CMA/330/2009 of IVR Constructions Limited Vs Technocraft Industries India Limited on 30 December 2009

1. (1999) 8 SCC 436: AIR 1999 SC 3710

2. (1996) 3 SCC 443

3. (1971) 1 SCC 286: AIR 1971 SC 740

4. (1989) 2 SCC 163: AIR 1989 SC 1239

THE HON’BLE SRI JUSTICE V.V.S. RAOAND

CIVIL MISCELLANEOUS APPEAL No.330 of 2009

Between:

M/s.I.V.R.Constructions Limited, represented by itsDirector, E.Sunil Reddy

AND

… Appellant

Technocraft Industries India Limited, represented by its Director And another

... Respondents

THE HON’BLE SRI JUSTICE V.V.S. RAOAND

THE HON’BLE SRI JUSTICE B.N.RAO NALLA

CIVIL MISCELLANEOUS APPEAL No.330 of 2009JUDGMENT:

This miscellaneous appeal is by the plaintiff against thejudgment and decree dated 03.3.2009 in O.S.No.809 of 1997 passedby the Court of VIII Additional Senior Civil Judge, (FTC), City CivilCourt, Hyderabad. The suit was filed for declaration and permanentinjunction. By impugned judgment, the Court below ordered to returnthe plaint to be presented to the proper territorial Court. In this appeal,the appellant is referred to as plaintiff and respondents 1 and 2 arereferred to as defendants 1 and 2.

The first defendant is a company incorporated under theCompanies Act, 1956, having its Registered Office at Marol IndustrialArea, MIDC, Mumbai. The plaintiff entered into a contract valued atRs.2,61,91,236/- with first defendant at Mumbai forconstruction/erection of spinning mill at Murbad in Thane District, Stateof Maharashtra. Time is essence of the contract. The construction hasto be commenced by 10.1.1995 and completed within a period of 11months by 30.11.1995. The first defendant paid mobilisation advanceof Rs.21,40,000/- and the plaintiff gave and executed a BankGuarantee (BG) for the said amount through second defendant Bank. Alleging that the plaintiff failed to complete the work within thestipulated time, first defendant sought to invoke BG, in November1996. The plaintiff assured to complete the work and extended BGupto 31.3.1997. But the work was allegedly abandoned in January1997 before completing the same. As a result, the contract stoodterminated on 31.3.1997. The plaintiff then filed the suit before theCourt below for declaration and injunction restraining the firstdefendant from invoking BG alleging that the first defendant played fraud on the plaintiff by fabricating a bill as if it is prepared by theplaintiff with a view to set up false claim and realised the BG amountunjustly. The plaintiff also alleged that they raised a bill for a sum ofRs.2,16,27,551/- towards works executed, cost of extra items operatednot covered by the agreement on account of idling of plant andmachinery, for the delays caused by the defendant in not giving site intime, not giving details of drawings in time and also not supplying thepower as per terms and conditions.

The first defendant opposed the suit raising the followingcontentions and pleas. The contract was executed on 28.1.1994 atBombay for construction of spinning mill at Murbad. The firstdefendant agreed to give Rs.21,40,000/- as mobilisation advance andinitial deposit of Rs.6,07,000/- against two BGs of plaintiff. The samewas furnished on 28.12.1994. The BG will become payableunconditionally on demand without protest. The second defendantbank agreed to pay BG amount irrevocably if the same is not utilizedby the plaintiff and gave enforceability to BG till the advance is fullyrecovered from the plaintiff. Plaintiff failed to complete the work withinthe stipulated time of extended period. The work was not completedand mobilisation advance was not utilized. Contract was terminatedon 03.1.1997. Therefore BG was invoked but in view of the ad interiminjunction the second defendant did not make the payment against BGdemanded on 12.3.1997. The first defendant also opposed the suitcontending that the Court at Hyderabad has no jurisdiction, that causeof action or part of cause of action did not arise at Hyderabad and thatas per clause 66 of contract, only Courts at Bombay have jurisdiction. The allegation that first defendant resorted to fraud is denied. Theplaintiff filed rejoinder disputing the scope of BG and also denied theallegation that the first defendant has not recovered mobilisationadvance from the bills. Second defendant filed a memo adoptingrejoinder filed by the plaintiff as their written statement.

First defendant filed I.A. No.2354 of 1997 raising objection tothe territorial jurisdiction of the Court below. By an order dated28.4.2001, the said I.A., was dismissed relying on the decision of theSupreme Court in Hindustan Construction Co. Ltd v State ofBihar[[1]] to the effect that BG is separate, distinct and independentcontract. It may be mentioned that the learned Judge also observedthat first defendant will be at liberty to raise the jurisdictional issue atthe time of disposal of the suit. It may also be mentioned that theplaintiff filed I.A.No.981 of 1997 for ad interim injunction restraining firstdefendant from encashing two BGs. The same was dismissed by theCourt below on 13.2.1998, aggrieved by which AAO No.424 1998 wasfiled. A Division Bench of this Court partly allowed the appeal on25.9.2000 restraining the first defendant from invoking BG for Rs.21,40,000/-. However, while permitting encashment of BG forRs.6,70,000/-, the High Court directed to dispose of the suit by28.2.2001.

Learned Senior Civil Judge framed seven issues. The suit wentto trial. Plaintiff examined three witnesses and marked 17 documentsincluding Exs.A3 to A13 photocopies of BGs. First defendantexamined one witness. The learned trial Judge however consideredissue No.5 as to whether it has no jurisdiction to try the suit. Considering the decision of Supreme Court in South East Asia Shipping Co. Ltd vNav Bharat Enterprises Pvt. Ltd.[[2]]and alsooral and documentary evidence especially clause 66 in Ex.A16contract, dated 28.12.1994, the Court below came to the conclusionthat it lacks territorial jurisdiction to entertain the suit.

The learned Counsel for plaintiff and first defendant made theirsubmissions and also relied on precedents. From these submissionsthe question that requires consideration is whether the Court of VIIIAdditional Senior Civil Judge lacks territorial jurisdiction to try the suitof plaintiff.

The admitted facts are as follows. The plaintiff is a civilconstruction company. The first defendant which was erecting aspinning mill at Murbad in State of Maharashtra, awarded contract infavour of plaintiff for a total value of Rs.261.94 lakhs. Thecontract/agreement was executed on 28.12.1994. The work was to becompleted in 11 months. The first defendant gave mobilisationadvance as well as initial deposit against two BGs for Rs.21,40,000/-and Rs.6,70,000/- respectively executed by the plaintiff. The workallegedly was not completed within time and when first defendantattempted to invoke BG, plaintiff agreed to extend the same and also tocomplete the work. Allegedly it was not done and only part of the workwas completed. The first defendant then sent invocation letter tosecond defendant requesting for payment of BG amounts. By thattime, plaintiff instituted O.S. No.809 of 1997 for declaration andperpetual injunction. It is also not denied that clause 66 of contractdeals with jurisdiction of the Court and reads as under.

Notwithstanding any other court or courts havingjurisdiction to decide the question(s) forming the subjectmatter of the reference if the same had been the subjectmatter of a suit, any and all actions and proceedings arisingout of relative to the contract (including any arbitration in termsthereof) shall be only in the Court of competent jurisdiction inthis behalf as mentioned in Appendix to Tender and only thesaid Court(s) shall have jurisdiction to entertain and try anysuch action(s) and/or proceedings(s) to the exclusion of allother courts.

As already noticed, the learned trial Judge relied on clause 66and South East Asia Shipping Co. Ltd (supra) to conclude that it hasno territorial jurisdiction. Counsel for the plaintiff relies on State ofMahrarashtra v National Construction Company[[3]], to contend thatremedy arising out of BG is independent and, therefore,notwithstanding the factual aspects noticed herein above, the Court atHyderabad had jurisdiction. We are afraid, we cannot accept suchsubmission.

Sections 16 to 21 of Code of Civil Procedure 1908 (CPC), dealwith pecuniary and territorial jurisdiction of the Court. Section 16 to 18of CPC deal with the suits in relation to or arising out of or connectedwith immovable property. Section 19 of CPC deals with suits forcompensation for wrongs to person or movables. Section 20 of CPCspeaks of general jurisdictional provision regarding suits where thedefendants reside or cause of action arises. The same reads asunder.

20. Other suits to be instituted where defendants reside orcause of action arises? Subject to the limitations aforesaid,every suit shall be instituted in Court within the local limits ofwhose jurisdiction?cause of action arises? Subject to the limitations aforesaid,every suit shall be instituted in Court within the local limits ofwhose jurisdiction?

(a) the defendant, or each of the defendants where there aremore than one, at the time of the commencement of the suit,actually and voluntarily resides, or carries on business, orpersonally works for gain; ormore than one, at the time of the commencement of the suit,actually and voluntarily resides, or carries on business, orpersonally works for gain; or

(b) any of the defendants, where there are more than one, atthe time of the commencement of the suit actually andvoluntarily resides, or carries on business, or personallyworks for gain, provided that in such case either the leave ofthe Court is given, or the defendants who do not reside, orcarry on business, or personally work for gain, as aforesaid,acquiesce in such institution; orthe time of the commencement of the suit actually andvoluntarily resides, or carries on business, or personallyworks for gain, provided that in such case either the leave ofthe Court is given, or the defendants who do not reside, orcarry on business, or personally work for gain, as aforesaid,acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises.

Explanation: A corporation shall be deemed to carry onbusiness at its sole or principal office in India or, in respect ofany cause of action arising at any place where it has also asubordinate office, at such place.business at its sole or principal office in India or, in respect ofany cause of action arising at any place where it has also asubordinate office, at such place.

Indisputably the first defendant has its registered office andcarries on its business in Murbad in State of Maharashtra. There is nodispute that the contract was signed at Bombay and the work is to beexecuted at Murbad. Section 20(a) and (b) of CPC would oust the jurisdiction of the Courts at Hyderabad. There is no dispute on this. Plaintiff attempts to bring the case under Section 20(c) of CPC. According to him, second defendant executed BG, which isenforceable at Hyderabad, and, therefore, part of cause of actionarises at Hyderabad. There is no doubt that BG was given by seconddefendant on behalf of first defendant at Hyderabad, undertaking topay on demand to first defendant without demur to the extent ofguaranteed sum and then recover the same from the plaintiff. In thenature of things, it is for the first defendant to invoke BG and demandpayment from second defendant and such payment can be madeeither at Hyderabad or at Bombay. From this, can it be said that part ofcause of action has arisen at Hyderabad?

It is settled law that any agreement between the parties to thecontract cannot validly take away the jurisdiction possessed by theCourt, though ouster clause can operate as estoppel against theparties to the contract. But if more than one Court has jurisdictionunder the statute, it is always open to the parties to agree to thejurisdiction of one Court to the exclusion of the other. In such cases,the plaintiff cannot insist that one Court (whose jurisdiction isexcluded) should try the suit ignoring the jurisdiction of the Court whichthe parties agreed to submit.

In the leading case on the subject in Hakam Singh v Gammon

(India) Ltd.,[[4]]the appellant accepted the contract for constructionwork of the respondent Gammon. Clause 13 of the contract providedthat the contract shall be deemed to have been entered into in Bombayand the Courts in Bombay alone shall have jurisdiction to adjudicatethe disputes. Disputes arose and Hakam Singh filed a petition beforeVaranasi Court under Section 20 of the Arbitration Act, 1940, forreference to arbitrator. Placing reliance on clause 13, the petition wasopposed, but Subordinate Judge allowed the petition. The High Courtof Allahabad set aside the same. Before the Supreme Court, it wasurged that mere factum of carrying on business at Bombay would notvest Bombay Courts with jurisdiction to adjudicate the matter. TheSupreme Court agreeing with the High Court, dismissed the appealobserving as under.

By Clause 13 of the agreement it was expresslystipulated between the parties that the contract shall bedeemed to have been entered into by the parties concerned inthe City of Bombay. In any event the respondent have theirprincipal office in Bombay and they were liable in respect of acause of action arising under the terms of the tender to besued in the Courts at Bombay. It is not open to the parties byagreement to confer by their agreement jurisdiction on a Courtwhich it does not possess under the Code. But where twocourts or more have under the CPC jurisdiction to try asuit or proceeding an agreement between the parties that the dispute between them shall be tried in one of suchCourts is not contrary to public policy. Such anagreement does not contravene Section 28 of theContract Act.

In ABC Laminart Pvt. Ltd., v AP Agencies, Salem[[5]],underan agreement ABC Laminart having its registered office at UdyogNagar in Gujarat within the jurisdiction of District Court of Kaira,agreed to supply metallic yarn to respondent having business atSalem in Tamil Nadu. Clause 11 of the agreement provided thatdisputes shall be subject to Kaira jurisdiction. When the disputesarose, respondent filed a suit before Subordinate Judge, Salem, forrecovery of certain amounts, which was opposed, inter alia, on theground of lack of jurisdiction. The trial Judge dismissed the suitagreeing with defendant but, appeal was allowed by High Court ofMadras against which ABC Laminart preferred civil appeal by specialleave. Apex Court dismissed the appeal following Hakam Singh(supra). The cause of action is explained by the Supreme Court asfollows.

A cause of action means every fact, which, iftraversed, it would be necessary for the plaintiff to prove inorder to support his right to a judgment of the Court. In otherwords, it is a bundle of facts which taken with the lawapplicable to them gives the plaintiff a right to relief against thedefendant. It must include some act done by the defendantsince in the absence of such an act no cause of action canpossibly accrue. It is not limited to the actual infringement ofthe right sued on but includes all the material facts on which itis founded It does not comprise evidence necessary to provesuch facts, but every fact necessary for the plaintiff to proveto enable him to obtain a decree. Everything which if notproved would give the defendant a right to immediatejudgment must be part of the cause of action. But it has norelation whatever to the defence which may be set up by thedefendant nor does it depend upon the character of the reliefprayed for by the plaintiff.

It was further held as follows.

So long as the parties to a contract do not oust thejurisdiction of all the Courts which would otherwise havejurisdiction to decide the cause of action under the law itcannot be said that the parties have by their contract oustedthe jurisdiction of the Court. If under the law several Courtswould have jurisdiction and the parties have agreed to submitto one of these jurisdictions and not to other or others of themit cannot be said that there is total ouster of jurisdiction. Inother words, where the parties to a contract agreed tosubmit the disputes arising from it to a particularjurisdiction which would otherwise also be a proper jurisdiction under the law their agreement to the extentthey agreed not to submit to other jurisdictions cannot besaid to be void as against public policy. If on the otherhand the jurisdiction they agreed to submit to would nototherwise be proper jurisdiction to decide disputesarising out of the contract it must be declared void beingagainst public policy.

From the two leading judgments noticed herein above, we areconvinced that in view of clause 66 of the contract read with relevantAppendix to the Tender, parties agreed to oust the jurisdiction ofHyderabad Courts and submit only to Bombay Courts. Even if BG isdistinct and an independent contract among the plaintiff anddefendants 1 and 2, as held by the Supreme Court in NationalConstruction Company (supra), it is only the Bombay Courts, whichhave jurisdiction as agreed by the parties. I n South East AsiaShipping Ltd (supra), the appellant and respondent entered intocontract executed at Bombay for shipment of livestock from Kandla toDamman or Zedda. Nav Bharat executed BG at Delhi and sent toBombay for performance of the contract. When disputes arose NavBharat filed suit in Delhi High Court for perpetual injunction restrainingSouth East Shipping from enforcing BG. The learned Single Judgerejected the case on the ground that no part of cause of action hadarisen within the jurisdiction of Delhi Court. The Division Benchhowever reversed. The appeal of South East Shipping was allowedby apex Court holding that even if BG is executed at Delhi, cause ofaction or part of cause of action would not arise there. The SupremeCourt allowed the appeal observing as follows.

It is settled law that cause of action consists of bundleof facts which give cause to enforce the legal injury forredress in a court of law. The cause of action means,therefore, every fact, which if transversed, it would benecessary for the plaintiff to prove in order to support his rightto a judgment of the Court. In other words, it is a bundle offacts, which taken with the law applicable to them, gives theplaintiff a right to claim relief against the defendant. It mustinclude some act done by the defendant since in the absenceof such an act no cause of action would possibly accrue orwould arise. In view of the admitted position that contractwas executed in Bombay, i.e., within the jurisdiction ofthe High Court of Bombay, performance of the contractwas also to be done within the jurisdiction of the BombayHigh Court; merely because bank guarantee wasexecuted at Delhi and transmitted for performance toBombay, it does not constitute a cause of action to giverise to the respondent to lay the suit on the original sideof the Delhi High Court. The contention that the DivisionBench was right in its finding and that since the bank guarantee was executed and liability was enforced fromthe bank at Delhi, the Court got jurisdiction, cannot besustained.

On consideration of the factual background of the case and thedecision of the Supreme Court especially those in Hakam Singh(supra) and South East Asia ShippingLtd., (supra), which directlyapply to the facts of this case, we are convinced that the appeal iswithout any merit and deserves to be dismissed. The civil miscellaneous appeal is accordingly dismissedwithout costs.

_______________

(V.V.S.RAO,J)

December 30, 2009

__________________

(B.N.RAO NALLA, J)

NOTE:

1. L.R. copy be marked.

2. Dispatch order copy in one week.

(By order)

YS

[1](1999) 8 SCC 436: AIR 1999 SC 3710

[2](1996) 3 SCC 443

[3](1996) 1 SCC 735

[4](1971) 1 SCC 286: AIR 1971 SC 740

[5](1989) 2 SCC 163: AIR 1989 SC 1239