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1919 Supreme(SC) 85
Privy Council
Sir Lawrence Jenkins, Ameer Ali , Sir John Edge, Justice Lord Shaw, JJ.
Robert Skinner alias Sirdar Mirza and others -Appellant
Versus
R.H. Skinner and others -Resopndent
Privy Council Appeal No. 109 of 1918
Decided On : 28-11-1919
A suit is not barred by res judicata if the specific issue was not before the arbitrator. An indemnity claim fails if the indemnifier already credited the payment to the debtor's account and the claimant's loss resulted from their own failure to contest a subsequent claim.
Headnote:(A) Civil Procedure Code - Section 11 - Res Judicata - A suit is not barred by res judicata if the specific question between the parties was never before the arbitrator or included in the reference.
(B) Indian Contract Act - Section 124 - Indemnity - A letter of indemnity is discharged where the indemnifier has received the money on behalf of a third party and credited it to that party's account; any subsequent loss suffered by the claimant due to an adverse arbitration award by the third party does not revive the indemnity.
(C) Civil Procedure Code - Section 153 - Amendment of pleadings - Leave to amend the plaint may be refused at the appellate stage if the action is found to be wholly misconceived.
Facts of the case:
Plaintiffs paid a sum to a third party to satisfy the debts of a debtor, acting on the debtor's authorization. The third party issued a letter promising to recompense the plaintiffs for any costs or losses incurred in court regarding this payment. Subsequently, the debtor claimed the full amount from the plaintiffs, ignoring the payment made to the third party. An arbitration award was passed against the plaintiffs for the full amount. The plaintiffs then sued the third party, claiming the letter was a contract of indemnity.
Findings of Court:
The court found that the suit was not barred by res judicata as the dispute between the plaintiffs and the debtor was not part of the initial arbitration. However, the action was misconceived because the third party had already credited the payment to the debtor's account. The plaintiffs' rights were against the debtor, but they had unadvisedly allowed an arbitration award to be made against them for the full amount.
Issues: Whether the suit was barred by res judicata under Section 11 of the Civil Procedure Code and whether the letter issued by the third party constituted an enforceable indemnity under Section 124 of the Indian Contract Act.
Ratio Decidendi: The court held that res judicata does not apply to issues not referred to arbitration. Regarding indemnity, the obligation was discharged once the third party credited the payment to the debtor's account. The loss suffered by the plaintiffs was a result of their own failure to contest the debtor's claim in a subsequent arbitration, not a loss covered by the indemnity.
Result: Appeal dismissed.
The question for determination in this appeal lies within a very narrow compass. The plaintiffs, Robert Skinner and Thomas Skinner better known by their Indian names of Sultan Mirza and Sirdar Mirza, and the principal defendant Hercules Skinner are the descendants of a well-known Anglo-Indian soldier of fortune who settled in Northern India. They appear to own considerable landed property in the district of Hissar. The second and third defendants are the members of a joint Hindu family carrying on a money-lending business in the district of Bulandshahr. For the purpose of this Judgment the name of Badri Kishen alone will be used as representing their joint business.
In June 1900, the plaintiffs, with other members of their branch of the family, granted to Badri Kishen, a lease of their property for a term of years. On the same date Badri Kishen obtained from Hercules Skinner a lease for a similar period of his property in the Hissar District. At or about the same time the plaintiffs entered into a loan transaction with Badri Kishen, under which he agreed to advance them money to the extent of a lac of Rupees on terms which are not material here. This loan transaction was called ''Their cash and credit account" and evidently represented a running account in Badri Kishen's books. Badri Kishen appears to have defaulted in the payment of his rent under the two leases. Hercules Skinner pressed him to discharge his liabilities, certainly under his own lease. In February, 1903, the plaintiffs were clearly indebted to Badri Kishen for a large amount on "their cash and credit" account, and on the 17th of that month he wrote to Hercules Skinner a letter in the following terms
"Dear Mr. Robert Herculas,
"Compliments, When Sirdar Mirza Saheb pays the amount of my cash credit, you should first realise from him the entire amount due to you together with the amount of interest agreed. I shall allow a credit to him for the same.
(Sd.) Badri Kishen Dated 17th February 1903."
This letter was evidently shown by Herculas Skinner to the plaintiffs and they appear to have regarded it as an authorisation on Badri Kishen's part as certainly it was, for them to pay the money they owed to him to Hercules Skinner in part satisfaction of his liability under the leases he held. It is not disputed that in accordance with this authorisation they paid Rs. 40,000 to Herculas Skinner to the credit of Badri Kishen's account. On the 9th February 1904, when this amount was paid, Herculas Skinner gave the following letter to the plaintiffs :-
"Meerut
9th February, 1904
My dear Bhai,
"The amount of Rs. 40,000 (forty thousand) you have paid me through the Bank of Upper India, Meerut, to-day on account of the amount due to me from K. Badri Kishen, I write to say that should you be put to any costs or losses in any court for this particular amount, I shall recompense you.
"Yours affectionate, Bhai Robert"
This sum of Rs. 40,000 reduced protanto-Badri Kishen's liability in respect of Herculas Skinner's lease. The ascertainment of the balance left was referred to the arbitration of a retired Deputy Magistrate, Khan Bahadur Abdul Hamed Khan, who, after giving credit to Badri Kishen for the Rs. 40,000 paid on his behalf by the plaintiffs, and for other sums alleged to have been paid by him, found that a certain sum was still due from him to Herculas Skinner, and made an award to that effect. This award was made on the 25th October, 1905.
There were three parties arrayed before the arbitrator, viz., Badrikishen as the first party, the plaintiffs and other members of their branch of the family as second party, and Hercules Skinner as the third party. With regard to the payment of Rs. 40,000 of the credit of Badri Kishen, the arbitrator expresses himself thus :
"The third point at issue also relates to the first and the third parties, and the second party has nothing to do with it. The third party contends that he received Rs. 40,000 from the first party through Sirdar Mi
