Res Judicata. Issue decided collaterally or incidentally in earlier proceedings would not operate as res judicata. Supreme Court

Nand Ram v. Jagdish Prasad, (2020) 9 SCC 393. Decided on 19 March 2020. Judgment Link:  https://main.sci.gov.in/supremecourt/2011/4832/4832_2011_17_1502_21562_Judgement_19-Mar-2020.pdf

Relevant paragraphs 20. In a judgment reported as Sajjadanashin Sayed Md. B.E. Edr. v. Musa Dadabhai Ummer [Sajjadanashin Sayed Md. B.E. Edr. v. Musa Dadabhai Ummer, (2000) 3 SCC 350] this Court held that if a matter was only “collaterally or incidentally” in issue and decided in an earlier proceeding, the finding therein would not ordinarily be res judicata in a latter proceeding where the matter is directly and substantially in issue. This Court found that the statement of law delineated by Mulla, 15th Edn., p. 104 is the correct one, that if the issue was “necessary” to be decided for adjudicating on the principal issue and was decided, it would have to be treated as “directly and substantially” in issue and if it is clear that the judgment was in fact based upon that decision, then it would be res judicata in a latter case. Such is the test for deciding into which category a case falls. One has to examine the plaint, the written statement, the issues and the judgment to find out if the matter was directly and substantially in issue (Isher Singh v. Sarwan Singh [Isher Singh v. Sarwan Singh, AIR 1965 SC 948] and Mohd. Salie Labbai v. Mohd. Hanifa [Mohd. Salie Labbai v. Mohd. Hanifa, (1976) 4 SCC 780] ). Which matters are directly in issue and which are only collaterally or incidentally in issue, must be determined on the facts of each case. A material test to be applied is whether the court considers the adjudication of the issue material and essential for its decision.
23. The issue in the proceedings under Section 30 of the Act, before the Reference Court was restricted to the apportionment of compensation, consequent to the acquisition of the leased land. The argument was raised that the lessee had another 14 years of the lease period, therefore, the lessee claimed compensation in lieu of the unexpired lease period. The issue was restricted to the payment of compensation on account of the unexpired period of lease. The issue in question was not the title of the appellants or the eviction of the respondent. Still further, the finding of the Reference Court, as reproduced above (see para 6, above), is that the respondent had no right to claim a share in the compensation. The entitlement of the appellants to claim possession from the tenant was not an issue in the previous proceedings.
24. Before the award was announced by the Reference Court, part of the land acquired was de-notified. After denotification of the land, the respondent continued to be in possession and the title of the appellants as owners stood restored. Denotification under Section 48 of the Act is possible only when possession has not been taken and the land has not been vested in the State. The effect of denotification is that the land comprising Khasra No. 9/19 was never deemed to be acquired. Once the land was de-notified, the status of the parties as they existed prior to notification under Section 4 of the Act stood revived.
25. The High Court has relied upon the findings recorded by the Reference Court that the tenancy stood terminated so as to deny the apportionment of the compensation in respect of acquisition of land. The issue examined by the Reference Court was whether the defendant was entitled to any share of compensation awarded for the land acquired. Such issue was decided against the defendant. It is this finding that the defendant is not entitled to any share of the compensation awarded which operates as res judicata in a subsequent suit and not the reasonings recorded by the Court for arriving at such a finding. In a judgment in Union of India v. Nanak Singh [Union of India v. Nanak Singh, AIR 1968 SC 1370] , it has been held that what operates as res judicata is the decision and not the reasons given by the court in support of the decision.
26. In another judgment in Mathura Prasad Bajoo Jaiswal v. Dossibai N.B. Jeejeebhoy [Mathura Prasad Bajoo Jaiswal v. Dossibai N.B. Jeejeebhoy, (1970) 1 SCC 613] , a three-Judge Bench of this Court held that the previous decision on a matter in issue alone is res judicata, the reasons for such decision are not res judicata. This Court held as under: (SCC p. 617, para 5) “5. … A decision of a competent court on a matter in issue may be res judicata in another proceeding between the same parties: the “matter in issue” may be an issue of fact, an issue of law, or one of mixed law and fact. An issue of fact or an issue of mixed law and fact decided by a competent court is finally determined between the parties and cannot be reopened between them in another proceeding. The previous decision on a matter in issue alone is res judicata: the reasons for the decision are not res judicata. A matter in issue between the parties is the right claimed by one party and denied by the other, and the claim of right from its very nature depends upon proof of facts and application of the relevant law thereto. A pure question of law unrelated to facts which give rise to a right, cannot be deemed to be a matter in issue. When it is said that a previous decision is res judicata, it is meant that the right claimed has been adjudicated upon and cannot again be placed in contest between the same parties. A previous decision of a competent court on facts which are the foundation of the right and the relevant law applicable to the determination of the transaction which is the source of the right is res judicata. A previous decision on a matter in issue is a composite decision: the decision on law cannot be dissociated from the decision on facts on which the right is founded. A decision on an issue of law will be as res judicata in a subsequent proceeding between the same parties, if the cause of action of the subsequent proceeding be the same as in the previous proceeding, but not when the cause of action is different, nor when the law has since the earlier decision been altered by a competent authority, nor when the decision relates to the jurisdiction of the court to try the earlier proceeding, nor when the earlier decision declares valid a transaction which is prohibited by law.”
27. Thus, the finding returned in the award of the Reference Court (Ext. PW 1/12) that the lease stood determined on account of non-payment of rent was a finding made by the Reference Court for a limited purpose i.e. not to accept the defendant's claim for compensation. Such finding cannot be binding on the parties in a suit for possession based on title or as a lessor against a lessee. Section 11 of the Code bars the subsequent court to try any suit or issue which has been directly and substantially in issue in a former suit. The issue before the Reference Court was apportionment of compensation and such issue having been decided against the defendant, the reference to notice for termination of tenancy does not operate as res judicata. Therefore, the finding recorded by the High Court that the order of the Reference Court operates as res judicata was clearly not sustainable. The first substantial question of law has been, thus, wrongly decided.