R.C Lahoti, J. (Oral):— This is a petition under Sections 8 and 20 of the Arbitration Act, 1940 seeking filing of an arbitration agreement and appointment of an arbitrator. The petition is accompanied by an application under Order 39 Rule 1 and 2 CPC read with Section 41(b) and Second Schedule of the Arbitration Act seeking an injunction restraining the defendants No. 1 and 2 from enforcing a bank guarantee issued by the defendant No. 3, a bank and furnished by the plaintiff to the defendants No. 1 and 2 in connection with performance of the contract.

2. The petition was filed on 24.9.94 It came up for hearing on 25.9.94 At the preliminary hearing it was pointed out to the counsel for the petitioner that copy of the agreement containing the arbitration clause was not filed with the petition and the petition also did not reproduce the arbitration clause on which it was founded. The court also indicated to the counsel that there was a doubt about the competence of this Court by reference to its territorial jurisdiction and before entertaining the petition and the prayer for the grant of interim relief, the court would like to hear the counsel on the question. Later in the day, the counsel has filed the copy of agreement entered into between the parties.

3. Counsel heard on the question of maintainability of the petition within the territorial jurisdiction of this Court. Inasmuch as the petitioner was pressing hard for the grant of interim relief, having formulated an opinion adverse to the petitioner, by a brief order this court has directed the petition to be returned for presentation to a proper court holding it does not have territorial jurisdiction to entertain the petition. Detailed reasons are hereby assigned for arriving at the finding.

4. The plaintiff is a firm carrying on its business activities at Kota in the State of Rajasthan. The defendant - Gas Authority of India Ltd. - has its principal office at Delhi. It has its branch office and substantial establishment at Guna in the State of Madhya Pradesh. The principal office and the branch office are impleaded as defendants No. 1 and 2 respectively. Bank of India, the defendant No. 3 has issued, a bank guarantee in favour of the petitioner furnished to the defendants No. 1 and 2.

5. The petitioner had entered into a contract with defendants No. 1 and 2 for maintenance and upkeep of gardens in the establishment of these defendants at Guna. The contract was entered into at Guna. It was to be. performed at Guna. The alleged breaches of performance have taken place at Guna. The defendant No. 2, the branch office, is proceeding to invoke the bank guarantee. There is an arbitration clause contained in the contract which requires the disputes arising between the parties to be settled by arbitration; aritrator to be appointed by a competent authority of defendants No. 1 and 2.

6. The grounds on which the petitioner seeks to invoke the territorial jurisdiction of this Court are that the principal office of defendants No. 1 and 2 is situated at Delhi and that the authority competent to appoint the arbitrator consistently with the arbitration clause is also situated at Delhi; hence this court has territorial jurisdiction to entertain the petition.

7. The question arising for decision is whether in relation to a contract, the promises whereunder were to be performed at Guna (Madhya Pradesh) and the alleged breaches giving rise to disputes forming subject matter of reference to arbitration have taken place at Guna, whether a Court at Delhi is competent to entertain proceedings under the Arbitration Act merely on account of principal office of the defendant company and the authority competent to appoint arbitrator being situated within its jurisdiction.

8. Section 31 (1) of the Arbitration Act provides as under:—

“31 Jurisdiction.—(1) Subject to the provisions of this Act, an award may be filed in any Court having jurisdiction in the matter to which the reference relates.

(Emphasis supplied)

Section 2(c) defines the court as under:—

“Court” means a Civil Court having jurisdiction to decide the questions 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;

(Emphasis supplied)

9. A bare reading of the two provisions shows that ‘any court having jurisdiction’ has to take colour from ‘in the matter to which the reference relates’ in Section 31(1) and “the questions forming the subject matter of the reference” in Section 2(c). Section 20(1) also which contemplates an application to file in Court an arbitration agreement speaks of the application being made to a Court ‘having jurisdiction in the matter to which the agreement relates’. It is significant to note the scheme of the Arbitration Act envisaging jurisdictional competence of the Court being decided by reference to subject matter of the agreement/reference and not by reference to residence of the parties or of the arbitrators or the authority competent to make appointment of arbitrator.

10. A Division Bench of Madras High Court in M. Vankatasamiappa v. Srinidhi Ltd. 1950-1 MLJ 709 provides illuminating appraisal of all the relevant aspects touching the territorial jurisdictional competence of a Court under the Arbitration Act. S, a limited Company, had its office at Madras and also a subsidiary office at Bangalore. It carried out various works in Bangalore for the Public Works Deptt. of Government of India. The appellant M, a resident of Banglore and a sub-contractor supplied labour and various materials for the work being executed by S t Bangalore. Disputes as to payment due and payable arose between M and S. They were referred to arbitration under an agreement apparently executed at Madras, to arbitrators who were residents of Madras. The arbitators gave an award. They filed a petition under Section 14 (2) of the Arbitration Act on the original side of the Madras High Court for making it a rule of the Court. The Division Bench held that the Court in Madras had no territorial jurisdiction and only the Court in Bangalore had the jurisdiction. The Division Bench held:—

“In order to determine which is the Court having jurisdiction in the matter, you should first of all ascertain what the questions are, which form the subject-matter of the reference to arbitration. You then proceed to ask; supposing these questions had arisen in a suit, which is the Court which would have jurisdiction to entertain the suit? That Court would be the Court having jurisdiction under the Arbitration Act also. The Court which would have jurisdiction would be not the Court at the place in which the agreement was entered into or where the defendant decides, but the Court which would have jurisdiction in respect of the questions forming the subject-matter of the reference.”

10.1 In its judgment, the Division Bench has also laid down the following propositions:—

(a) The Arbitration Act does not contemplate nor does provide the Court having jurisdiction as the Court within the limits of whose territorial jurisdiction any of the parties resides. Had it been so then the Legislature could have sufficiently and simply employed such expression;

(b) The jurisdiction of the Court is made to depend not on the place where the parties dwell or carry on business or personally work for gain, but solely on the subject matter; there is no reference to any other circumstance in Section 2(c) or Section 31(1) of the Act. At least one good reason why the Court having jurisdiction should have been defined in relation to the subject matter of the dispute or action is: otherwise the Court having jurisdiction might depend on the accident as to who first raised the dispute or decided to file a suit;

(c) It is only when the subject matter of the dispute itself makes the jurisdiction dependent on residence that the question of residence need arise at all;

(d) Section 2(c) and Section 31(1) of the Act do not contemplate the place in which the agreement was entered into being relevant for deciding territorial jurisdiction of the Court.”

10.2 I find myself in respectful agreement with the view taken by Division Bench in M. Venkatasamiappas' case (supra). The same view has been reiterated and followed by High Court of Madras in Union of India v. P. Anantram, 1991 (1) MLJ 286.

10.3 The Madras High Court's view has been followed by High court of Panjab in Inder Chand Jain v. Pooran Chand AIR 1959 Punjab 614 and High Court of Andhra Pradesh in Vissamseth Chandra Narasimhan v. Ramdayal Rameshwaralal AIR 1966 AP 134. The High court of Delhi has taken a similar view in Sushil Ansal v. Union of India, AIR 1980, Delhi 43, though Madras High Court decision is not referred to therein.

11. Posed with the question of deciding jurisdictional competence by reference to territorial jurisdiction, the Court has to ask two questions:—

(i) What are the questions which form the subject matter of reference to arbitration?

(ii) If these questions had arisen in a suit which is the Court which would have jurisdiction to entertain the suit?

Answers to the two questions would determine the territorial jurisdiction of the Court.

12. It is interesting to note that the contract between the parties and brought to fore contains a clause as to jurisdiction also. It provides for all disputes between the parties to be settled only by a Court at Guna.

13. It is well settled that though it is not open to the parties by agreement to confer jurisdiction on any Court which it did not otherwise possess under the CPC; but where two courts have jurisdiction under the Code to try a suit or proceeding, an agreement between the parties that the dispute between them shall be tried in one of such courts is not contrary to public policy nor does such an agreement contravene Section 28 of the Contract Act. {See Patel Roadways Limited, Bombay v. Prasad Trading Company. AIR 1992 SC 1514, Glove Transport Corporation v. Triveni Engineering Works, 1983 (4) SCC 707, Hakam Singh v. Gammon (India) Ltd.† ., AIR 1971 SC 740.}

14. Even if there would have been no agreement between the parties conferring exclusive jursidiction on the courts at Guna yet in view of the subject matter of reference being at Guna it is only the courts at Guna which would be competent to entertain the present petition. The existence of the agreement as to jurisdiction is an added reason why the petition would not lie before this Court.

15. Placing reliance on Patnaik Industries (P) Ltd. v. Kalinga Iron Works AIR 1984 Orissa 182, The Rajasthan Golden Transport Co. v. United India Fire & General Insurance Co. AIR 1980 Gujrat 184 and Co. Singh Hira Singh, Merchants v. Punjab National Bank and Anr. AIR 1976 Delhi 115, the learned counsel for the petitioner has submitted that this Court should either hold the agreement as to jurisdiction hit by Sections 23 and 28 of the Contract Act or relieve the plaintiff of the hardship caused by the jurisdiction-clause and permit the plaintiff to file the petition here. In so far as the argument based on Sections 23 and 28 of the Contract Act is concerned the three decisions of the Supreme Court referred to hereinabove are a complete answer to the plaintiff's contention. I need not dwell further on the issue. In so far as the question of relieving the plaintiff of the hardship is concerned, it is difficult to appreciate the contention. The plaintiff is a resident of Kota, Rajasthan. He entered into contract at Guna undertaking its performance thereat. Reference to arbitration is demanded by the plaintiff from the authorities of the defendants No. 1 and 2 situated at Guna. It is for the latter to approach the competent authority situated at Delhi and have the matter referred to arbitration. With that the plaintiff has nothing to do. It is difficult to understand what has pursuaded the plaintiff to rush to Delhi and file a petition here. Nothing has been pointed out to hold the existence of hardship which the plaintiff would suffer in approaching the Court at Guna.

16. The case of Patel Roadways (supra) nails down the petitioner still worse. In that case PR—a transporter having its principal office at Bombay had entered into a transportation contract. The goods were loaded at Bodinayakanur, Tamilnadu for being transported to Delhi. They were unloaded and kept in a godown at Delhi where a fire broke leading to destruction of goods. PT—the consignor, instituted a suit in the Court of Subordinate Judge Periakulam within whose territorial jurisdiction the subordinate office of PT where the goods were entrusted for transport was situated. The contract between the parties provided for suit being filed at Bombay. An objection as to the territorial jurisdiction of the Court at Periakulam was taken by PR. Reliance was placed on section 20 of the cpc to submit that by virtue of explanation thereto, in as much as principal office of PT was situated at Bombay, the Court at Bombay had jurisdiction to entertain the suit and so the contract conferring jurisdiction on Bombay Court was valid and binding. Their Lordships of the Supreme Court repelled the contention and held that jurisdiction to try the suit could not be held with the courut at Bombay merely because the principal office of PT was situated at Bombay. Interpreting section 20 of the cpc and the explanation appended thereto, Their Lordships have observed:—

“Corporation” referred to in Section 20 meant not only a statutory corporation but also a company registered under the Indian Companies Act.

The latter part of the Explanation takes care of a case where the defendant does not have a sole office but has a principal office at one place and has also a subordinate office at another place. The words “at such place” occuring at the end of the Explanation and the word “or” referred to above which is disjunctive clearly suggest that if the case falls within the latter part of the Explanation, it is not the Court within whose jurisdiction the principal office of the defendant is situated but the Court within whose jurisdiction it has a subordinate office which alone shall have jurisdiction “in respect of any cause of action arising at any place where if has also a subordinate office”.

The suit could have been instituted at the place of the principal office because of the situation of such office (whether or not any actual business was carried on there). Alternatively, a suit could have been instituted at the place where the cause of action arose under clause (c) (irrespective of whether the corporation had a subordinate office in such place or not). This was, therefore, not the purpose of the Explanation. The Explanation is really an explanation to clause (a). It is in the nature of a clarification on the scope of clause (a) viz. as to where the corporation can be said to carry on business. This, it is clarified, will be the place where the principal office is situated (whether or not any business actually is carried on there) or the place where a business is carried on giving rise to a cause of action (even though the principal office of the corporation is not located there) so long as there is a subordinate office of the corporation situated at such place. The linking together of the place where the cause of action arises with the place where a subordinate office is located clearly shows that the intention of the legislature was that, in the case of a corporation, for the purpose of clause (a), the location of the subordinate office, within the local limits of which a cause of action arises, is to be the relevant place for the filing of a suit and not the principal place of business.

The clear intendment of the Explanation, however, is that, where the corporation has a subordinate office in the place where the cause of action arises, it cannot be heard to say that it cannot be sued there because it does not carry on business at that place. It would be a great hardship if, in spite of the corporation having a subordinate office at the place where the cause of action arises (with which in all probability the plaintiff has had dealings), such plaintiff is to be compelled to travel to the place where the corporation has its principal office. That place should be convenient to the plaintiff; and since the corporation has an office at such place, it will also be under no disadvantage. Thus the Explanation provides an alternative locus for the corporation's place of business not an additional one.

There may be only an extraordinary situation in which this interpretation may cause an apparent anomaly. This is where the plaintiff has also his/its place of business at the same place as the corporation but the cause of action has arisen at some other place. The above interpretation would preclude him from filing a suit in that place of business common to both parties and compell him to go to a court having jurisdiction over the place where the cause of action has arisen. But this is not really a hardship because such plaintiff must have some nexus or connection with the place since some part of the cause of action had arisen there; if he can have dealings with the corporation at such a place giving rise to the cause of action, there is no reason why he should find it disadvantageous or difficult to file a suit a such place. Equally, the corporation, having a subordinate office at the place over will suffer no disadvantage.”

(underlining by me)

16.1 Their Lordships have concluded by holding that even by reference to Clause (c) of Section 20 Court at Bombay would not have jurisdiction, not even by consent; and that the Court having jurisdiction over the place where subordinate office of the company was situated and where cause of action also arose would only have jurisdiction to try the suit.

16.2 The contention of the learned counsel, based on hardship of the petitioner, also has no legs to stand on.

17. The petition does not lie within the territorial jurisdiction of Delhi High Court (Original Side).