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Continental Drug Co. Ltd., Bombay Vs. Chemoids and Industries Ltd., Calcutta - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtKolkata High Court
Decided On
Case NumberCivil Rule No. 1132 of 1954
Judge
Reported inAIR1955Cal161,58CWN916
ActsCode of Civil Procedure (CPC) , 1908 - Section 9; ;Contract Act, 1872 - Section 28; ;Arbitration Act, 1940 - Section 34
AppellantContinental Drug Co. Ltd., Bombay;chemoids and Industries Ltd., Calcutta
RespondentChemoids and Industries Ltd., Calcutta;continental Drug Co. Ltd., Bombay
Appellant AdvocateAmiya K. Mukherjea, Adv.
Respondent AdvocateManindra N. Ghose, Adv.
Cases ReferredChittaranjan Guha v. Parul Rani Nandi
Excerpt:
- .....the ordinary tribunals. if, however, there are two courts which are equally competent to try the suit, an agreement between the parties that the suit should be instituted in one of those two courts cannot, in our opinion, be said to be an absolute restriction on the right of taking legal proceedings in the ordinary tribunals but a partial restriction on such right. it has been established by a long line of judicial decisions that such an agreement does not contravene the provisions of section 28, contract act, if the chosen court has 'jurisdiction to try the suit under the' ordinary law. vide in this connection the decisions of the madras. high court in the case of --'achratlal kesavlal mehta and co. v. vijayam and co.', air 1925 mad 1145 (a), which was followed by the same high court.....
Judgment:

Lahiri, J.

1. This Rule has been obtained by the defendants against an order made by the Subordinate Judge, 7th Court, 24-Parganas, in Title Suit No. 83 of 1953, by which the learned Subordinate Judge has decided the question as to whether he was competent to try the suit. The plaintiffs-opposite parties instituted the suit for a declaration that under an agreement dated 23-12-1950, the plaintiffs were the sole distributors of the defendants and also for a decree for accounts against the defendants and for recovery of certain sums of money as commission and damages. The agreement which was relied upon by the plaintiffs as the foundation of their claim contains a clause which runs as follows:

'Any dispute arising between the parties, settlement of same legally or otherwise, will be decided in Bombay.'

The defendants raised a preliminary point to the effect that under the aforesaid clause of the agreement, it was only the Bombay Court which would be competent to try the suit. The learned Subordinate Judge has held in substance that the agreement in question amounts to an arbitration clause and as there was no proper application under Section 34, Arbitration Act, by the defendants he was not prepared to give effect to that clause and therefore overruled the plea raised by the defendants. Against this decision the defendants have obtained the present Rule.

2. Mr. Mukherjea, appearing in support of the Rule, has placed before us decisions of different High Courts of India in which the effect of an agreement like this has been considered and Mr. Ghose, appearing on behalf of the opposite parties, has also invited our attention to certain other decisions which according to him support his view. It is a well settled proposition of law that litigants cannot, by private agreement, confer jurisdiction upon a Court which it does not possess nor can they divest a Court of jurisdiction which it possesses under the ordinary law. In the case before us, it is conceded that both the Bombay Court and the Alipore Court have concurrent jurisdiction to try the suit. The question is whether the agreement by which the Bombay Court was chosen as the forum for the disposal of all disputes between the parties can be said to be void under Section 28, Contract Act. That section runs as follows:

'Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract by the usual legal proceedings in the ordinary tribunals or which limits the time within which he may thus enforce his rights is void to that extent.'

There are two exceptions to this section which save agreements for reference to arbitration. On a plain reading of this section, it seems to us that it applies to a case where the parties are wholly precluded from pursuing their legal remedies in the ordinary tribunals because in that case it can be said that there is an absolute restriction upon the parties from enforcing their rights in the ordinary tribunals. If, however, there are two Courts which are equally competent to try the suit, an agreement between the parties that the suit should be instituted in one of those two Courts cannot, in our opinion, be said to be an absolute restriction on the right of taking legal proceedings in the ordinary tribunals but a partial restriction on such right. It has been established by a long line of judicial decisions that such an agreement does not contravene the provisions of Section 28, Contract Act, if the chosen Court has 'jurisdiction to try the suit under the' ordinary law. Vide in this connection the decisions of the Madras. High Court in the case of --'Achratlal Kesavlal Mehta and Co. v. Vijayam and Co.', AIR 1925 Mad 1145 (A), which was followed by the same High Court in the case of -- 'Raghavayya v. Vasudevayya Chetty', AIR 1944 Mad 47 (B). The same view was also taken by the Bombay High Court in the case of -- 'Tilakram Chaudhuri v. Kodumal Jethanand', AIR 1928 Bom 175 (C).

In our own Court Lort-Williams J. approved of the decisions in -- 'Acharatlal's case (A)' in the decision reported, in -- 'A. Milton and Co. v. Ojha Automobile Engineering Co. : AIR1931Cal279 . In this case there was an agreement which ran as follows:

'Any litigation arising out of this agreement shall be settled in the High Court of Judicature at Calcutta or in the Small Cause Court, Calcutta, and to no other Court whatsoever.'

The defendants brought a suit in Agra whereas the plaintiffs brought a suit in Calcutta. Lort-Williams J. held that under the agreement between the parties it was not open to the defendants to proceed with their suit in Agra and restrained the defendants by a temporary injunction from proceeding with their Agra suit.

In the Lahore High Court there was a divergence of judicial opinion on this point. In the case of -- 'Kidri Prasad v. K.R. Khosala', AIR 1923 Lah 425 (2) (E), Shadi Lal C. J. held that an agreement of this description took away the jurisdiction of the Court under the ordinary law and was therefore void and he made the following observation.

'As regards the plea of want of jurisdiction, it is clear that the litigants can, by agreement 'inter se', divest a Court of its inherent jurisdiction over the subject-matter of a suit no more than they can confer jurisdiction on it by consent where it has none.'

This view was also taken in the case of -- 'Jagan Nath Amar Nath v. Burma Oil Co. Ltd.', AIR 1929 Lah 605 (F). These earlier decisions of the Lahore High Court however were overruled by a Full Bench of the same High Court in the case of -- 'Musa Ji Lukman Ji v. Durga Dass', AIR 1946 Lah 57 (FB) (G). In this decision Mahajan J. in delivering the judgment of the Pull Bench observed as follows with regard to the effect of Section 28, Contract Act;

'The section makes void only those agreements which absolutely restrict a party to a contract from enforcing the rights under that contract in ordinary tribunals. But this section has no application when a party agrees not to restrict his right of enforcing his rights in the ordinary tribunals but only agrees to a selection of one of those ordinary tribunals in which ordinarily a suit would be tried. This section, in my view, prevents parties from divesting Courts of their inherent jurisdiction, but it does not, in any way, vitiate an agreement between the parties by which a person who has the choice of the forum agrees to a limitation of that choice or agrees to the curtailment of the unlimited choice which law has conferred upon him.

His Lordship further observed that the principle that parties cannot by consent confer or take away the jurisdiction of a Court applies only to cases of inherent jurisdiction of a Court but an objection as regards the territorial jurisdiction of a Court can be waived by a party. We respecfully agree with the view expressed in this decision and we hold that Section 28, Contract Act, does not prevent the parties to a contract from selecting one of two competent Courts for the disposal of their disputes.

3. We have now to notice some of the decisions of this Court on the point. In the case of -- 'Ramnicklal Chhaganlal v. Vivekanand Mills Co. Ltd.', 49 Cal, WN 58 (H) Gentle J. sitting singly came to the conclusion that an agreement of the present description amounts to an agreement for reference to arbitration and therefore the Court has jurisdiction to take action under Section 34, Arbitration Act. This decision was followed by the learned Subordinate Judge in the present case. With great respect we cannot agree with the view of Gentle J. that an agreement of the present description amounts to 'submission to arbitration'. The reason why we cannot agree with that view is this that if the decision of the chosen Court be taken to be the decision of an arbitrator it will not have the force and effect of a decision by a competent Court of law but will have the effect of an award given by an arbitrator under the provisions of the Arbitration Act and the decision of the chosen Court will in that event be subject to all the exceptions that can be taken under the Arbitration Act.

4. The view of Gentle J. was dissented from by a Division Bench of the Bombay High Court in the case of -- 'Bharat Bank Ltd. v. Deepak General Insurance Co. Ltd.', A. O. Nos. 70 and 71 of 1950 (Bom) (I), where Chagla C. J. and Gajendragadkar J. observed as follows:

'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 Section 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.'

We respectfully agree with these views expressed by Chagla C. J. with regard to the correctness of the decision of Gentle J. The view taken by Gentle J. has also been dissented from by Bachawat J. in the case of -- 'Motabhai Gulabdas and Co. v. Mahaluxmi Cotton Mills Ltd.', 91 Cal LJ 1 (J).

5. In the case of -- 'Dhanmal Marwari v. Jankidas Baijnath', 49 Cal WN 123 (K), Biswas and Latifur Rahman JJ. had to consider the effect of an agreement which ran as follows: 'All payments and other transactions shall and should be deemed to have been effected at Katihar for determining the jurisdiction for any litigation even if the goods are supplied from any other place other than Katihar.'

The plaintiff then instituted the suit in the Court at Chittagong. The learned Judge of the Court of first instance came to the conclusion that under the aforesaid clause of the agreement the Chittagong Court had no Jurisdiction to try the suit and returned the plaint for presentation to the proper Court. Biswas J. held that it might be conceded that where jurisdiction is vested in either of two Courts, parties may be allowed by agreement to provide that all suits should be brought in one of such Courts and not in the other. Such an agreement being only a partial restriction of the rights of the parties under the ordinary law may not be hit by Section 28, Contract Act. But he further observed that it was not necessary for him to that case to express any opinion upon that point. Latiful Rahman J. on the other hand expressly held that such an agreement would not contravene the provisions of Section 28, Contract Act, because the plaintiff was not thereby restricted absolutely from enforcing his rights under or in respect of the contract by the usual legal proceedings in the ordinary tribunals and the restriction was only partial. In that case however it was held by both the learned Judges that the Katihar Court had no pecuniary jurisdiction to try the suit which had been, instituted by the plaintiff in the Chittagong Court and in that view of the matter it was held that the Chittagong Court was the only competent Court to proceed with the hearing of the suit.

6. In the case of -- 'Chittaranjan Guha v. Parul Rani Nandi', AIR 1946 Cal 112 (L), Henderson J. sitting singly came to the conclusion that the effect of an agreement like the present one was to prevent the plaintiff absolutely from instituting a suit in a particular Court and as such it would come within the mischief of Section 28, Contract Act, but in the case before him he held that even it the agreement was not void it would not deprive the Court in which the suit had been instituted of its jurisdiction to try it. If the decision of Henderson J. is interpreted to mean that Section 28, Contract Act, applies to a contract by which the parties select one of two competent Courts for the disposal of their disputes, we must respectfully dissent from it because we have already pointed out that such a contract does not amount to an absolute but only, to a partial restriction of the right to enforce the rights by the usual legal proceedings in the ordinary tribunals; but in our opinion the decision of Henderson J. does not go so far as to hold that an agreement of this description is void under Section 28, Contract Act.

7. As a result of the foregoing discussion we have come to the conclusion that the agreement Which is embodied in Clause 15 in the present case and which has been quoted in an earlier part of the judgment is not void and is binding between the parties and is enforceable by a Court of law.

8. Mr. Ghose, appearing for the opposite party has contended that even if the agreement is valid and binding, it cannot be enforced in View of the fact that the defendants in the present case submitted to the jurisdiction of the Alipore Court by entering appearance and by applying for time to file written statement. If the agreement in the present case amounted to a submission to arbitration and if the provisions of the Arbitration Act applied to the circumstances of the present case, this contention might be of some force because under Section 34, Arbitration Act, the proceeding cannot be stayed if the party seeking to enforce the arbitration clause has taken any step in the proceeding. In the case before us, however, we have already pointed out that we do not agree with the view taken by Gentle J. that an agreement of the present description amounts to an arbitration clause.

9. Mr. Ghose relied upon the decision of Bachawat J. in the case of -- 'Motabhai Gulabdas and Co. (J)' for the proposition that in that case Bachawat J. refused to enforce the agreement on this ground but on going through the judgment we find that there is no substance in this contention. Bachawat J. expressly said that the covenant was not an arbitration clause and the fact that steps had been taken in the suit was no bar to the grant of such relief but his Lordship did not give effect to the agreement because in that case the defendant denied the very existence of the contract and it was held by his Lordship that he could not allow the defendant to repudiate the contract and at the same time to enforce one part of it. In this view of the matter, we think that the decision in -- Motabhai Gulabdas and Co.'s case (J)' is of no assistance to the opposite party.

10. The next question is that if the agreement is not void and if it is binding between the parties, what is the procedure by which we can give effect to it. In the case of -- 'Achratlal Kesavlal Mehta and Co. (A)', the plaint was returned to the plaintiff for presentation to the proper Court and this view was approved in the Full Bench decision of the Lahore High Court in the case of -- 'Musa Ji Lukman Ji (G)'. In view of the preponderance of judicial opinion in favour of the view that in such cases the proper method of enforcing the agreement is to return the plaint for presentation to the proper Court, we think that that should be the proper course for us to adopt in the present case as well.

11. We, therefore, make this Rule absolute and set aside the order made by the learned Subordinate Judge and direct that the plaint filed by the plaintiffs opposite parties be returned to them for presentation to the proper Court.

12. In the circumstances of this case, there will be no order as to costs.

J.P. Mitter, J.

13. I agree.


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