w w w . L a w y e r S e r v i c e s . i n



Union of India v/s Surya Alloy Industries Limited


Company & Directors' Information:- SURYA ALLOY INDUSTRIES LIMITED [Active] CIN = U27104WB1990PLC050102

Company & Directors' Information:- SURYA INDUSTRIES PRIVATE LIMITED [Active] CIN = U17120GJ2008PTC053221

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- M. P. ALLOY PRIVATE LIMITED [Strike Off] CIN = U28111UP1995PTC018405

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- B D K ALLOY PRIVATE LIMITED [Amalgamated] CIN = U27106KA1973PTC002355

Company & Directors' Information:- ALLOY INDUSTRIES PVT LTD [Strike Off] CIN = U51420WB1957PTC023457

    G.A. No. 3082 of 2010, A.P.O.T. No. 535 of 2010, C.S. No. 231 of 2009

    Decided On, 03 December 2010

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE BHASKAR BHATTACHARYA & THE HONOURABLE MR. JUSTICE SAMBUDDHA CHAKRABARTI

    For the Appellant: Mr. Partha Sarathi Basu, Mr. Nripendra Ranjan Mukherjee, Mr. Debanshu Ghorai, Advocates. For the Respondent: Mr. Abrajit Mitra, Mr. Rajshree Kajaria, Mr. Mr. Jishnu Chowdhury, Advocates.



Judgment Text

Bhaskar Bhattacharya, J.


This appeal is at the instance of a defendant in a suit for declaration and consequential relief and is directed against an order dated June 30, 2010 passed by a learned Single Judge of this Court by which His Lordship disposed of the suit by directing the defendant to refer the disputes involved in the suit to Arbitrator in accordance with the agreement between the parties. Being dissatisfied, the defendant has come up with this appeal under Clause 15 of the Letters Patent.


Mr. Mitra, the learned Advocate appearing on behalf of the plaintiff respondent, at the outset, has taken a preliminary objection as to the maintainability of this appeal on the ground that by the order impugned the learned Trial Judge having in reality passed a direction under Section 8 of the Arbitration and Conciliation Act, 1996 (?Act?), no appeal lies against such order under the Act. In support of his contention, Mr. Mitra has relied upon a decision of a Division Bench of this Court in the case of Surekha Steel Limited vs. Union of India reported in 1998 CWN 287.


Mr. Bose, the learned Advocate appearing on behalf of the appellant has, however, opposed the aforesaid contention of Mr. Mitra and contended that by way of the forum selection clause contained in the selfsame agreement between the parties where there is a provision of reference to arbitrator, the jurisdiction of the Trial Judge having been excluded, the order impugned was passed by a Court having no territorial jurisdiction to pass even such an order under Section 8 of the Act and thus, the present appeal is maintainable against an order passed by a Court lacking territorial jurisdiction, particularly, when the learned Trial Judge has accepted the position that by virtue of the forum selection clause, the jurisdiction of the Calcutta High Court has been excluded. Mr. Bose, thus, prays for setting aside the order impugned and allowing the appeal. Therefore, the preliminary question that arises for determination is whether the present appeal is maintainable.


After hearing the learned counsel for the parties and after going through the materials on record, we find that after entering appearance in the suit, the appellant, at the very first opportunity, prayed for revoking the leave granted under Clause 12 of the Letters Patent pointing out that in view of forum selection clause, the jurisdiction of the Calcutta High Court has been excluded and that there was also a clause in the agreement for reference to arbitration and thus, prayed for vacating the interim order. The Court also accepted the said position and vacated the interim order. But the plaintiff maintained that if the Court had no jurisdiction to entertain the dispute in view of the arbitration clause, in that event, the matter should be referred to arbitration in terms of Section 8 of the Act.


The learned Single Judge has accepted the said submission of the Plaintiff and after revoking the leave granted under Clause 12 of the Letters Patent, nevertheless, passed an order of reference in terms of Section 8 of the Act. The learned Single Judge has, however, specifically clarified by recording that ?the leave granted under clause 12 stands revoked not on the ground of lack of territorial jurisdiction, but to hold the plaintiff to it [sic] bargain in terms of the forum selection clause?.


Although Mr. Bose tried to convince us that the decision of the Division Bench in the case of Surekha Steel (supra), is not a good law and that thereafter another Division Bench of this Court has held that an appeal under Clause 15 of the Letters Patent lies against an order of reference under Section 8 of the Act, instead of entering into such question and referring the matter to a larger bench in view of the conflicting views, we are of the opinion that even if we for the sake of argument hold that an order under Section 8 of the Act is not appealable under Clause 15 of the Letters Patent, such principle cannot have any application to an order under Section 8 of the Act passed by a Court having no territorial jurisdiction over the subject matter of the suit. In other words, if a learned Single Judge sitting in the Original Side of this Court passes an order under Section 8 of the Act in spite of the fact that by virtue of the forum selection clause, he has no jurisdiction to entertain the suit in which such order is made, such order becomes a judgement of the Court having no territorial jurisdiction and in spite of raising specific objection by the defendant if the Court passes such order, the same can be challenged as a ?judgement? of a Court having no territorial jurisdiction by taking shelter under Clause 15 of the Letters Patent.


In order to pass an effective order under Section 8 of the Act, in our opinion, the Court must be competent to entertain the dispute. In this connection, we refer to Section 8 of the Act which is quoted below:


?8. Power to refer parties to arbitration where there is an arbitration agreement.? (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.


(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.


(3) Notwithstanding that an application has been made under subsection (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.?


A plain reading of the said Section makes it abundantly clear that in order to exercise jurisdiction under Section 8 of the Act, the Court must be competent to entertain the dispute and that it is further required to arrive at a finding that the subject matter of the dispute is also covered by the arbitration agreement alleged and that such agreement or the duly certified copy thereof must be placed before it. Thus, a Court which is not competent to entertain the suit itself for want of territorial jurisdiction cannot pass any effective order under Section 8 of the Act. In other words, order passed by a Court lacking territorial jurisdiction is an order without jurisdiction and thus, comes under the purview of Clause 15 of the Letters Patent as it satisfies the conditions of a ?Judgement? within the meaning of that clause.


At this stage, we may profitably refer to the following observations of the majority of the seven-Judges-Bench of the Supreme Court in the case of SBP &Co. vs. Patel Engineering Ltd reported in (2005) 8 SCC 618 where the Court pointed out the duty of the judicial authority making or declining a reference under Section 8 of the Act:


?16. We may at this stage notice the complementary nature of Sections 8 and 11. Where there is an arbitration agreement between the parties and one of the parties, ignoring it, files an action before a judicial authority and the other party raises the objection that there is an arbitration clause, the judicial authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The expression used in this section is ?shall? and this Court in P. Anand Gajapathi Raju v. P.V.G. Raju6 and in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums7 has held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and is bound to decide the jurisdictional issue raised before it, before making or declining to make a reference.?


(Emphasis supplied by us).


We, therefore, hold that the learned Single Judge having lacked territorial jurisdiction to entertain the dispute before him was not competent to pass any effective order under Section 8 of the Act.


Mr. Mirta, however, assiduously contended before us that a Court whose jurisdiction has been excluded by virtue of forum selection clause cannot be termed as ?a court lacking territorial jurisdiction? and in support of such contention he relied upon two decisions of the Orissa High Court, one in the case of Pattanaik Industries Pvt. Ltd vs. M/S Kalinga Iron Works (AIR 1984 Orissa 182) and the other in the case of Paradeep Port Trust vs. M/S H.M.T Corporation (AIR 1985 Orissa 106) holding that forum selection clause is not absolute bar in entertaining a suit and in cases where it appears that the forum selection clause is acting harshly against one of the parties, or is oppressive, inequitable or unfair, the Court may refuse to honour the said clause. In our opinion, the aforesaid contention is baseless in view of the fact that forum selection clause has been held to be lawful, binding and not opposed to public policy provided that the selected forum has also the jurisdiction to entertain the suit and in view of such forum selection, the Courts excluded by a valid agreement of the parties become incompetent to entertain the suit. With great respect to the Judges of the Orissa High Court deciding those two cases, we are unable to conclude that even though the parties by lawful agreement selected the forum from amongst the Courts having territorial jurisdiction, the Court is competent to ignore such agreement in view of the following observations of the Apex Court in the case of Rajasthan SEB vs. Petro Chemicals Ltd. reported in 2009(3) SCC 107:


?26. In Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd. it was held (at SCC p.671f-g) by this Court that where two or more courts have jurisdiction under the Code, it is permissible to have an agreement between the parties restricting the place of suing to any one of them and if such restriction is placed in the agreement, the same cannot be said to be contrary to public policy and does not contravene Section 28 of the Contract Act. It was, however, made clear that such restriction cannot be made and the parties cannot by agreement confer jurisdiction on a court which otherwise it does not possess under the Code. This Court also considered the scope of Section 20 of the Code in the said case and by referring to the said provision it was held that (Hanil Era case4, SCC pp.671g-672a)


?? when ouster clause is clear, unambiguous and specific, accepted notions of contract would bind parties, and unless absence of ad idem can be shown courts should avoid exercising jurisdiction?.


While arriving at the said finding this Court followed the ratio laid down in A.B.C. Laminart (P) Ltd.1


?27. The aforesaid legal proposition settled by this Court in respect of territorial jurisdiction and applicability of Section 20 of the Code to the Arbitration Act is clear, unambiguous and explicit. The said position is binding on both the parties who were contesting the present proceeding. Both the parties with their open eyes entered into the aforesaid purchase order and agreements thereon which categorically provide that all disputes arising between the parties out of the agreements would be adjudicated upon and decided through the process of arbitration and that no court other than the court at Jaipur shall have jurisdiction to entertain or try the same. In both the agreements in Clause 30 of the general conditions of the contract it was specifically mentioned that the contract shall for all purposes be construed according to the laws of India and subject to jurisdiction only at Jaipur in Rajasthan courts only and in addition in one of the purchase order the expression used was that the court at Jaipur only would have jurisdiction to entertain or try the same.


?28. In the light of the aforesaid facts of the present case, the ratio of all the aforesaid decisions which are referred to hereinbefore would squarely govern and apply to the present case also. There is indeed an ouster clause used in the aforesaid stipulations stating that the courts at Jaipur alone would have jurisdiction to try and decide the said proceedings which could be initiated for adjudication and deciding the disputes arising between th

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e parties with or in relation to the aforesaid agreements through the process of arbitration. In other words, even though otherwise the courts at Calcutta would have territorial jurisdiction to try and decide such disputes, but in view of the ouster clause it is only the courts at Jaipur which would have jurisdiction to entertain such proceeding.? (Emphasis supplied by us). It is nobody?s case that the agreement between the parties was vitiated for absence of ad idem; on the other hand, the plaintiff itself is pressing for enforcement of the agreement for reference contained therein and it is not even its case that all the terms of the agreement except the forum selection clause is vitiated by the absence of ad idem. We, therefore, hold that the order impugned is liable to be set aside for want of territorial jurisdiction of the Trial Court alone. We make it clear that we have not gone into the question whether the conditions prescribed for the application of the Section 8 of the Act have been satisfied. We direct return of the plaint to the learned advocate for the plaintiff for presentation of the same before the appropriate forum after setting aside the order impugned and vacating all interim orders, if any. The appeal is allowed. In the facts and circumstances, there will be, however, no order as to costs.
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