Rai and Sons Pvt. Ltd. Vs. Trikamji Kanji Gajjar and Sons and ors. - Court Judgment

J.B. Mehta, J.

1. Defendant No. I 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 he had discretion in 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 plaintiff's 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 plaintiff's dues remained unpaid the suit has been filed not only against defendant No. 1 but transferee defendant No. 2, Architect defendant 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 Section 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. 1 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. : [1971]3SCR314 , 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 Section 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 arbitration 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 completely 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 Section 28 of the Contract Act. The decision further lays down that Section 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 Section 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 Section 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 the defendants were only transferee, the manager and the Architect. Besides, there would be a provision of leave also. Therefore, there is no substances 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 Section 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 jurisdictions 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 Section 28 of the Contract Act. The Court of Appeal in Austrian Lloyd Steamship Co. v. Gresham Life Assurance Society Ltd. 1903 (1) 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 Section 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 Hajl 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 Company's case when under Section 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 Section 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 Section 28 would become applicable. And in consequence, a suit may be stayed by invoking the provisions of Section 19 of the Indian Arbitration Act, 1899, which corresponds to present Section 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 Section 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 Company's case bat also a decision in Kirchner and 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 Abdulla's case was also followed and no distinction was made in applying this principle, on the ground 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 Section 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 Section 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. : AIR1955Cal161 , 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 Marat 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 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.

4. This decision was not made available before me by the parties and, therefore, it is difficult to appreciate its ratio and to find out how far it seeks to distinguish the earlier decision in Haji Abdulla's case, as that was also a Division Bench decision. In Lakhinarayan Ramnivas v. Lloyd Triestine : AIR1960Cal155 , Lahiri C.J. and Bachavat J. (as he then was), however, without going into this wider question as to whether such an agreement amounted to a submission under the Arbitration Act in terms held at page 156 that this being a contractual stipulation could never be pleaded as a bar to the jurisdiction of the Court. When the attention of the Court in which such suit is instituted is drawn to a contractual stipulation of this kind, the Court might in exercise of its discretion stay its hands and refuse to try the suit until the competent judicial authority to whose decision the parties have agreed to submit its disputes has pronounced its decision. The Court acts upon the principle that, in general the Court will compel the parties to abide by their contracts. Instead of driving the defendant to a separate suit to enforce the covenant, the Court might for the purpose of preventing multiplicity of litigation enforce the contract summarily on an application made to it in the suit instituted before it. The prima facie leaning of the Court is that the contract should be enforced and the parties should be kept to their bargain. Subject to this prima facie leaning, the discretion of the Court is guided by considerations of justice. The balance of convenience, the nature of the claim and of the defence, the history of the case, the proper law which governs the contract, the connection of the dispute with the several countries and the facilities for obtaining even handed justice from the foreign tribunal are all material and relevant considerations. If on a consideration of all the circumstances of the case the Court comes to the conclusion that it will be unjust or unfair to stay the suit, the Court may refuse to grant the stay asked for. Therefore, apart from the divergence of view on this narrow question as to whether such an agreement amounts to a submission within the meaning of the Arbitration Act, the settled legal position is entirely to the effect that such a contract, by which the parties selected one of the two competent forums, does not amount to ouster of the jurisdiction of the ordinary Courts. Therefore, such a contractual stipulation, in favour of which the Court would have prima facie a great leaning for upholding the solemnity of the contract so as to bind the parties to their own bargains, could never operate as an absolute bar to the jurisdiction of the competent Court. Therefore, the competent Court would always have a discretion to resolve this question by taking into consideration this stipulation as only one of the factors, which would be given great weight as the parties had selected a particular forum, but ultimately the question would have to be decided not by treating the stipulation as if there was an absolute bar to the existence of the jurisdiction but as one of the factors to be considered for exercise of the jurisdiction on sound judicial principles.

5. Mr. Shah had in this connection also relied on the decision in Husain Kasam Dada v. Motilal P. Sugar Mills : AIR1954Mad845 , by a Division Bench of the Madras High Court, where the aforesaid decision of the Court of Appeal in Austrian Lloyd Steamship Company's case proceeding on the ground that such a agreement amounted to a submission to arbitration was distinguished on the ground that the chosen Court was the foreign Court where the question of foreign law might arise. With great respect, this distinction can hardly be appreciated especially in view of the settled legal position as laid down by their Lordships in Michael Colodentz v. Serajuddin : [1964]1SCR19 . Their Lordships pointed out that the rule underlying Section 34 of the Indian Arbitration Act, 1940, was applicable to arbitration by tribunal, foreign as well as domestic. Their Lordships pointed out that where a party to arbitration agreement commenced an action for determination of a matter agreed to be referred to under an arbitration agreement the Court normally favours stay of the action leaving the plaintiff to resort to the tribunal chosen by the parties for adjudication. The Court in such a case was unwilling to countenance, unless there are sufficient reasons, breach of the solemn obligation to seek resort to the tribunal selected by him, if the other party thereto still remains ready and willing to do all things necessary for the proper conduct of the arbitration. Their Lordships pointed out that the power enunciated by Section 34 of the Arbitration Act was inherent in the Court: the Court insisted, unless sufficient reason to the contrary was made out, upon compelling the parties to abide by the entire bargain, for not to do so would be to allow a party to the contract to approbate and reprobate and that consideration might be stronger, in cases where there was an agreement to submit the dispute arising under the contract to a foreign arbitral tribunal. A Clause in a commercial transaction between merchants residing in different countries to go to arbitration was an integral part of the transaction, on the faith of which the contract was entered into, but that did not preclude the Court having territorial jurisdiction from entertaining a suit at the instance of one of the parties to a contract, even in breach of the covenant for arbitration. Their Lordships thereafter pointed out that the Court in such a case might refuse its assistance in proper cases when the party seeking it was without sufficient reason resiling from the bargain. When the Court refused to stay a suit it declined to hold a party to his bargain, because of special reasons, which made it inequitable to do so. The Court ordinarily required the parties to resort for resolving disputes arising under a contract to the tribunal contemplated by them at the time of the contract. That was not because the Court regarded itself bound to abdicate its jurisdiction in respect of disputes within its cognizance; it merely sought to promote sanctity of contracts, and for that purpose stayed the suit. The jurisdiction of the Court to try the suit remained undisputed; but the discretion of the Court was on grounds of equity interposed. The Court was, therefore, not obliged to grant stay merely because the parties had even under a commercial contract agreed to submit their disputes in a matter to an arbitration tribunal in a foreign country. It was for the Court, having regard to all the circumstances, to arrive at a conclusion whether sufficient reasons were made out for refusing to grant stay. Whether the circumstances in a given case made out sufficient reasons for refusing to stay a suit was essentially a question of fact.

6. Therefore, this decision of their Lordships completely clinched this issue that this rule envisaged by Section 34 of the Arbitration Act was equally applicable to arbitration by a tribunal, foreign as well as domestic. This decision also settles the other question that in such a case a contractual stipulation of the parties choosing their arbitral tribunal for resolving their disputes did not oust the jurisdiction of the Court. The Court never regarded itself bound to abdicate its jurisdiction in respect of disputes within its cognizance. But it merely sought to promote sanctity of contracts and for that purpose this power of stay was envisaged. That is why it was held that the jurisdiction of the Court to try a suit remained undisputed but its discretion of stay was interposed on equitable grounds. Therefore, when the Court declines to hold the party to its bargain in such cases, it is because of special reasons which makes it inequitable to do so in exercise of its discretion.

7. Mr. Shah in this connection had also relied on the decision of Alagiriswami J., (as he then was) in Jhun Jhunwala Bros. v. Subbaramier : AIR1968Mad194 , where the learned Judge categorically held that in such cases where the parties selected one Court out of the two competent Courts, the chosen Court had jurisdiction and not the other Court to entertain a suit in question. In that decision this question had not arisen for consideration as to whether this was a question as to a bar to the existence of a jurisdiction or as to its discretionary exercise in view of the contractual stipulation. Similarly, the decision in Tilakram v. Kodumal A.I.R. 1928 Bombay 175, by the Division Bench could not help Mr. Shah as it merely considers that Section 10 of the Code of Civil Procedure was not the Section which prevented the Court from enforcing contractual rights of this nature as between the parties.

8. The decision also proceeds on the prima facie presumption that the Court would have always a leaning to keep the parties to their bargain, except in such cases where it would be wholly inequitable to do so and when the parties' contract does not oust the jurisdiction of the other competent Court. Finally, Mr. Shah relied on the decision in Sri Rajendra Mills v. Nazi Hasan : AIR1970Cal342 , by the Division Bench consisting of P.N. Mookerjee, A.C.J, and Amiya Kumar Mookerjee J., which also merely lays down that where both the Courts had territorial jurisdiction, the parties by their agreement could waive their right to institute their action in one of these two Courts. In such a case even if another defendant was added, who was not a party to the agreement, the plaintiff who had waived his right could not institute the suit in the Court other than the one chosen by him. In this decision also this question had not been considered as to whether the contractual stipulation operates as an absolute bar to the existence of the jurisdiction of the other Courts.

9. Therefore, Mr. Shah is unable to make out any jurisdictional error because the trial Judge had rightly followed the decision of their lordships in Michael v. Serajuddin : [1964]1SCR19 for exercising discretion in this case for entertaining the present suit as otherwise there would be gross injustice. The cause of action having arisen only in the jurisdiction of the Court at Bhuj, where all the material witnesses were available, it would wholly unjust and inequitable to force this plaintiff contractor to file this suit in the Delhi Court, where there was no cause of action, especially where the other defendants word also joined in this suit and further agreements were relied upon by way of a tripartite arrangement for the plaintiffs' dues claimed in the present suit against these defendants. Therefore, the order of the learned trial Judge does not suffer from any jurisdictional error, and in any event, it does substantial justice and therefore, this revision application must fail. Rule is, therefore, discharged with no order as to costs in the circumstances of the case.