Canara Bank v. N.G. Subbaraya Setty & Anr.
Background
A bank customer who had defaulted on a loan signed a deed assigning his trademark "Eenadu" (for incense sticks) to Canara Bank so the bank could recover dues from royalties. The bank later cancelled the deed, saying banks are legally barred from holding trademarks. This triggered two lawsuits in 2004, which were decided together in 2013: the court upheld the assignment deed as valid and only rejected the customer's separate money claim. When the customer sued again in 2008 for a later instalment of money under the same deed, the bank argued the 2013 verdict should not bind this new case, but the trial court and High Court held the 2013 decision was final ("res judicata") and could not be reopened.
Decision Breakdown
The Supreme Court held that the lower courts were wrong to treat the 2013 judgment as automatically binding. It explained that res judicata (the rule that a decided matter cannot be relitigated) has an exception: a judgment that validates something expressly prohibited by law cannot bind future cases on the same illegality. Here, the assignment deed let the bank trade in goods and earn royalty from a trademark: directly barred by Sections 6 and 8 of the Banking Regulation Act, 1949, which stop banks from doing non-banking business. Since the 2013 judgment had sanctioned an illegal arrangement, it could not be used to shield the bank's exposure in the fresh 2008 suit. The appeal was allowed, the trial court and first appellate court judgments were set aside, and the customer's 2008 suit for further payments was dismissed.
Lesson Learnt
A court decision that gives legal sanction to something a statute expressly forbids does not become permanently binding just because nobody appealed it in time: such an illegality can still be challenged in later proceedings on the same issue.