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Delhi High Court
Dlf Industries Ltd. vs Abn Amro Bank And Ors. on 2 August, 2000
Equivalent citations: 2000 (55) DRJ 470
Author: D Gupta
Bench: D Gupta, J Goel


JUDGMENT

Devinder Gupta, J.

1. One of the questions for consideration in these four appeals is about the territorial jurisdiction of the Courts at Delhi to entertain the three petitions filed under Section 9 of the Arbitration and Conciliation Act, 1996 by M/s. DLF Industries Limited (hereinafter referred to as ‘DIL’).

2. The facts in brief are that on 14.1.1998 three separate petitions i.e. O.M.P. Nos. 20/98, 21/98 and 22/98 were filed by DIL seeking injunction against the respondent Bank from encashing the bank guarantees. Inter alia, it was alleged that the petition was being filed against the fraudulent and illegal act of M/s. Atul Limited (hereinafter referred to as “ATUL”) in seeking encashment of bank guarantees issued by the Banks. The contracts between DIL and ATUL were novated in favour of State Bank of India, who has not sought invocation of bank guarantee in view of novation of contracts. In terms of Section 62 of the Indian Contract Act, the original contract need not be performed. As the contracts were novated in favour of State Bank of India, who is substituted in place of ATUL, there is no privity of contract left between DIL and ATUL in whose favour bank guarantees were issued. ATUL as such cannot invoke bank guarantees.

3. The petitions came up before learned Single Judge on 15.1.1998 at about 5.00 p.m. Since there was no time left to hear the matters, it was agreed amongst learned counsel for the ATUL and DIL that encashment of the bank guarantees shall be subject to decision in the petitions. However, on 16.1,1998 it was brought to the notice of learned Single Judge by learned counsel for ATUL that the concerned banks had already issued cheque. Considering the facts and circumstances, the concerned banks were directed not to clear the cheques.

4. ATUL opposed the petitions. In addition of resisting the petitions on merits, a preliminary object was raised as regards Court’s territorial jurisdiction to entertain and try the petitions. It was alleged that as per the terms of the contract arrived at between DIL and ATUL only the Courts situate at Valsad, Gujarat have jurisdiction to adjudicate upon the matter. It was alleged that the entire cause of action had arisen in Valsad, Gujarat. Major negotiations and discussions between DIL and ATUL relating to the basic agreements for erection and commissioning of 1B MW TG. Set took place in Valsad. The agreements were signed by DIL and ATUL at Valsad. The agreements were to be performed Entirely at Valsad. Work was to be carried out at Valsad therefore, no cause of action had arisen out side Valsad. Even as per Memorandum of Understanding and the minutes of meeting dated 19.2.1997 conditions of the original contract remained unaltered and formed a part of new agreement between ATUL, State Bank of India and DIL. As such only Courts situate at Valsad, Gujarat have jurisdiction to adjudicate upon the matter.

5. Learned Single Judge in the impugned order, which is the subject matter in these four appears, one of which is filed by DIL and the others by ATUL, turned down, the said preliminary objection. It was held that part of cause of action in all the three cases for four bank guarantees had arisen at Delhi; all the four bank guarantees were executed in Delhi; agreements arrived at between DIL and ATUL were not binding on the banks since the bank guarantees are independent contracts as in Clause 15 of the agreements words like “alone” or “exclusive” were not there; therefore, in view of the decision of Supreme Court in ABC Laminart Private Limited and Anr. v. A.P. Agencies, Salem , Clause 15 of the agreement does not debar the institution of cases in Courts where a part of cause of action had arisen.

6. Admitted facts are that a letter of intent was issued by ATUL on 1.2.1995, which was accepted by DIL through its letter dated 2.2 1995 for supply, of 15 MW TG. Set (capable of generating 18 MW at 0.8 PP/on turn key basis) DIL requested and ATUL agreed to split this turn key contract into three parts by executing three separate agreements for supply; design and engineering; and erection and commissioning. Accordingly, three separate agreements were executed on 27.2.1995, 1.3.1995 and 3.3.1995. Under the said contracts, DIL agreed to commission the 18 MG TG set for commercial operation by 15.3.1996. The first agreement provided for a lumpsum amount of Rs. 135 lakhs to be paid by ATUL to DIL. Under the terms of payment, 10% advance was to be paid subject to DIL furnishing unconditional irrevocable tank guarantee for the said amount in a form acceptable to ATUL and valid upto the successful commissioning of 18 MW TG Set. Under the secondhand third agreements also, similar bank guarantees for different amounts were to be furnished. All agreements contain similar clause as regards Arbitration and Court’s jurisdiction. The Arbitration clause reads:-

“In case of any dispute that cannot be settled by mutual agreement, the matter may be referred to a three member Arbitration committee, one member each to be nominated by the PURCHASER and the SELLER and the third member i.e. an Umpire to be nominated by these two members.

All the provisions of the Indian Arbitration Act, 1940 and the rules made thereunder or any statutory modification thereof shall apply to the said Arbitration proceedings. The Venue of all arbitration shall be Valsad.”

7. Clause 15 about Courts jurisdiction reads :-

“Disputes of any nature that may arise in connection with the execution of this agreement, shall be governed by the Laws of India subject to the jurisdiction of Courts situate in Valsad, Gujarat.”

8. The last para under Acceptance of Conditions, inter alia, says :-

“That the Agreement shall be deemed to have been entered into at Valsad and all causes of action in relation to the agreement shall, therefore, be deemed to have arisen within the jurisdiction of the Court of Valsad District (Gujarat State) only.”

9. Bank guarantees were furnished by DIL. When the same were sought to be invoked by ATUL, the aforementioned three petitions were filed in this Court by DIL, inter alia, alleging that as both the petitioner and the respondents work for gain in Delhi; the petitioner received almost all the payments under the contract in Delhi; the contracts were monitored from registered office in Delhi; a number of meetings between the parties were held in Delhi and the correspondences were exchanged from Delhi; the bank guarantee in question was issued by the Bank from Delhi and its encashment and payment has been sought from the Bank in Delhi, therefore, this Court has territorial jurisdiction.

10. Mr. J.C. Seth appearing for DIL while supporting the reasonings of learned Single Judge contended that Courts in Delhi have jurisdiction under Clauses (a) and (b) of Section 20 of the Code of Civil Procedure in as much the parties to the petition (a) as banks furnishing bank guarantee, (b) State Bank of India and (3) ATUL reside and work for gain in Delhi and also as a part of cause of action has arisen in Delhi. Almost all payments of few crores were received by DIL under the contracts in Delhi. Most of the meetings were also held in Delhi. Bank guarantees were issued and demand for encashment were made in Delhi. Correspondence between parties have exchanged from Delhi. On novation, the original contract with ATUL gets rescinded and the new contract is with State Bank of India. State Bank of India has not raised any objection as regards jurisdiction. Objection of ATUL is meaningless since ATUL is no more in picture. It was also contended that Clause 15 of the agreement, which deals with Court’s jurisdiction does not excluse jurisdiction of other Courts where a cause of action might arise since the clause does not use the words “alone”, “only” or “exclusive” etc. Penultimate clause, which provides for agreement shall be deemed to have been entered into at Valsad and all causes of action shall be deemed to have arisen within jurisdiction of Courts at Valsad is illegal and invalid.

11. Dr. A.M. Singhvi appearing for ATUL contended that no part of cause of action has arisen in Delhi and moreover intention of the parties have to be gathered from the terms of the agreement. The mere fact that the words “alone”, “exclusive” or the like are not mentioned in Clause 15, are not used still the intention can be gathered from arbitration clause and the penultimate clause, which are part of the same agreement. Arbitration clause clearly provides that the venue of all arbitration shall be at Valsad and the penultimate clause state that all causes of action in relation to agreement shall be deemed to have arisen within the Court at Valsad District only. The words “the venue of all arbitration shall be Valsad,” in the arbitration clause and the words “subject to jurisdiction of Courts situate in Valsad, Gujarat” in the clause pertaining to Courts jurisdiction by necessary implication excludes jurisdiction of any other Court and the parties always intended that Courts at Valsad, Gujarat alone will have jurisdiction.

12. Having considered the submissions made at the Bar, we are of the view that the matter is squarely covered by the decision of Supreme Court in South East Asia Shipping Company Limited v. Nav Bharat Enterprises Private Limited . It was held in that case that admittedly the contract between the parties was executed in Bombay; the performance of obligations and liabilities under the contract were also required to be done in Bombay and in furtherance of the execution of contract at Bombay; the bank guarantee executed at Delhi by the bank was transmitted to Bombay for performance of the contract; therefore, the execution of Bank Guarantee at Delhi or its invocation in Delhi do not constitute a cause of action to give rise to the respondent to lay suit on the original side of Delhi High Court. In the said case, M/s. Nav Bharat Enterprises Limited had filed a suit for permanent injunction in this Court seeking perpetual injunction against the bank not to pay any amount on the basis of the bank guarantee issued pursuant to the Charter Agreement arrived at between Nav Bharat Enterprises Limited and South East Asia Shipping Company Limited. The bank guarantee was executed in Delhi and had been furnished by the bank to South East Asia Shipping Company Limited being the agent of Live Stock Express with whom M/s. Nav Bharat Enterprises Limited had entered into an agreement. Admittedly the contract was executed at Bombay. The performance of obligations and liabilities of the contract were also required to be done in Bombay. However, the bank guarantee was executed at Delhi and was transmitted to Bombay for performance of the contract. The petition was filed in this Court alleging that the cause of action arose at Delhi since the bank had accepted and issued bank guarantee at Delhi. Decision in A.B.C. Laminart Private Limited’s case (supra) was relied upon in the said case in support of the contention that the Courts at Delhi had jurisdiction since part of cause of action had arisen in Delhi. Such a submission was turned down. Supreme Court held :-“It is settled law that cause of action consists of bundle of facts which give cause to enforce the legal injury for redress in a Court of law. The cause of action means, therefore, every fact, which if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgement of the Court. In other words, it is a bundle of facts, which taken with the law applicable to them, gives the plaintiff a right to claim relief against the defendant. It must include some act done by the defendant since the absence of such an act no cause of action would possibly accrue or would arise. In view of the admitted position that contract, was executed in Bombay, i.e., within the jurisdiction of the High Court of Bombay, performance of the contract was also to be done within the jurisdiction of the Bombay High Court; merely because bank guarantee was executed at Delhi and transmitted for performance to Bombay, it does not constitute a cause of action to give rise to the respondent to lay the suit on the original side of the Delhi High Court. The contention that the Division Bench was right in its finding and that since the bank guarantee was executed and liability was enforced from the bank at Delhi, the Court got jurisdiction, cannot be sustained.”

13. In the instant case also on the admitted facts, the contracts between DIL and ATUL were at Valsad, Gujarat. Performance of obligations and liabilities under the contract were also required to be done wholly at Valsad, Gujarat, namely, the erection and commissioning of turbine generator set. The parties, namely, ATUL and DIL had also agreed that the disputes of any nature that may arise in connection with the execution of the agreement shall be governed by the Laws of India subject to jurisdiction of Courts situate in Valsad, Gujarat; the venue for arbitration in case of dispute between DIL and ATUL has to be Valsad. It is also admitted position that in furtherance of the execution of the contracts at Valsad, the bank guarantees were executed at Delhi and were transmitted to ATUL having its head office at Valsad, Gujarat: The mere fact that the bank guarantees were executed in Delhi and were transmitted from Delhi, in terms of the judgement of Supreme Court in South East
Asia Shipping Company Limited’s case (supra), it will not constitute a cause of action to DIL to lay its petitions on the original side of this Court. Judgment in South Asia Shipping Company Limited’s case (supra) applies in full force to the facts of the present case.

14. In A.B.C. Laminart Pvt. Ltd’s case (supra), it was held that 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. In the light of the ratio of the said decision in case the clause relating to arbitration that Venue for arbitration shall be Valsad; and the clause on Courts jurisdiction that dispute of any nature shall be subject to jurisdiction of Courts at Valsad; and the penultimate clause that all causes of action shall be deemed to have arisen within the jurisdiction of Courts at Valsad District; are read together, they clearly indicate the intention of the parties. Even word like “alone”, “only” or “exclusive”, having not been used in Clause 15 of the agreement will not make any difference. It is an appropriate case in view of the three clauses where the maxim “expression unius est exclusio alterius” expression of one is the exclusion of another apply with full force.

15. Submission of learned counsel for DIL that since parties reside in Delhi or that State Bank of India in whose favour contract stand novated has no objection as regards jurisdiction and since payments were received in Delhi or even most of the meetings were held at Delhi, therefore, Delhi Courts will have jurisdiction since part of the cause of action has arisen in Delhi, have no force in view of the exclusion clause
and particularly in view of the fact that the main purport of the petition is seeking of a relief of an interim measure with respect to the bank guarantees, which were furnished pursuant to the agreements, which contain the exclusion clause and pursuant to which agreements alone the bank guarantees were furnished.

16. Learned counsel for DIL submitted that in case the Court would come to the conclusion that Courts at Delhi have no jurisdiction, instead of deciding the appeals, the main, petitions be ordered to be returned and DIL be directed to tile the petition in a proper Court while maintaining status quo for a specified time frame. He contends that similar directions for maintaining status quo have been made in a few cases by learned Single Judge of this Court.

17. Learned counsel for ATUL though conceded that the course to be adopted in such circumstances would be to order return of the petitions for presentation to proper Court and not to dismiss the same but it will not be permissible to continue with the interim injunction since the same would be without jurisdiction.

18. In view of the provisions of Order 7 Rule 10A C.P.C. for which it is staled by learned counsel for DIL also that an application that effect was made before learned Single Judge, we are also of view that the petitions deserve to be ordered to be returned to DIL for presentation before the proper Court. This is a right course, which in view of the decision of the Supreme Court in R.S.D.V. Finance Co. Pvt. Ltd. v. Shree Vallabh Glass Works Ltd, in such like cases will have to be adopted but we are not convinced with the submission made on behalf of DIL by Mr. Seth that in the interest of justice interim order deserves to be continued. Continuance of such an order by this Court after concluding that\he Courts at Delhi have no juris
diction, will be continuation of the order of a Court having no territorial jurisdiction in the matter.

19. It is a fundamental principle well established and as held in Koran Singh and Ors. v. Chaman Paswan and Ors., that a decree passed by a Court without jurisdiction is a nullity. Its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon even at the stage of execution and even in collateral proceedings. It was further held that a defect of jurisdiction, whether it is pecuniary or territorial or whether it is in respect of the subject matter of the action, strikes at the very authority of the Court to pass any decree and as such a defect cannot be cured even by consent of parties. We may also refer to a few decision of High Courts that in such circumstances it will not be permissible to extend the order of injunction even for a moment, while ordering return of petitions with liberty to the petitioner to file, the same in appropriate Court of competent jurisdiction, after this Court has come to the conclusion that the petitions are not entertainable. The decisions are In Re Chunduru Venkata Subrahmanvam ; Raunaq Int. Ltd. v. Mini Sea Foods 1983 RLR 202; R. Venkataswami Naidu v. M/s. South India Viscose Ltd., Coimbatore And M/s. Subbhash Chander Kamlesh Kumar v. State Of Punjab And Ors. .

20. Consequently, FAO(OS).37/99 is dismissed. FAO(OS) Nos. 45, 46 and 47 of 1999 are partly allowed. The impugned orders passed by learned Single Judge are set aside holding that the petitions filed by DIL were not entertainable in this Court. The petitions, namely, OMP Nos. 20, 21 and 22 of 1998 are ordered to be returned to the petitioner forthwith.

21. Parties will appear in the Court of District Judge, Valsad, Gujarat on 10.8.2000. Since the parties are represented through respective counsel, fresh notice need not be given to them and have been apprised of the date on which they will appear in the District Court, Valsad.

22. A copy of the judgment will be placed on the record of each appeal.


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