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Ram Rattan Bhartia Vs. Food Corporation of India and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit No. 250-A of 1974
Judge
Reported inAIR1978Delhi183; 1978RLR177
ActsArbitration Act, 1940 - Sections 41; Code of Civil Procedure (CPC), 1908 - Sections 20; Code of Civil Procedure (CPC) (Amendment) Act, 1973 - Sections 20
AppellantRam Rattan Bhartia
RespondentFood Corporation of India and ors.
Appellant Advocate J.P. Gupta, Adv
Respondent Advocate Pralhad Dayal and ; R. Dayal, Advs.
Cases ReferredCalcutta v. Crompton Engineering Co.
Excerpt:
.....proceedings under the arbitration act which has jurisdiction to decide the questions forming the subject matter of the reference, if the same had been the subject matter of a suit. on the applicability of the provisions of the code to the proceedings under the act, the provisions contained in section 20 of the code would be relevant in determining this question. the question having been settled by the supreme court in hakam singh v. gammon (india) ltd. air 1971 s.c. 740 about the applicability of the code of the proceedings under the arbitration act, it cannot be contended that the court competent to entertain proceedings under the said act would only be the court envisaged in section 2(c) of the arbitration act and provision of clauses (a) and (b) section 20 of the code would but be..........courts of bombay. accordingly, their lordships held that where two courts or more have under the code jurisdiction to try a suit or proceeding an agreement , between the parties that dispute between them shall be tried in one such court is not contrary to public policy. it is no doubt true that the court in the above case was mainly concerned with the term of the arbitration clause in the agreement executed between 1he parties and because of the stipulation in the arbitration clause conferring jurisdiction on the courts in bombay it was observed that where two courts or more have under the code jurisdiction to try a suit or proceeding an agreement between the parties that the dispute between the in shall be tried in one such courts was not contract v to public policy. one. however.....
Judgment:

Prithvi Raj, J.

1. The petitioner, Shri Ram Rattan Bhartia, entered into a contract with the respondent Food Corporation of India, (herein called 'the Corporation') for handling and transport of food grains at Chandausi Depot, District Moradabad, between 1st May, 1971, to 31st April, 1973, vide contract entered into between the parties in pursuance of invitation to tender No. FAM/71-Chandausi. The contract contained arbitration clause No, 19, providing that all disputes and differences arising out of or in any way touching or concerning the agreement whatsoever (except as to any matter the decision of which is expressly provided for in the contract) shall be referred to the sole arbitration of any person appointed by the Managing Director of the Food Corporation of India.

2. Disputes arose between the parties in respect of the alleged claim of the petitioner on account of transportation of food grains for which the petitioner claimed a sum of Rs. 61,000/- including security deposit of Rs. 25,000/-. The case of the petitioner is that the respondent had neither paid the said sum of nor had referred the disputes for arbitration in terms of the arbitration clause despite the service of notice dated 1st March,1974, to refer the disputes arbitration. The petitioner accordingly moved the present petition under S. 20 of the Arbitration Act, 1940, (herein called 'the Act') in this court for directing the Corporation to file the original arbitration agreement in court and to appoint an arbitrator as per cl.19 of the contract. The jurisdiction of this Court was invoked on the ground that the Corporation has its office at Delhi and that the arbitrator was to be appointed by it.

3. The respondents traversing the pleas raised in the petition by way of preliminary objection have contended that this Court has no jurisdiction to entertain the petition in that the contract was neither made at Delhi nor was it executable within the jurisdiction of this Court, Besides, it was alleged, the matter to which the agreement relates pertained to the handling and transport of food grains at Chandausi depot, District Moradabad.

4. On the pleadings of the parties the following preliminary issue was framed:

'Has this Court no jurisdiction to entertain the suit? On us on defendants'.

5. The matter came up for hearing before one of us (Yogeshwar Dayal, J.). The learned Judge noticing that there was a conflict of opinion in this Court as well as with other High Courts on the question whether the framers of the Act incorporated all the tests given in S. 20 of Civil P. C. 1W8 (herein after called the Code') into the Act for the purpose of determining jurisdiction of the Court to deal with the matters arising out of the Act or merely confined the test to one with regard to the subject-matter of the reference, felt that the matter was required to be decided by a larger Bench. The matter accordingly under orders of Hon'ble the Chief Justice was placed before a Division Bench of this Court.

6. The attention of the Bench was invited to an earlier decision of a Division Bench of this Court in N. D. Sud v. Union of India (1973) 2 Del 503. The Bench hearing this matter felt that the Bench which decided N. D. Sud's case (supra) in observing that 'the residence of the defendant would be relevant factor to determine territorial jurisdiction of the Court where an application for determination of questions regarding the validity, effect or existence of an arbitration agreement is filed provided the residence is relevant in relation to the subject matter of the reference' had carved out an exception to the rule of law laid down by the Supreme Court in Hakam Singh v. M/s. Gammon ( India) Ltd. : [1971]3SCR314 . The Bench hearing this matter accordingly felt it difficult to agree in entirety with the interpretation placed by the Bench in N.D. Sud's case, and directed that the matter be placed before the Chief Justice for constituting a larger Bench to have an authoritative decision of this Court. This is how the matter has come before us.

7. Shri Prahlad Dayal, appearing for the respondents, vehemently contended that the Act is a complete Code in itself providing for the machinery for arbitration proceedings. He accordingly contended that a Court as defined in the Act alone would have jurisdiction to entertain the application in question.

8. Court as defined in S. 2(c) of the Act, he submitted, 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 S. 21, include a small cause Court. From the above definition it is explicit, the learned counsel submitted, that only that Court will have jurisdiction to entertain the present petition which has the jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit. This submission, he contended, is fully borne out from a perusal of S , 31 of the Act. According to sub-section (1) of the said Section, it was urged, subject to the provisions of the Act an award may be filed in any Court having jurisdiction in the matter to which the reference relates while sub-section (2) stipulates that notwithstanding anything contained in any other law for the time being in force and save as otherwise provided in the Act, all questions regarding the validity effect or existence of an award or 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. Further, sub-section (3) envisages that all applications regarding the conduct of arbitration proceedings or otherwise arising out of such proceedings shall be made to the Court where the award has been, or may be, filed, and to no other Court. Sub-section (4), it was urged, prescribes that notwithstanding anything contained elsewhere in the Act or in any other law for the time being in force, where in any reference any application under this Act has been made in a Court competent to entertain it, that Court alone shall have jurisdiction over the arbitration proceedings and all subsequent applications arising out of that reference and the arbitration proceedings shall be made in that Court and in no other Court.

9. Shri Prahlad Dayal in the premises submitted that a combined read no of Ss. 2(c) and 3r of the Act unmistakably point out that only the Court having jurisdiction to decide the questions forming the subject-matter of the reference could entertain the application in question, and that such a Court alone would have jurisdiction to decide all questions regarding the validity, effect or existence of an award or arbitration agreement between the parties to the agreement or persons claiming under them besides having jurisdiction over the conduct of the arbitration proceedings. That being so, the learned counsel vehemently contended, residence of the defendant or the place where they carry on business or work for gain alone, in total disregard of the questions forming subject-matter of the reference, required to be settled, would not give jurisdiction to the Court at those places for entertaining proceedings arising under the Act. In the instant case. it was submitted, the tender was addressed to the Regional Manager of the, respondents at Lucknow Where also the contract was entered felt and the entire work to which the alleged dispute pertains was performed at Chandausi (District Moradabad). The Court at Delhi in the circumstances, goes that, argument, has no jurisdiction to entertain the present application on the basis of -the residence of the respondents when the contract was neither made at Delhi nor was it executable within, the jurisdiction of this Court.

10. The above contentions were sought to be reinforced on the basis of the judgment of a Division Bench of the Madras High Court in Electrical . Calcutta v. Crompton Engineering Co. (Madras) Ltd., Madras, : AIR1974Mad261 . In that case the defendant by an agreement dated l1th July, 1962, executed between the parties in Madras agreed to fabricate all requirements of steel towards the sub-station structures of the plaintiffs in three different areas, outside Madras. The agreement provided for reference of disputes to arbitration that may arise between the parties in respect of the work

11. On disputes having arisen the plaintiffs filed a petition under S. 20 of the Act in the Madras Court seeking a direction for reference of the disputes to arbitration. The first defendant took objection to the jurisdiction of the Madras Court alleging that the steel had to be entrusted to it at Calcutta, where its factory was situate, that the claim related to unused steel supplied to it and inspection to its accounts regarding fabrication of the components utilization of the Steel thereof and allied questions and to its counter-claims for damages, constituting the questions forming subject-matter of the reference required to be decided relate to works to be done outside the jurisdiction of the Madras Court and as such the Court at Madras had no jurisdiction to entertain the application under Section 20 of the Act. On examining the averments; of the parties, the Court observed that the factum of the execution of the agreement at Madras not being m question, having regard to the language of the definition of the word 'Court' under S. 2(c) of the Act and on construction of the words 'with respect to subject-matter of the agreement' occurring in S. 20(1) of the Act, the subject-matter of the agreement was not the execution of the agreement, but the place where the alleged un use of the surplus steel supplied to the first respondent took Place which was at Sealdah within the jurisdiction of the Calcutta High Court. Accordingly, it was held that it was the Calcutta High Court that had jurisdiction to entertain the application m question.

12. This case is of no assistance to the respondents. The question whether the residence of defendants and the place where they carry on business or work for gain would also give jurisdiction to the Courts at those places under S. 20 of the Code in arbitration cases was not under consideration in that case.

13. S. 41 of the Act prescribes the procedure and the powers of the Court The said Section reads as under:-

'Subject to the provisions of this Act and of rules made there under:-

(a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to all appeals, under this Act. and

(b) the Court shall have, for the purpose of and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court: Provided that nothing in clause (b) shall be taken to prejudice, any power which may be vested in an arbitrator or umpire for making orders with respect to any such matters.'

14. S. 20 of the Code enables a plaintiff to institute a suit in a Court within whose jurisdiction defendant resides or the cause of action arises. The said Section reads as under:-

'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 or 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 or 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.

Explanationn 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.

Explanationn Ii - A corporation shall be deemed to carry on business at its sole or principal office (India) -or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.'

15. It may bear mention here that Section 20 of the Code had been amended by S. 7 of the Civil P. C. (Amendment) Act, 1,976 (Act No. 104 of 1976) whereby in S. 20 of the principal Act Explanationn I had been omitted and for the word and figure 'Explanation II' the word ',Explanation' has been substituted.

16. S. 41 of the Act, as already noted above, having made the provisions of the Code, applicable to all proceedings before the Court, and to all appeals under the Act, to determine the question as to which Court will be competent to entertain proceedings under the Act, can it be said that the provisions of S. 2(c) of the Act and S. 20 of the Code are mutually destructive of each other and incapable of being harmonised so that only such Court will have jurisdiction to entertain proceedings under the Act which has jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit and that despite the applicability of the provisions of the Code to the proceedings under the Act, the provisions contained in S. 20 of the Code would be wholly irrelevant in determining this question. The ambit and scope of the provision of the Code in its applicability to the proceedings under the Act was considered by the Supreme Court in Hakam Singh's case : [1971]3SCR314 (supra). Therein A was held that the Code in its entry applies to proceedings under the Act and that the jurisdiction of the Courts under the Act to. entertain a proceeding for filing an award was accordingly governed by the provisions of the Code. The question having been well settled, it is futile to contend that the Court competent to entertain proceedings under the Act would only be the Court envisaged in S. 2(c) of the Act and provision of cls. (a) and (b) of S, 20 of the Code would not be attracted in determining the forum to entertain proceedings under the Act.

17. In Hakain Singh's case : [1971]3SCR314 the contract was to be executed by the appellant at Varanasi. However, the agreement executed between the parties provided an arbitration clause stipulating that '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 shall alone have jurisdiction to adjudicate thereon'. Dispute having arisen between the parties the appellant submitted a petition to the Court of the subordinate Judge at Varanasi for an order under S. 20 of the Act praying 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 between the parties in respect of the construction works done by him. The respondents contended that the civil Courts in Bombay alone had jurisdiction because of the terms of the arbitration clause. The trial Court rejected that contention holding that the entire cause of action had 'arisen at Varanasi and that the parties could not by agreement confer jurisdiction on the Courts at Bombay, which they otherwise did not possess. The High Court of Allahabad set aside the said order holding that the Courts in Bombay had jurisdiction under the general law to entertain the petition and that by virtue of the covenant in the agreement the parties had agreed that the Courts in Bombay alone had jurisdiction to adjudicate upon the contract.

The Supreme Court in appeal upheld the order of the High Court on the ground that the agreement between the parties expressly stipulated that the contract shall be deemed to have been entered into by the parties concerned in the city of Bombay and also because the respondents had their principal office in Bombay, they were liable in respect of a cause of action arising under the terms of the tender to be sued in the Courts of Bombay. Accordingly, their Lordships held that where two Courts or more have under the Code jurisdiction to try a suit or proceeding an agreement , between the parties that dispute between them shall be tried in one such Court is not contrary to public policy.

It is no doubt true that the Court in the above case was mainly concerned with the term of the arbitration clause in the agreement executed between 1he parties and because of the stipulation in the arbitration clause conferring jurisdiction on the Courts in Bombay it was observed that where two courts or more have under the Code jurisdiction to try a suit or proceeding an agreement between the parties that the dispute between the in shall be tried in one such Courts was not contract v to public policy. One. However cannot lose sight of the fact that jurisdiction of the Courts in Bombay was not because of the convert in is agreement but because of the respondent had their principal in Bombay and because of that they , liable in respect of a cities of action arising under the terms of the tender to be sued in the Courts in Bombay under the general law. The Court in unmistakable terms reiterated the principle of law that it is not open to the parties by agreement to confer jurisdiction on a Court which it does not possess tinder the Code. Thus it is evident that the jurisdiction of the Courts in Bombay was upheld not because of the agreement but on the ground that the respondent had their principal office in Bombay and thus they were liable in respect of a cause of action arising under the terms of the tender to be sued in the Courts in Bombay under the general law. For the above-said reason the agreement between the parties that the dispute between them shall be tried in Bombay Court was held to be not contrary to public policy it being open to the parties to make such a selection. when the Courts both at Varanasi and Bombay had under the Code jurisdiction to entertain the proceedings under 'the Act. It would, thereforee, be not correct to say that the Supreme Court in the above case was concerned about the conflict between the two Courts at Bombay and Varanasi, addressing itself only to the resolving of the competing conflict between the two Courts and that the code was not called upon to decide the question whether the entire Section 20 of the Code was applicable or not to the proceedings under the Act.

18. Reference here may also be made to an earlier decision of a Division Bench of this Court in N. A Sud's

case (1973) 2 Delhi 503 (supra) In that case on behalf of the respondent a contention was raised 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, the Court in that case was at Bombay and that Court alone had jurisdiction to entertain the 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.

19. It is true that the Bench on a combined reading of S, 31 and S. 2(c) of the Act observed 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 and that according to sub-section (1) of S, 31, that Court would be the Court having jurisdiction in the matter to which the reference relates. It was also observed that according to S. 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. The Bench accordingly held that any civil Court, which would have jurisdiction to decide a suit in respect of the subject-matter of the reference would be competent to decide the question as to the existence of an arbitration agreement between the parties.

20. However, considering the question whether Section 20 of the Code comes into play the Bench after noticing the decision in Hakam Singh's case : [1971]3SCR314 and other case law on the subject , held that the residence or carrying on business of a party apart from the place of accrual of the cause of action, was relevant for determining the territorial jurisdiction in arbitration cases if the question arises out of or in connection with the subject-matter of the dispute and the reference. It may bear mention here that one of the questions referred to the Bench for consideration was-

' 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 S, of the Civil P.C. will also give jurisdiction in arbitration cases in view of S. 31 of the Arbitration Act.'

21. The answer to the above question by the Bench was that the residence or carrying on business of a party was relevant for determining the territorial jurisdiction in arbitration cases if the question arose out of or in connection with the subject-matter of the dispute and the reference.

22. In so observing we do not con sides that the view taken by the Bench does not run in unison' with the view taken in Hakam Singh's case or that the Bench had 'narrowed down the scope and amplitude of' the ratio decidendi in Hakarri Singh's cage : [1971]3SCR314 by carving out any exception to the 'rule of law laid down by the Supreme Court' in that case. The decision of the Bench in N. D. Sud's case (2nd (1973) 2 Delhi 503) does not 90 contra to the decision of Hakam Singh's case and we say so, with respect to, to the learned Judges of the Bench making the present reference.

23. In view of the settled position of law, the view taken by H. L. Anand, J., in National Metal Craft Co. , v. Rattan Steel Ltd. 1973 R Lr 403, that the framers of the Act do not appear to have incorporated both the tests laid down in Section 20 of the Code, namely, that a Court may have jurisdiction to deal with the matter either because of the subject-matter of the dispute or because of the residence of the parties, into the Act for the purpose of determining, the jurisdiction of the Court to deal with the matters arising out of the Arbitration Act or merely confined the test to one with regard to the subject-matter of the reference cannot be said to lay down the correct law.

24. The argument of the learned counsel for the respondents that a great hardship will be caused to the respondent Corporation in case if it be held that the Courts in Delhi had jurisdiction because of the location of the principal office of the Corporation in Delhi, is wholly irrelevant in determining the ambit and scope of S. 20 of the Code.

25. In view of our discussion on the various points, noted above, our answer to the reference is that apart from a Court having jurisdiction to entertain the proceedings under the Act within whose jurisdiction the cause of action to sue arises, the Court within the local limits of whose jurisdiction the defendant or each of the defendants at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, will also have jurisdiction to entertain the proceedings under the Act in terms of c1s. (a) and (b) of S. 20 of the Code.

26. Order accordingly.


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