| SooperKanoon Citation | sooperkanoon.com/128290 |
| Subject | ;Arbitration |
| Court | Patna High Court |
| Decided On | Jun-28-2004 |
| Case Number | Request Case No. 32 of 2000 |
| Judge | R.S. Garg, J. |
| Acts | Arbitration and Conciliation Act, 1996 - Sections 11(6) |
| Appellant | NaraIn Industries Through Its Proprietor Shri Nag NaraIn Singh |
| Respondent | Diamond Cements, Proprietor, Mysore Cement Ltd. and anr. |
| Appellant Advocate | Arbind Kr. Jha, Adv. |
| Respondent Advocate | B.K. Sinha, Sr. Adv. |
R.S. Garg, J.
1. Heard learned counsel for the parties.
2. The applicant M/s Narain Industries has filed this application under Section 11(6) of the Arbitration and Conciliation Act, 1990 with a request that because of the failure of the respondents to appoint an Arbitrator, this Court should intervene in the matter and appoint an Arbitrator to arbitrate into the disputes which have cropped up between the parties because of the termination of the agreement as contained in Annexure-1.
3. The short facts giving rise to this application are that the respondents M/s Diamond Cements which is having its factory at Damoh (MP) and its registered office at Golden Enclave, Tower B-1, III Floor, Airport Road, Bangalore, Karnataka, is a cement manufacturer. In the course of its business it appoints the distributors and selling agents etc. It appears from the records, especially from Annexure-1, a document dated 11.10.1999 that the petitioner M/s Narain Industries were appointed as representative of the respondent No. 1 for clearing/storing and forwarding of cement. The petitioner was required to give cash guarantee for a sum of Rs. 30 lacs. However, after some time the respondent No. 1 terminated the contract and forfeited the amount of the cash security alleging inter alia that since after the appointment of the petitioner, the Company was suffering huge losses and as the petitioner was not interested in discharge of his duties as a representative for clearing/storing agent/representative they were not interested in continuing him as a representative. After receiving the notice of termination the petitioner made certain demands and as the same were not adhered to or replied the petitioner issued a notice on 19.10.2000 (Annexure-15) to the Managing Director, Diamond cements, Proprietor M/s Mysore cement Ltd., Bangalore, Karnataka (respondent No. 1) to appoint an arbitrator in accordance with Clause 32 of the Agreement, dated 11.10.1999. It appears from the records that even after receiving Annexure-15, the respondents did not proceed in the matter, therefore, the petitioner has now come to us for appointment of an arbitrator in accordance with Section 11(6) of the Act.
4. At the very outset learned counsel for the respondents referring to Clause 32 and 33 of the Agreement submits that the Chief Justice of the High Court of Patna or any person authorised by him would have no jurisdiction to entertain the application because the parties with their wilful conduct and clear understanding have specifically agreed that the Courts having jurisdiction over Damoh (MP) shall to the exclusion of all other Courts have the exclusive jurisdiction in proceedings arising out of or relating to this agreement. He submits that the parties are competent to choose one jurisdiction out of so many and as in the present case the parties has affixed their signatures to the agreement they selected jurisdiction of Damoh Court, either the Courts at Karhataka or Courts falling under the jurisdiction of the Chief Justice of the Patna High Court would have no jurisdiction.
5. Counter blasting the argument, learned counsel for the petitioner submitted that Clause 32 and 33 are to be read independently and Clause 33 would cease to be effective on termination of the agreement but Clause 32 would still survive. According to him a perusal of Section 7 and Section 16 (1) (a) of the Act would substantiate his submission to the extent that the Chief Justice of the Patna High Court or any person nominated by him would have jurisdiction to hear and decide the matter.
6. On the other hand learned counsel for the defendants/respondents submitted that if the parties have chosen jurisdiction of one Court out of many or one authority out of many then the other authorities which have been so excluded would have no jurisdiction.
7. For proper appreciation of the matter I will first proceed to examine Section 7 and 10(1)(a) of the Act. Section 7 of the Act reads as under:--
'Arbitration agreement.--(1) In this Part, 'arbitration agreement' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing. .
(4) An arbitration agreement is in writing if it is contained in--
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.'
8. Section 7 of the Act simply says that what would be the meaning of the arbitration agreement, the definition is inclusive but is not exhaustive. An arbitration agreement shall only mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Sub-section (2) of Section 7 of the Act provides that an arbitration agreement may be in the contract itself or may be a separate agreement. An arbitration agreement has to be in writing and if the arbitration agreement is contained in some other documents and not in the original contract or is not so defined as an arbitration agreement but if the authorities may infer that the parties really intended to refer the matter to the arbitration then in such circumstances particular writings would be deemed to be arbitration agreement.
9. Section 16(1)(a) of the Act says that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. Placing strong reliance upon this, learned counsel for the applicant submits that despite termination of the contract the arbitration agreement would survive and Clause 33 would automatically lapse. In my humble opinion, a fair understanding of Section 16(1)(a) of the Act would simply mean that on termination of the agreement/contract an arbitration agreement would still survive but it would not mean that the terms which affect jurisdiction of the Courts and the jurisdiction of the arbitrator would come to an end. An arbitration agreement, if it is not allowed to survive on termination of the contract, then it is likely to lead to a chaotic situation. A person after terminating the contract may come and say that as the contract has come to an end or terminated the power to refer to the arbitration has come to an end. To avoid such a situation the legislature rightly intended to observe that the arbitration clause which forms part of a contract shall be treated as independent of the other terms of the contract. It has nothing to do with the jurisdiction of the Chief Justice. It is not disputed before me that in case of failure of the other party to appoint the arbitrator within the specified period, the party aggrieved may make an application to the Chief Justice under Section 11 (6) of the Act. The question arises that to which Chief Justice an application is to be made in terms of Clause 32. Sub-section (6) of Section 11 of the Act reads as under:--
'(6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.'
10. It says that if a party fails to act as required under the procedure; or the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure. The question still would be that which Chief Justice would exercise the jurisdiction .
11. At this stage a reference to Articles 214 and 216 of the Constitution of India would be necessary. Article 214 of the Constitution of India says that there shall be High Court for each State. Article 216 provides that every High Court shall consist of a Chief Justice and such other Judges as the President may from time to time deem it necessary to appoint. A Chief Justice is appointed for a particular High Court. A Chief Justice is not Chief Justice for many Courts unless so appointed by the President of India. The Chief Justice of the Patna High Court is the Chief Justice for the High Court of Patna; he is not the Chief Justice for the Madhya Pradesh High Court or the High Court of Karnataka at Bangalore. An application for making reference to the Arbitrator may be filed to a Chief Justice, who otherwise has jurisdiction in the matters. At this stage it would also be necessary to refer to Section 2(e) of the Act. It defines 'Court'; According to Clause 2(e), 'Court' means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit. A fair perusal of Clause 2(e) would make it clear that a Court would include a High Court and the High Court would mean a Court which in its original jurisdiction would try the suit of the nature which is brought before the High Court in its original jurisdiction relating to arbitration. If it is so then the High Court in original jurisdiction must exercise the powers as conferred upon it under Article 226 of the Constitution of India. According to Article 226 of the Constitution of India, notwithstanding anything in Article 32 every High Court shall have powers throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in different nature. A writ jurisdiction of the High Court is original jurisdiction of the High Court, certain High Courts in their charter have their original jurisdiction also. A High Court can exercise its writ jurisdiction or original jurisdiction throughout the territories in relation to Which it exercises the jurisdiction. If that be so, the Chief Justice of such High Court can exercise jurisdiction in relation to those territories only and no other.
12. Learned counsel for the petitioner submitted that the cause of action would accrue in favour of the applicant only on non-compliance of his notice to refer the matter to the arbitrator. He, however, submits that no cause of action accrued at Damoh, therefore, Madhya Pradesh Court would have no jurisdiction to entertain an application under Section 11(6) of the Act. Placing his strong reliance upon a judgment of the Supreme Court in the matter of New Moga Transport Co. v. United India Insurance Co. Ltd. and Ors., (2004) 4 SCC 677 (para 14), it is contended that the parties can exclude jurisdiction of a particular Court, if more than one Court have jurisdiction, but the parties by their agreement or consent cannot confer jurisdiction upon a Court which otherwise does not have. Paragraph 14 of the judgment reads as under :--
'14. By long series of decisions it has been held that where two courts or more have jurisdiction under CPC to try a suit or proceeding, an agreement between the parties that the dispute between them shall be tried in any one of such courts is not contrary to public policy and in no way contravenes Section 28 of the Indian Contract Act, 1872. Therefore, if on the facts of a given case more than one Court has jurisdiction, parties by their consent may limit the jurisdiction to one of the two Courts. But by an agreement parties cannot confer jurisdiction on a Court which otherwise does not have jurisdiction to deal with a matter. (See Hakam Singh v. Gammon (India) Ltd. and Shriram City Union Finance Corpn. Ltd. v. Rama Mishra).'
13. In the said matter the Supreme Court has simply observed that where two Courts or more have jurisdiction under CPC to try a suit or proceeding, an agreement between the parties that the dispute between them shall be tried in any one of such Courts is not contrary to public policy and in no way contravenes Section 28 of the Indian Contract Act, 1872. The Supreme Court has also observed that by an agreement the parties cannot confer jurisdiction on a Court which otherwise does not have jurisdiction to deal with the matter. It goes without saying that the words of the Supreme Court are final on the subject. The question still would be that whether the court at Damoh would have jurisdiction or not. if the Court at Damoh has jurisdiction then the parties certainly would be entitled to exclude the jurisdiction of the other Courts and would be obliged to approach a Court which can exercise powers in relation to Damoh District (MP). The agreement (Annexure-1) is dated 11.10.1999. It was entered into between the parties and was executed at Damoh (MP). This fact is clearly visible from the agreement itself. If the agreement was entered into between the parties then a cause of action accrued to the parties at Damoh itself. It is also to be seen that the goods are manufactured at Damoh and were to be supplied from Damoh. These facts would make it clear that the Damoh Court would have jurisdiction to hear and decide the matter. The submission of the learned counsel for the applicant that the cause of action would accrue in favour of the applicant only on refusal or inaction on the part of the other party would be correct and that would simply give jurisdiction to Patna Courts but would not exclude the jurisdiction of a Court which had the basic jurisdiction to decide the matter.
14. Sections 19 and 20 of the Code of Civil Procedure relate to territorial jurisdiction of the Court. Section 20 says that subject to the limitations aforesaid (preceding Sections), every suit shall be instituted in a Court within the local limits of whose jurisdiction the defendant, or each of the defendants at the time of commencement of the suit, actually and voluntarily resides or carries on business, or personally works for gain. In the alternative, a suit can be filed in a Court where any of the defendants, where there are more than one, at the time of the commencement of the suit actually or voluntarily resided, or carried on business or personally worked for gain. Clause (c) of Section 20 says that a suit can be filed in a Court where the cause of action, wholly or in part, arises. Learned counsel for the applicant, in fact, is raising his arguments mainly on the ground that as the cause of action accrued in his favour in the jurisdiction of the High Court of Patna he is entitled to bring his matter before the Chief Justice of the High Court of Patna. True it is that if a cause of action arises within the jurisdiction of the High Court of Patna Then an application under Section 11(6) of the Act is maintainable before the Chief Justice but if more than one Court have the jurisdiction to hear and decide the matter then Clause (c) alone would not cover the territorial jurisdiction of Courts but the agreement between the parties to choose and select one jurisdiction would bind the parties.
15. In the matter of New Moga Transport Co. v. United India Insurance Co. Ltd. (supra), the Supreme Court while interpreting Section 20 of CPC has observed that under Clauses (a) to (c) of Section 20 the plaintiff has a choice of forum and cannot be compelled to go to the place of residence or business of the defendant and can file a suit at a place where the cause of action arises but at the same time the Supreme Court observed that if two Courts or more have jurisdiction under the Code of Civil Procedure to try suit or proceeding, the parties can enter into the agreement excluding the jurisdiction of some Courts and conferring absolute jurisdiction on one Court. In the present matter Clause 32 of the agreement says that in case of any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of this Agreement or breach of any terms thereof shall in the first instance be referred to the arbitration of an Advocate as may be appointed by the Managing Director, Mysore Cements Ltd., M/s Mysore Cements Ltd., in fact, is the Proprietor of M/s Diamond Cements, respondent No. 1. If they have their registered Head Office at Bangalore then the Bangalore Court would have jurisdiction. The factory is situated at Damoh, the agreement was entered into between 'the parties at Damoh and the goods were to be supplied only from Damoh. It is also be seen that the total correspondence between the parties was done either from Damoh or to Damoh. Under such circumstances it cannot be gain said that no cause of action accrued at Damoh. It also cannot be said that Damoh Court would have no jurisdiction. Assuming for a minute that non-action on the part of the defendants gave a cause of action to the Patna Court but Clause (c) of Section 20 of the Code would be overriden by Clause (b) of Section 20 and the agreement entered into between the parties. The judgment of the Supreme Court in the matter of A.B.C. Laminart Pvt. Ltd. and Anr. v. A.P. Agencies, Salem, AIR 1989 SC 1239, also takes the view that if more than one Court have jurisdiction then a contract to vest absolute and exclusive jurisdiction in one of those Courts would not be against the public policy.
16. Clause 33 of the Agreement provides that subject to preceding clause, the parties hereto specifically agree that the Courts having jurisdiction over Damoh (MP) shall to the exclusion of all other Courts have the exclusive jurisdiction in proceedings arising out of or relating to the agreement. Undisputedly the Patna High Court does not exercise jurisdiction over Damoh District which falls within the State of Madhya Pradesh. If the parties have agreed that the Courts having jurisdiction over Damoh shall have exclusive jurisdiction then the matter must be brought before a Court or an authority or the Chief Justice of the Court which has jurisdiction over Damoh District. In present case the applicant is obliged to approach the Chief Justice of the Madhya Pradesh for the appointment of an Arbitrator. The present application is because of the lack of territorial jurisdiction is not maintainable before the Chief Justice of the Patna High Court and consequently any person or institution designated by the Chief Justice cannot take the necessary measures to appoint the Arbitrator. The application is rejected.