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Filling of same application intentionally withdrawn earlier, barred by Res Judicata

In Jose Samuel vs M/s Royals International Trade and Allied, application file before the NCLT, Kochi under Section 9 of Insolvency and Bankruptcy Code by the Operational Creditor/ applicant, Mr. Jose Samuel, proprietor of M/s Thankam Cashew Factory against the Corporate Debtor/ CD for initiation of Corporate Insolvency Resolution Process against them for the defaulted payment.

Background

The OC alleged that the Corporate Debtor initially issued 2 cheques against certain transactions with the OC but on presentation were returned due to “Insufficient Funds” in the account of the Corporate Debtor who subsequently cancelled them issued 3 new cheques in the name of M/s Thankam Cashew Factory and another cheque in the name of M/s Kripa Cashew Exports. 

The OC stated that M/s Kripa Cashew Exports,the sister concern of the OC had filed application  before this Tribunal on 19.11.2020 for recovering the Operational debts due to it. However, it was dismissed due to the absence of privity of contract between the Operational Creditor and Kripa Cashew Exports, vide order dated 18.03.2021. Thereafter, the Operational Debtor herein has initiated a proceeding against the Corporate Debtor on 06.02.2021 by filing Application No. CP(IB)/03/KOB/2021. The Operational Creditor proceeded the Application through his Power of Attorney holder, Mr. Jackson J. It is stated that the Power of Attorney Holder was unaware of the debt events, there was an error in contemplating the real cause of action. The cause of action which the Operational Creditor pointed out then has arisen on 30.10.2017. However, the said cause of action could not be maintained, as the same was later replaced by another three cheques which the Operational Creditor seeks to be resolved through this Application. The contention of the applicant is that for the sake of the Operational Creditor and in the interests of justice, CP (IB)/ 03/KOB/2021 was withdrawn by the applicant – M/s. Thankam Cashew Factory on 29.07.2021.

The Corporate Debtor stated that they are facing the third Insolvency Petition based on the same ‘cause of action’. The first application was filed by M/s Kripa Cashew Exports was dismissed on 18.03.2021. M/s. Kripa Cashews was then represented by its sole proprietor Mr. Jackson J.  Mr. Jackson J., subsequent to the dismissal, filed another IBC Petition before this Tribunal as CP (IB)/ 03/KOB/2021 claiming to be the Power of Attorney (POA) Holder of the present petitioner Mr. Jose Samuel. When the Corporate Debtor, strongly objected to the lodging of Petition in the capacity of Power of Attorney holder, the CP (IBC)/ 03/KOB/2021 was withdrawn by the applicant without liberty. The present Petition has been filed by Mr. Jose Samuel directly and hence parties in the prior petition, i.e., CP(IB)/03/KOB/2021, and the present petition are effectively one and the same. The cause of action of both the applications is also the same.

Judgment

The NCLT observed that the Doctrine of Constructive Res Judicata does not apply to the issues /points or any ‘lis' between parties that has not been decided previously, and despite being pleaded, has not been considered by a court/tribunal and expressly dealt with in the order so passed. In Indian law, the principle has been recognized in Section 11 of the Code of Civil Procedure 1908.

In Satyadhyan Ghosal v. Deorajin Debi (1960) 3 SCR 590, a three judge Bench of Hon’ble Supreme Court 

The principle of res judicata is based on the need of giving a finality to judicial decisions. What it says is that once a res is judicata, it shall not be adjudged again. Primarily it applies as between past litigation and future litigation. When a matter — whether on a question of fact or a question of law — has been decided between two parties in one suit or proceeding and the decision is final, either because no appeal was taken to a higher court or because the appeal was dismissed, or no appeal lies, neither party will be allowed in a future suit or proceeding between the same parties to canvass the matter again. From the above extract, it is clear that while res judicata may have been codified in Section 11, that does not bar its application to other judicial proceedings, such as the one in the present case.

In the first application and second Application for initiation of CIRP were identical. However, the Interlocutory Application- IA(IBC)/110/KOB/2021 was filed by M/s. Thankam Cashew Factory for withdrawing the main application. The IA was heard on 29.07.2021 and on 06.10.2021, the order for withdrawal of CP(IB)/03/KOB/2021 was allowed imposing costs.

A two judge Bench of Hon’ble Supreme Court, in its judgment in Erach Boman Khavar v. Tukaram Shridhar Bhat (2013) 15 SCC 655, has held that the doctrine of res judicata can only apply when there has been a conscious adjudication of the issue on merits.

The Supreme Court in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited & Anr. Civil Appeal No. 3224 of 2020 dated 13.09.2021, held that Res judicata cannot apply solely because the issue has previously come up before the court. The doctrine will apply where the issue has been “heard and finally decided” on merits through a conscious adjudication by the court.

The NCLT dismissing the application held that the applicant has intentionally withdrawn the application after the application has been served on other side, and that, if considered and decided by the Tribunal, the fate will be against the applicant. Moreover, the application was allowed to be withdrawn with costs of Rs. 25,000/- which itself shows that the Tribunal was ready to hear and dispose of the matter so that a final order can be passed. Hence, the dictum above judgments cannot be applied in this case, and it is declared that there is res judicata in this matter. It is pertinent to state that the applicant did not obey the directions to pay costs instead he filed the present application, which is definitely hit by res judicata. Thereafter, after an extended period, the costs were paid.

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