THE HONBLE THE CHIEF JUSTICE
This appeal is directed against the order of the learned single Judge
in an application under Section 9 of the Arbitration and Conciliation Act,
1996 (for short the Act) making absolute the prohibitory order restraining
the Garnishee, the second respondent in this appeal, from making any payment
to the appellant.
2. The appeal arises under the following circumstances: -
The appellant is a company incorporated under the Companies Act, 19 56
having its Registered Office at Hyderabad. In or around January, 2003 the
appellant had called for tenders for the works of Erection, Testing and
Commissioning and Power Evacuation and distribution system for the Biomass
Best Power Plant of 6 MW capacity. The tender submitted by the first
respondent was accepted, and seven purchase orders were issued by the
appellant to the first respondent with annexures specifying the works and
prices. As per Clause 11 of the agreement any difference in the
interpretation of the terms of the agreement or dispute arising in executing
the contract shall be resolved by reference to arbitrators under the
provisions of the Arbitration and Conciliation Act, 1996. Clause-14
stipulates that for all practical purposes the jurisdiction of Hyderabad
Courts will be final. There is no dispute that the first respondent completed
the works covering all the purchase orders and a completion certificate was
issued.
3. The first respondent filed Application No.4149 of 2004 before this
Court under Section 9 of the Act praying for a prohibitory order restraining
the second respondent/Garnishee from paying to the appellant the amounts, and
consequently restraining the appellant from receiving monies and directing the
second respondent to deposit the amount to the credit of the above
application. According to the first respondent, there was an outstanding
amount of Rs.60.50 lakhs payable by the appellant to the first respondent.
The first respondent sent several letters demanding payment of monies, the
receipt of which is not denied by the appellant. However, the appellant
failed to pay the monies or replied to any of the letters. Further, according
to the first respondent the appellant is in financial crisis. It owes more
than Rs.1.6 crore to various persons and all its assets are encumbered.
4. On 24.3.2005 an ex parte prohibitory order came to be passed restraining
the Garnishee/second respondent in this appeal, from making any payment to the
appellant. The appellant filed a counter in Application No.4149 of 2004 and
filed Application No. 2322 of 2005 for vacating the interim order. The
appellant contended that the cause of action arose within the State of Andhra
Pradesh where the Project was located and executed and from where the payments
were made. It has been specifically agreed between the parties under the
jurisdiction clause that for all practical purposes the jurisdiction of
Hyderabad Courts will be final, and therefore the Courts at Hyderabad will
have jurisdiction excluding the jurisdiction of all other Courts. The
appellant further contended that the first respondent has totally paid a sum
of Rs.1,58,02,685.80 against the total supplies of Rs.1,39,03.280.72 without
going into the correctness of quantity and value of supply. The total value
of the supply figures is only Rs.1,39,03,280.72 as per the statement of
accounts of the first respondent. However, the correct amount due as verified
by the Chartered Accountant would be only Rs.1,38,58,280. Thus, the appellant
has made excess payment of Rs.19,44,405.80, which is to be reimbursed by the
first respondent, and no amount is due to the first respondent. It w as
pointed out that there is a Power Purchase Agreement with the Garnishee for a
period of 20 years from January 2004 onwards. Any prohibitory order
restraining the Garnishee in releasing the payment due to the appellant would
cause severe financial hardship and cripple the day-to-day activities of the
appellant company.
5. Application Nos. 4149 of 2004 and 2232 of 2005 were heard by the learned
single Judge. It seems that at the time of hearing, the objection with regard
to jurisdiction was not pressed. The learned single Judge proceeded to hear
the parties on merits and came to the conclusion that a prima facie case has
been made out for grant of interlocutory reliefs, and by order under appeal
made absolute the prohibitory order restraining the Garnishee from making any
payment to the appellant.
6. Mrs.Nalini Chidambaram, learned Senior Counsel appearing in support of the
appeal has not disputed that the objection to jurisdiction was not raised
before the learned single Judge, but she contends that the defect of
jurisdiction would go to the root of the matter and strike at the very
authority of the Court to pass the order. According to her such defect has
always been treated as basic and fundamental, and an order passed by a Court
having no jurisdiction is a nullity, and validity of such an order can be
challenged at any stage even in execution or collateral proceedings. She
submits that in view of Clause 14 of the Purchase Order it is clearly
understood and agreed by both the parties that the jurisdiction of the Court
in Hyderabad will be final. Therefore, the Courts at Hyderabad alone will
have jurisdiction and the first respondent cannot invoke the jurisdiction of
this Court under the provisions of Section 9 of the Act for interim measures.
She also contends that even assuming that this Court is competent to entertain
the application under Section 9, the Court ought to have considered that the
first respondent has failed to make out any prima facie case in their favour
and no irreparable injury or damage would be caused if the relief of
injunction is not passed. According to her the principles of Order 38 Rule 5
and Order 39 Rules 1 & 2 of the CPC would apply, since the prayer is in the
nature of attachment before judgment and injunction. She contends that the
claim of the first respondent has been seriously disputed and due to the
interim order, the appellant is put to untold hardship, as they have to run
the units continuously with biomass products to be bought from the farmers,
who have to be paid immediately.
7. In reply, Mr.Sriram Panchu, learned Senior Counsel for the first
respondent submits that as per Section 21 of the Code of Civil Procedure an
objection to jurisdiction ought to have been taken at the earliest
opportunity, and failing to do so would amount to waiver. He submits that the
objection as to local jurisdiction does not stand on the same footing as the
objection to the competence of the Court to try a case. This is not a case
where the Madras High Court does not have jurisdiction. The agreements were
signed by the first respondent at Chennai and the goods and materials were
sent from Chennai and the payments were also made at Chennai, and therefore,
this Court has jurisdiction to try the application made by the first
respondent. He submits that the issue of jurisdiction was in fact conceded by
the appellant before the learned single Judge and should not be subsequently
permitted to raise it at the appellate stage. In any event, according to him,
the ouster clause relied upon by the appellant is vague, uncertain and
ambiguous. The clause does not define what constitutes practical purpose and
what is final, and it cannot be construed as exclusion of jurisdiction. He
submits that in addition to the several works under the contracts undertaken
to perform by the first respondent, the first respondent had also taken works
not contracted. Part payments have been made towards the extra work done, and
the case of the appellant that there was excess payment is false and after
thought. He submits that if the orders are vacated the first respondent will
have no other means of safeguarding their interests and will be subjected to
tremendous loss.
8. At the outset, we may mention that the agreements were signed by
the first respondent at Chennai, goods and materials were sent from Chennai
and payments were also made at Chennai. Therefore, a part of cause of action
arises at Chennai within the jurisdiction of this Court. Thus, the Court at
Madras is a competent Court to entertain the lis but for the ouster clause
relied upon by the appellant. However, when the appellant had submitted
themselves to the jurisdiction of this Court and went to trial on merits, they
are clearly prevented from raising the question of jurisdiction, in view of
the provisions of Section 21 of the Code of Civil Procedure. Section 21(1) of
the Code of Civil Procedure runs thus:-
No objection as to the place of suing shall be allowed by any
Appellate or Revisional Court unless such objection was taken in the Court of
first instance at the earliest possible opportunity and in all cases where
issues are settled, at or before such settlement, and unless there has been a
consequent failure of justice.
9. In order that an objection to the place of suing may be
entertained by an appellate or revisional Court the fulfillment of the
following three conditions is essential:-
(i)the objection was taken in the Court of first instance;
(ii)it was taken at the earliest possible opportunity, and in cases where
issues are settled, at or before such settlement; and
(iii)when there has been a consequent failure of justice.
All these three conditions must co-exist. Now, in the present case, though
objection to the jurisdiction was raised in the counter it was not pressed at
the time of hearing. If a party does not press the objection to the
jurisdiction and allows trial to go on in the usual course on merits, he would
be bound by his own conduct, and he should be deemed, in such circumstances,
to have waived his objection as to jurisdiction. If he does not press the
objection to the jurisdiction at the trial stage, he cannot at the appellate
stage be allowed to raise the objection, as section 21 of the cpc makes it
imperative that such an objection has to be raised at the earliest possible
opportunity, and in all cases where issues are settled, at or before such
settlement. In spite of this if the appellant was not diligent to pursue the
objection before the trial Court, but ultimately suffered a judgment, it
cannot be said that there has been a consequent failure of justice within the
meaning of Section 21 of the Code of Civil Procedure.
10. In Kiran Singh Vs. Chaman Paswan, AIR 1954 SC 340 the Supreme Court laid
down the salient principle thus:
The policy underlying Section 11 of the Suits Valuation Act, as also of
Sections 21 and 99 of the Code of Civil Procedure, is that when a case has
been tried by a Court on the merits and judgment rendered, it should not be
liable to be reversed purely on technical grounds, unless a failure of justice
has resulted. The policy of the legislature has been to treat objections as
to jurisdiction, both territorial and pecuniary as technical and not open to
consideration by an appellate Court, unless there has been prejudice on the
merits.
11. In Bahrein Petroleum Co. Ltd. Vs. P.J.Pappu, AIR 1966 SC 634
the Supreme Court held as follows:
Counsel for the plaintiff-respondent submitted that it was open to
the defendants to waive this objection, and if they did so, they could not
subsequently take the objection. This submission is well founded. As a
general rule, neither consent nor waiver nor acquiescence can confer
jurisdiction upon a Court, otherwise incompetent to try the suit. But,
Section 21 of the Code provides an exception, and a defect as to the place of
suing, that is to say, the local venue for suits cognizable by the Courts
under the Code may be waived under this Section. The waiver under Section 21
is limited to objections in the appellate and revisional Courts. But, Section
21 is a statutory recognition of the principle that the defect as to the place
of suing under Sections 15 to 20 may be waived. Independently of this
Section, the defendant may waive the objection and may be subsequently
precluded from taking it, see Hira Lal Patni Vs. Sri Kali Nath, 1962 (2) SCR
747 at pp.751-752: AIR 1962 SC 199 at p.201.
12. It is also required to be noted that this is not a case of lack
of territorial jurisdiction, but only a waiver of a contractual clause. If a
party allows the trial Court to proceed to judgment without raising the
objection as to the place of suing and takes a chance of verdict in his
favour, he clearly waives the objection and will not subsequently be permitted
to raise it. The present proceedings under Section 9 are in effect final
proceedings. The objection to the jurisdiction though taken before the trial
Court should have been pressed to its normal end and failure to do so would
amount to waiver as per Section 21 of the Code of Civil Procedure. It is true
that section 21 of the cpc is not specifically made applicable to the
proceedings arising under the Act, but there is no express prohibition against
the application of the Code to the proceedings arising out of the Act before
the civil Court. In M/s.I.T.I. Ltd. Vs. M/s.Siemens Public Communications
Network Ltd., AIR 2002 SC 2308 a two Judge Bench of the Supreme Court has
clearly held that the jurisdiction of the civil Court to which a right to
decide a lis between the parties has been conferred can only be taken away by
a statute in specific terms and such exclusion of right cannot be easily
inferred because there is always a strong presumption that the civil Court has
the jurisdiction to decide all questions of civil nature, therefore, if at all
there has been an inference the same should be in favour of the jurisdiction
of the Court rather than the exclusion of such jurisdiction and there being no
such exclusion of the Code in specific terms except to the extent stated in
Section 37(2) of the Act an inference that merely because the Act has not
provided the CPC to be applicable, the Code is inapplicable cannot be drawn.
13. Coming then to the merits of the case, there is no dispute that
the appellant has a Power Purchasing Agreement with the Garnishee for 20 years
commencing from 24.01.2004 and each month there would be a billing of Rs.80
lakhs approximately. Even, if the first respondent ultimately succeeds in the
arbitration proceedings, there will be no difficulty in recovering the money
in terms of the ultimate award, since the Garnishee is liable to pay the
monthly bills based on the Power Purchasing Agreement, and there is no danger
or apprehension that the first respondent could not recover the money, in case
they succeed in the arbitration proceedings. In view of the continuous
earning from the very same Garnishee at the rate of Rs.80 lakhs per month,
there is no apprehension that the first respondent will not be able to realize
the money due in case the first respondent gets a favourable award. In our
opinion, the first respondent has failed to make out any prima facie case in
their favour and no irreparable damage or injury would be caused if
prohibitory order was not granted. No irreparable loss would be caused to the
first respondent as they can be well compensated by the arbitrator, if
ultimately it is found that they are entitled to the claim. Mr. Panchu,
however, submitted that the power to grant interim relief cannot be controlled
or restricted by invoking the provisions of Order 38 Rule 5 or Order 39 Rules
1 and 2 of the Code of Civil Procedure. He placed strong reliance on the
decision of a Division Bench of this Court reported in Ganesh Benzoplast Ltd.,
Mumbai Vs. Sundaram Finance Ltd., Chennai, 2002 (2) CTC 238. We have
carefully analysed the said judgment. The judgment merely states that when
Section 9 of the Act does not specifically require any averment in any
particular form as contemplated either under Order 38 Rule 5 of the CPC or
under Section 18 of the Arbitration Act, 1940, there is no need to make such
averment in the affidavit filed in support of the application seeking a
prohibitory order. It is true that the provisions like Order 38 Rule 5 or
Order 39 Rules 1 and 2 of the Code of Civil Procedure are not contained in the
Arbitration and Conciliation Act, 1996 but its principles will be applicable
as has been held by the Supreme Court in M/s. I.T.I. Ltd., Vs. M/s.
Siemens Public Communications Network Ltd. (supra) wherein it was held that
for want of specific exclusion of CPC in the Act of 1996, it cannot be
inferred that the Code was not applicable, but that would mean that the
provisions of the Code have to be read into as it is, when the Court exercises
powers as prescribed under the Act of 1996.
14. Our attention was brought to the decision of the Delhi High Court in Goel
Associates Vs. Jivan Bima Rashtriya Avas Samiti Ltd., 2004 (3) R.A.J. 658
where a Division Bench of the Delhi High Court following the decision of the
Supreme Court in M/s. I.T.I. Ltd., Vs. M/s. Siemens Public Communications
Network Ltd. (supra) held that the procedural aspect provided in the Code of
Civil Procedure about which the Act of 1996 is silent, shall be a guiding
factor for exercise of power by the Court under Section 9 (ii)(b) of the Act,
to determine whether such order deserves to be passed for justice to the
cause. We are in respectful agreement with the view taken by the Division
bench of the Delhi High Court.
15. In the present case, under the Power Purchase Agreement the
Garnishee is liable to pay to the appellant a sum of Rs.80 lakhs per month for
a period of 20 years. In our opinion, there is no good ground for issuing
interim reliefs as prayed for by the first respondent in view of the
continuous earning from the 2nd respondent at the rate of Rs.80 lakhs per
month. In the circumstances of the case, therefore, we are of the opinion
that the order passed by the learned single Judge cannot be sustained.
Accordingly, the appeal is allowed. The impugned judgment and order of the
learned single Judge is set aside. No costs. Consequently, connected
miscellaneous petition is closed.
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