INDIAN OXYGEN LIMITED v. NATIONAL OXYGEN LTD — 1989 DIGILAW 446 (CAL)

S. K. SEN, J. ( 1 ) THE Court : There are two applications, first application by the plaintiff under section 20 of the Arbitration Act and the other by the defendant for taking the petition off the file on the ground that this court has no jurisdiction to entertain the application under section 20 of the Arbitration Act. The facts inter alia leading to the said applications are that on or about July 8, 1985 pursuant to an invitation for quotation for supply and instalation of one number 1553 HR Liquid gaseous Oxygen Plant with high purity nytrogen production facility by the defendant company M/s. National Oxygen Limited, the plaintiff submitted detailed proposal for the said supply and erection of liquid gaseous Oxygen Plant under Quotation No. PD/dmm/p836/802 dated 8. 7. 85 to the defendant No. 1 giving the terms, conditions, prices, period of delivery, terms of payment technical details etc. with further terms about supply of requisite materials in certain cases by the defendant which do not fall within the scope of work of the plaintiff. The said proposal also contained inter alia an arbitration clause which is set out hereinbelow. "in the event of any dispute or difference arising or occuring between the company and its purchaser in relation to anything or any matter arising out of or under the terms and conditions of sale, the same shall be referred for arbitration to the Bengal Chamber of Commerce and Industry and such arbitration shall be governed by the provision of the Arbitration Act, 1940 and any statutory modification thereof applicable at the relevant time. " ( 2 ) BY letter dated 19th October, 1985 the defendant National Oxygen Ltd. accepted the said quotation and placed an order for the said plant and subsequently on 19th May, 1986, three separate agreements and/or contracts were entered into by the parties being contract Nos. 204,0, 2041 and 2042. It was also agreed by the plaintiff and the defendant No. 1 that out of the total contract price in respect of the said contract of Rs. 69. 25 lakhs the last balance instalment of 5% of the said amount i. e. Rs. 204,0, 2041 and 2042. It was also agreed by the plaintiff and the defendant No. 1 that out of the total contract price in respect of the said contract of Rs. 69. 25 lakhs the last balance instalment of 5% of the said amount i. e. Rs. 3,46,250/- only shall be paid by National Oxygen Limited, the defendant against bank guarantee for the equivalent amount to be executed by the banker of the plaintiff valid upto the guarantee period as stipulated in terms, of the proposal of Indian Oxygen Ltd. made by the letter dated 8th July, 1985. The plaintiff company duly furnished the said guarantee for Rs. 3,46,250/- through its banker Grindlays Bank PLC, 19, Netaji Subhas Road, Calcutta on 28th February, 1987. It is the case of the plaintiff that the said guarantee is a conditional guarantee and imposes several obligations for its enforcement. It has also been alleged on behalf of the plaintiff that the plaintiff performed its obligation under the aforesaid three agreements and inspite of various defaults, breaches and hindrance on the part of the defendant No. 1, the plaintiff in the interest of its reputation and goodwill completed all the works covered under the said three agreements including erection, installation and commissioning of the said plant. It has also been alleged that the plant was commissioned on 27th August, 1987 and the plant gave very satisfactory performance and have been in commercial production for last seven months starting from 28th August, 1987. It has been further alleged by the plaintiff in the application under section 20 that although the plant was working satisfactorily and was running for commercial production for more than seven months the defendant No. 1 for some ulterior motive refused to sign the commissioning certificate though it is signed by the plaintiff's authorised representative after commissioning plant on 27. 10. 87. Thereafter defendant No. 1 by letter dated 10th November, 1987 raised various disputes regarding (a) erectioning, (b) period of test, (c) commissioner and the delay in commissioning etc. It has been alleged that the plaintiff from time to time asserted and proved that such allegations and/or disputes have no basis and by inspection through other agency it has proved that such allegations are false. It has been alleged that the plaintiff from time to time asserted and proved that such allegations and/or disputes have no basis and by inspection through other agency it has proved that such allegations are false. On or about 18th January, the defendant No. 1 gave a notice received by the plaintiff on 21st January, 1988 alleging therein that the plaintiff had not carried out the obligations and performance as per the contract and hence the guarantee by Grindlays Bank PLC, Calcutta for Rs. 3,46,250/- was to be enacted. A copy of such letter was also sent to Grindlays Bank PLC, Calcutta the plaintiff has alleged that although the plaintiff has carried out its obligation under the said several agreements and has successfully commissioned the said plant, the defendant No. 1 has committed several breaches. According to the plaintiff several disputes have arisen in the implementation the said agreement which have been specifically alleged in paragraph of the said application. It has peen alleged by the plaintiff that since arbitration agreement inter alia contains clause that in the event o dispute or difference arising or occuring between the plaintiff and the defendant No. 1 in relation to anything or any matter arising out of the terms and conditions of sale, the same shall be referred to the arbitration of Bengal Chamber of Commerce and Industry and such arbitration shall be governed by the provisions of the Arbitration Act, 1940, hence the award of such Arbitration can only be filed before this court and as such court is only court which has jurisdiction to entertain this application. It has also been alleged that a part of cause of action has arisen at Bengal Chamber of Commerce, Calcutta on 27th October, 1987 which is within the jurisdiction and also thereafter on all subsequent dates. It has further been alleged that on 18th January, 1988 the cause of action also arose 18th January, 1988 when the defendant No. 1 served a notice upto plaintiff's banker Grindlays Bank PLC at 19, Netaji Subhas Road , the jurisdiction for remitting Rs. 3,46,250/- arising out of the contract and on all subsequent dates specially on 7th March, 1988 when the defendant No. 1 through its Advocate served a notice asking the plaintiff's said banker to remit the money covered under the said guarantee. 3,46,250/- arising out of the contract and on all subsequent dates specially on 7th March, 1988 when the defendant No. 1 through its Advocate served a notice asking the plaintiff's said banker to remit the money covered under the said guarantee. Accordingly it has been claimed that apart of cause of action arose within the jurisdiction of this court. ( 3 ) ON the other hand the defendant No. 1 made an application pr for the following reliefs : (a)the suit be dismissed for want of jurisdiction; (b)the plaint filed in the suit be taken off the file and be rejected (c)leave, if any, granted under clause 12 of the Letters Patent be revoked; (d)stay of all further proceedings till the disposal of this application ; (e)interim orders passed in the proceedings be vacated forthwith ; (f)ad-interim orders in terms of prayers ( e ) and (g) above ; (g)costs of and incidental to this application be paid to, the defendant No. 1; (h)such further or other order or orders be passed and/or direction or directions be given as to this Hon'ble Court may deed fit and proper. ( 4 ) IT has been contended on behalf of the defendant No. 1 National Oxygen Limited that section 20 application can be filed in a court where a suit could have been filed by the parties. In this connection the learned Advocates referred to section 2 (c), 20 and 31 of the Arbitration Act. Mr. P. K. Mallick and Mr. Amitava Lala, Advocates for the said applicant further submitted that the cause of action in a suit can only arise under 'the facts and circumstances of this particular case in a place where the contract was made; the place where the contract was to be performed or performance thereof was to be completed; the place where in performance of contract any money to the suit relates was expressly or impliedly payable. It has been argued that the place of business of the plaintiff and the defendant in this particular place are outside the jurisdiction of this court. The plaintiff's business is at Taratala and the defendant's place of businesses is at Madras. In the instant case quotation was given by the plaintiff from Taratala office outside the jurisdiction and agreement was executed by and between the parties at 21, Armenian Street, Madras outside the jurisdiction. The plaintiff's business is at Taratala and the defendant's place of businesses is at Madras. In the instant case quotation was given by the plaintiff from Taratala office outside the jurisdiction and agreement was executed by and between the parties at 21, Armenian Street, Madras outside the jurisdiction. All works under the contract were carried out at Pondichery outside the jurisdiction and all moneys paid by the defendant No. 1 and accepted by the plaintiff at 21, Armenian Street, Madras outside the jurisdiction. Therefore, no part of cause of action arose within the jurisdiction of this court and this court has no jurisdiction to, entertain, try and decide this proceeding under section 20 and 31 of the Arbitration Act and filed in this Court Learned Advocates referred to section 2 (c) of the Arbitration Act and submitted that the Court means a Civil Court having jurisdiction to decide the question forming the subject matter of reference if the same had been subject matter of a suit. Under section 20 one can apply to a court having jurisdiction in the matter to which the agreement relates and the agreement can be filed in such court. Under section 31 court means court having jurisdiction in the matter to which the reference relates. It has been contended that the reference in respect of the disputes which have arisen in the instant case has nothing to do with this court since none of the disputes have arisen or can be said to be forming subject matter of a reference on the basis of which this court can exercise jurisdiction. In support of their contention the learned Advocates referred to the judgment and decision in the case of M/s. Gulati Construction Company, Jhansi, Betwa River Board and another reported in AIR 1984 Delhi 299. In that case it was held that in order to decide as to which court has jut to entertain petitions under section 14, reference has to be made section 2 (c) read with section 31 (1 ). Merely because the arbitrator chooses to hold the proceedings in a place, where admittedly no suit could be constituted and chooses to make and publish an award at that place, it would not give the court of that place territorial jurisdiction to decide the matter arising under the Act. Merely because the arbitrator chooses to hold the proceedings in a place, where admittedly no suit could be constituted and chooses to make and publish an award at that place, it would not give the court of that place territorial jurisdiction to decide the matter arising under the Act. If an award has been filed in a court which has no jurisdiction, the provision of section 31 (2) and (3) would have no application. If an arbitrator chooses in violation of the provision of 31 (1) to file the award in a court which has no territorial jurisdiction it cannot be said that the said court acquires thereby territorial jurisdiction. It is now well established that by agreement of the parties jurisdiction cannot be conferred on courts which have no territorial jurisdiction to decide the matter. Accordingly it has been submitted relying upon this aforesaid decision that although the venue of this Arbitration is of Bengal Chamber of Commerce and Industries is within the jurisdiction of this court the same cannot confer jurisdiction on this court. It has been submitted that parties cannot by agreement confer jurisdiction to the court which the court does not possess. But when both the courts have no jurisdiction to decide the matter the parties can by agreement confer jurisdiction to one such court to the exclusion of the other. ( 5 ) THE learned Advocates also referred to Rule XXVIII of the of Arbitration of Bengal Chamber of Commerce and Industry which provides as follows :"the Court shall at the request of any party to the proceedings or of any person claiming under such party or, if so directed by the Court at Calcutta and upon payment of the fees and charges due in respect of the arbitration and award, and of the costs and charges on filing the award, cause the award or a signed copy of it together with any depositions of documents, which may have been taken and proved before it, to be filed in the said High Court. " it has been submitted that the said Rule XXVIII provides for "filing of Awards" in three ways: - (a)at the request of any party to the proceedings ; (b)any person claiming under such party; (c)if so directed by the High Court at Calcutta. . . . Award's to be filed in the said High Court. " it has been submitted that the said Rule XXVIII provides for "filing of Awards" in three ways: - (a)at the request of any party to the proceedings ; (b)any person claiming under such party; (c)if so directed by the High Court at Calcutta. . . . Award's to be filed in the said High Court. It has been urged that for the purpose of definition of court and its jurisdiction all the sections, viz. , 2 (c), 20 and 31 of the Arbitration Act to be considered together and read as a whole and not in isolation. The prima facie case is whether the court has jurisdiction to entertain try and determine the suit or not. The venue may be selected between two or three courts having jurisdiction but not to a court which has admittedly no jurisdiction, Choice of venue of arbitration cannot give jurisdiction to a court when it inherently lacks such jurisdiction. It has been argued that subject matter of reference is to be considered and not the reference. It has also been submitted that rules of private forum not having any statutory authority cannot override the Act. It has been contended that if the award filed in a court which has no jurisdiction in the matter to which the Reference relates, such filing would not give jurisdiction to the court under sub-section (2) of section 31 of the Arbitration Act. It has also been submitted that bank was not a party to the arbitration agreement. So invocation of bank guarantee cannot be the subject matter of an application under section 20 of the Arbitration Act by contracting parties against the other. It has also been contended that the transactions between the bank and guarantor stands on a different footing and the nothing to do with the original contract. According to the learned Advocate for the defendant it cannot said that by way of invocation of bank guarantee contractual obligation was misused within the jurisdiction of this Court. ( 6 ) THE learned Advocate for the plaintiff referred to rule 28 of the Bengal Chamber of Commerce Rules and submitted that in terms of the said rules this court can direct an award to be filed in this court and under such circumstances this court alone gets jurisdiction in respect of any application. ( 6 ) THE learned Advocate for the plaintiff referred to rule 28 of the Bengal Chamber of Commerce Rules and submitted that in terms of the said rules this court can direct an award to be filed in this court and under such circumstances this court alone gets jurisdiction in respect of any application. The learned Advocate in this connection submitted that the parties have made themselves bound by the said rules of Bengal Chamber of Commerce by providing an arbitration clause in the agreement that the disputes will be referred to the arbitration of Bengal Chamber of Commerce. The learned Advocate also submitted that cause of action will arise where misuse in respect of the contract takes place. By invocation of bank guarantee the defendant has really misused the said contract which took place within the jurisdiction of this court. In support of his contention the learned Advocate relied upon a judgment and decision in the case of The Electrical Manufacturing Company Ltd. , Calcutta and another vs. The Crompton Engineering Co. (Madras) Ltd. , Madras reported in AIR 1974 Madras 261. In that case application under section 20 was filed before Madras High Court and the circumstances were that but for the execution of arbitration agreement at Madras all other activities that is the subject matter in respect of which arbitration was called for were within the jurisdiction of the Calcutta High Court, the subject matter of disputes under reference being applicant's claim for return of steel supplied to respondents at Calcutta for fabrication purposes or in the alternative for compensation thereof. The applicant's contention that execution of the agreement being part of the subject matter, the Madras High Court had jurisdiction to entertain the application was rejected by observing that in view of that fact that there was no dispute about execution of the arbitration agreement at Madras the place of execution was inconsequential and the proper test was that the subject matter of the arbitration which did not fall within the jurisdiction of the Madras High Court. The learned Advocate for the plaintiff particularly referred to paragraph 31 at page 272 of the said report wherein it was observed as follows :"having regard to the language of the definition of the word 'court' under section 2 (c) of the Act and construing the words 'with respect to subject matter of the agreement occuring in section 20 (1) of the Act and the circumstances that the factum of execution of the agreement at Madras not being in question, we are of opinion that the subject matter of the agreement is not the execution of the agreement, but the place where the alleged misuse of the surplus steel supplied to the first defendant took place namely, Sealdah which is within the jurisdiction of the Calcutta High Court and that it is the Calcutta High Court that has jurisdiction to entertain the application under section 20 and proceeding to determine the application in accordance with section 20 of the Act, our conclusion is fortified by the plaint allegation in paragraph 39 and 43 of the plaint already referred by us above. The cause of action paragraph claiming the place of execution of the agreement as being the place where the entire cause of action had arisen does not set out the correct position. The aforesaid allegation in the cause of action paragraph has been made with a view to give jurisdiction to this Court. There being no controversy regarding place of execution of the agreement that allegation cannot in our opinion, confer jurisdiction to this court to entertain the present application filed under section 20 of the Act. " ( 7 ) IN my opinion the said decision cannot be of any assistance to the defendant inasmuch as the execution of the agreement cannot confer jurisdiction on the basis of the Arbitration Act as there is no dispute with regard to such execution but the subject matter of reference really relates to the disputes which arise outside the jurisdiction. In the instant case not only the subject matter of reference namely, the disputes arose outside the jurisdiction but the execution of agreement also took place outside the jurisdiction of this court. Breach of contract if there be any and all dispute under the contract really arose outside the jurisdiction. In the instant case not only the subject matter of reference namely, the disputes arose outside the jurisdiction but the execution of agreement also took place outside the jurisdiction of this court. Breach of contract if there be any and all dispute under the contract really arose outside the jurisdiction. Invocation of bank guarantee is really corollary or follow up action from the disputes which have taken place out of the contract which really arose outside the jurisdiction, and does not constitute dispute itself. In any event the transaction between the bank and the guarantor stands on a different footing and ha nothing to do with the original contract to which bank is not a party. The other case cited is of M/s. Metal Foreging Pvt. Ltd. New Delhi vs. M/s Contrala Handly Zaranizznego, Poland reported in AIR 1979 Delhi 167. In this case it was agreed between the Indian party and the Polish party that if the suit was to be instituted against the Polish party the proceedings for arbitration shall be held in Poland and vice versa. The Indian party being aggrieved though fit to initiate litigation it was held that the Indian Party was duty bound under the agreement to approach the appropriate court in Poland for settlement of disputes. It is well settled that if the courts of two places have jurisdiction the parties can make a choice between the two and in that event such an agreement will be binding but the parties cannot by agreement confer jurisdiction on a court or forum in respect of subject matter of dispute which ordinarily that court or forum has no jurisdiction to decide. The aforesaid decision has no application to the instant case and accordingly cannot of any assistance to the plaintiff. ( 8 ) IN the case of S. P. Consolidated Engineering Company Pvt. Ltd. , vs. Union of India reported in AIR 1966 Calcutta 259 upon which reliance was placed by the plaintiff to show that in fact in a proceeding under section 20 of the Arbitration Act although it is treated as a suit no leave under clause 12 of the Letters Patent is necessary. The learned Advocate also relied upon a judgment and decision in the case of Das Consultants Pvt. Ltd. vs. National Mineral Development Corporation Ltd. reported in AIR 1981 Calcutta 202 and submitted that no leave under clause 12 of the Letters Patent would be necessary. In view of the judgment and decision of the Division Bench in the case of Tobu Enterprises Pvt. Ltd. vs. Camco Industries Ltd. reported in AIR 1984 Calcutta 24 overruling the aforesaid decision and holding that in a proceeding under section 20 leave under clause 12 of the Letters Patent is necessary, the aforesaid submission of Mr. Roy Chowdhury learned Advocate for the plaintiff cannot be said to be of any substance. It cannot be disputed in the present case that the disputes relating to the said contract and execution thereof took place at Madras or at Taratala, Calcutta outside the jurisdiction of this Court. The court as defined, in the section 2 (c) of the Arbitration Act as follows :"court" means a Civil Court having jurisdiction to decide the question forming the subject-matter of the reference if the same had been the subject matter of a suit but does not, except for the purpose of arbitration proceedings under section 21, include a Small Cause Court". ( 9 ) IT cannot be said that this court has jurisdiction to decide questions forming the subject-matter of reference if the same had been the subject-matter of a suit since the subject-matter of reference really refers to the execution or performance of contract which took place outside the jurisdiction of this court. In my opinion the agreement that all disputes referred to the tribunal of arbitration of Bengal Chamber of Commerce cannot confer jurisdiction to this court. I respectfully agree with the decision of the Delhi High Court in the case of M/s. Gulati Construction Company, Jhansi vs. Betwa River Board and another (supra) wherein it has been held that merely because the arbitrator chooses to hold the proceedings in a place where admittedly no suit could be instituted, it would not give the court of that place territorial jurisdiction to decide the matter arising under the Rules 25 and 28 of the Bengal Chamber of Commerce arbitration rules vide that this court under certain circumstances may direct the award. filed in this court. filed in this court. The said rules do not take into account the circumstances where the court has no jurisdiction to entertain an application on the company in terms of the said rules under normal circumstances if certain formalities regarding payment of fees and other requisites are not put court may direct the award to be filed in this Court and pass necessary orders. It would be wrong in my opinion to construe that the court can in all circumstances pass an order for filing of the order in this Court though this court may not have jurisdiction to entertain such matters. ( 10 ) CONSIDERING the facts and circumstances as aforesaid it appears to me that the court cannot be said to be the court under section 2 (c) the Arbitration Act so as to entertain and pass orders under section : the Arbitration Act and as such leave granted also should be revoked. ( 11 ) ACCORDINGLY no order can be passed on the application of the plaintiff under section 20 and the same should be dismissed for want of' diction. In view of this order no other order need be passed on any of the applications pending. ( 12 ) THIS order will not prevent the petitioner from making similar application in a competent court which has jurisdiction to decide the question. In view of the order passed earlier no order is passed on section 41 application. Interim orders are vacated. There will a stay of operation of the order for a period of fortnight. Application dismissed.