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CASE NO.:

Appeal (civil) 7653 of 2004

PETITIONER:

Shree Subhlaxmi Fabrics Pvt. Ltd.

RESPONDENT:

Chand Mal Baradia and others

DATE OF JUDGMENT: 29/03/2005

BENCH:

D.M. Dharmadhikari & G.P. Mathur

JUDGMENT:

J U D G M E N T

G.P. MATHUR, J.

This appeal by special leave has been preferred against the

judgment and order dated 21.5.2002 of Calcutta High Court by which

the application moved by the first respondent under Order 39 Rule 1

and 2 and Section 151 CPC was allowed and Hindustan Chambers of

Commerce, Mumbai (second respondent) was restrained from

proceeding in Arbitration Case Nos. A/186 and A/187 subject to

deposit of Rs.2 lakhs by the first respondent with the Registrar

General within two days of receipt of the certified copy of the order.

The first respondent Chand Mal Baradia filed Title Suit No. 993

of 1999 in the City Civil Court at Calcutta for permanent injunction

restraining the defendants from proceeding with the arbitration

proceedings, which had been initiated by the appellant Shree

Subhlaxmi Fabrics Pvt. Ltd. The case of the plaintiff (first

respondent) in brief is that he was carrying on business under the

name and style of M/s. Chand Mal Prakash Chand and Co. at

Calcutta; that Shree Subhalaxmi Fabrics Pvt. Ltd., Mumbai (defendant

No. 1), which is a company registered under the Companies Act and

sells cloth through its agent M/s. Naresh Enterprises, which has its

office at Calcutta, under the terms and conditions as dictated by

defendant No. 1; that the plaintiff was getting supplies against the

orders placed by him at Calcutta through the agent of defendant No. 1;

that all such supplies were made by the agent to the plaintiff at

Calcutta at his premises No. 160, Jamunalal Bajaj Street and all

payments made by the plaintiff were collected by this agent on behalf

of defendant No. 1 at Calcutta; that the plaintiff was taking delivery of

goods at Calcutta on the basis of Railway Receipts/Lorry Receipts and

consignment notes from the said agent M/s. Naresh Enterprises. The

case of the plaintiff further is that there was no arbitration agreement

between the plaintiff and defendant No. 1 at any point of time for

referring their disputes to any arbitrator; that he was not a member of

defendant No. 2 M/s. Hindustan Chambers of Commerce, having its

office in Mumbai. As the plaintiff became seriously ill some time in

early part of 1997, he could not look after his business and

consequently there was some delay in making payments to defendant

No. 1; that the plaintiff paid more than Rs. 4 lakhs to defendant No. 1

and the last payment was made on 27.2.1999; that in April, 1999 the

plaintiff received two notices from defendant No. 2 intimating that the

defendant No. 1 had initiated arbitration proceedings and the plaintiff

was asked to nominate an arbitrator and send a sum of Rs.200/- as

arbitration fee; that the defendant No. 2 had no jurisdiction or

authority to act as an arbitrator and accordingly the plaintiff requested

it not to proceed with the arbitration case. The case of the plaintiff

further is that the defendant No. 1 initiated another arbitration

proceeding bearing No. A/186 before defendant No. 2 claiming that

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M/s. Chand Mal Prakash Chand and Co. was also the proprietor of

Arihant Textiles; that the plaintiff informed by sending a letter to

defendant No. 2 on 18.5.1999 that he had never placed any order in

the name of Arihant Textiles at any point of time and, therefore, the

case be dropped. The plaintiff filed an application under Order 39

Rule 1 and 2 and Section 151 CPC for restraining the defendants from

proceeding with the arbitration cases.

The appellant Shree Subhlaxmi Fabrics Pvt. Ltd. (defendant

No. 1) opposed the prayer for grant of injunction and also filed an

application under Section 20 read with Section 151 CPC on the

ground inter alia that the defendant No. 1 is a cloth merchant, which is

carrying on business all over India; that M/s. Naresh Enterprises

having its office at Calcutta had been engaged as a middleman by the

appellant, who procured a buyer namely Chand Mal Prakash Chand &

Co. represented by Chand Mal Baradia and others at Calcutta; that

M/s. Naresh Enterprises contacted defendant No. 1 at Mumbai for

supply of cloth upon which the defendant No. 1 sent their indents

through the said middleman to the said M/s. Chand Mal Prakash

Chand & Co. (plaintiff), which was duly accepted by them; that the

defendant No. 1 supplied cloth valued at approximately Rs.20 lakhs in

1996-97 to the plaintiff; that in the indents (contracts) terms and

conditions were mentioned and condition Nos. 6 and 7 read as under:-

"Clause \026 6 Dispute under this contract shall be decided by the

Court of Bombay and no other courts.

Clause \026 7 If any dispute arises about the transaction the same

shall have to be referred to the Hindustan Chamber

of Commerce, Bombay, for decision under its

Arbitration Rules."

It was further stated in the application filed by the appellant

(defendant No. 1) that in the indent/offer letter, which was prepared

and sent by the middleman M/s. Naresh Enterprises, to the office of

defendant No. 1 a condition was mentioned regarding jurisdiction of

courts, which reads as under: -

"UNDER JURISDICTION OF THE COURT

FROM WHERE THE GOODS HAVE BEEN

DESPATCHED".

In all the bills/invoices, which were sent to the plaintiff, it was

specifically mentioned at the top "subject to Mumbai jurisdiction" and

at the left hand side at the bottom the following was written: -

"In case of dispute arising out of the transaction

between the vendors and the purchaser and the

brokers or agent either for payment or any other

dispute in relation to the transaction, the same shall

be referred to the Hindustan Chamber of

Commerce, Mumbai, for decision under its

Arbitration Rules and the Award made thereunder

shall be binding upon the parties."

Since dispute arose between the parties regarding payment of the

goods sold and delivered, the appellant referred the matter to the

Hindustan Chamber of Commerce, Mumbai, for arbitration and

appointed Shri Shikhar Chand Jain as its arbitrator. The Hindustan

Chamber of Commerce (defendant No. 2) had entered upon the

reference and had served a notice upon the plaintiff by letter dated

31.3.1999 calling upon them to appoint one of their arbitrators from

the panel/list sent by it and further to deposit Rs.200/- as arbitration

fee. The said letter was duly replied by the plaintiff on 20.4.1999

along with a fee of Rs.200/-. A specific plea was thus raised by

defendant No. 1 that the court at Calcutta had no territorial jurisdiction

to try the suit and further that in view of the arbitration agreement

contained in the indent (contract) and also the fact that the plaintiff

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had already responded to the notice issued by the defendant No. 2,

there was no ground for granting any injunction order in their favour.

The City Civil Court at Calcutta, after a detailed consideration

of the matter, held that the said court had no jurisdiction to try the suit

and further that the arbitration proceedings having already

commenced, the civil court should not interfere with the functioning

of the arbitrator (defendant No. 2). It was accordingly held that the

plaintiff had no prima facie case to go for trial and the balance of

convenience lies in favour of the defendants. It was further held that

the plaintiff will not suffer any irreparable injury in the event of

refusal of injunction. The application was accordingly dismissed by

the order dated 22.2.2000.

Feeling aggrieved by the order of City Civil Court the plaintiff

preferred an appeal before the Calcutta High Court under Order 43

Rule 1 (r) CPC. The High Court held that an objection as to the

existence of the arbitration agreement can be taken either before the

arbitrator or by way of a suit in a competent court, the initial choice

being of the aggrieved party. If the court is approached, it is a matter

of discretion of the court even at the final hearing, whether to decide

the suit or to refer the matter to the arbitrator, allowing a decision by

the arbitrator himself on the point. Regarding jurisdiction the High

Court held that the plaintiff has no doubt an arguable case that he did

not consciously agree to the exclusion of the jurisdiction of the courts.

It was further held that the plaintiff's plea that "from where the goods

have been dispatched" is not sufficiently specific as to exclude a

court's jurisdiction is no doubt an arguable case. On these findings

the appeal was allowed and all further proceedings in arbitration cases

A/186 and A/187, initiated by the defendant No. 1 before defendant

No. 2, were stayed subject to the plaintiff's depositing Rs. 2 lakhs

with the Registrar General within two days of the receipt of the

certified copy of the order.

Shri M.N. Krishnamani and Shri Jaideep Gupta, learned senior

advocates, who have appeared for the appellant Shree Subhlaxmi

Fabrics Pvt. Ltd. (defendant No. 1) have assailed the order of the High

Court on two grounds. The learned counsel have submitted that the

indent (contract) contained a clause that in case any dispute arises

about the transaction the same shall have to be referred to the

Hindustan Chamber of Commerce, Mumbai, for decision under its

Arbitration Rules and as such there was an arbitration agreement

between the parties, which was invoked by the appellant by making a

reference to defendant No. 2. The defendant No. 2 had sent a notice

to the plaintiff asking it to nominate an arbitrator from the panel/list

supplied to it and also to remit an amount of Rs.200/- towards the fee

of arbitration. The plaintiff responded by sending a reply and also an

amount of Rs.200/-. In such circumstances the plaintiff cannot

contend that there is no arbitration agreement between the parties.

That apart it is open to the plaintiff to raise such a plea before the

arbitrator under Section 16 of The Arbitration and Conciliation Act,

1996 (hereinafter referred to "the Act"). The second ground urged is

that there was an agreement between the parties that the disputes

arising under the contract shall be decided by the courts at Bombay

and by no other courts and consequently courts at Calcutta had no

territorial jurisdiction to entertain the suit. The learned counsel have

thus submitted that the High Court committed manifest error of law in

granting an injunction order in favour of the plaintiff and in passing a

restraint order staying further proceedings before the arbitrators.

Shri V.A. Mohta, learned senior counsel for the respondent No.

1 (plaintiff), on the other hand, submitted that there was no arbitration

agreement between the parties as contemplated by Section 7 of the

Act and, therefore, the reference made to the arbitrator by the

appellant is wholly invalid and the defendant No. 2 has no jurisdiction

to proceed with the arbitration. He has further submitted that a part of

cause of action had accrued at Calcutta and the plaintiff had never

consciously agreed to any condition that any dispute arising between

the parties shall be decided by the courts at Bombay and by no other

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courts and, therefore, the court at Calcutta had the jurisdiction to try

the suit.

Before examining the contentions raised by the learned counsel

for the parties it will be convenient to take note of certain provisions

of the Act. Sections 4, 5, 7 and 16 of the Act read as under: -

"4. Waiver of right to object. \026 A party who

knows that \026

(a) any provision of this part from which the

parties may derogate, or

(b) any requirement under the arbitration

agreement,

has not been complied with and yet proceeds with

the arbitration without stating his objection to such

non-compliance without undue delay or, if a time

limit is provided for stating that objection, within

that period of time, shall be deemed to have

waived his right to so object."

"5. Extent of judicial intervention. \026

Notwithstanding anything contained in any other

law for the time being in force, in matters

governed by this Part, no judicial authority shall

intervene except where so provided in this part."

"7. Arbitration agreement. \026 (1) In this part,

"arbitration agreement" means an agreement by

the parties to submit to arbitration all or certain

disputes which have arisen or which may arise

between them in respect of a defined legal

relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of

an arbitration clause in a contract or in the form of

a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is

contained in \026

(a) a document signed by the parties;

(b) an exchange of letters, telex,

telegrams or other means of

telecommunication which provide a

record of the agreement; or

(c) an exchange of statements of claim

and defence in which the existence of

the agreement is alleged by one party

and not denied by the other.

(5) The reference in a contract to a document

containing an arbitration clause constitutes an

arbitration agreement if the contract is in writing

and the reference is such as to make that

arbitration clause part of the contract."

"16. Competence of arbitral tribunal to rule on

its jurisdiction. \026 (1) The arbitral tribunal may

rule on its own jurisdiction, including ruling on

any objections with respect to the existence or

validity of the arbitration agreement, and for that

purpose, -

(a) an arbitration clause which forms part of

a contract shall be treated as an

agreement independent of the other terms

of the contract; and

(b) a decision by the arbitral tribunal that the

contract is null and void shall not entail

ipso jure the invalidity of the arbitration

clause.

(2) A plea that the arbitral tribunal does not have

jurisdiction shall be raised not later than the

submission of the statement of defence; however, a

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party shall not be precluded from raising such a

plea merely because that he has appointed, or

participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding

the scope of its authority shall be raised as soon as

the matter alleged to be beyond the scope of its

authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases

referred to in sub-section (2) or sub-section (3),

admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea

referred to in sub-section (2) or sub-section (3)

and, where the arbitral tribunal takes a decision

rejecting the plea, continue with the arbitral

proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award

may make an application for setting aside such an

arbitral award in accordance with section 34."

Section 5 of the Act provides that notwithstanding anything

contained in any other law for the time being in force, in matters

governed by Part I (Sections 2 to 43), no judicial authority shall

intervene except where so provided in the said part. This clearly

indicates the legislative intent to minimize supervisory role of courts

to ensure that the intervention of the court is minimal. Section 4 is a

deeming provision, which lays down that where a party proceeds with

the arbitration without stating his objection to non-compliance of any

provision of Part I from which the parties may derogate or any

requirement under arbitration agreement, it shall be deemed that he

has waived his right to so object. Section 7 provides that the

arbitration agreement shall be in writing and such an agreement may

be in the form of an arbitration clause in a contract or in the form of a

separate agreement. Sub-section (4) of Section 7 provides the

conditions under which a document or exchange of letter or exchange

of statement of claim and defence may amount to an arbitration

agreement. Section 16 of the Act is important and it provides that the

arbitral tribunal may rule on its own jurisdiction, including ruling on

any objections with respect to the existence or authority of the

arbitration agreement.

Section 11 of the Act provides for appointment of arbitrators

and sub-section (6) thereof empowers the Chief Justice of the High

Court or any person or institution designated by him to make such an

appointment on the happening of certain conditions enumerated in

clauses (a), (b) or (c).

In Konkan Railway Corpn. Ltd. vs. Mehul Construction Co.

2000 (7) SCC 201, a three Judge Bench of this Court held that at the

stage when a party has approached the Chief Justice for appointment

of an arbitrator, the contentious issues should not be decided at that

stage and the aggrieved party can raise all the objections including

objection regarding non-existence of an arbitration clause before the

arbitral tribunal. The Bench observed as under in para 4 of the

report:-

"When the matter is placed before the Chief

Justice or his nominee under Section 11 of the Act

it is imperative for the said Chief Justice or his

nominee to bear in mind the legislative intent that

the arbitral process should be set in motion without

any delay whatsoever and all contentious issues

are left to be raised before the Arbitral Tribunal

itself. At that stage it would not be appropriate for

the Chief Justice or his nominee to entertain any

contentious issue between the parties and decide

the same. A bare reading of Sections 13 and 16 of

the Act makes it crystal clear that questions with

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regard to the qualifications, independence and

impartiality of the arbitrator, and in respect of the

jurisdiction of the arbitrator could be raised before

the arbitrator who would decide the

same\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005

\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005....

Section 16 empowers the Arbitral Tribunal to rule

on its own as well as on objections with respect to

the existence or validity of the arbitration

agreement. Conferment of such power on the

arbitrator under the 1996 Act indicates the

intention of the legislature and its anxiety to see

that the arbitral process is set in motion. This

being the legislative intent, it would be proper for

the Chief Justice or his nominee just to appoint an

arbitrator without wasting any time or without

entertaining any contentious issues at that stage, by

a party objecting to the appointment of an

arbitrator. If this approach is adhered to, then

there would be no grievance of any party and in

the arbitral proceeding, it would be open to raise

any objection, as provided under the

Act\005\005\005\005."

Similar view has been taken in State of Orissa and others vs.

Gokulananda Jena 2003 (6) SCC 465, where this Court held as under:-

"However, we must notice that in view of Section

16 read with Sections 12 and 13 of the Act, as

interpreted by the Constitution Bench of this Court

in Konkan Rly. Corpn. Ltd. v. Rani Construction

(P) Ltd. [(2002) 2 SCC 388] almost all disputes

which could be presently contemplated can be

raised and agitated before the arbitrator appointed

by the Designated Judge under Section 11(6) of the

Act. From the perusal of the said provisions of the

Act, it is clear that there is hardly any area of

dispute which cannot be decided by the arbitrator

appointed by the Designated Judge\005\005\005."

In Food Corporation of India vs. Indian Council of Arbitration

and others 2003 (6) SCC 564 (para 14), it was emphasized that the

legislative intent underlying the 1996 Act is to minimize the

supervisory roles of courts in the arbitral process and nominate/

appoint the arbitrator without wasting time, leaving all contentious

issues to be urged and agitated before the arbitral tribunal itself. It

was further held that even in the old law, common sense approach

alone was commended for being adopted in construing an arbitration

clause more to perpetuate the intention of the parties to get their

disputes resolved through the alternate disputes redressal method of

arbitration rather than thwart it by adopting a narrow, pedantic and

legalistic interpretation.

The consistent view taken by this Court, therefore, is that

contentious issues should not be gone into or decided at the stage of

appointment of an arbitrator and no time should be wasted in such an

exercise. The remedy of the aggrieved party is to raise an objection

before the arbitral tribunal as under Section 16 of the Act it is

empowered to rule about its own jurisdiction. It is, therefore, open to

the plaintiff to raise all the pleas before defendant No. 2 including a

plea that there is no arbitration agreement between the parties for

referring any dispute for arbitration before the Hindustan Chamber of

Commerce, Mumbai. It is also important to note that in response to

the notice issued by defendant No. 2 the plaintiff had sent a

communication raising certain pleas and had also remitted an amount

of Rs.200/- as fee for arbitration. In such circumstances we are of the

opinion that the view taken by the City Civil Court was just and

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proper and the High Court erred in granting an injunction in favour of

the plaintiff and staying the proceedings before defendant No. 2.

The other point, which needs consideration, is that the appellant

had raised a specific plea by moving an application under Section 20

read with Section 151 CPC before the trial court that the court at

Calcutta had no territorial jurisdiction to try the suit. According to the

appellant the indent (contract) contained a clause that the dispute

under the contract shall be decided by the court at Bombay and by no

other court. That apart it was defendant No. 1, which had commenced

arbitration proceedings before defendant No. 2 and both are situate in

Bombay.

The plaintiff wants that the Hindustan Chamber of Commerce

(defendant No. 2) may be restrained from proceeding with arbitration

of the dispute, which has been raised by the appellant Shree

Subhlaxmi Fabrics Pvt. Ltd. (defendant No. 1). Both defendant No. 1

and defendant No. 2 have their offices at Bombay. Insofar as

commencement of proceedings before defendant No. 2 by defendant

No. 1 is concerned, no part of cause of action has accrued in Calcutta.

In Hakam Singh vs. Gammon (India) Ltd. 1971 (1) SCC 286, it

has been held 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 a 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 and that such an

agreement does not contravene Section 28 of the Contract Act. In

A.B.C. Laminart (P) Ltd. vs. A.P. Agencies 1989 (2) SCC 163, it was

held as under: -

"When the court has to decide the question of

jurisdiction pursuant to an ouster clause it is

necessary to construe the ousting expression or

clause properly. Often the stipulation is that the

contract shall be deemed to have been made at a

particular place. This would provide the

connecting factor for jurisdiction to the courts of

that place in the matter of any dispute on or arising

out of that contract. It would not, however, ipso

facto take away jurisdiction of other courts.

Where 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 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 exclusion

alterius' \026 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. When certain 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 construed."

This view has been reiterated in Angile Insulation vs. Davy

Ashmore India Ltd. 1995 (4) SCC 153.

In the case on hand the clause in the indent is very clear, viz.,

"court of Bombay and no other court". The trial court on

consideration of material on record held that the court at Calcutta had

no jurisdiction to try the suit.

The High Court in the earlier part of the judgment noted that

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the invoice contained clause like "under jurisdiction of the court from

where the goods have been dispatched" and in the indent (contract) a

clause like "dispute under this contract shall be decided by the courts

of Bombay and by no other courts". Further, while recording its

findings on the plea raised by the appellant regarding jurisdiction it

held as under: -

"In the facts and circumstances of this case, the

plaintiff has no doubt an arguable case that he did

not consciously agree to the exclusion of the

jurisdiction of the courts of its business. Its case

that "from where the goods has been dispatched",

is not sufficiently specific as to exclude a court's

jurisdiction, is no doubt an arguable case."

In our opinion the approach of the High Court is not correct.

The plea of the jurisdiction goes to the very root of the matter. The

trial court having held that it had no territorial jurisdiction to try the

suit, the High Court should have gone deeper into the matter and until

a clear finding was recorded that the court had territorial jurisdiction

to try the suit, no injunction could have been granted in favour of the

plaintiff by making rather a general remark that the plaintiff has an

arguable case that he did not consciously agree to the exclusion of the

jurisdiction of the court.

On overall consideration of the matter, we are clearly of the

opinion that on the facts and circumstances of the case the view taken

by the trial court was perfectly correct and the High Court has erred in

reversing its order and granting an injunction in favour of the plaintiff.

The appeal is accordingly allowed with costs and the judgment

and order dated 21.5.2002 of the High Court is set aside.