Delhi High Court
N.D. Sud vs Union Of India on 16 March, 1973
Equivalent citations: 10(1974)DLT1, 1973RLR472
JUDGMENT S.N. Shankar, J.
(1) In an application filed by N. D. Sud under sections 32 and 33 of the Arbitration Act alleging that no valid and binding agreement came into existence between the parties by the issuance of the alleged acceptance of tender No. BTX-8/225/ 56676/3-70/812/PAOD dated August 18, 1970 and praying that the existence of the arbitration clause in the said acceptance may be determined, Mr. Justice B. C. Misra, in view of conflict of decisions on the points, referred the following questions for determination by a larger bench:- 1. Whether the residence or carrying on business of a party which (apart from place of accrual of cause of action) gives territorial jurisdiction to the court under section 20 of the Civil Procedure Code will also give jurisdiction in arbitration cases in view of Section 31 of the Arbitration Act. 2. Where there is an alleged agreement between the parties for exclusion of the territorial jurisdiction of courts other than the one specified, whether the jurisdiction of the other court to try the suit can be excluded, when the existence and validity of the agreement containing the said terms is itself in dispute.
(2) The case of the applicant was that in response to an Invitation of tender for the supply of Cloth Serge Battle, his firm submitted quotations with certain conditions. The Director General of Supplies and Disposals, acting on behalf of the Union of India, required the applicant to withdraw these conditions and thereupon some correspondence ensued between the parties. On August 18, 1970, however, the respondents issued the acceptance of tender referred to above purporting to accept the offer of the applicant. This, he maintained was not an unqualified and unconditional acceptance of the offer and no valid and binding contract, for reasons stated in the application, came into existence between the parties. These allegations were denied by the respondent, Union of India, and it was urged that clause 20(3) of the Conditions of Contract (DGS & D)- 68 (Revised) stipulated that the court of the place from where the acceptance of tender was issued alone had the jurisdiction to decide any dispute arising out of and in respect of the contract and that this court in this case was at Bombay and that court alone had the jurisdiction to entertain this application. Reliance was also placed on a term in the alleged agreement which, according to the respondents, excluded territorial jurisdiction of courts other than the one specified therein. In these circumstances the two questions referred to above arose between the parties and have been referred to this bench. The reference, it may be stated, is only in respect of these two questions so that the case has to be decided on merits by the learned single Judge.
(3) We have heard Shri D. C. Singhania on behalf of the applicant and Mrs. Shyamla Pappu on behalf of the respondents. First QUESTION: Sub-section (2) of section 31 of the Arbitration Act provides for Jurisdiction of the court competent to entertain an application to decide all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties. This section is in the following terms:- 31."(1) Subject to the provisions of this Act, and award may be filed in any Court having jurisdiction in the matter to which the reference relates. (2) Notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in this Act, all questions regarding the validity, effect or existence of an award an arbitration agreement between the parties to the agreement or persons claiming under them shall be decided by the Court in which the award under the agreement has been, or may be filed, and by no other Court. (3) ................................................... (4) ..................................................."
(4) The expression "court" appearing in the section is defined by section 2(c) of the Act. It reads as under: 2."(c) "Court" means a Civil Court having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit, but does not, except for the purpose of arbitration proceedings under section 21, include a Small Cause Court;"
(5) A combined reading of Section 31 and section 2(c) would show that the court competent to decide all questions regarding the validity or existence of arbitration agreement would be the court in which the award under the alleged agreement may be filed. According to sub-section (1) of Section 31, this Court would be the court having jurisdiction in the matter to which the reference relates. According to section 2(c) such a court would be the civil court having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit. Any civil court, therefore, which will have jurisdiction to decide a suit in respect of the subject-matter of reference would be competent to decide the question as to the existence of an arbitration agreement between the parties. This view is supported by the observation of the Punjab High Court in Inder Chand Join v. Pooran Chand Bansi Dhar , where it was said:- "INorder to determine the question whether the Court before which applications under Ss. 32 and 33 are filed has jurisdiction to entertain them, it must be ascertained what the questions are, which form the subject matter of the reference to arbitration and then supposing these questions had arisen in a suit, which is the court which would have jurisdiction to entertain the suit, whether in fact any part of the cause of action in the suit, which the opposite party might have instituted arising out of the subject matter of reference arose within the jurisdiction of the court before which the applications are filed".
(6) The same view taken by Khanna J. in S. C. Malik v. Union of India , while dealing with an application under section 20 of the Arbitration Act.
(7) The question then arises whether section 20 of the Civil Procedure Code comes into play for this determination. In Part I of the Code, dealing with suits in general, sections 15, 16, 17, 18, 19 and 20 prescribe the place of suing. Section 20 reads as under:- 20."Subject to limitation 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) any 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, provided that in such case either "the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or (c) the cause of action, wholly or in part, arises. Explanation I-Where a person has a permanent dwelling at one place and also a temporary residence at another place, he shall be deemed to reside at both places in respect of any cause of action arising at the place where he has such temporary residence. 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".
(8) This section would be relevant in view of section 2(c) of the Arbitration Act to determine if the court where the application is filed has jurisdiction "to decide the questions forming the subject matter of the reference". If, having regard to the provisions of this section, a court has jurisdiction to decide the question forming the subject matter of reference it would be the "court" envisaged in section 2(c) of the Arbitration Act. Under sub-section (1) of section 31 it would thus necessarily be the court where award in respect of the reference could be filed. According to sub-section (2) of section 31 it would also be the court competent to decide questions regarding the validity, effect or existence of an arbitration agreement. Clauses (a) and (b) of section 20 of the Code of Civil Procedure specifically mention that the residence or carrying on business by a defendant would be relevant for giving territorial jurisdiction to the court. The conclusion, therefore, is inescapable that the residence of the defendant would be a relevant factor to determine territorial jurisdiction of the court where an application for determination of questions regarding the validity, effect or existence of an arbitraton agreement is filed provided the residence is relevant in relation to the subject matter of the reference.
(9) In M. Venkatasamiappa v. Srinidhi Ltd. (1950) 1 M.L.J. 7090, Balakrishna Ayar, J. proceeded on the same reasoning. On page 713 of the report the learned Judge said:- "IT is possible to argue that in certain cases, as for instance where there is a dispute whether a person has been adopted by another or not, the question as to which court has jurisdiction would depend upon where the parties reside. That possibility docs not, we think, invalidate our argument that the jurisdiction conferred by section 2(c) and section 31(1) is a jurisdiction dependent upon the questions that form the subject-matter of the reference and that it is not dependent on the residence or place of business of the parties. It is only when the subject-matter of the dispute itself makes the jurisdiction dependent on residence, that the question of residence need arise at all. It is needless to say more about this aspect, because it does not really arise and was not argued. In any case, regard being had to the phraseology of the Act, the question of residence in such cases would, it seems to us, become relevant only should it arise out of, or in connection with the subject-matter of the dispute and reference".
(10) The learned Judge said in this judgment that it was needless to say more about this aspect because the questions did not really arise in that case and was not argued, but we see no reason to differ from the earlier observations which contain the logical conclusion flowing from a combined reading of section 2(c) and 31(1) of the Arbitration Act. Residence per se may not confer jurisdiction, if it has no relation to the subject-matter of reference, but it would be relevant if it has to be taken into account for determining jurisdiction of the court with reference to the subject-matter of the dispute and the reference. The learned Judge in this judgment has also observed that both the parties in arbitration proceedings simultaneously fill the role of plaintiff and defendant. With utmost respect, we are unable to subscribe to this view. Provisions of the Arbitration Act do not justify this observation. Section 20(2) of the Act in terms prescribes that the application under sub-section (1) of the section will be registered as a suit. Rule 5 of the Rules framed under section 44 of the Act also provides that an application under section 14(2) of the Act shall be registered as a suit. It would thus appear that a party moving the court for a relief under the Arbitration Act can normally be called a "plaintiff" while the party opposing the relief would normally be the "defendant". The terms "plaintiff" and "defendant" are not the exclusive nomenclatures of the Code of Civil Procedure. In fact the Code contains no definition of these expressions to confine them to suits under the Code alone. They are convenient modes of expressing the status of parties to a lis before the court.
(11) In Hukam Singh v. M/s. Gammon (India) Ltd. , the Supreme Court was dealing with an application under section 20 of the Arbitration Act where the prayer was that the agreement be filed and an order of reference be made to an arbitrator or arbitrators appointed by the court to settle the dispute. An objection to the jurisdiction of the court competent to entertain the application was raised. 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 petition for filing an arbitration agreement. The objection was repelled by the court. On page 741 of the report, Shah J. as he then was, observed :- "PLAINLYby the terms of S. 20(a) read with Explanation Ii, the respondent Company was liable to be sued at Bombay where it had its principal place of business."
In conclusion it was held in the facts of that case :- "SINCEan 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 Col. 13 of the agreement and because the respondents had their Head office where they carry on business at Bombay, the agreement between the partics that the Courts in Bombay alone shall have jurisdiction to try the proceeding relating to arbitration was binding between them."
(12) The Supreme Court thus treated the respondent in the case as a defendant and referred to section 20 of the Code of Civil Procedure for determining the "court" competent to entertain the application.
(13) The decision of Prakash Narain J. in suit No. 281/71 decided on February Ii, 1972 was also cited before us. Here the petitioner Hari Shankar Sharma applied under section 20 of the Arbitration Act to have the arbitration agreement filed in court so that the reference could be made. The petition was opposed, inter alia, on the ground that this Court had no territorial jurisdiction inasmuch as the contract was between the petitioner and the Union of India as represented by the General Manager, Eastern Railway, Calcutta and had to be performed in West Bengal. The learned Judge invoked section 20 of the Code of Civil Procedure to determine whether this Court did or did not have jurisdiction. This, in our view, was the correct approach to the question for the decision of the controversy. We should not, however, be taken to express any opinion as to the conclusion arrived at in this case as that matter is not before us.
(14) Mrs. Shymla Pappu urged that as the expression "Court" as defined in section 2(c) of the Act, specifically related the jurisdiction of the court to questions forming the subject-matter of reference, the fact of residence of the parties to the reference was wholly immaterial so that reference to section 20 of the Code of Civil Procedure referring to the residence of the parties was uncalled for. This argument cannot be accepted. Section 2(c) has to be read as a whole and not in parts. The competency of the court, according to this provision, has to be determined not only with reference to the subject-matter of reference, but also in the background as to the competency of the court to entertain the suit if it was one dealing with the questions forming the subject matter of reference. In deciding the question of jurisdiction in such a suit the residence of the defendant if it is related to the subject-matter of reference will be an important consideration. The submission, therefore, that for purposes of section 2(c) " the subject matter of reference" alone, apart from the residence of the parties, should be considered, cannot be sustained.
(15) Mrs. Shyamla Pappu referred us to the decision of Dalip K. Kapur, J. in the National Trading Company and another v. Punjab State Electricity Board (Suit No. 470-A of 1971 decided on September, 21, 1972) where the learned Judge on a,combined reading of section 31 and section 2(c) of the Arbitration Act came to the same conclusion as we have reached, namely, that the court competent to entertain an application under section 14 of the Arbitration Act in the court having jurisdiction in the matter to which the reference relates. The matter in this case did not proceed further. No argument was raised before the court as to the effect of residence of one of the parties to the dispute in the background of section 20 of the Code of Civil Procedure. In fact, the learned Judge has observed in his order that none of the parties in that case resided in Delhi. The jurisdiction of Delhi Courts was sought to be made out in this case on the sole ground that the arbitrator or arbitrators held their sittings in Delhi and the final award was given by Mr. M. L. Oberoi, Advocate acting as the sole arbitrator at Delhi. The learned Judge dealt with this contention and repelled it on the ground that they were immaterial considerations for the purpose of determining the "court" in which the award had to be filed. This case, therefore, does not support the learned counsel.
(16) Reference was next made by Mrs. Pappu to a decision of Kapur, J. in M/s. Bhilai Construction Company v. M/s. Bokaro Steel Ltd. (0. M. P. No. 103 of 1972 decided on August 8, 1972). Here also, the learned Judge held that if the Delhi Court did not have jurisdiction over the subject-matter of reference it would not be the court in which award based on the reference could be filed and would, therefore, not be a court where an application under section 41 of the Arbitration Act in connection with the reference could be made. The objection to the jurisdiction was raised on the ground that the contract was entered into Bokaro and that its breach, if any, also took plate at Bokaro and, therefore, no part of cause of action arose at Delhi. On the ratio of decisions in M. Venkatasamiappa v. Srinidhi Ltd. (1950) 1 M.L.J. 709 and Inder Chand fain v. Pooran Chand Bansi Dhar , referred to above, this contention was accepted. It was observed:- "THEquestion to be asked by the Court is : Where would the suit have been filed if the subject-matter of the reference had been the subject-matter of a suit."
(17) It was held that in that case such a suit would have been filed at Bokaro and, therefore, Delhi Courts had no jurisdiction. The Court, however, further went on to observe :- ".....................EVENif the registered office of the Bokaro Steel Ltd., was at Delhi, the question of jurisdiction would have to be decided by the subject-matter of the suit and not by the residence of the defendant."
(18) This observation was apparently based on what was said by BalaKrishna Ayyar, J. in M. Venkatasamiappa v. Srinidhi Ltd. (1950) 1 Mlj 709 on page 713 of the report which we have considered earlier. We are unable to endorse these observations for reasons already stated and in view of the clear enunciation by the Supreme Court in Hukam Singh case (supra). In the later case respondents had their head office at Bombay, where they carried on business and it was held that an application for filing an award in respect of a dispute arising out of terms of the agreement could be filed in the courts in the city of Bombay. The residence of the respondent thus would be relevant if it is related to the subject-matter of the dispute or the reference for purposes of determining the jurisdiction of the court.
(19) As a result of this discussion, for reasons aforesaid, our answer to the first question is that the residence or carrying on business of a party, apart from the place of accrual of cause of action, is relevant for determining the territorial jurisdiction of the court in arbitration cases if the question arises out of or in connection with the subject-matter of the dispute and the reference.
(20) Mrs. Pappu urged that in the facts of this case. Union of India cannot be said to reside in Delhi and, therefore, the courts at Delhi will not have jurisdiction to entertain the application. As we have said already, the whole case is not before this Bench; we, therefore, leave this question open to be decided by the learned single Juge.
(21) Second Question : This question falls in the domain of the merits of the controversy. The term stipulating exclusion of the territorial jurisdiction of one of the two courts which normally would have jurisdiction to try the matter is an integral part of the arbitration agreement. It is only after the court having jurisdiction to entertain the application under section 33 finds that the agreement to refer to arbitration exists between the parties that this clause would be given effect to. As the whole case has not been referred to this Bench, we do not consider it desirable to go into the question at this stage. If such a clause is found to be a part of the agreement, the matter will be governed by the rule of law laid down by the Supreme Court in Hukam Singh's case.
(22) We answer the two questions referred to us in the above terms. Costs to abide the result. Counsel fee Rs. 250.00.