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Delhi High CourtIndian Cases

Cement Corporation Of India vs S. Sultan And Anr. on 12 July 2004

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Delhi High Court
Cement Corporation Of India vs S. Sultan And Anr. on 12 July, 2004
Equivalent citations: 2004(3)ARBLR458(DELHI), 112(2004)DLT919
Author: Vikramajit Sen
Bench: Vikramajit Sen

Vikramajit Sen, J.

1. The question which arises in these Petitions is whether this Court ought to exercise territorial jurisdiction in respect of the Award made and published by the Sole Arbitrator on 22.9.1997. The Respondents have filed Objections under Sections 30 and 33 of The Arbitration Act, 1940. The Arbitration Clause is contained in the Stockistship Agreement admittedly executed between the parties which stipulates that – ”This agreement shall be deemed to be made at Delhi and subject to the provision of clause 9, Courts at Delhi shall have exclusive jurisdiction to decide or adjudicate upon any disputes which may arise out of or be in connection with this Agreement”. Shri S.K. Taneja, learned Senior Counsel appearing for the Claimant, namely, Cement Corporation of India, has relied heavily on the decision of the Hon’ble Supreme Court in Hakam Singh vs. M/s. Gammon (India) Limited, . The Arbitration Clause in this case was in the following words:-

”12. ….
13. Notwithstanding the place where the work under this contract is to be executed, it is mutually understood and agreed by and between the parties hereto that this Contract shall be deemed to have been entered into by the parties concerned in the city of Bombay and the court of law in the city of Bombay alone shall have jurisdiction to adjudicate thereon”.
Both the Arbitration Clauses, as is evident, contain language which deems Delhi/Bombay to have exclusive jurisdiction in the event of disputes arising between the parties to the contract.

2. Indeed, it is obvious that both these Arbitration Clauses are in pari materia and if the facts are not distinguishable, the verdict in the present case should be similar to that in Hakam Singh’s case (supra). It is further contended by Mr. Taneja that Section 20(1) of the Arbitration and Conciliation Act when compared with Section 20 of the CPC creates a distinction so far as the jural exercise of jurisdiction is concerned. Section 20 of the CPC enunciates that the litigation can be initiated where the defendant resides, or the cause of action wholly or in part arises. This is amply clear from a reading of Section 41 of The Arbitration Act, 1940 which clarifies that the provision of the CPC shall apply to all proceedings before the Court. I cannot accede to the argument that Section 20 of The Arbitration Act, 1940 mentions or postulates anything to the contrary. It merely stated that – ”Where any person have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court”. It does not stipulate or define which Court has jurisdiction. Section 2(c) of the Arbitration Act also does not define which Court has territorial jurisdiction. I am of the view that the answer to his question is clearly and irrefutably contained only in Section 20 of the CPC.

3. Reverting to Hakam Singh’s case (supra) it will be relevant to underscore that the High Court of Allahabad had ‘declared that the Courts in Bombay had jurisdiction under the general law to entertain the petition’. The Hon’ble Supreme Court decided the question on this premise and it is this fact which makes its ratio inapplicable to the present case. The Court observed as follows:

”4. The Code of Civil Procedure in its entirety applies to proceedings under the Arbitration Act. The jurisdiction of the Courts under the Arbitration Act to entertain a proceeding for filing an award is accordingly governed by the provisions of the Code of Civil Procedure. By Clause 13 of the agreement it was expressly stipulated between the parties that the contract shall be deemed to have been entered into by the parties concerned in the City of Bombay. In any event the respondents have their principal office in Bombay and they were liable in respect of a cause of action arising under the terms of the tender to be sued in the Courts at Bombay. It is not open to the parties by agreement to confer by their agreement jurisdiction on a Court which it does not possess under the Code. But where two courts or more have under the Code of Civil Procedure jurisdiction to try a suit or proceeding an agreement between the parties that the dispute between them shall be tried in one of such Courts is not contrary to public policy. Such an agreement does not contravene Section 28 of the Contract Act.
5. Counsel for the appellant contended that merely because the respondent carried on business in Bombay the Courts at Bombay were not invested with jurisdiction to entertain any suit or a petition for filing an arbitration agreement. Section 20 of the Code of Civil Procedure provides:
” Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction-
(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or
(b) X X X
(c) the cause of action, wholly or in part, arises.
X X X Explanation II.- A corporation shall be deemed to carry on business at its sole or principal office in India, or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.” Plainly by the terms of Section 20(a), read with Explanation II, the respondent Company was liable to be sued at Bombay where it had its principal place of business.

6. The argument of counsel for the appellant that the expression ”corporation” in Explanation II includes only a statutory corporation and not a company registered under the Indian Companies Act is, in our judgment, without substance. The Code of Civil Procedure uses the expression ”corporation” as meaning a legal person and includes a company registered under the Indian Companies Act. Order XXIX of the Code of Civil Procedure deals with suits by or against a corporation and there is nothing in the Code of Civil Procedure that a corporation referred to under Order XX means only a statutory corporation and not a company registered under the Indian Companies Act.

7. Since an application for filing an award in respect of a dispute arising out of the terms of the agreement could be filed in the Courts in the City of Bombay, both because of the terms of Clause 13 of the agreement and because the respondents had the Head Office when they carry on business at Bombay, the agreement between the parties that the Courts in Bombay alone shall have jurisdiction to try the proceeding relating to arbitration was binding between them”.

4. Hakam Singh’s case (supra) was discussed in ABC Laminart vs. A.P. Agencies, in the following words:-

”In the context of Section 20 of the C.P.C. the Supreme Court observed that – ”In the matter of a contract there may arise causes of action of various kinds. In a suit for damages for breach of contract the cause of action consists of the making of the contract, and of its breach, so that the suit may be filed either at the place where the contract was made or at the place where it should have been performed and the breach occurred. The making of the contract is part of the cause of action. A suit on a contract, therefore, can be filed at the place where it was made. The determination of the place where the contract was made is part of the law of contract. But making of an offer on a particular place does not form cause of action in a suit for damage for breach of contract. Ordinarily, acceptance of an offer and its intimation result in a contract and hence a suit can be filed in a court within whose jurisdiction the acceptance was communicated. The performance of a contract is part of cause of action and a suit in respect of the breach can always be filed at the place where the contract should have been performed or its performance completed. If the contract is to be performed at the place where it is made, the suit on the contract is to be filed there and nowhere else. In suits for agency actions the cause of action arises at the place where the contract of agency was made or the place where actions are to be rendered and payment is to be made by the agent. Part of cause of action arises where money is expressly or impliedly payable under a contract. In cases of repudiation of a contract, the place where repudiation is received is the place where the suit would lie. If a contract is pleaded as part of the cause of action giving jurisdiction to the Court where the suit is filed and that contract is found to be invalid, such part of cause of the action disappears. The above are some of the connecting factors.”
5. The observation which I have pointedly underscored above was also mentioned by the Hon’ble Supreme Court in paragraph 18 thereof. The ratio of the Judgment can be found condensed in the following sentences:

”Thus it is now a settled principle that where there may be two or more competent Courts which can entertain a suit consequent upon a part of the cause of action having arisen therewithin, if the parties to the contract agreed to vest jurisdiction in on such court to try the dispute which might arise as between themselves the agreement would be valid. If such a contract is clear, unambiguous and explicit and not vague it is not hit by Ss.23 and 28 of the Contract Act”.
6. What this Court must determine, therefore in the present case is whether the Courts at Delhi had enjoyed any territorial jurisdiction. Applying the test of Section 20 it is wholly irrelevant that the Claimant/Petitioner has its principal office in Delhi. The next enabling characteristic is that of the arising of the cause of action, and this can happen in myriad manners. The contract may have to be performed in Delhi, or the contract could have come into existence in Delhi, or it may have been agreed that payment would be made at Delhi. In all these cases the ouster clause of all other jurisdiction and or restriction of jurisdiction to one place would have been perfectly in legal order. In the present case, however, all negotiations, so far as he contract is concerned, took place in Hyderabad where the Objector resides and carries on business. The contract was also concluded in Hyderabad as is evident from the forwarding Letter of the Cement Corporation of India where the Zonal Office of the Cement Corporation of India was located. Mere reference in the said Letter to the Registered Office at New Delhi is of no consequence, as also the fact that the agreement was forwarded by the Zonal Office to the Registered Office at Delhi. As explained in Hakam Singh’s case (Supra) as well as ABC Laminart’s case (supra) the Ouster Clause restricting jurisdiction to Delhi Courts only can be efficacious only if Delhi enjoyed some vestige or part of the cause of action. Since neither of the parties reside or carry out a business in Delhi, the residency factor under Section 20 of the CPC is not attracted. Reliance by Mr. Taneja on Shriram City Union Finance Corporation Ltd. vs. Rama Mishra, , therefore, does not further the case at all.

7. Mr. Taneja has laid great stress on ABC Laminart’s case (supra) and especially to these observations – ”When the Court has to decide the question of jurisdiction pursuant to an ouster clause it is necessary to construe the ousting expression or clause properly. Often the stipulation is that the contract shall be deemed to have been made at a particular place. This would provide the connecting factor for jurisdiction to the Courts of that place in the matter of any dispute on or arising out of that ontract”.

8. Reading these lines in isolation is impermissible as has been expressed in H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur and others etc. vs. Union of India, in these words :-

”It is difficult to regard a word, a clause or a sentence occurring in a judgment of this Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment”.
9. So far as the Hakam’s Singh case (supra) is concerned, even in the ABC Laminart’s case (supra) the Hon’ble Supreme Court had specifically recounted in paragraph 18 that – ”The High Court in Revision held that the Courts at Bombay had jurisdiction under the general law and hence could entertain the petition”. In ABC Laminart’s case (supra) the Court pointedly recorded that – ”The statement made in the Special Leave Petition that Udyognagar, Mohamadabad, Gujarat is within the jurisdiction of the civil Court of Kaira has not been controverter. We have already seen that making of the contract was a part of the cause of action and a suit on a contract therefore could be filed at the place where it was made. Thus Kaira Court would even otherwise have had jurisdiction”. It cannot, therefore, be predicated that the Apex Court was willing to grant its imprimatur to any Clause in a contract which restricted the jurisdiction to a particular place regardless and irrespective of whether such place could normally have exercised jurisdiction. There can be no gainsaying that a Clause restricting jurisdiction cannot have the effect of creating jurisdiction. If Mr. Taneja’s contention that the word ‘deemed’ employed in the Arbitration Clause was sufficient to vest jurisdiction in a particular place, even in the absence of such place enjoying jurisdiction as per Section 20 of the CPC, it would be diametrically opposed to Sections 23 and 28 of the Indian Contract Act and would, therefore, be struck down as contrary to public policy. This exposition of the law is imbued with pragmatism. By way of illustration let us assume that a large Corporation akin to the Plaintiff has its Zonal Office or Registered Office in London. Let us further assume that the Arbitration Clause restricts the venue for judicial action to London. If none of the dealings or parleys were rooted through London, it would be unfair to compel a party to transaction carrying on business only in Hyderabad, to take legal recourse in London. Such a legal compulsion would have the effect of making it impossible for a small party to litigate and obtain legal redressal. This is the logic and gravamen of Sections 23 and 28 of the Indian Contract Act.

10. In the present case, the negotiations of the contract as well as its execution took place in Hyderabad. It is, therefore, wholly irrelevant that the signed contract was thereafter to be desptached to Delhi, as this would not clothe the Capital with jurisdiction under Section 20 of the CPC.

11. Reliance has been placed by Mr. Bhatia, learned counsel for the Defendant on B.B. Verma vs. National Projects Construction Corporation Ltd., (DB). The observations of the Division Bench in Union of India vs. Electronic Controls AND Instrument Engineers, (DB) are more directly relevant.

12. The celebrated case entitled M/s. Patel Roadways Limited, Bombay vs. M/s. Prasad Trading Company, has also been cited by Mr. Bhatia. The ratio of the Judgment is that if a Corporation has a subordinate office in the place where the cause of action arises, litigation must be commenced in that place alone, regardless of apparently enabling provision in Section 20. The Court adopted a realistic, businesslike and expedient approach in opining that – ”It would be a great hardship if, inspite of the Corporation having a subordinate office at the place where the cause of action arises (with which in all probability the plaintiff has had dealings), such plaintiff is to be compelled to travel to the place where the Corporation has its principal place. That place should be convenient to the plaintiff; and since the Corporation has an office at such place, it will also be under no disadvantage”. The significance of this Judgment is that it restricts jurisdiction, whether a contractual clause of this nature exists or not, to the particular place where the cause of action has arisen, over-ruling other places which may have jurisdiction under Section 20 of the CPC. Therefore, assuming for the sake of arguments that the contract in the present case had actually been executed in Delhi, Courts in Hyderabad would be the only proper Courts for purposes of invocation of jurisdiction since the contract was to be performed there, the parties there and the other party has a subordinate office fully equipped and competent to prosecute the litigation. The ratio of Patel Roadways’s case (supra) is efficacious regardless of whether an ouster/restrictive Clause is available or not, although it may not apply where an ouster/restrictive clause exists.

13. For all these reasons I am of the opinion that Courts at Delhi have no jurisdiction to entertain the present Petitions. No part of the cause of action has arisen in New Delhi and while the Registered Office of the Cement Corporation of India may be located in New Delhi, the dealings between the parties had taken place in Hyderabad through its Zonal Office and the contract was also to be performed there. The use of the word ”deemed” can vest jurisdiction in Delhi which in my opinion is beyond the sweep and contemplation of Section 20 of the CPC. This being the position the Arbitration Clause has the effect of creating or vesting jurisdiction in a particular place, which is not permissible in law. The Plaint/Award, therefore, is directed to be returned to the Cement Corporation of India who shall be at liberty to file it along with the Award in accordance with law in a competent Court in Hyderabad or in any other place as the parties may be advised.

14. Ordinarily, I would have granted realistic costs to the Defendant, but keeping in view the fact that the venue of the arbitration was at New Delhi, I shall desist from doing so.