Electricity Board Vs. M/S. Universal Petro Chemicals Ltd.  INSC 42 (12
JURISDICTION CIVIL APPEAL NOS. 5430-5431 OF 2002 Rajasthan State Electricity
Board ...Appellant Versus M/s. Universal Petrol Chemicals Ltd. ...Respondent
aggrieved by the common judgment and order dated 17.04.2001 passed by the
Division Bench of the High Court of Calcutta in Appeal Number 462 and 463 of
1992, allowing the appeals filed by the respondent against the judgment of a
learned Single Judge, these civil appeals have been preferred where special leave
was granted. Since both these appeals involve similar questions of law and
facts and arise out of the same impugned order, we propose to dispose of both
these appeals by this common judgment and order.
appellant Board which is having its base and operation at Jaipur placed an
order for supply of 50 kiloliter of transformer oil with the respondent Company
which is having its registered office and manufacturing unit at Calcutta vide
purchase order No. RSEB/SE/Proc.I/TN-1261/U/Petrochemical/937 dated 23.9.1985
for an amount of Rs. 6,09,144/-. In terms of clause 5 of the said purchase
order, the respondent was required to deposit security in the form of bank
guarantee for an amount equivalent to 2 per cent of the contract value. In
addition, the respondent was also required to furnish a performance guarantee
equivalent to 5 per cent of the contract value for satisfactory performance and
due execution of the said contract. Subsequent to the aforesaid purchase order,
an agreement was also entered into between the parties on 16.10.1985 at Jaipur.
the appellant Board placed another purchase order vide No.
RSEB/SE/Proc.I/TN-1312/202 dated 02.12.1987 for supply of 150 kiloliter of
transformer oil for an amount of Rs. 19,50,000/-. Similar to the previous
purchase order, in the present purchase order also the respondent was required
to furnish the bank guarantee equivalent to 2 per cent of the contract value
Page 2 of 23 towards security deposit and equivalent to 5 per cent of the
contract value towards performance guarantee. Accordingly an agreement was also
entered into between the parties on 16.12.1987 at Jaipur.
terms of the abovesaid two purchase orders and agreements thereon the
respondent was required to furnish bank guarantee to the tune of Rs.
1,79,200/-. In compliance to the said condition with respect to the bank
guarantee the respondent furnished four bank guarantees for amounts of Rs.
12200/-, Rs. 30500/-, Rs. 39000/- and Rs. 97500/-. These guarantees were
executed by the Allahabad Bank at Jaipur Branch on behalf of their Main Branch
we proceed further it would be appropriate for us to extract herein the
relevant clauses with respect to adjudication of the disputes, if any, which
were common in both the agreements.
Clause 30 of the
General Conditions of the Contract inter alia stipulates as under:-
"30.....The contract shall for all purposes be construed according to the
laws of India and subject to jurisdiction of only at Jaipur in Rajasthan Courts
Page 3 of 23 Clause
31 of the General Conditions of the Contract, which is an arbitration clause,
reads as under:- "31. ARBITRATION (a) If at any time any question, dispute
to difference whatsoever which may arise between the Purchaser and the Supplier
upon or in relation to Contract, either party may forthwith to the order a
notice in writing of the existence of such question(s)/dispute(s) differences
and the same shall be referred to the Chairman, RSEB, Jaipur or any person
appointed by him for the purpose (herein referred to the `Arbitrator'). Such
reference shall be deemed to be a submission to the arbitration within the
meaning of the Indian Arbitration Act, 1940 and the statutory modifications
(b) The award of the
Arbitrator shall be final and binding on both the parties.
(c) Upon every or any
such reference, the cost incidental to such reference and an award shall be in
the discretion of the Arbitrator who may determine the amount thereof and
direct the same to be borne and paid.
(d) Work under the
Contract shall, if reasonably possible, continue during the arbitration
proceedings and no payment due or payable by the Purchaser shall be withheld on
account of such proceedings."
Page 4 of 23 In the
second purchase order which is dated 02.12.1987, in addition to the above
mentioned clauses, a clause was also incorporated which is with respect to the
jurisdiction of the Court in case of disputes:
disputes, differences or questions whatever which may arise between the
Purchaser and the Supplier upon or in relation with or in connection with the
contract shall be deemed to have arisen at Jaipur (Rajasthan) and no Court
other than the Court at Jaipur (Rajasthan) shall have jurisdiction to entertain
or try the same."
A clause, namely,
Clause 7 was also incorporated in the bank guarantee which is with respect to
the jurisdiction of Courts for adjudication of disputes arising under the bank
guarantee. The said clause reads as under:- "All disputes arising in the
said Bank Guarantee between the Bank and the Board or between the supplier or
the Board pertaining to this guarantee shall be subject to the courts only at
Jaipur in Rajasthan."
the disputes arose between the parties. The appellant alleged that the
respondent has failed to perform his part of the contract inasmuch as the
respondent has supplied defective Page 5 of 23 transformer oil and as such on
receipt of such supply, the same was rejected by the Board requiring the
respondent to replace the same. Thereafter the appellant took steps for
invocation of the bank guarantees in view of the fact that the respondent has
failed to adhere to the aforesaid requirement and also neglected to replace the
defective transformer oil.
respondent being aggrieved by the actions taken by the appellant filed a
petition under Section 20 of The Arbitration Act, 1940 (for short the
"Act") in the nature of a suit in the High Court at Calcutta being
Special Suit No. 70 of 1990. In the said suit, the respondent also moved an
application under Section 41 of the Act seeking interim reliefs. The appellant
herein contested the aforesaid suit. By an Order dated 06.03.1991, the learned
Single Judge of the High Court dismissed the petition and also vacated the
interim order which was passed earlier.
appeal being filed by the respondent, the said order of 06.03.1991 passed by
the learned Single Judge was set aside and the matter was remanded back for
Page 6 of 23
upon the aforesaid order of remand, the learned Single Judge again heard the
suit and passed a similar order dismissing the petition filed by the appellant
under Section 20 of the Act.
Being aggrieved by
the said final order passed by the learned Single Judge, two appeals were filed
before the Division Bench which were heard together and the same were allowed
by the Division Bench under the impugned order dated 17.04.2001.
said impugned judgment and order is under challenge in both the appeals on
which we heard the learned counsel appearing for the parties who had taken us
through the relevant documents. By the impugned order, the Division Bench of
the Calcutta High Court held that the forum selection clause as appearing in
the agreements between the parties would not operate in view of the specific
prohibition under Section 31(4) of the Act. It was also held that since the
respondent had made an application before the Calcutta High Court having
competent jurisdiction to try and decide the proceedings, the said Calcutta
Court would be entitled to exercise jurisdiction and that all subsequent
applications would be made to that Court only as first application was made in
that Court by the respondent. Consequently, the appeals were allowed Page 7 of
23 and the judgment of the learned Single Judge was set aside. The matter was
directed to be listed before the Single Judge for passing consequential orders
in terms of the directions issued by the Division Bench.
that were raised on behalf of the appellant in the present appeals before us,
revolves around the issue of territorial jurisdiction of the Calcutta High
Court in entertaining the said petition under Section 20 of the Act.
to the appellant, the Calcutta High Court would have no jurisdiction to
entertain and decide the aforesaid petition under Section 20 of the Act and
that it is only the Court at Jaipur which would have territorial jurisdiction
to entertain and decide any such petition filed by any of the party, in view of
the specific intention of the parties as disclosed from the stipulations in the
purchase order and agreements entered into between the parties.
learned counsel for the respondent, on the other hand submitted before us that
the provision of Section 31 of the Act is clear and in terms thereof and in
view of the specific prohibition Page 8 of 23 therein any proceeding between
the parties would have to be instituted within the jurisdiction of the Calcutta
High Court and therefore the impugned judgment and order passed by the High
Court of Calcutta is legal and valid.
the light of the aforesaid submissions made by learned counsel for both the
parties, we proceed to decide the issues as to whether or not the Calcutta High
Court had territorial jurisdiction to entertain the petition filed by the
respondent under Section 20 of the Act as also the application filed under
Section 41 of the Act seeking interim orders and also as to whether it is the
Jaipur Court only which will have territorial jurisdiction to entertain any
such request. For proper appreciation of the points at issue, it would be
appropriate to set out the abovementioned legislative provisions of the Act,
which are as under:
20. Application to
file in Court arbitration agreement.
-(1) Where any
persons have entered into an arbitration agreement before the institution of
any suit with respect to the subject matter of the agreement or any part of it,
and where a difference has arisen to which the agreement applies, they or any
of them, instead of proceeding under Chapter II, may apply to a Court having
jurisdiction in the matter to which the agreement relates, that the agreement
be filed in Court.
Page 9 of 23
(2) The application
shall be in writing and shall be numbered and registered as a suit between one
or more of the parties interested or claiming to be interested as plaintiff or
plaintiffs and the remainder as defendant or defendants, if the application has
been presented by all the parties, or, if otherwise, between the applicant as
plaintiff and the other parties as defendants.
(3) On such
application being made, the Court shall direct notice thereof to be given to
all parties to the agreement other than the applicants, requiring them to show
cause within the time specified in the notice why the agreement should not be
(4) Where no
sufficient cause is shown, the Court shall order the agreement to be filed, and
shall make an order of reference to the arbitrator appointed by the parties,
whether in the agreement or otherwise, or, where the parties cannot agree upon
an arbitrator, to an arbitrator appointed by the Court.
(5) Thereafter the
arbitration shall proceed in accordance with, and shall be governed by, the
other provisions of this Act so far as they can be made applicable.
41. Procedure and
powers of Court. - Subject to the provisions of this Act and of rules made
there under- (a) the provisions of - the Code of Civil Procedure, 1908, (5 of
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:
Page 10 of 23
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
of such matters.
is no dispute with regard to the fact that the parties entered into various
agreements which are referred to above. The said agreements admittedly also
contained forum selection clauses between the parties whereby and whereunder
the parties agreed that the said contracts and agreements, in relation to any
dispute or difference would be subject to the jurisdiction of courts at Jaipur
the issues which we are required to address here is whether the ouster clause
in the agreement between the parties will also be applicable in ascertaining
the competent court for making an application for reference under section 20 of
the Act. As per Section 41 (1) of the act the provisions of the Code of Civil
Procedure, 1908, (for short "the Code") shall apply to all
proceedings before the Court, and to all appeals, under the Act.
Section 20 of the
Code, which is with respect to the jurisdiction of courts for institution of
suit, reads as under:
Page 11 of 23
20. Other suits to
be instituted where defendants reside or cause of action arises.
Subject to the
limitations aforesaid, every suit shall be instituted in 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 and 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 and 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.
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.
are number of decisions of this Court wherein it was held that where there may
be two or more competent courts which can entertain a suit consequent upon a
part of the cause of action having arisen therein, if the parties to the
contract agree to vest jurisdiction in one such court to try the dispute which
might arise as between themselves, such agreement would be valid and Page 12 of
23 binding. In A.B.C. Laminart (P) Ltd. v. A.P. Agencies [(1989) 2 SCC 163],
this Court stated thus;
"21. From the
foregoing decisions it can be reasonably deduced that where such an ouster
clause occurs, it is pertinent to see whether there is ouster of jurisdiction
of other courts. When the clause is clear, unambiguous and specific accepted
notions of contract would bind the parties and unless the absence of ad idem
can be shown, the other courts should avoid exercising jurisdiction. As regards
construction of the ouster clause when words like "alone",
"only", "exclusive" and the like have been used there may
be no difficulty. Even without such words in appropriate cases the maxim
"expressio unius est exclusio alterius" -- expression of one is the
exclusion of another -- may be applied. What is an appropriate case shall
depend on the facts of the case. In such a case mention of one thing may imply
exclusion of another.
jurisdiction is specified in a contract an intention to exclude all others from
its operation may in such cases be inferred. It has therefore to be properly
said decision also referred to and relied upon an earlier decision of this
Court in Hakam Singh v. M/s. Gammon (India) Ltd. [1971 (1) SCC 286]. The said
decision was rendered in the light of facts of a similar contract where clause
12 of the tender provided for arbitration whereas clause 13 provided;
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 Page 13 of 23 of law in the city of Bombay alone shall
have jurisdiction to adjudicate thereon."
The question which
fell for consideration of this Court in the said case was whether the Court at
Bombay alone had jurisdiction over the dispute. In that context, it was held
that the Code in its entirety applied to proceedings under the Arbitration Act
by virtue of Section 41 of that Act and that the jurisdiction of the Court
under the Act to entertain a proceeding for filing an Award was accordingly
governed by the provisions of the Code. Reference was made to the provisions of
Section 20 of the Code, with all the terms of Section 20 (a) of the Code read
with explanation thereto, the respondent Company which had its principal place
of business at Bombay was liable to be sued at Bombay.
It was further held
that where two or more courts have jurisdiction to try a suit or proceeding, an
agreement between the parties that the dispute between them shall be tried in
one of such courts was not contrary to public policy and that such an agreement
did not contravene the provisions of Section 28 of the Contract Act.
Page 14 of 23
view was also reiterated in Angile Insulations v. Davy Ashmore India Ltd. and
Another [(1995) 4 SCC 153].
Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd. [(2004) 4 SCC 671], it
was held by this Court that where two or more courts have jurisdiction under
the Code, it is permissible to have an agreement between the parties
restricting the place of suing to any one of them and if such restriction is
placed in the agreement, the same cannot be said to be contrary to public
policy and does not contravene Section 28 of the Contract Act. It was however,
made clear that such restriction cannot be made and the parties cannot by
agreement confer jurisdiction on a court which otherwise it does not possess
under the Code.
This Court also
considered the scope of Section 20 of the Code in the said case and by
referring to the said provision it was held that when ouster clause is clear,
unambiguous and specific, accepted notions of contract would bind parties and
unless absence of ad idem can be shown courts should avoid exercising
jurisdiction. While arriving at the said finding this Court followed the ratio
laid down in A.B.C. Laminart (P) Ltd. (supra).
Page 15 of 2321.The
aforesaid legal proposition settled by this Court in respect of territorial
jurisdiction and applicability of Section 20 of the Code to Arbitration Act is
clear, unambiguous and explicit. The said position is binding on both the
parties who were contesting the present proceeding. Both the parties with their
open eyes entered into the aforesaid purchase order and agreements thereon
which categorically provide that all disputes arising between the parties out
of the agreements would be adjudicated upon and decided through the process of
arbitration and that no court other than the court at Jaipur shall have
jurisdiction to entertain or try the same.
both the agreements in clause 30 of General Conditions of the Contract it was
specifically mentioned that the contract shall for all purposes be construed
according to the laws of India and subject to jurisdiction of only at Jaipur in
Rajasthan Courts only and in addition in one of the purchase order the
expression used was that the Court at Jaipur only would have jurisdiction to
entertain or try the same.
the light of the aforesaid facts of the present case, the ratio of all the
aforesaid decisions which are referred to hereinbefore would squarely govern
and apply to the present case also. There is Page 16 of 23 indeed an ouster
clause used in the aforesaid stipulations stating that the courts at Jaipur
alone would have jurisdiction to try and decide the said proceedings which
could be initiated for adjudication and deciding the disputes arising between
the parties with or in relation to the aforesaid agreements through the process
of arbitration. In other words, even though otherwise the Courts at Calcutta
would have territorial jurisdiction to try and decide such disputes, but in
view of the ouster clause it is only the courts at Jaipur which would have
jurisdiction to entertain such proceeding.
Division Bench of the Calcutta High Court was aware of the clauses and
stipulations in the agreements and was also aware of the abovementioned
decisions of this Court, but the Division Bench held that the said forum
selection clause agreed to and entered into between the parties would not apply
in view of the specific provision of Section 31(4) of the Act. The said
provision as well as sub-Section (3) are extracted below:- "31.
Page 17 of 23
(3) 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.
anything contained elsewhere in this 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."
noticed the aforesaid provision of Section 31(4), the Division Bench held that
since the aforesaid provision starts with a non-obstantive clause, the said
provisions would only apply and would come into operation. The Division Bench
finally held thus:
argument cannot be sustained after a plain reading of Section 31(4) of the Act.
It is clear from the language used therein that where in any application has
been made in a court, competent to entertain, in that case that court alone
shall have jurisdiction. The requirement is not that the application should be
allowed. Since in the instant case admittedly an application under Section 20
has been made, which is an application in a reference, Calcutta High Court will
Page 18 of 23 The
said findings were rendered by the Division Bench upsetting the findings of the
learned Single Judge who had held that the non-obstantive clause appearing in
sub-Section (4) of Section 31 would not be attracted in the present case where
the parties by an agreement had agreed to a particular forum having
jurisdiction over the dispute between the parties for adjudication.
20 of the Code will apply in respect of deciding the issue with regard to
territorial jurisdiction of a court in respect of a matter relating to
arbitration also, for in Hakam Singh (supra), it was held that the jurisdiction
of the court under the Act to entertain the proceeding for filing an Award was
governed by the provisions of the Code. We also at this stage may appropriately
refer to the definition of the word "Court" as appearing in Section
2(c) of the Act wherein the expression "Court" is defined 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, but does not except for the purpose of arbitration proceedings under
Section 21, include a Small Cause Court."
Page 19 of 2326.Sub-section
(3) precedes sub-Section (4) of Section 31 of the Act.
said sub-Section provides 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) on the other hand states that where in any reference any
application under the Arbitration Act has been made in a Court competent to
entertain, then that Court alone would have jurisdiction over the arbitration
proceedings and all subsequent applications arising from that matter and
arbitration proceedings shall be made in that court and in no other court.
analytical look at the provisions of sub-Sections (3) and (4) will make it
explicitly clear that any application in any reference, meaning thereby even an
application under Section 20 of the Act could or should be filed in a court
competent to entertain such proceeding and having jurisdiction to decide the
subject of the reference. Such jurisdiction would or could be restricted by the
agreements entered into by and between the parties. The parties have clearly
stipulated and agreed that no other court, but only the court at Jaipur will
have jurisdiction to try and decide the Page 20 of 23 proceedings arising out
of the said agreements, and therefore, it is the Civil Court at Jaipur which
would alone have jurisdiction to try and decide such issue and that is the
court which is competent to entertain such proceedings. The said court being
competent to entertain such proceedings, the said Court at Jaipur alone would
have jurisdiction over the arbitration proceedings and all subsequent applications
arising out of the reference. The arbitration proceedings have to be made at
Jaipur Court and in no other court.
our considered opinion, the learned Division Bench of the Calcutta High Court
misread and misinterpreted the provisions of sub-Sections (3) and (4) of
Section 31 of the Act and thereby arrived at a wrong finding to the effect that
by virtue of the aforesaid provision of Section 31(4) the Calcutta High Court
would have jurisdiction in the matter.
view of the aforesaid findings and conclusions arrived at by us holding that it
is only the Court at Jaipur which will have jurisdiction to try and decide the
arbitration proceedings between the parties and also entertain a petition of
the aforesaid nature i.e. Page 21 of 23 Section 20 of the Act, we set aside
and quash the judgment and order of the Division Bench of the Calcutta High
Court. Both the appeals are allowed to the aforesaid extent. The Registry of
the Calcutta High Court is directed to transfer the petition filed by the
respondent under Section 20 of the Act alongwith all the records to the
District Judge, Jaipur, as expeditiously as possible but not latter than four
weeks from the date of receipt of this order. The District Judge, Jaipur on
receipt of the said petition alongwith the transmitted records shall allocate
it to the competent and appropriate Court, which would thereafter issue Notice
to both the parties. The concerned Court shall thereafter deal with the matter
in accordance with law.
registry of this Court is directed to send a copy of this order to the
Registrar, Calcutta High Court and also to District Judge, Jaipur for necessary