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CASE NO.: Appeal (civil)  7653 of 2004

PETITIONER: Shree Subhlaxmi Fabrics Pvt. Ltd.                        

RESPONDENT: Chand Mal Baradia and others                             

DATE OF JUDGMENT: 29/03/2005

BENCH: D.M. Dharmadhikari & G.P. Mathur

JUDGMENT: J U D G M E N T

G.P. MATHUR, J.

       This appeal by special leave has been preferred against the  judgment and order dated 21.5.2002 of Calcutta High Court by which  the application moved by the first respondent under Order 39 Rule 1  and 2 and Section 151 CPC was allowed and Hindustan Chambers of  Commerce, Mumbai (second respondent) was restrained from  proceeding in Arbitration Case Nos. A/186 and A/187 subject to  deposit of Rs.2 lakhs by the first respondent with the Registrar  General within two days of receipt of the certified copy of the order.         The first respondent Chand Mal Baradia filed Title Suit No. 993  of 1999 in the City Civil Court at Calcutta for permanent injunction  restraining the defendants from proceeding with the arbitration  proceedings, which had been initiated by the appellant Shree  Subhlaxmi Fabrics Pvt. Ltd.   The case of the plaintiff (first  respondent) in brief is that he was carrying on business under the  name and style of M/s. Chand Mal Prakash Chand and Co. at  Calcutta; that Shree Subhalaxmi Fabrics Pvt. Ltd., Mumbai (defendant  No. 1), which is a company registered under the Companies Act and  sells cloth through its agent M/s. Naresh Enterprises, which has its  office at Calcutta, under the terms and conditions as dictated by  defendant No. 1; that the plaintiff was getting supplies against the  orders placed by him at Calcutta through the agent of defendant No. 1;  that all such supplies were made by the agent to the plaintiff at  Calcutta at his premises No. 160, Jamunalal Bajaj Street and all  payments made by the plaintiff were collected by this agent on behalf  of defendant No. 1 at Calcutta; that the plaintiff was taking delivery of  goods at Calcutta on the basis of Railway Receipts/Lorry Receipts and  consignment notes from the said agent M/s. Naresh Enterprises.  The  case of the plaintiff further is that there was no arbitration agreement  between the plaintiff and defendant No. 1 at any point of time for  referring their disputes to any arbitrator; that he was not a member of  defendant No. 2 M/s. Hindustan Chambers of Commerce, having its  office in Mumbai.  As the plaintiff became seriously ill some time in  early part of 1997, he could not look after his business and  consequently there was some delay in making payments to defendant  No. 1; that the plaintiff paid more than Rs. 4 lakhs to defendant No. 1  and the last payment was made on 27.2.1999; that in April, 1999 the  plaintiff received two notices from defendant No. 2 intimating that the  defendant No. 1 had initiated arbitration proceedings and the plaintiff  was asked to nominate an arbitrator and send a sum of Rs.200/- as  arbitration fee; that the defendant No. 2 had no jurisdiction or  authority to act as an arbitrator and accordingly the plaintiff requested  it not to proceed with the arbitration case.  The case of the plaintiff  further is that the defendant No. 1 initiated another arbitration  proceeding bearing No. A/186 before defendant No. 2 claiming that

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M/s. Chand Mal Prakash Chand and Co. was also the proprietor of  Arihant Textiles; that the plaintiff informed by sending a letter to  defendant No. 2 on 18.5.1999 that he had never placed any order in  the name of Arihant Textiles at any point of time and, therefore, the  case be dropped.  The plaintiff filed an application under Order 39  Rule 1 and 2 and Section 151 CPC for restraining the defendants from  proceeding with the arbitration cases.         The appellant Shree Subhlaxmi Fabrics Pvt. Ltd. (defendant  No. 1) opposed the prayer for grant of injunction and also filed an  application under Section 20 read with Section 151 CPC on the  ground inter alia that the defendant No. 1 is a cloth merchant, which is  carrying on business all over India; that M/s. Naresh Enterprises  having its office at Calcutta had been engaged as a middleman by the  appellant, who procured a buyer namely Chand Mal Prakash Chand &  Co. represented by Chand Mal Baradia and others at Calcutta; that  M/s. Naresh Enterprises contacted defendant No. 1 at Mumbai for  supply of cloth upon which the defendant No. 1 sent their indents  through the said middleman to the said M/s. Chand Mal Prakash  Chand & Co. (plaintiff), which was duly accepted by them; that the  defendant No. 1 supplied cloth valued at approximately Rs.20 lakhs in  1996-97 to the plaintiff; that in the indents (contracts) terms and  conditions were mentioned and condition Nos. 6 and 7 read as under:-

"Clause \026 6  Dispute under this contract shall be decided by the  Court of Bombay and no other courts. Clause \026 7   If any dispute arises about the transaction the same  shall have to be referred to the Hindustan Chamber  of Commerce, Bombay, for decision under its  Arbitration Rules." It was further stated in the application filed by the appellant  (defendant No. 1) that in the indent/offer letter, which was prepared  and sent by the middleman M/s. Naresh Enterprises, to the office of  defendant No. 1 a condition was mentioned regarding jurisdiction of  courts, which reads as under: - "UNDER JURISDICTION OF THE COURT  FROM WHERE THE GOODS HAVE BEEN  DESPATCHED".

In all the bills/invoices, which were sent to the plaintiff, it was  specifically mentioned at the top "subject to Mumbai jurisdiction" and  at the left hand side at the bottom the following was written: -

"In case of dispute arising out of the transaction  between the vendors and the purchaser and the  brokers or agent either for payment or any other  dispute in relation to the transaction, the same shall  be referred to the Hindustan Chamber of  Commerce, Mumbai, for decision under its  Arbitration Rules and the Award made thereunder  shall be binding upon the parties."

Since dispute arose between the parties regarding payment of the  goods sold and delivered, the appellant referred the matter to the  Hindustan Chamber of Commerce, Mumbai, for arbitration and  appointed Shri Shikhar Chand Jain as its arbitrator.  The Hindustan  Chamber of Commerce (defendant No. 2) had entered upon the  reference and had served a notice upon the plaintiff by letter dated  31.3.1999 calling upon them to appoint one of their arbitrators from  the panel/list sent by it and further to deposit Rs.200/- as arbitration  fee.  The said letter was duly replied by the plaintiff on 20.4.1999  along with a fee of Rs.200/-.  A specific plea was thus raised by  defendant No. 1 that the court at Calcutta had no territorial jurisdiction  to try the suit and further that in view of the arbitration agreement  contained in the indent (contract) and also the fact that the plaintiff

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had already responded to the notice issued by the defendant No. 2,  there was no ground for granting any injunction order in their favour.         The City Civil Court at Calcutta, after a detailed consideration  of the matter, held that the said court had no jurisdiction to try the suit  and further that the arbitration proceedings having already  commenced, the civil court should not interfere with the functioning  of the arbitrator (defendant No. 2).  It was accordingly held that the  plaintiff had no prima facie case to go for trial and the balance of  convenience lies in favour of the defendants.  It was further held that  the plaintiff will not suffer any irreparable injury in the event of  refusal of injunction.  The application was accordingly dismissed by  the order dated 22.2.2000.         Feeling aggrieved by the order of City Civil Court the plaintiff  preferred an appeal before the Calcutta High Court under Order 43  Rule 1 (r) CPC.  The High Court held that an objection as to the  existence of the arbitration agreement can be taken either before the  arbitrator or by way of a suit in a competent court, the initial choice  being of the aggrieved party.  If the court is approached, it is a matter  of discretion of the court even at the final hearing, whether to decide  the suit or to refer the matter to the arbitrator, allowing a decision by  the arbitrator himself on the point.  Regarding jurisdiction the High  Court held that the plaintiff has no doubt an arguable case that he did  not consciously agree to the exclusion of the jurisdiction of the courts.   It was further held that the plaintiff’s plea that "from where the goods  have been dispatched" is not sufficiently specific as to exclude a  court’s jurisdiction is no doubt an arguable case.  On these findings  the appeal was allowed and all further proceedings in arbitration cases  A/186 and A/187, initiated by the defendant No. 1 before defendant  No. 2, were stayed subject to the plaintiff’s depositing Rs. 2 lakhs  with the Registrar General within two days of the receipt of the  certified copy of the order.         Shri M.N. Krishnamani and Shri Jaideep Gupta, learned senior  advocates, who have appeared for the appellant Shree Subhlaxmi  Fabrics Pvt. Ltd. (defendant No. 1) have assailed the order of the High  Court on two grounds.  The learned counsel have submitted that the  indent (contract) contained a clause that in case any dispute arises  about the transaction the same shall have to be referred to the  Hindustan Chamber of Commerce, Mumbai, for decision under its  Arbitration Rules and as such there was an arbitration agreement  between the parties, which was invoked by the appellant by making a  reference to defendant No. 2.  The defendant No. 2 had sent a notice  to the plaintiff asking it to nominate an arbitrator from the panel/list  supplied to it and also to remit an amount of Rs.200/- towards the fee  of arbitration.  The plaintiff responded by sending a reply and also an  amount of Rs.200/-.  In such circumstances the plaintiff cannot  contend that there is no arbitration agreement between the parties.   That apart it is open to the plaintiff to raise such a plea before the  arbitrator under Section 16 of The Arbitration and Conciliation Act,  1996 (hereinafter referred to "the Act").  The second ground urged is  that there was an agreement between the parties that the disputes  arising under the contract shall be decided by the courts at Bombay  and by no other courts and consequently courts at Calcutta had no  territorial jurisdiction to entertain the suit.  The learned counsel have  thus submitted that the High Court committed manifest error of law in  granting an injunction order in favour of the plaintiff and in passing a  restraint order staying further proceedings before the arbitrators.         Shri V.A. Mohta, learned senior counsel for the respondent No.  1 (plaintiff), on the other hand, submitted that there was no arbitration  agreement between the parties as contemplated by Section 7 of the  Act and, therefore, the reference made to the arbitrator by the  appellant is wholly invalid and the defendant No. 2 has no jurisdiction  to proceed with the arbitration.  He has further submitted that a part of  cause of action had accrued at Calcutta and the plaintiff had never  consciously agreed to any condition that any dispute arising between  the parties shall be decided by the courts at Bombay and by no other

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courts and, therefore, the court at Calcutta had the jurisdiction to try  the suit.         Before examining the contentions raised by the learned counsel  for the parties it will be convenient to take note of certain provisions  of the Act.  Sections 4, 5, 7 and 16 of the Act read as under: - "4.      Waiver of right to object. \026 A party who  knows that \026 (a)     any provision of this part from which the  parties may derogate, or  (b)      any requirement under the arbitration  agreement, has not been complied with and yet proceeds with  the arbitration without stating his objection to such  non-compliance without undue delay or, if a time  limit is provided for stating that objection, within  that period of time, shall be deemed to have  waived his right to so object." "5. Extent of judicial intervention. \026  Notwithstanding anything contained in any other  law for the time being in force, in matters  governed by this Part, no judicial authority shall  intervene except where so provided in this part." "7. Arbitration agreement. \026 (1) In this part,  "arbitration agreement" means an agreement by  the parties to submit to arbitration all or certain  disputes which have arisen or which may arise  between them in respect of a defined legal  relationship, whether contractual or not. (2)     An arbitration agreement may be in the form of  an arbitration clause in a contract or in the form of  a separate agreement. (3)     An arbitration agreement shall be in writing. (4)     An arbitration agreement is in writing if it is  contained in \026 (a)     a document signed by the parties; (b)     an exchange of letters, telex,  telegrams or other means of  telecommunication which provide a  record of the agreement; or (c)     an exchange of statements of claim  and defence in which the existence of  the agreement is alleged by one party  and not denied by the other. (5)     The reference in a contract to a document  containing an arbitration clause constitutes an  arbitration agreement if the contract is in writing  and the reference is such as to make that  arbitration clause part of the contract." "16. Competence of arbitral tribunal to rule on  its jurisdiction. \026 (1) The arbitral tribunal may  rule on its own jurisdiction, including ruling on  any objections with respect to the existence or  validity of the arbitration agreement, and for that  purpose, - (a)     an arbitration clause which forms part of  a contract shall be treated as an  agreement independent of the other terms  of the contract; and (b)     a decision by the arbitral tribunal that the  contract is null and void shall not entail  ipso jure the invalidity of the arbitration  clause. (2)     A plea that the arbitral tribunal does not have  jurisdiction shall be raised not later than the  submission of the statement of defence; however, a

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party shall not be precluded from raising such a  plea merely because that he has appointed, or  participated in the appointment of, an arbitrator. (3)      A plea that the arbitral tribunal is exceeding  the scope of its authority shall be raised as soon as  the matter alleged to be beyond the scope of its  authority is raised during the arbitral proceedings. (4)      The arbitral tribunal may, in either of the cases  referred to in sub-section (2) or sub-section (3),  admit a later plea if it considers the delay justified. (5)      The arbitral tribunal shall decide on a plea  referred to in sub-section (2) or sub-section (3)  and, where the arbitral tribunal takes a decision  rejecting the plea, continue with the arbitral  proceedings and make an arbitral award. (6)      A party aggrieved by such an arbitral award  may make an application for setting aside such an  arbitral award in accordance with section 34."

       Section 5 of the Act provides that notwithstanding anything  contained in any other law for the time being in force, in matters  governed by Part I (Sections 2 to 43), no judicial authority shall  intervene except where so provided in the said part.  This clearly  indicates the legislative intent to minimize supervisory role of courts  to ensure that the intervention of the court is minimal.  Section 4 is a  deeming provision, which lays down that where a party proceeds with  the arbitration without stating his objection to non-compliance of any  provision of Part I from which the parties may derogate or any  requirement under arbitration agreement, it shall be deemed that he  has waived his right to so object.  Section 7 provides that the  arbitration agreement shall be in writing and such an agreement may  be in the form of an arbitration clause in a contract or in the form of a  separate agreement.  Sub-section (4) of Section 7 provides the  conditions under which a document or exchange of letter or exchange  of statement of claim and defence may amount to an arbitration  agreement.  Section 16 of the Act is important and it provides that the  arbitral tribunal may rule on its own jurisdiction, including ruling on  any objections with respect to the existence or authority of the  arbitration agreement.         Section 11 of the Act provides for appointment of arbitrators  and sub-section (6) thereof empowers the Chief Justice of the High  Court or any person or institution designated by him to make such an  appointment on the happening of certain conditions enumerated in  clauses (a), (b) or (c).         In Konkan Railway Corpn. Ltd. vs. Mehul Construction Co.  2000 (7) SCC 201, a three Judge Bench of this Court held that at the  stage when a party has approached the Chief Justice for appointment  of an arbitrator, the contentious issues should not be decided at that  stage and the aggrieved party can raise all the objections including  objection regarding non-existence of an arbitration clause before the  arbitral tribunal.  The Bench observed as under in para 4 of the  report:-         "When the matter is placed before the Chief  Justice or his nominee under Section 11 of the Act  it is imperative for the said Chief Justice or his  nominee to bear in mind the legislative intent that  the arbitral process should be set in motion without  any delay whatsoever and all contentious issues  are left to be raised before the Arbitral Tribunal  itself.  At that stage it would not be appropriate for  the Chief Justice or his nominee to entertain any  contentious issue between the parties and decide  the same.  A bare reading of Sections 13 and 16 of  the Act makes it crystal clear that questions with

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regard to the qualifications, independence and  impartiality of the arbitrator, and in respect of the  jurisdiction of the arbitrator could be raised before  the arbitrator who would decide the  same\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005   \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005....  Section 16 empowers the Arbitral Tribunal to rule  on its own as well as on objections with respect to  the existence or validity of the arbitration  agreement.  Conferment of such power on the  arbitrator under the 1996 Act indicates the  intention of the legislature and its anxiety to see  that the arbitral process is set in motion.  This  being the legislative intent, it would be proper for  the Chief Justice or his nominee just to appoint an  arbitrator without wasting any time or without  entertaining any contentious issues at that stage, by  a party objecting to the appointment of an  arbitrator.  If this approach is adhered to, then  there would be no grievance of any party and in  the arbitral proceeding, it would be open to raise  any objection, as provided under the  Act\005\005\005\005."

       Similar view has been taken in State of Orissa and others vs.  Gokulananda Jena 2003 (6) SCC 465, where this Court held as under:- "However, we must notice that in view of Section  16 read with Sections 12 and 13 of the Act, as  interpreted by the Constitution Bench of this Court  in Konkan Rly. Corpn. Ltd. v. Rani Construction  (P) Ltd. [(2002) 2 SCC 388] almost all disputes  which could be presently contemplated can be  raised and agitated before the arbitrator appointed  by the Designated Judge under Section 11(6) of the  Act.  From the perusal of the said provisions of the  Act, it is clear that there is hardly any area of  dispute which cannot be decided by the arbitrator  appointed by the Designated Judge\005\005\005."

       In Food Corporation of India vs. Indian Council of Arbitration  and others 2003 (6) SCC 564 (para 14), it was emphasized that the  legislative intent underlying the 1996 Act is to minimize the  supervisory roles of courts in the arbitral process and nominate/  appoint the arbitrator without wasting time, leaving all contentious  issues to be urged and agitated before the arbitral tribunal itself.  It  was further held that even in the old law, common sense approach  alone was commended for being adopted in construing an arbitration  clause more to perpetuate the intention of the parties to get their  disputes resolved through the alternate disputes redressal method of  arbitration rather than thwart it by adopting a narrow, pedantic and  legalistic interpretation.         The consistent view taken by this Court, therefore, is that  contentious issues should not be gone into or decided at the stage of  appointment of an arbitrator and no time should be wasted in such an  exercise.  The remedy of the aggrieved party is to raise an objection  before the arbitral tribunal as under Section 16 of the Act it is  empowered to rule about its own jurisdiction.  It is, therefore, open to  the plaintiff to raise all the pleas before defendant No. 2 including a  plea that there is no arbitration agreement between the parties for  referring any dispute for arbitration before the Hindustan Chamber of  Commerce, Mumbai.  It is also important to note that in response to  the notice issued by defendant No. 2 the plaintiff had sent a  communication raising certain pleas and had also remitted an amount  of Rs.200/- as fee for arbitration.  In such circumstances we are of the  opinion that the view taken by the City Civil Court was just and

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proper and the High Court erred in granting an injunction in favour of  the plaintiff and staying the proceedings before defendant No. 2.         The other point, which needs consideration, is that the appellant  had raised a specific plea by moving an application under Section 20  read with Section 151 CPC before the trial court that the court at  Calcutta had no territorial jurisdiction to try the suit.  According to the  appellant the indent (contract) contained a clause that the dispute  under the contract shall be decided by the court at Bombay and by no  other court.  That apart it was defendant No. 1, which had commenced  arbitration proceedings before defendant No. 2 and both are situate in  Bombay.         The plaintiff wants that the Hindustan Chamber of Commerce  (defendant No. 2) may be restrained from proceeding with arbitration  of the dispute, which has been raised by the appellant Shree  Subhlaxmi Fabrics Pvt. Ltd. (defendant No. 1).  Both defendant No. 1  and defendant No. 2 have their offices at Bombay.  Insofar as  commencement of proceedings before defendant No. 2 by defendant  No. 1 is concerned, no part of cause of action has accrued in Calcutta.         In Hakam Singh vs. Gammon (India) Ltd. 1971 (1) SCC 286, it  has been held that it is not open to the parties to confer by their  agreement jurisdiction on a court which it does not possess under the  Code.  But where two courts or more have under the Code of Civil  Procedure jurisdiction to try a suit or a proceeding, an agreement  between the parties that the disputes between them shall be tried in  one of such courts is not contrary to public policy and that such an  agreement does not contravene Section 28 of the Contract Act.  In  A.B.C. Laminart (P) Ltd. vs. A.P. Agencies 1989 (2) SCC 163, it was  held as under: - "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.  It would not, however, ipso  facto take away jurisdiction of other courts.   Where an ouster clause occurs, it is pertinent to see  whether there is ouster of jurisdiction of other  courts.  When the clause is clear, unambiguous and  specific accepted notions of contract would bind  the parties and unless the absence of ad idem can  be shown, the other courts should avoid exercising  jurisdiction.  As regards construction of ouster  clause when words like ’alone’, ’only’, ’exclusive’  and the like have been used there may be no  difficulty.  Even without such words in appropriate  cases the maxim ’expressio unius est exclusion  alterius’ \026 expression of one is the exclusion of  another may be applied.  What is an appropriate  case shall depend on the facts of the case.  In such  a case mention of one thing may imply exclusion  of another.  When certain jurisdiction is specified  in a contract an intention to exclude all others from  its operation may in such cases be inferred.  It has  therefore to be properly construed."

       This view has been reiterated in Angile Insulation vs. Davy  Ashmore India Ltd. 1995 (4) SCC 153.         In the case on hand the clause in the indent is very clear, viz.,  "court of Bombay and no other court".  The trial court on  consideration of material on record held that the court at Calcutta had  no jurisdiction to try the suit.         The High Court in the earlier part of the judgment noted that

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the invoice contained clause like "under jurisdiction of the court from  where the goods have been dispatched" and in the indent (contract) a  clause like "dispute under this contract shall be decided by the courts  of Bombay and by no other courts".  Further, while recording its  findings on the plea raised by the appellant regarding jurisdiction it  held as under: - "In the facts and circumstances of this case, the  plaintiff has no doubt an arguable case that he did  not consciously agree to the exclusion of the  jurisdiction of the courts of its business.  Its case  that "from where the goods has been dispatched",  is not sufficiently specific as to exclude a court’s  jurisdiction, is no doubt an arguable case."

       In our opinion the approach of the High Court is not correct.   The plea of the jurisdiction goes to the very root of the matter.  The  trial court having held that it had no territorial jurisdiction to try the  suit, the High Court should have gone deeper into the matter and until  a clear finding was recorded that the court had territorial jurisdiction  to try the suit, no injunction could have been granted in favour of the  plaintiff by making rather a general remark that the plaintiff has an  arguable case that he did not consciously agree to the exclusion of the  jurisdiction of the court.         On overall consideration of the matter, we are clearly of the  opinion that on the facts and circumstances of the case the view taken  by the trial court was perfectly correct and the High Court has erred in  reversing its order and granting an injunction in favour of the plaintiff.           The appeal is accordingly allowed with costs and the judgment  and order dated 21.5.2002 of the High Court is set aside.