Case Note & Summary
The plaintiff, Larsen & Toubro Limited (L&T), filed a suit in the Bombay High Court seeking a declaration that the invocation of a Performance Bank Guarantee (PBG) by defendant No.2, GVK Projects and Technical Services Limited, was illegal and fraudulent, and sought an injunction restraining Allahabad Bank from making payment under the PBG. The PBG was issued by Allahabad Bank at the behest of L&T in favour of GVK Projects. The defendants, GVK Projects and GVK Ratle Hydro Electric Project Pvt. Ltd., raised a preliminary objection regarding the jurisdiction of the Bombay High Court, relying on Clause 38 of the General Conditions of Contract (GCC) and Clause 1.6 of the Overall Agreement, which conferred exclusive jurisdiction on courts at Chennai. The court framed a preliminary issue on jurisdiction. L&T argued that the bank guarantee was executed in Mumbai and that the bank's obligation to pay arose in Mumbai, thus giving rise to a cause of action within the court's jurisdiction. However, the court held that the exclusive jurisdiction clause was binding and that no part of the cause of action arose in Mumbai, as the contract was executed in Chennai, the work was to be performed in Jammu & Kashmir, and the bank guarantee was merely a collateral document. The court dismissed the suit for lack of jurisdiction, leaving it open to L&T to pursue remedies in the appropriate court.
Headnote
A) Civil Procedure - Jurisdiction - Exclusive Jurisdiction Clause - Contract between parties contained Clause 38 of GCC and Clause 1.6 of Overall Agreement conferring exclusive jurisdiction on courts at Chennai - Plaintiff L&T sought injunction against invocation of bank guarantee in Bombay High Court - Held that parties are bound by the exclusive jurisdiction clause and the Bombay High Court has no jurisdiction to entertain the suit, as no part of cause of action arose in Mumbai (Paras 4-10).
Issue of Consideration
Whether the Bombay High Court has jurisdiction to entertain the suit in light of the exclusive jurisdiction clause in the contract conferring jurisdiction on courts at Chennai.
Final Decision
The court upheld the preliminary objection and dismissed the suit for lack of jurisdiction, holding that the Bombay High Court has no territorial jurisdiction to entertain the suit. The plaintiff is at liberty to file the suit in the appropriate court.
Law Points
- Exclusive jurisdiction clause
- ouster of jurisdiction
- bank guarantee invocation
- interim injunction
- cause of action
Case Details
2016 LawText (BOM) (02) 37
Notice of Motion (L) No. 120 of 2016 in Suit (L) No. 28 of 2016
Mr. D.D. Madon, Senior Advocate, along with Mr. Firoz Bharucha, Mr. Sachin Chandarana, Mr. Akhil Tiwari and Mr. Pranav Khatavkar, instructed by M/s. Manilal Kher Ambalal & Co., for the Plaintiff. Mr. V.N. Ajikumar for Defendant No.1. Mr. S.U. Kamdar, Senior Advocate, along with S. Maitra, instructed by M/s. Wadia Ghandy & Co., for Defendant Nos. 2 and 3.
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Nature of Litigation
Civil suit seeking declaration and injunction regarding invocation of a performance bank guarantee.
Remedy Sought
Plaintiff L&T sought a declaration that invocation of PBG was illegal and fraudulent, and an injunction restraining Allahabad Bank from making payment and defendants from receiving payment.
Filing Reason
Defendant No.2 invoked the PBG, and plaintiff alleged the invocation was mala fide and fraudulent.
Previous Decisions
An ad-interim injunction was granted on 13th January 2016 restraining Allahabad Bank from acting on the invocation, extended from time to time.
Issues
Whether the Bombay High Court has jurisdiction to entertain the suit in light of the exclusive jurisdiction clause in the contract conferring jurisdiction on courts at Chennai.
Submissions/Arguments
Plaintiff L&T argued that the bank guarantee was executed in Mumbai, the bank is situated in Mumbai, and the invocation letter was received in Mumbai, thus part of cause of action arose in Mumbai.
Defendants GVK Projects and GVK Ratle argued that Clause 38 of GCC and Clause 1.6 of Overall Agreement confer exclusive jurisdiction on courts at Chennai, and no part of cause of action arose in Mumbai.
Ratio Decidendi
The exclusive jurisdiction clause in a contract is binding on the parties, and the court must give effect to it. The cause of action for a suit relating to a bank guarantee does not arise solely at the place of issuance of the guarantee; the underlying contract and the place of performance are relevant. Here, the contract was executed in Chennai, work was in Jammu & Kashmir, and the bank guarantee was a collateral document, so no part of cause of action arose in Mumbai.
Judgment Excerpts
In view of Clause 38 of the General Conditions of Contract (GCC) and further in view of Clause 1.6 of the Overall Agreement and Clause 5 of the GCC, this Court has no jurisdiction to entertain and try the above Suit.
The parties are bound by the exclusive jurisdiction clause and the Bombay High Court has no jurisdiction to entertain the suit.
Procedural History
Suit filed on 13th January 2016 with urgent ad-interim relief; ad-interim injunction granted same day and extended; defendants filed affidavit-in-reply raising jurisdiction issue; court framed preliminary issue and heard arguments; judgment pronounced on 29th February 2016 dismissing suit for lack of jurisdiction.
Acts & Sections
- Code of Civil Procedure, 1908: Section 20
