Res Judicata Not Attracted Where Issue Was Not Framed In Earlier Proceedings: Bombay High Court Partially Modifies Arbitral Award
The Bombay High Court has held that res judicata does not apply where the issue in earlier proceedings was neither framed nor directly adjudicated and that the court exercising jurisdiction under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) can modify an award by reducing the rate of interest where bad part of an award is severable from the good...
The Bombay High Court has held that res judicata does not apply where the issue in earlier proceedings was neither framed nor directly adjudicated and that the court exercising jurisdiction under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) can modify an award by reducing the rate of interest where bad part of an award is severable from the good one.
Justice Sandeep V. Marne observed:
“Mere reasons recorded in a previous round of litigation for deciding a different issue do not operate as res judicata. What operates as res judicata is the decision, not the reasons.”
Upholding the arbitral award on coercion, the court held that the arbitral tribunal had recorded detailed findings after considering the entire evidence on record. These findings cannot be termed perverse.
The dispute arose from financial facilities extended by TJSB Sahakari Bank Ltd., a multi-state co-operative bank, to A.S. Constructions. The Respondent, Amritlal P. Shah, allegedly stood as a guarantor and furnished securities including fixed deposit receipts and LIC policies.
Earlier disputes between the parties were litigated before the Co-operative Court where the bank had initiated the recovery proceedings and separate proceedings were also initiated by the respondent seeking discharge of guarantee and release of securities.
Subsequently, the Respondent initiated arbitration by invoking section 84 of the Multi-State Co-operative Societies Act, 2002, seeking refund of amounts realised by the bank from the fixed deposits and LIC policies arguing that a handwritten letter had been obtained by him through coercion and misrepresentation.
The Sole Arbitrator allowed the claim and directed the bank to refund the amounts. Aggrieved, the Bank had approached the High Court under section 34.
The Bank argued that the issue of coercion stood conclusively adjudicated by the Cooperative Court and therefore arbitration was barred by res judicata.
Rejecting the contention, the court observed that res adjudicate requires pleadings, issues and final adjudication on the same issue.
Justice Marne held:
“It is a fundamental principle that plea of res judicata cannot be decided without examining the pleadings in the previous round of litigation. To enquire into the plea of res judicata, the Court has to examine the case put up by the parties in previous proceedings and then to find out what was decided by the judgment which is allowed to operate as res judicata.In my view therefore, the oral plea haphazardly raised by the Petitioner before the Arbitral Tribunal was otherwise incapable of being effectively decided in absence of production of pleadings.”
It noted that in earlier proceedings before the Cooperative Court, no issue related to coercion had been framed and therefore the issue of letter whether obtained by misrepresentation or coercion was not directly and substantially in issue in the previous proceedings. Accordingly, the court held that the arbitral tribunal was correct in rejecting the plea of res judicata.
The court while relying on the Supreme Court's judgment in Nand Ram vs. Jagdish Prasad held that “thus, mere reasons recorded in the previous suit while deciding a different issue does not operate as res judicata when the issue on which reasons are recorded was not involved in previous proceedings. The issue of letter dated 7 April 1998 being procured by misrepresentation or coercion was not involved in the Disputes decided by the Co-operative Court.”
On merits, the court refused to interfere with arbitral tribunal's findings on coercion holding that the tribunal had examined the attendant circumstances and the contemporaneous correspondence and reached a conclusion that the letter was obtained by coercion.Therefore, these findings were purely factual and cannot be interfered with under section 34.
The court further noted that the bank did not dispute the receipt of letter alleging coercion despite specific pleadings. One such letter, the court noted, bear endorsement of the bank's official which clearly belied the claim of non-receipt.
On granting of higher interest than claimed, the court observed that granting interest beyond the reliefs claimed violates settled principles of arbitral adjudication and constitutes patent illegality. However the court while relying on the Supreme Court's judgment in Gayatri Balasamy where the Apex Court held that where bad part of the award is severable from the good part, the award can be modified, set aside the award on interest component awarded by the arbitrator.
“Award of interest higher than the one claimed by the party clearly constitutes patent illegality in the Award. The Arbitral Award also breached the fundamental policy of Indian law by awarding relief not prayed for by the claimant. ”, the court said.
Accordingly, the court partially set aside the award holding that plea of res judicata does not apply when in earlier proceedings, the issue raised in the present case was neither raised nor adjudicated and that reliefs not claimed cannot be granted.
Case Title:TJSB Sahakari Bank Ltd. Versus Amritlal P Shah
Case Number: COMMERCIAL ARBITRATION PETITION NO.370 OF 2024 WITH INTERIM APPLICATION NO.7392 OF 2025
Judgment Date: 19/12/2025
Mr. Shadab Jan with Mr. Nikhil Rajani and Mr. Ajay Deshmane i/b M/s. V. Deshpande & Co.for the Petitioner.
Mr. Sharad Bansal i/b Mr. Laxman I. Jain for the Respondent.