Geo. Miller and Co. Ltd. Vs. United Bank of India - Court Judgment

Excerpt:
arbitration act 1940 - section 41, schedule ii--injunction against encashing of hank guarantee--performance security--1st bank guarantee expired--required second--issued--agreement terminated--invoked arbitration clause--dispute--petitioner sought restraint order granted ad interim injunction--objection of maintainability of petition for grant of jurisdiction--and initiation of similar proceedings before civil court, lucknow--choice of forum be respected by parties as per contract--lucknow court shall have jurisdiction--this court has no jurisdiction--petition disposed of. - m.k. sharma, j.(1) this is a petition filed by the petitioner against the respondents under section 41 of the arbitration act, 1940 (hereinafter referred to as the 'act') read with schedule ii of the act. in this petition, the petitioner has prayed for a permanent injunction restraining the respondent no.l, its employees, workers, servants or agents from encashing the bank guarantee no.46 of 1993 dated 10.8.1993 for rs.3,47,800.00 . the petitioner has stated that a formal agreement relating to contract no.3 for supply and installation of duel fuel engine was signed by the petitioner and the respondent no.2 on 12.9.1990. in terms of the tender documents, the petitioner was to deposit performance security in accordance with clause 6.2 of the tender documents. in pursuance of the aforesaid terms of contract, the petitioner deposited with the respondent no.2 the bank guarantee no.3/89 dated 16.1.1989 for an amount of rs.3,47,800.00 tendered by the respondent no.1 in favor of the respondent no.2 and on behalf of the petitioner. however, the validity of the aforesaid bank guarantee expired on 5.7.1990, and thereforee, the petitioner was required to get another bank guarantee issued by the respondent no.1 in favor of the respondent no.2. in order to comply with the terms of clause 6.2 of the contract, the petitioner requested the respondent no.1 to issue a fresh bank guarantee and the respondent no.1 issued a bank guarantee no.46/93 dated 10.8.1993 for an amount of rs.3,47,800.00 which is stated to be kept alive till date. (2) subsequently, the respondent no.2 by letter dated 18.11.1993 terminated the agreement between the petitioner and the respondent no.2, the petitioner, in view of the aforesaid termination of the contract, invoked the arbitration clause in accordance with clause no.7.24.2 of the contract agreement. it is staled that in pursuance of the aforesaid invocation of the arbitration clause, the disputes arising between the parties in respect of the aforesaid agreement are pending for resolution before the arbitrator. (3) however, the respondent no.2 on 13.12.1993 sent a letter of invocation thereby invoking the bank guarantee no.46 of 1993. accordingly, the present petition was filed by the petitioner in this court seeking for a permanent injunction restraining the invocation of the aforesaid bank guarantee during the pendency of the arbitration proceedings. this court, by order dated 7.2.1994, while issuing notice to the respondents, granted an ad interim injunction restraining the respondent no.1 from making any payment to respondent no.2 under the bank guarantee dated 10.8.1993, subject to the condition that the same would be kept alive by the petitioner till further orders. accordingly, it is stated the said bank guarantee has been kept alive. (4) notices having been served on the respondents on the present petition, the respondent no.2 appeared in this case and has filed a statement with an affidavit. in the said statement, the respondent no.2 has raised two preliminary objections in respect of the maintainability of the petition in this court. the first objection raised by the respondent no.2 relates to want of territorial jurisdiction of this court to try and decide the present petition whereas the second objection relates to initiation of a similar proceeding before the civil judge, lucknow by the petitioner on the same cause of action which was allowed to be dismissed for default by the petitioner on 7.4.1994. (5) the counsel appearing for the parties were heard by me not only on the issue relating to the preliminary objections raised by the respondent no.2 but also on the merit of the petition. if however the first preliminary objection raised by the respondent no.2 in respect of want of territorial jurisdiction of this court to try and decide the present petition is upheld, the counsel for the parties agree that this court is not required to deal either with the second preliminary objection raised by the respondent no.2 nor with the merit of the case. thereforee, it is necessary to appreciate, analyze and decide initially the first preliminary objection raised by the respondent no.2 in respect of want of territorial jurisdiction of this court to try and decide the suit. (6) i have heard the counsel appearing for the petitioner as also the respondent no.2 on this issue at length. it is the admitted position on behalf of the parties that the agreement in question contained an arbitration clause being clause no.7.24.2. the petitioner has reproduced the said clause in paragraph 20 of the petition. it is stated by the petitioner that he has invoked the arbitration clause in accordance with the afore. said clause no.7.24.2 of the agreement in pursuance of which the disputes arising between the parties have been referred to and pending before the arbitrator for adjudication. the aforesaid clause 7.24.2 inter alias also stipulates that 'all disputes or differences in the matter of this contract' arc subject to jurisdiction of appropriate court at lucknow'. (7) where two or more courts have jurisdiction under the code of civil procedure to try the suit or proceeding an agreement between the parties that the disputes between them shall be tried in one of such courts is not contrary to public policy nor does it contravene section 28 of the contract act. thus, the choice of the forum made by the parties by an agreement shall ordinarily be respected and followed. even if as per arbitration clause that all disputes in the matter of the contract are subject to jurisdiction of appropriate court at lucknow, the choice of the forum made by the parties as per the contract should ordinarily be respected to. (8) in a.b.c. laminart pvt. ltd. & another vs . a. p. agencies : [1989]2scr1a , it has been held by the supreme court that where there might be two or more competent courts which cat. entertain a suit consequent upon a part of the cause of action having arisen therewithin, if the parties to the contract agree to vest jurisdiction in one such courts to try the dispute, which might arise as between themselves, the agreement would be valid. it was further held that there could be no doubt that in an agreement to oust absolutely the jurisdiction of the court would be unlawful and void being against the public policy. but, however, if it is found that the jurisdiction agreed would also be an appropriate jurisdiction in the matter of the contract, it could net be said that it ousted the jurisdiction of the court. from the aforesaid principles laid down by the supreme court, it is clear that where the parties to a contract agree to submit the disputes arising from it to a particular jurisdiction which would otherwise also be an appropriate jurisdiction under the law that agreement to the ex tent that they agree not to submit to other jurisdictions cannot be said to be void as being against public policy. (9) in hakarn singh vs . mis. gammon (india) limited : [1971]3scr314 , the appellant agreed to do certain construction work for the respondent who had its principal place of business at bombay on the terms and conditions of a written tender. clause 12 of the lender provided for arbitration in case of disputes and clause 13 provided that notwithstanding the place where the work under the contract was to be executed, the contract shall be deemed to have been entered into between all the parties at bombay and the court of law at bombay alone shall have jurisdiction to adjudicate thereon. on disputes arising between the parties, the appellant submitted a petition to the court of the subordinate judge at varanasi court under section 20 of the arbitration act that the agreement be filed and an order of reference be made to an arbitrator or arbitrators appointed by the court. the respondent contested that in view of the clause 13 of the arbitration agreement, only the courts at bombay had jurisdiction. the trial court held that the entire cause of action had arisen at varanasi and the parties could not by agreement confer a jurisdiction on the courts at bombay which they did not otherwise possess. the high court in revision held that the courts at bombay had jurisdiction under the general law and hence could entertain the petition and that in view of clause 13 of the arbitration act, the petition could not be entertained at varanasi and directed that the petition be returned for presentation to the appropriate court. against the order of the high court, the appellant appealed to the supreme court contending, inter alia, that the courts at varanasi alone had jurisdiction over the dispule. it was held by the supreme court that the code of civil procedure in its entirety applies to proceedings under the arbitration act by virtue of section 41 of the act. the jurisdiction of the court under the arbitration act to entertain a proceeding for filing an award is accordingly governed by the provisions of the code of civil procedure by the terms of section 20(a) of the code of civil procedure read with explanationn ii thereto. the respondent company which had its principal place of business at bombay was liable to be sued at bombay. it was not open to the parties to agreement to confer by their agreement jurisdiction of a court which it did not possess under the law. but where two courts or more have, under the code of civil procedure, jurisdiction to try the suit or proceeding an agreement between the parties, that the disputes between them shall be tried in one of such courts, shall not be contrary to public policy and such an agreement did not contravene section 28 of the contract act thus held the supreme court. the aforesaid case arose out of a contract agreement and also relates to a proceeding under section 41 of the arbitration act. (10) the agreement dated 5.11.1988 between the respondent no.2 and the petitioner for the construction design and commissioning of 18 mld capacity sewage treatment plant at kankhal, hardwar was entered into and made at hardwar. thereforee, a civil court at lucknow has jurisdiction to try and decide the dispute, even apart from the arbitration clause conferring exclusive jurisdiction at lucknow court. (11) the counsel appearing for the petitioner, however, submitted that since the present petition relates to section 41 of the arbitration act, praying for a permanent injunction retraining the respondents from encashing the bank guarantee, the arbitration agreement shall have no application in view of the fact that the bank guarantee is a separate and distinct contract and has no relation with that of the contract agreement containing the arbitration agreement. i have given my thoughtful consideration to the aforesaid contention of the 'counsel for the petitioner. it is true that in the cases where the supreme court has dealt with the principles of enforcement of bank guarantee, the supreme court has held that the performance guarantee bond or bank guarantee is ordinarily a distinct and separate contract from that of the underlying contract and stands on its own footing and gives rise to a separate cause of action (sec state of maharashtra vs . national construction co. : [1996]1scr293 and hindustan steel works construction ltd. & tarapore co. ltd. : air1996sc2268 . (12) however, in a proceeding under section 41 of the arbitration act of the present nature, the petitioner seeks for an injunction as provided for in the iind schedule of the arbitration act by invoking the provisions of section 41(b) which slates as here under :- 'procedures and power of court subject to the provisions of this act and all rules made there under :- (a).................. (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 iind schedule as it has for the purpose of, and in relation to, any proceedings before the court.'(13) thereforee, under this provision, the court will have the same power of making orders in respect of any of the matters set out in the iind schedule for the purpose of and in relation to arbitration proceedings. matters set out in the iind schedule include grant of interim injunction as provided for under paragraph 4 thereof. the word 'court' is defined under clause (c) of section 2 of the act to mean 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. thereforee, a court means a civil court which is competent to decide a suit in respect of the matter which is the subject matter of the reference. reference may also be made to the provisions of section 31 of the act which relates to jurisdiction. it lays down that an award may be filed in any court having jurisdiction in the matter to which the reference relates. in terms of the present arbitration agreement between the parties, court at lucknow shall have jurisdiction in the matter in respect of the reference and thereforee, the award is required to be filed in the same court as and when the same is passed deciding the disputes between the parties which is under reference to him and pending now. sub section (3) of section 31 states 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 whereas sub section (4) stales that notwithstanding contained anything else or any facts 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 the reference and in the arbitration proceedings shall be made in that court and in no other court. the aforesaid provisions make it abundantly clear that for all applications regarding the conduct of arbitration proceedings and all applications arising out of arbitration proceedings, the forum would be the same, i.e., the court having jurisdiction in the matter to which the reference relates and where the award may be filed. (14) in kumbha mawji vs . dominion of india : [1953]4scr878 , the supreme court has held that the necessity for clothing a single court with effective and exclusive jurisdiction and to bring about by the combined operation of different provisions, the avoidance of conflict and scramble is equally essential whether the question arises during the pendency of the arbitration or after the arbitration is completed or before the arbitration is commenced. admittedly, in the present case, the arbitration proceeding is pending before the arbitrator. (15) on a combined reading of the aforesaid provisions of section 2(c), section 31 and section 41, it is crystal clear that a petition under section 41 of the act seeking an interim injunction could be filed in an appropriate civil court having jurisdiction over the subject matter of the reference. here, by the agreement of the parties, the civil court at lucknow has been vested with the jurisdiction in respect of the arbitration proceedings and, thereforee, that court shall have jurisdiction to try and decide the present petition and not this court. (16) reference may also be made to a decision of the supreme court in south east asia shipping co. ltd. vs . nav bharat enterprises pvt. ltd. : [1996]3scr405 , it was held that since the contract was executed in bombay, i.e., with the jurisdiction of the high court of bombay, performance of the contract was also to be done within the jurisdiction of bombay high court merely because the bank guarantee was executed at delhi and transmitted for performance at bombay, it does not constitute a cause of action to give jurisdiction to delhi high court to entertain the suit in its original side. in my opinion, the aforesaid ratio squarely applies to the facts of the present case also. the underlying contract was not executed within 'the jurisdiction of this court nor the performance of the contract and thereforee this court cannot assume jurisdiction only because the bank guarantee was executed at delhi. (17) in the result, it is held that this court has no jurisdiction to try and decide the present petition filed by the petitioner under section 41 of the arbitration act. in view of the above decision reached by me, it is not necessary to consider the other issues raised before me. accordingly, i direct return of the petition to the petitioner to file the same in an appropriate court in lucknow in terms of clause 7.24.2 of the contract agreement. the registry may take immediate steps to return the petition of the petitioner to fire the same in an appropriate court. the petition stands disposed of in the above terms but without any cost.