RAI AND SONS PRIVATE LIMITED Vs. TRIKAMJI KANJI GAJJAR AND SONS
HIGH COURT OF GUJARAT
RAI AND SONS PVT.LIMITED
TRIKAMJI KANJI GAJJAR
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(1.)Defendant No. 1 company challenges in this revision application the order of the trial Judge holding that clause 8 of the agreement between the plaintiff and defendant No. 1 dated May 9 1964 did not operate as an absolute bar to the jurisdiction of the Bhuj Court and that be had discretion ill such a case to entertain a suit as otherwise great hardship and inconvenience would result to the parties if this suit was not be proceeded with in the Court at Bhuj. The plaintiff-contractor firm had taken a building contract for constructing flourmill and office premises of defendant No. 1 company at Adipur as per the agreement dated May 9 1964 The relevant clause 8 provides as under :-
All disputes arising out of or in any way connected with this agreement shall be deemed to have arisen in Delhi and only Courts at Delhi shall have jurisdiction to determine the same.
The plaintiff-contractor having not been paid its dues for construction in question and as defendant No. 1 had transferred these premises to defendant No. 2 the plaintiff firm further alleged that by two subsequent agreements of April 12 1965 and October 12 1966 under tripartite arrangement the plaintiffs dues were finally settled and defendant No. 2 had undertaken that liability of defendant No. 1 and relying on that express assurance possession of the premises was handed over to defendant No. 2. As the plaintiffs dues remained unpaid the suit has been filed not only against defendant No. 1 but transferee defendant No. 2 Architect No. 3 and the manager of the company defendant No. 4. When the ex parte injunction was issued by the trial Judge defendant No. 1 company made an application under sec. 151 relying on clause 8 and asked the Court to decide this preliminary issue about its jurisdiction before proceeding further with the suit or the injunction application. The learned trial Judge held that as the suit was not only against defendant No. I but against all the four defendants and as the plaintiff had relied upon not only the original agreement of May 9 1964 but also on the two subsequent agreements which had been by way of a tripartite arrangement this was a fit case where discretion ought to be exercised by entertaining the suit at Bhuj where this contract was executed and where all evidence would be available. Therefore in order to avoid great hardship and inconvenience the learned trial Judge exercised his discretion to entertain the suit filed at Bhuj and therefore the defendant company has filed this revision application.
(2.)In Hakam Singh v. Gammon (India) Ltd. A.I.R. 1971 S.C 740 their Lordships have now categorically laid down that it is not open to the parties 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 is one of such Courts is not contrary to public policy. Such an agreement does not contravene sec. 28 of the Contract Act. In that case the defendant company had its head office where they carried on business at Bombay and the parties had selected out of the two places the Bombay Court as on having jurisdiction and therefore it was held that under the agreement between the parties the Bombay Court alone would have jurisdiction to try the proceeding relating to arbitration and not the Court at Varanasi where the cause of action had arisen. This decision settles the question that if both the Courts have jurisdiction it is open to the parties by their agreement to select the Court in which the disputes between the parties arising out of and in connection with such agreement were to be resolved and such an agreement is not one which ousts the jurisdiction so as to be against the public policy or so as to contravene sec. 28 of the Contract Act. The decision further lays down that sec. 20(a) of the Code of the Civil Procedure applies not only to a statutory corporation but also to a company registered under the Indian Companies Act and at the place where the Corporation has its principal office it shall be deemed to carry on business and therefore the Court at that place would be also one of the competent Courts under the Code in addition to the Court where the cause of action arises. Therefore in such a case it could never be held that the parties by their agreement tried to confer jurisdiction on the Delhi Court where the principal office of the company was situate which did not possess any jurisdiction under the Code. Mr. Vakil vehemently argued that Explanation II of sec. 20(a) of the Civil Procedure Code in terms provides that 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 and therefore if no cause of action had arisen at the head office that Court where the head office is situate would not be competent Court under the Code at all. This contention is clearly negatived by their Lordships by in terms holding that on a plain reading of sec. 20(a) with Explanation II it was clear that the respondent company was liable to be sued at Bombay where it had its principal place of business. Mr. Vakil also argued that there were other defendants some of whom were not at Delhi. The contention of Mr. Shah is only as regards the competence of this suit against defendant No. 1 company in so far as defendant No. 1 company had categorically agreed to select only the Delhi Court for resolving its disputes and the other defendants were only transferee the manager and the Architect. Besides there would be a provision of leave also. Therefore there is no substance in the first contention of Mr. Vakil that clause 8 of the agreement sought to confer jurisdiction on the Delhi Court which would otherwise have no jurisdiction under the Code. Such an agreement as per the settled legal position of selecting one of the two competent Courts under the Code by the agreement of the parties is not contrary to public policy and does not violate sec. 28 of the Contract Act as it does not oust the jurisdiction of the Civil Court.
(3.)The next question which is material is whether the selection of the one Court out of two competent Courts operates as an absolute bar to the jurisdiction of the other Court or whether the question is only one for proper exercise of discretion because the parties agreement does not purport to oust the jurisdiction of the Civil Court at all. It is on this basis that this agreement had been upheld by their Lordships as it did not contravene sec. 28 of the Contract Act. The Court of Appeal in Austrian Lloyd Steamship Company v. Gresham life Assurance Society Ltd. 1903 K. B. 249 had to consider this question in the context of the life insurance policies which made a provision for all disputes arising out of the contract of insurance being submitted to the jurisdiction of the Court of Budapest where the insurance company had a branch office. When stay was sought in that case under sec. 4 of the English Arbitration Act 1889 Romer L. J. categorically held that although such an agreement did not appoint a particular individual as arbitrator it was a submission to submit the disputes between the parties under the contract to the Courts at Budapest. Even Mathew L. J. in terms held that the plain meaning of the language of such a clause was not merely that in the event of a dispute arising under the contract either party would have the option of suing in the Court at Budapest having jurisdiction in such matters but that both the parties would be bound to refer such a dispute to that Court. Therefore the discretionary provision of stay under the Arbitration Act was held to be applicable in case of such a contract of selecting one of the two competent Courts. In Haji Abdulla v. J. R. Stamp A.I.R. 1924 Bom. 381 a Division Bench consisting of Macleod C.J. and Shah J. in terms followed this decision in Austrian Lloyd Steamship Companys case when under sec. 19 of the Indian Arbitration Act 1899 this discretionary power of stay was sought to be invoked in the context of a similar marine insurance policy clause providing that all disputes must be referred to in England for settlement and no legal proceedings should be taken to enforce any claim except in England where the underwriters were alone domiciled and carried on business. Such a clause was in terms held to be amounting to a submission to arbitration. The Division Bench also pointed out that sec. 28 of the Indian Contract Act could not apply to such a case as there was no ouster and even if agreement was construed as amounting to an ouster the first exception to sec. 28 would become applicable. And in consequence a suit may be stayed by invoking the provisions of sec. 19 of the Indian Arbitration Act 1899 which corresponds to present sec. 34 of the Indian Arbitration Act 1940 In Jethabhai v. Amarchand A. I. R. 1924 Bombay 91 Marten J. had in such cases where the plaintiff was selecting an inconvenient forum considered the discretionary power of the Court under sec. 151 to stay the suit. It was pointed out that the inherent jurisdiction should be exercised cautiously but fearlessly though no precedent was forthcoming. It was pointed out that in order to justify a stay it was as a rule necessary that something more should exist than a mere balance of convenience in favour of proceedings in some other place. A litigant must show that injustice would be done if the suit was to be proceeded in the Court where the cause of action had not arisen or that the interest of justice demanded this discretionary power being exercised. In Ramniklal v. Vivekanand Mills Co. Ltd. 49 Cal.W. N. 58 Gentle J. had not only considered the Austrian Lloyds Steamship Companys case but also a decision in Kirchner & Co. v. Gru Ban L. R. (1903) 1 Ch. 413 for the settled proposition that when the agreement of the parties selects one Court out of the two competent Courts for settling their dispute such an agreement amounts to a submission to arbitration. Even when the decision of the Court was appealable to other Courts. The decision in Haji Abdullas case was also followed and no distinction was made in applying this principle on the 8round that out of the two competent Courts the Court chosen was a foreign Court or both were the Courts of the same country. At page 62 the learned Judge pointed out that in an agreement of this kind when one of two Courts each having jurisdiction is the chosen tribunal the jurisdiction of the other Court is not ousted but it is subject to the exercise of the powers in sec. 34 of the Arbitration Act exactly in the same way as when a lay arbitrator is the chosen tribunal. In either event whether the chosen tribunal was a Court or lay tribunal any Court which had jurisdiction and in which a party to an agreement instituted proceedings upon matters which are the subject of the reference the Court would not dismiss the suit but in exercise of the provisions in sec. 34 would refuse or grant a stay of those proceedings according to the circumstances. The learned Judge rightly pointed out that the (Court was not bound to grant a stay but such discretion had to be exercised judiciously. It is true that in Continental Drug Co. v. Chemoids Industries Ltd. A.I.R. 1955 Cal. 161 a Division Bench consisting of Lahiri & Mitter JJ. had not agreed with this view taken by Gentle J. that such an agreement amounted to a submission for arbitration. In that decision a reference has been made to a decision in Bharat Bank Ltd. v. Deepak General Insurance Co. Ltd. A. O. Nos. 70 and 71 of 1950 (Bombay) where Chagla C. J. and Gajendragadkar J. observed as under:-
With very great respect we are unable to accept the view of Mr. Justice Gentle as the correct view..There seems to be no reason why only sec. 34 Arbitration Act should apply for the purpose of stay and the other provisions of the Arbitration Act should not apply to the suit which would be decided and disposed of by the chosen Court....A Court acts judicially and an Arbitrator acts as a domestic forum deriving his jurisdiction and powers from the Arbitration Act and it is never permissible to parties to constitute a Court of Law as an arbitrator under the Arbitration Act.
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