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Delhi High Court
Association Of Co-Operatives & … vs State Of Bihar & Another on 27 September, 2000
Equivalent citations: 2000 VIIAD Delhi 1119, AIR 2000 Delhi 106, 2001 (1) ARBLR 19 Delhi, 88 (2000) DLT 101, 2000 (55) DRJ 531, 2001 (1) RAJ 368
Author: D Gupta
Bench: D Gupta, M Mudgal


Devinder Gupta, J.

1. This appeal is against the order passed by learned Single Judge on 1.9.1999. While vacating the ex parte order of adinterim injunction granted on 30.9.1997 and thereby dismissing the application for adinterim injunction, learned Single Judge dismissed the main petition filed by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (for short “the Act”).

2. Facts in brief are that the appellant is a Society registered under the Societies Registration Act and has been constituted by Government of India with a view to take up welfare schemes in handloom sector and to assist member units in infrastructure development. The respondent through the Directorate of Handlooms and Sericulture, Department of Industries, Bihar as a part of welfare scheme floated by it invited tenders in the month of June, 1996 for supply of cotton dhoties and cotton/nylon/polyester sarees to each family in the State of Bihar living below the poverty line. Appellant’s tender was accepted and a formal contract of the total value of Rs. 199.854 crores was entered into on 5.3.1997 for supply of 124.52 lakh dhoties and an equal number of sarees. At the time of signing of the contract, as per the stipulations contained therein an amount of Rs. 40 crores was paid to the appellant on the appellant’s furnishing a bank guarantee for the said amount in favour of respondent No.1. This amount was to be used by the appellant for distribution amongst various State Level Suppliers for initiating supplies. Under the contract, the parties agreed that all disputes and differences, save and except regarding quality and quantity of the goods supplied and differences relating to and arising out of the contract shall be referred to the sole arbitration of the Secretary, Ministry of Textiles, Government of India. Udyog Bhawan, New Delhi. The appelLant furnished a bank guarantee through its bankers, namely, Syndicate Bank, I.P. Estate Branch, New Delhi.

3. Appellant’s case is that under the terms of contract there was an obligation on it to complete the supply at any time within a period of six months commencing from 45 days after singing the agreement. As such its endeavour was to complete the entire supplies well in advance. Towards performance of its part under the contract and in anxiety of completing its obligation in time, the appellant continued to make supplies up to the and of May, 1997. Goods worth Rs. 10 crores were supplied to the respondent. The respondent was under an obligation to make periodic payments within 23 days from the date of receipt of goods but the respondent had been a defaulter in fulfillment of its obligation under the contract. Despite the appellant’s request, payments were not made in accordance with the terms of the contract. Accordingly a meeting was convened of the officers of the appellant and of the respondent at Patna. It was explained to the respondent that as the payments received from the respondent were to be utilised for continuity of supply timely payment was necessary. Thereafter a unilateral decision was taken by the respondent releasing only 75% of payment due to the appellant against the accepted goods. As against the total supplies to the tune of Rs. 35.98 crores, the respondent released only a sum of Rs.7.96 crores. It is alleged that having found itself in a situation where the respondent was not willing to perform the contract it started looking for excuses to wriggle out of the contract and consequently on 1.9.1997 an order was passed by the Director of Handlooms, Government of Bihar declaring that the supplies made by the appellant were allegedly not manufactured on handlooms but on powerlooms. Protest was lodged by the appellant against the alleged testing of the samples. On 4.9.1997 a notice was served by the respondent on the appellant under clause 13 of the agreement calling upon the appellant to show cause as to why the bank guarantee be not encashed. Reply was sent by the appellant refuting baseless and unwarranted allegations but despite satisfactory reply, the Chief Secretary, State of Bihar on 15.7.1997 passed an order directing the Director of Handlooms, State of Bihar to take necessary action towards invocation of the bank guarantee.

4. It is alleged that in terms of clause 13 of the agreement and in terms of the bank guarantee having identical provision for 7 working days time being available to the appellant to move the Arbitrator, the appellant preferred its claim before the Arbitrator, namely, Secretary, Ministry of Textiles. The Arbitrator issued notices on the appellant’s claim for 3.11.1997 and in the meantime the respondent insisted for invocation of bank guarantee despite pending claim before the Arbitrator. Therefore, the appellant filed a petition (OMP.177/97) in this Court under Section 9 of the Act for interim relief. On the misc. application learned Single Judge passed an ex parte ad interim order of injunction restraining the encashment of the bank guarantee. After the respondents put in appearance and filed its reply, the main petition was dismissed on the ground that this Court has no territorial jurisdiction to entertain and decide the petition. Thus the interim order stood vacated.

5. Respondent No. 1 besides contesting the petition on merits raised a preliminary objection in its reply as regards Court’s territorial jurisdiction to entertain the petition under Section 9 of the Act. It was alleged that the bank guarantee was also executed in the official chamber of the Secretary, Department of Industries. Government of Bihar, at Patna in the presence of the Director, Handloom and Sericulture, Government of Bihar. On behalf of the appellant Mr. Johra Chatterjee, Vice Chairman, Mr. S.Mallick, Dy. Secretary were present along with representative of Syndicate Bank. As per the terms of the said bank guarantee, all claims relating to the bank guarantee are subject to jurisdiction of Patna Courts, therefore, petition in this Court was not entertainable.

6. Learned Single Judge construing the provisions of the main contract between the parties, the terms of bank guarantee, the pleadings of the parties and the affidavits filed on record concluded that false and wrong allegations were made by the appellant in its petition that the bank guarantee was executed at Delhi. In fact the bank guarantee was executed at Patna. It was observed that false allegations appears to have been made only with a view to invoke the jurisdiction of this Court and obtain ex parte order of injunction and, therefore, the application for grant of injunction was liable to be dismissed on this ground alone. Irrespective of this learned Single Judge held that the petition was not entertainable by this Court. Instead of retaining the petition for being presented before an appropriate Court, the petition was dismissed.

7. Appeal is against the said order of dismissal of petition. We have heard learned counsel for the parties. At one place learned Single Judge in the impugned order remarked that there is a specific clause in the bank guarantee in question that the Courts at Patna “alone” would have territorial jurisdiction to entertain any suit or proceeding. However, admittedly this is not a correct statement of fact since the word “alone” is not to be found in the bank guarantee. This remark in any case will not make any difference in so far as conclusions arrived at by learned Single Judge are concerned that this Court has no jurisdiction.

8. Under the terms of contract, the appellant was required to make supply of goods at the District Headquarters of each District in the State of Bihar, as set out in the schedule. Admittedly, the contract was executed at Patna. During the course of arguments, learned counsel for the appellant frankly and rightly so conceded that it may be taken for all intends and purposes that the bank guarantee was also executed at Patna, as alleged by the respondent. The appellant in the petition under Section 9 of the Act as regards Court’s jurisdiction alleged: “The bank guarantee was executed at Delhi, the respondent No. 2 is bank situated at Delhi, therefore, this Hon’ble Court has jurisdiction to adjudicate upon the present petition.”

9. As per the bank guarantee, all disputes and claims relating to the bank guarantee are subject to the jurisdiction of Patna Courts. Learned counsel for the appellant relying upon the terms of the agreement that all payments were to be made by the respondent at Delhi urged that at least a part of cause of action can be said to have arisen within the jurisdiction of this Court. Since part of the cause of action can be said to have arisen in Delhi, therefore, this Court will undoubtedly have jurisdiction to entertain this petition. Clause 7 regarding payment terms says that on the basis of G.R.N. (Goods Receipt Note) received from District Magistrate, the appellant will send its bills to Director, Handlooms within seven days for the payment. The Director (Handlooms) shall release the payment for the full value of the accepted goods within 23 days from the date of receipt of goods. All draft charges shall be borne by the appellant. The drafts shall be payable at Delhi on a Nationalised Bank.

10. True purport of the above clause in the contract would mean that instead of making payment by any other means to the appellant, the same was agreed to be made by means of Demand Draft payable on a Nationalised Bank at Delhi. This appears to have been so stipulated merely to facilitate the appellant to enable him collect the amount at Delhi for which purpose the appellant agreed to bear costs of preparing Demand Draft. However, the question would be whether this mode of payment will make any difference for a cause of action in a petition seeking restraint against invocation of bank guarantee? The prayer in petition under Section 9 of the Act is not for a direction against the respondent to make payment of any amount, but only for grant of an injunction restraining the respondent from invoking the bank guarantee and restraining the bank from releasing the payment. In a petition like this such a clause as regards arrangement or the manner of making payment cannot be a part of cause of action.

11. In A.B.C. Laminart Pvt. Ltd. and another Vs. A.P. Agencies, Salem , it was held that jurisdiction of the Court in matter of contract will depend on the situs of the contract and the cause of action arising through connecting factors. It was further held that a cause of action means every fact, which if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court. Cause of action is a bundle of facts, which taken with the law applicable to them gives the plaintiff a right to relief against the de- fendant. It must include some act done by the defendant since in the absence of such an act no cause of action can possibly accrue. It is not limited to the actual infringement of the right sued on but includes all the material facts on which it is founded. It does not comprise evidence necessary to prove such facts, but every fact necessary for the plaintiff to prove to enable him to obtain a decree. Everything which if not proved would give the defendant a right for immediate judgment must be part of the cause of action. But it has no relation whatsoever to the defense, which may be set up by the defendant nor does it depend upon the character of the relief prayed for by the plaintiff. In the said decision, the Supreme Court observed that in the matter of a contract there may arise causes of action of various kinds. In a suit for damages for breach of contract the cause of action consists of the making of the contract and of its breach, so that the suit may be filed either at the place where the contract was made or at the place where it should have been performed and the breach occurred. The making of contract is a part of the cause of action.

12. As noticed by us above, the appellant’s petition filed in this Court was not for recovery of any amount due and payable by the respondent but only a claim for interim measure of protection with respect to the respondent’s act of invoking bank guarantee. Admittedly, the original contract between the parties was executed at Patna under which supplies were to be made by the appellant within the State of Bihar. Admittedly, the bank guarantee also was executed at Patna and bank guarantee says that all disputes and claims relating to bank guarantee shall be subject to jurisdiction of Patna Courts.

13. To these facts aforementioned later decision of the Supreme Court reported as South East Asia Shipping Co. Ltd. Vs. Nav Bharat Enterprises Pvt. Ltd. and another is fully applicable. Admitted position in that case was that the contract was executed in Bombay. Performance of the obligations and liabilities under the contract were also required to be done in Bombay. In furtherance to the execution of the contract at Bombay bank guarantee though executed, at Delhi had been transmitted to Bombay for performance of the contract. The question, therefore, was whether any part of the cause of action had arisen in Delhi in a suit filed in this Court on the Original Side seeking perpetual injunction against invocation of bank guarantee. Learned Single Judge of this Court held that no part of the cause of action had arisen within the jurisdiction of this Court to entertain the suit. On appeal, Division Bench held that since bank guarantee was executed in Delhi and payments were to be made in Delhi, this Court had jurisdiction to try the suit. Supreme Court while setting aside the judgment of Division Bench and thereby maintaining that of learned Single Judge held that in view of the admitted position that the contract was executed in Bombay and the fact that performance of the contract was also to be done within the jurisdiction of Bombay High Court, the mere fact that bank guarantee was executed at Delhi and transmitted for performance to Bombay, does not constitute a cause of action to give rise to the respondent to lay suit on the Original Side of Delhi High Court.

14. Learned counsel for the appellant urged that instead of relying upon the decision in South East Asia Shipping Co. Ltd.’s case (supra) reliance deserves to be placed on the decision in R.S.D.V. Finance Co. Pvt. Ltd. Vs. Shree Vallabh Glass Works Ltd. 1993(3) S.C.C. 130, which is a decision rendered by three Judges.

15. We have considered the submission and been taken through the judgment in R.S.D.V.Finance case (supra) but do not find any force in the submission. The appellant did not approach the Court on the ground that a part of cause of action had arisen within the territorial jurisdiction of this Court, therefore, the clause in the bank guarantee that all disputes and claims relating to bank guarantee shall be subject to jurisdiction of Patna Courts cannot come in its aid to file the petition in this Court on the ground that part of cause of action had arisen within the jurisdiction of this Court. In view of what we have already observed that the clause in the contract as regards mode of payment that the same was to be made to the appellant after deducting the bank charges by means of Demand Draft on Delhi Bank will not be a part of cause of action in a petition seeking injunction restraining invocation of bank guarantee to which the ratio in South East Asia Shipping Co. Ltd.’s case alone will be fully applicable. The contract was to be performed within the State of Bihar. The contract and the bank guarantee were executed at Patna. Bank guarantee was invoked at Patna. The payment due on bank guarantee is also be made to State of Bihar at Patna and under the terms of bank guarantee all disputes being subject to jurisdiction of Patna Courts, therefore, we are of the view that learned Single Judge was perfectly justified in holding that this Court has no jurisdiction to entertain and try the petition.

16. Learned Single Judge while coming to the conclusion that this Court has no jurisdiction declined to return the petition for being presented to the Court having jurisdiction. It was observed that as the only relief in the petition was to grant an injunction, which this Court had declined and no other relief had been claimed, therefore, instead of returning the petition the same deserved dismissal. Such an approach adopted by learned Single Judge is not a correct approach to be followed in such like cases as has been reiterated by the Supreme Court in R.S.D.V.Finance Co. Pvt. Ltd.’s case (supra), wherein it was held that the only course to be adopted, if the Court comes to the conclusion that it has no jurisdiction to try the suit, is not to dismiss the suit but to return the plaint for presentation to the proper Court.

17. Consequently, while maintaining the order passed by learned Single Judge by which he dismissed the application for interim relief, we allow the appeal partly by setting aside that part of the order by which the main petition was dismissed. Instead the petition is ordered to be returned to the appellant for being presented in appropriate Court.

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