

The case with a tort situation is in my submission completely different. The Kesha judgment itself clarifies, “Though it is not necessary still I feel it is important to clarify that when the rectification of the share register is dehors the provisions of the Takeover Regulations or any other provisions of the SEBI Act and rules and regulations made thereunder then the court would certainly have jurisdiction to entertain and try such a suit under Section 9 of the CPC. It is because what is barred under section 15Y and 20A is only those acts which falls either under the said Act or under the regulations framed thereunder.” The reason why in Kesha it was ultimately held that there is a bar on jurisdiction is this: “the entire suit is based on the sole ground of violation and/or breach of the Take Over Regulation and no other ground has been invoked for rectification of the Share Register.”

In one of the footnotes to his statement, Mr. Parekh also relies on the decision of the Delhi High Court in M.R. Goyal v. Usha International. In that decision, too, it was found that “on the basis of the averments made in the plaint and the contents of the application, it is apparent that the main thrust of the case of the plaintiffs is that the impugned notice issued by defendant No. 1 is in violation of the guidelines issued by the Sebi Act and the rules and regulations framed thereunder.”

In my view, these decisions are clearly distinguishable from a case where the cause of action is not a statutory/regulatory violation but a tort. If at all, clarificatory observations in Kesha support the proposition that a tort claim can be decided in civil courts notwithstanding the SEBI Act bar on jurisdiction.

Mr. Parekh then highlights the fact that any penalties collected by SEBI would go to the SEBI and not to shareholders of Satyam. This is eminently logical if the shareholders are entitled to a remedy in tort. Thus, the fact that penalties would go to the SEBI would – if at all relevant – tend to support the argument that civil claims are not barred.

It is submitted that, with great respect, a legally untenable result will be reached if one says that the SEBI Act bars a suit in tort in the circumstances. 

Res Judicata and Special Statutes

The rapid proliferation of Tribunals in India has perhaps masked an allied, and yet facially less controversial feature of adjudication – the growth of special statutes and the creation of jurisdictional courts to resolve disputes arising out of those statutes. Facially, no constitutional vice attaches to such statutes – indeed, it is often the ordinary civil court that is designated as the jurisdictional court under the special statute. This, however, has at times obscured the important point that although the same court hears the dispute, it exercises a different type of jurisdiction. This has interesting consequences on a wide gamut of procedural and substantive stages of litigation – one of which the Supreme Court considered recently, in Md. Nooman v Md. Jabed Alam.

The issue before the Court in Nooman was whether a finding as to title in a suit for eviction operates as res judicata in a subsequent suit for declaration of title. To illustrate the implications of this judgment on the impact of findings under special statutes, it is necessary to give a somewhat elaborate account of the facts. In Nooman, a suit for eviction was instituted in 1973 in the Munsif Court in Arrah by the plaintiff. Her case was that she had acquired the suit property from her mother-in-law through a Registered Sale Deed in 1957, and relied on mutation in the revenue and municipal records to support title. The defendant tenant, her brother-in-law, ran the opposite case, claiming that the property in fact belonged to him, as it had been gifted to him by his mother. The Trial Court framed seven issues, of which Issues 3 and 4 were, respectively: “Has the plaintiff got title to the suit land” and “Is the sale deed valid…” Both parties adduced detailed evidence in support of these claims and examined witnesses.

The Trial Court found for the plaintiff on Issues 3 and 4 above, but dismissed the suit because she had not proved the existence of a landlord-tenant relationship between the parties, and since it is a rule of procedure that an eviction suit cannot be converted into a declaratory suit. Appeals were dismissed. In 1979, the plaintiff filed a Title Suit against the defendant tenant, seeking declaration and recovery of possession. The parties ran exactly the same case, and the issues the Trial Court framed were, inter alia, “Has the Plaintiff got title over suit property” and “Is there any relationship of landlord-tenant”. The Trial Court once again found for the plaintiff on the title issue, and decreed the suit, finding that she had proved the landlord-tenant relationship. An appeal was filed against that judgment, and the appellate court, after reappraising the evidence, held that the plaintiff had not proved title, and dismissed the suit. The High Court reversed, finding that the judgment of the Rent Court operated as res judicata on the question of title. By the time the Supreme Court considered this question, both parties had died, and been substituted by legal representatives.

The short issue before the Supreme Court was res judicata. As is well known, res judicata is governed by s. 11 of the Code of Civil Procedure, 1908 [“CPC”], which reads as follows:

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 heard and finally decided by such Court [emphasis added].

On the face of it, this provision extends the operation of res judicata if the court that decided the issue was either competent to hear that suit, or would have been to hear the suit in which res judicata is raised. Explanation VIII goes further and provides that an issue heard and finally decided by a court of limited jurisdiction shall operate as res judicata in a subsequent suit.

The Supreme Court affirmed this conclusion, although, surprisingly, it did not refer to the provisions of s. 11 CPC. The contrary argument proceeded on the premise that the Rent Court satisfies itself only that there is prima facie title, for it is not competent to determine title except as incidental to a determination of the rights of the landlord and the tenant. This argument was rejected on the basis of Mr Justice Meredith’s observations in a 1949 decision of the Patna High Court, which are as follows:

The decision in a rent suit is not res judicata on the question of title unless the question of title had to be decided, was expressly raised, and was expressly decided between the parties and in each case it is necessary to examine carefully the decision in the rent suit before any opinion can be formed as to whether it operates as res judicata on the question of title or not. Ordinarily the decision would be res judicata only with regard to the existence of the relationship of landlord and tenant…

It is submitted that the Supreme Court was clearly correct in reaching this conclusion. It is, however, important to resist any temptation to conclude that the test advanced by Mr Justice Meredith is wider than s. 11 CPC r/w Explanation VIII, although that suggestion is not implausible on the plain language of the text. The more precise tests in the test above are best seen not as supplanting or amplifying the statutory formulation, but as offering courts useful indicators of when the statutory test is likely to be satisfied.