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Report No. 54

Section 20 and suits against the Government

1D.43. The next section which we have to discuss is section 20, which deals with forum. In connection with suits against the Government, questions of forum sometimes present difficulty, because the Government has no "residence", and the question how far the Government can be said to "carry on business" is one which, for a long time, engaged the attention of courts.1 It will be more convenient, from the practical point of view, if the place of the plaintiff's residence is treated as a proper forum, in case of suits against the Government, in addition to the forum permitted under the existing provisions. There will be no hardship to the Government.

1. 27th Report, note on section 20, and suits against the Government.

1D.44. In connection with the forum for suits against the Government, it would be of interest to note that in the U.S.A. the plaintiff's residence constitutes the forum. The relevant provision1 is as follows:-

"S. 1402. United States as defendant-

(a) Any civil action against the United States under sub-section (a) of section 1346 of this title2 may be prosecuted only in the judicial district where the plaintiff resides.

(b) Any civil action on a tort claim against the United States under sub¬section (b) of section 1346 of this title3 may be prosecuted only in the judicial district where the plaintiff resides or wherein the act or omission complained of occurred."

1. 28 US Code 1402.

2. Title 28, section 1346(a) of U.S. Code relates to various suits in the district courts of the U.S. against the Government for money wrongfully collected as tax etc. The jurisdiction is concurrent with the Court of Claims.

3. Title 28, section 1346(b) of U.S. Code relates to Civil Claims against the United States in the district Court not exceeding 10,000 dollars, fou,ncled upon the Constitution, federal law or regulation, contract etc.

Recommendation

1D.45. While it is not necessary to confine the forum only to the plaintiff's residence (as has been done in the rule in the U.S.A. quoted above), that should constitute an additional forum. We, therefore, recommend that the following clause should be inserted in section 20-

"(bb) or, in the case of a suit against the Government, the plaintiff, or any of the plaintiffs, if there be more than one, resides, carries on business or personally works for gain."

Section 20-Explanations

1D.46. There is another point concerning section 20 (forum for suits other than those relating to immovable property). Broadly speaking, under the section, the forum is the place where the defendant actually and voluntarily resides, carries on business or personally works for gain, or where the cause of action arises in whole or in part. There are two Explanations annexed to the section, quoted below:

"Explanation I.-Where a person has permanent dwelling at one place, and also a temporary residence at another place, he shall be deemed to reside at both places in respect of any cause of action arising at the place where he has such temporary residence.

Explanation II.-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."

1D.47. Both the Explanations prima facie appear to be obscure and redundant, and one of them suffers from a drafting flaw also, as is shown below.

1D.48. First, we discuss Explanation I. If a person has a permanent dwelling and a temporary residence at different places, the first Explanation provides that he shall be deemed `to reside' at both places, in respect of any cause of action arising at the temporary residence. Now, it is not clear whether this Explanation is intended to expand the scope of the main part of the section or to limit the scope of the main part of the section. Under the main part, a suit can be filed either where the defendant "actually and voluntarily" resides or carries on business or personally works for gain, or where the cause of action arises in whole or in part.

If the object of the Explanation is to indicate that temporary residence is enough to give jurisdiction, then the further requirement as to the cause of action is not intelligible, because the place where the cause of action arises is the proper forum even under the main part, and the Explanation gives no additional forum. If, on the other hand, the object of the Explanation is to give jurisdiction to the court of permanent dwelling,'even then the requirement as to cause of action renders the Explanation useless.

1D.49. There is also a drafting flaw, inasmuch as while the main part of the section is in terms of "actually and voluntarily resides", the fiction created by the Explanation extends only to "resides". In other words, the Explanation is not in total harmony with the main part.

1D.50. If the object of the Explanation is to limit the operation of the main part as regards a place of temporary residence, then the Explanation fails to carry out that object clearly, for, under the main part, even a temporary residence would suffice, and the Explanation does not indicate in definite terms that a temporary residence shall not suffice.

1D.51. The Explanation could, no doubt, be made more intelligible by removing the requirement of the cause of action, and by providing that the place of permanent dwelling is also a place where the defendant is deemed to "actually and voluntarily" reside etc., notwithstanding that the permanent dwelling place is not his actual residence. But, as a matter of policy, this is to be avoided. If the permanent dwelling is an abandoned home and is a "dwelling" only in name, there is no reason why it should constitute a possible forum. The only course left, therefore, is to delete the first Explanation, because it is redundant as it stands now, and cannot, by any modification, be made to perform a useful function.

1D.52. We now turn to the second Explanation. The first part of the Explanation is, no doubt, useful, since, where a corporation has its main office at any place (in India), it is to be deemed to carry on its business there, irrespective of the nature of the work that is actually carried on there. But the latter part of the second Explanation is otiose. If no part of the cause of action arises at the place of the branch office, the corporation cannot, as the wording now stands, be said to transact business at the place.1

In the presence of clause (c), the purpose of the second part of Explanation 2 is obscure.2 Where the suit is instituted at a place where a corporation has a subordinate office, the court cannot dispense with the requirement that the cause of action must arise at such a place.3 If no part of the cause of action arises at a branch office of the corporation, a suit is not maintainable in the court of that place.4 The latter part of the second Explanation, therefore, serves no useful purpose.

1. Bhola Nath v. Empire of India Life Insurance Co., AIR 1948 Lah 56 (57), para. 16 (reviews cases).

2. Bharat Insurance Co. v. Wasudeo, AIR 1958 Nag 203 (204), para. 7 (reviews cases).

3. Bharat Insurance Co. v. Wasudeo, AIR 1956 Nag 203 (204), para. 8.

4. Nadungadi Bank Ltd. v. Central Bank of India Ltd., AIR 1961 Ker 50.

1D.53. The matter was discussed at length in the earlier Report1 also, but no change in the wording of the section was suggested.

1. 27th Report.

1D.54. We are of the view that as regards Explanation 2, the latter half should be deleted. There is, in our view, a case for providing, as a forum, the place where there is a subordinate office, irrespective of the question whether it is also the place of accrual of the cause of action. The present restriction, as was stated in the Nagpur case,1 causes hardship. (That case related to the business of insurance, but the hardship is common to all cases dealing with corporations).

1. Bharat Insurance Co. v. Wasudeo, AIR 1956 Nag 200 (204).

1D.55. It was stated in the Nagpur case-

"It is much to be regretted that an insurance company should not be amenable to the jurisdiction of the court at the place where it maintains a subordinate office irrespective of any question about the accrual of cause of action. But few policy holders realise the implications of the forms of the contract prepared by the insurance companies which, though operating all over the country by receiving proposals and premiums through their various subordinate offices, carefully undertake to pay only at the head office situated in many cases far away from the policy holder or his assignee or nominee."

1D.56. The observations, though made with reference to insurance business, apply equally to corporations carrying on other business also.

1D.57. It may be noted that in the U.S.A. the rule applicable (in federal courts) as to venue generally,1 after providing that the defendant's residence constitutes the forum in "non-diversity" cases, goes on to enact as follows:-

"(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.

(d) An alien may be sued in any district."

1. 28 US Code 1931.

1D.58. The suggestion made above would not, therefore, be novel.

1D.59. The amendment suggested may appear to be giving a very wide forum. But, in practice, the suit will be filed only where some relationship exists between the subordinate office and the plaintiff.

Recommendation

1D.60. In the result, our recommendation is as follows-

(a) the first Explanation to section 20 should be deleted;

(b) the second Explanation should be modified so as to read as follows:-

"Explanation-A corporation shall be deemed to carry on business at its sole or principal office in India and also at any place in India where it has a subordinate office."



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