Case Note & Summary
The Supreme Court of India dealt with a dispute over territorial jurisdiction in an arbitration petition arising from a construction contract. The appellant, Hakam Singh, had agreed on October 5, 1960 to perform construction work for the respondent, M/s. Gammon (India) Ltd., a company registered under the Indian Companies Act with its principal place of business at Bombay. The written tender contained clause 12 providing for arbitration of disputes and clause 13 stipulating that the contract would be deemed to have been entered into at Bombay and that only the courts in Bombay would have jurisdiction to adjudicate upon disputes. When disputes arose, the appellant filed a petition under Section 20 of the Arbitration Act, 1940 before the Subordinate Judge at Varanasi, seeking filing of the arbitration agreement and reference to an arbitrator. The respondent objected, relying on clause 13, contending that only Bombay courts had jurisdiction. The trial court at Varanasi rejected the objection, observing that the entire cause of action had arisen at Varanasi and that parties could not by agreement confer jurisdiction on courts at Bombay which they did not otherwise possess. The Allahabad High Court, in exercise of revisional jurisdiction, reversed this order. It held that the Bombay courts had jurisdiction under the general law because the respondent company had its principal place of business in Bombay, and that clause 13 was valid and binding. The High Court directed that the petition be returned for presentation to the proper court. Aggrieved, the appellant approached the Supreme Court by special leave. Two main legal issues fell for consideration: first, whether the courts at Bombay alone had jurisdiction over the dispute; second, whether Explanation II to Section 20(a) of the Code of Civil Procedure, 1908 applied only to statutory corporations and not to companies registered under the Indian Companies Act. The Supreme Court, speaking through Shah, C.J., held that Section 41 of the Arbitration Act, 1940 made the entire Code of Civil Procedure applicable to arbitration proceedings. Therefore, jurisdiction to entertain a petition for filing an arbitration agreement was governed by the CPC. Under Section 20(a) read with Explanation II, a corporation is deemed to carry on business at its principal office in India, and the respondent company was liable to be sued at Bombay where it had its principal place of business. The Court further held that it is not open to parties to confer jurisdiction on a court which does not possess it under the CPC. However, where two or more courts have jurisdiction, an agreement between the parties that the dispute shall be tried in one of such courts is not contrary to public policy and does not contravene Section 28 of the Indian Contract Act, 1872. Since the Bombay courts had jurisdiction under the CPC, the agreement that only Bombay courts would have jurisdiction was binding. The Court also rejected the appellant's argument that the expression 'corporation' in Explanation II referred only to statutory corporations. The Court noted that Order 29 of the CPC deals with suits by or against a corporation and nothing in the CPC supported a restricted meaning; a company registered under the Indian Companies Act is a legal person and a corporation for this purpose. Accordingly, the Supreme Court dismissed the appeal with costs, affirming the High Court's direction to return the petition for presentation to the proper court.
Headnote
A) Arbitration - Applicability of Code of Civil Procedure - Section 41 of Arbitration Act, 1940; Section 20 of Code of Civil Procedure, 1908 - The Code of Civil Procedure in its entirety applies to proceedings under the Arbitration Act; jurisdiction to entertain a petition for filing an arbitration agreement is governed by CPC provisions - The Court held that by virtue of Section 41 of the Arbitration Act, 1940, the CPC applied, and under Section 20(a) read with Explanation II, the respondent company having its principal place of business at Bombay was liable to be sued at Bombay. Held that Bombay courts had jurisdiction to entertain the arbitration petition (Paras 3-4). B) Contract - Forum Selection Clause - Section 28 of Indian Contract Act, 1872; Section 20 of Code of Civil Procedure, 1908 - An agreement between parties to choose one of two or more competent courts is not contrary to public policy - The Court reasoned that parties cannot confer jurisdiction on a court lacking jurisdiction under the CPC, but where multiple courts have jurisdiction, an agreement that disputes shall be tried in one of such courts is valid and does not contravene Section 28. Held that clause 13 of the tender agreement was binding (Paras 4-5). C) Interpretation - Corporation under CPC - Explanation II to Section 20(a) and Order 29 of Code of Civil Procedure, 1908 - The expression 'corporation' in Explanation II includes a company registered under the Indian Companies Act, not merely statutory corporations - The Court rejected the appellant's argument that only statutory corporations are covered, noting that Order 29 deals with suits by or against a corporation and nothing in the CPC supports such a narrow reading. Held that respondent company, having its principal office in Bombay, was amenable to jurisdiction there (Paras 6-7).
Issue of Consideration
Whether the courts at Bombay alone had jurisdiction over the dispute; Whether Explanation II to Section 20(a) of the Code of Civil Procedure, 1908 refers only to statutory corporations and not to companies registered under the Indian Companies Act; Whether an agreement between parties to confine jurisdiction to one of two competent courts is contrary to public policy under Section 28 of the Indian Contract Act, 1872
Final Decision
Supreme Court dismissed the appeal with costs. Held that CPC applies to arbitration proceedings via Section 41 of Arbitration Act; Bombay courts had jurisdiction under Section 20(a) read with Explanation II; agreement to confine jurisdiction to one of multiple competent courts is valid, not contrary to public policy and not hit by Section 28 Contract Act; expression 'corporation' includes company registered under Indian Companies Act; petition to be returned for presentation to proper court as ordered by High Court.
Law Points
- Code of Civil Procedure applies to arbitration proceedings under Section 41 of Arbitration Act
- 1940
- jurisdiction under Arbitration Act governed by CPC
- parties cannot confer jurisdiction on court lacking jurisdiction under CPC but can choose one of multiple competent courts
- such agreement not contrary to public policy
- does not contravene Section 28 of Contract Act
- Explanation II to Section 20(a) CPC applies to companies registered under Indian Companies Act not only statutory corporations
- corporation includes legal person
