Doctrine Of Finality In Litigation: The Supreme Court's Application Of The Henderson Doctrine And Constructive Res-Judicata

The Hon'ble Supreme Court of India (“the Hon'ble SC/Hon'ble Court”), while placing reliance on the Henderson Doctrine, has recently clarified that the failure on the part of a party to raise issues in earlier proceedings shall preclude the same party from re-agitating the same or related claims in new proceedings.¹. The Hon'ble Court has reiterated that the Henderson Doctrine is a natural corollary of the Indian doctrine of constructive res-judicata codified in Explanation IV of Section 11 of the Code of Civil Procedure Code, 1908². The Hon'ble Court further emphasized that the parties must diligently and in good faith, present their entire case at the earliest opportunity. 

I. BACKGROUND OF THE DISPUTE

The Original Borrower (Respondent No. 1) availed a Lease Rental Discounting (“LRD”) credit facility of Rs.100 crores from Union Bank of India, secured by a simple mortgage over a property (“Secured Asset”). On account of default on the part of the Borrower, the account was classified as a Non-Performing Asset (“NPA”), and the Bank proceeded to issue a demand notice under Section 13(2) of the SARFAESI Act, 2002 (“SARFAESI Act”), for repayment of dues. The Bank further initiated possession proceedings under the SARFAESI Act, prompting the Borrower to file a Securitization Application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal (“Ld. DRT”).

Meanwhile, the Bank announced several public auctions of the Secured Asset between April 2022 and June 2023. However, it failed to auction the Secured Asset. Pursuant thereto, the Bank once again scheduled a 9^th public auction with a reserve price of Rs.105 crores, stipulating sale on an “as is, where is” basis, subject to the Ld. DRT's outcome. The Borrower immediately preferred two applications before Ld. DRT is seeking an amendment of its pleading for the purpose of challenging the 9^th auction proceeding and seeking a stay of the 9^th Auction.

Meanwhile, as a result of the 9^th Public Auction, the Petitioner was declared as the successful bidder at Rs.105.05 crores and accordingly as per the terms and conditions of the auction notice, the Petitioner deposited 25% of the total sale consideration to the Bank. Apprehending the sale to be concluded, the Borrower hurriedly filed an Interim Application before Ld. DRT seeking to redeem the Secured Asset. Meanwhile, the Petitioner deposited the balance amount of the sale to the Bank. The Application was subsequently heard by Ld. DRT, and the same was reserved for orders.

Apprehending an unfavourable outcome in the Ld. DRT, the Borrower, filed a Writ Petition before the Hon'ble High Court of Bombay, seeking permission to redeem the Secured Asset. Interestingly, the Borrower did not challenge the legality or propriety of the 9^th Auction in the aforesaid Writ Petition. The Writ Petition filed by the Borrower was allowed by the Hon'ble High Court subject to the payment conditions being complied with by the Borrower. The Borrower accordingly complied with the payment conditions, and accordingly, the Bank issued a ‘No Dues Certificate' and executed a Release Deed, returning the title documents in favour of the Borrower.

Aggrieved by the Hon'ble High Court's decision, the Petitioner preferred Special Leave Petitions (“Main Appeals”) before the Hon'ble SC, challenging the judgement of the Hon'ble High Court and allowing the redemption in favour of the Borrower. The Hon'ble SC held that the High Court had erred in allowing the redemption application filed by the Borrower and accordingly directed the Bank to refund the amount paid by the Borrower for redeeming the property.

Despite the SC's judgment upholding the auction sale and dismissing the Borrower's redemption claims, the Borrower and the subsequent transferee, who purchased the property in a transaction initiated during the appeal process, delayed compliances. Aggrieved by the same, the Petitioner filed contempt petitions before the Hon'ble SC, alleging that the Respondents deliberately frustrated the implementation of the Court's order by filing new suits, refusing to hand over possession of the property, and creating subsequent transactions.

II. ISSUE BEFORE THE HON'BLE SC

Amongst the various issues raised before the Hon'ble SC, one of the issues was whether the Borrower could subsequently challenge the legality of the SARFAESI Act proceedings, including the 9th Auction, when such objections were neither raised in the Writ Petition nor mentioned in the subsequent pleadings filed before the Hon'ble Court. Additionally, the Court had to consider whether the Borrower could relitigate the same issues, either in the present contempt petition or in the proceedings pending before the Ld. DRT?

III. ANALYSIS AND FINDINGS

One of the major arguments by the Borrower challenging the contempt petition was that since the issue of the validity of the 9^th Auction was never touched upon by the Hon'ble SC whilst deciding the right of the Borrower to redeem the Secured Asset in the Main Appeal and that the right of the Borrower to continue with its challenge to the auction proceedings before the Ld. DRT is still intact; there is no contempt on the part of the Borrower. The Borrower further contended that the issues involved before the Ld. DRT proceedings as to the validity of the measures taken by the Bank under the SARFAESI Act are still pending, and to this date, no court or judicial authority has examined the same, and any interference with the said proceedings would render the Borrower remediless and infringe its rights under Article 21 and 300A of the Constitution of India. The Borrower further contended that despite being fully aware of the aforesaid terms of the Auction, the Petitioner consciously participated in the auction process and, thus, now cannot be permitted to claim either the absolute ownership of the Secured Asset despite the pendency of the proceedings before the Ld. DRT.

To decide upon the aforesaid issue, the Hon'ble SC found it necessary to discuss the pleadings filed by the Borrower and pointed out as follows: -

1. In the Writ Petition filed before the Hon'ble High Court, the Borrower did not raise any arguments regarding the illegality of the actions taken by the Bank under the SARFAESI Act, including the validity of the 9^th auction notice. On the contrary, it appears that the Borrower, in the said writ petition, effectively abandoned its right to challenge the validity of all measures undertaken by the Bank under the said Act.
2. Although the Borrower initially sought adjudication of the proceeding pending before the Ld. LD. DRT is by the High Court and, alternatively, by the LD. DRT, subject to a stay on the auction proceedings, later waived its right to pursue the securitization application during the hearing. This included relinquishing its right to challenge the Bank's actions under the said Act, including the 9th auction notice.
3. Even before the Hon'ble SC, during the hearing of the Main Appeals, the Borrower failed to dispute the auction process or allege any illegality in the very proceedings through which the Petitioner claimed a vested right.
4. Against this backdrop, this Court rendered the decision in the main appeals. Since the Borrower did not challenge the measures taken by the Bank under the said Act or the 9th auction notice, the Court confined its determination to the issue of the Borrower's right of redemption under Section 13(8) of the SARFAESI Act.
5. Even in the Borrower's review petition, including the Application for additional grounds of review, no contention was raised regarding the illegality of the SARFAESI Act proceedings or the 9^th

1. Discussions by the Court: -
   
   
   1. Deliberation by the Hon'ble SC on the applicability of the Henderson Doctrine.

To answer the aforesaid issue, the Hon'ble SC proceeded to discuss the ‘Henderson' Principle which acts as a corollary of Constructive Res Judicata. The Hon'ble SC referred to the decision of Henderson vs. Henderson³ Later, this came to be known as the 'Henderson Rule', wherein the English Court of Chancery held that where a given matter becomes the subject of litigation and adjudication of a court, the parties so litigating are required to bring forward their whole case. Once the litigation has been adjudicated by a court, the same parties will not be permitted to reopen the litigation in respect of issues which might have been brought forward as part of the subject in the contest but were not, irrespective of whether the same was due to any form of negligence, inadvertence, accident or omission. The English Court of Chancery also ruled that the principle of res judicata applies not only to matters that the Court was explicitly asked to adjudicate but also to any potential or likely issue that was relevant to the case and that the parties should have raised during the litigation.

The House of Lords in the case of Johnson v. Gore Wood & Co⁴, authoritatively affirmed the principle; however, it further clarified that raising a claim or defence in subsequent proceedings that ought to have been raised earlier would not invariably fall within the scope of the Henderson Principle. Instead, it would apply when such a point is presented as an additional or collateral challenge to a prior decision, and where raising it amounts to an abuse of the Court's process or causing harassment to a party. The Supreme Court of the UK in the case of Virgin Atlantic Airways Ltd. v. Zodiac Seats UK Ltd.⁵ expounded the ‘Henderson Principle' as although separate and distinct from cause of action estoppel or res judicata yet having the same underlying public interest that there should be finality in litigation and that a party should not be twice vexed in the same matter.

The Hon'ble Court further referred to the judgements of State of U.P. vs Nawab Hussain⁶, Devilal Modi v. Sales Tax Officer, Ratlam & Ors.⁷and Shankara Coop. Housing Society Ltd. v. M. Prabhakar⁸, wherein the Indian Courts have time and again approvingly applied the Henderson Doctrine as an underlying principle for res-judicata and constructive res-judicata for assuring finality to litigation.

Placing reliance on the aforesaid authorities, the Hon'ble SC highlighted that the Henderson Principle forms a fundamental part of the broader doctrine of abuse of process. In its essence, the principle asserts that claims or issues that could have been raised in an earlier proceeding cannot be brought up in subsequent litigation unless exceptional circumstances exist. This serves to promote the finality of judgment and reinforces principles of judicial propriety and fairness.

The Hon'ble Court also listed out the following four situations where in second proceedings between the same parties doctrine res judicata may be invoked:

1. cause of action estoppel
2. issue estoppel
3. extended or constructive res judicata
4. a further extension of the aforesaid to points not raised in relation to an issue in the earlier decision, as opposed to issues not raised in relation to the decision itself.

2. Findings by the Court: -

Applying the Henderson principle to the aforesaid facts and circumstances, the Hon'ble Court observed that although the Borrower had raised the issue of the validity of the measures taken by the Bank under the SARFAESI Act and the legality of the 9^th Auction in earlier stages, albeit in a different proceeding, its subsequent conduct demonstrated abuse of process. The Hon'ble Court observed that the Borrower had conveniently abandoned these issues in the subsequent proceedings elected for the same cause of action and later sought to re-agitate them under the pretence that the two proceedings in the Main Appeal and before the Ld. DRT were distinct. This behaviour of the Borrower exemplifies a textbook case of abuse of the process of law. The Court opined that the validity of the measures taken by the Bank under the SARFAESI Act, along with the legality of the 9^th auction proceedings, was fundamentally and inextricably linked to the proceedings before the Court in the Main Appeals and therefore cannot be raised at this stage for the reason of waiver and for the further reason that the Court in its decision in the Main Appeals by no means either preserved the right or permitted the Borrower to continue pursuing the proceedings before the Ld. DRT.

IV. CONCLUSION

The present case highlights the Application of the Henderson Principle alongside the doctrine of res judicata in safeguarding the finality and efficiency of judicial processes. The Henderson Principle, similar to res judicata, requires that parties bring forward all pertinent issues during the course of a single case rather than reserve them for future litigation. This principle functions as a procedural safeguard, emphasizing that once an issue has been raised and adjudicated, it cannot be revisited in subsequent proceedings unless exceptional circumstances exist.

The intention behind these doctrines is to prevent parties from fragmenting their claims or defences across multiple cases, thereby promoting the orderly progression of legal matters and discouraging piecemeal litigation. It cautions that a party that fails to raise all relevant issues in the initial proceedings does so at its own risk. Any attempt to reintroduce those issues in subsequent litigation would be barred under the principles of Henderson and res judicata. This approach serves to uphold the integrity and finality of judicial decisions, fostering fairness and preventing the abuse of legal processes by parties who seek to relitigate matters already settled by the courts.

Footnotes

1. CELIR LLP v. Mr. Sumati Prasad Bafna & Ors., 2024 INSC 978.

2. Section 11- Res Judicata - […] “Explanation IV. —Any matter which might and ought to have been made the 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.”

3. Henderson vs. Henderson, [1843] 3 Hare 999.

4. Johnson vs. Gore Wood & Co, ([2002] 2 AC 1).

5. Virgin Atlantic Airways Ltd. v. Zodiac Seats UK Ltd, [2014] AC 160.

6. State of U.P. vs Nawab Hussain, Devilal Modi v. Sales Tax Officer, (1977) 2 SCC 806.

7. Devilal Modi v. STO, AIR 1965 SC 1150.

8. Shankara Coop. Housing Society Ltd. v. M. Prabhakar, (2011) 5 SCC 607.

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