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Pramod Kumar Gupta v. Skylink Chemicals.
Factual and Procedural Background
The defendant, a private limited company with its registered office at Bhavnagar, engaged the plaintiff as its representative/agent for the Northern Region in April 1996. Under their agreement, the defendant was to bill clients directly and settle commissions quarterly with the plaintiff. The plaintiff sought recovery of Rs. 15,14,872.50 as commission due for the period ending 31st March 1998. The plaintiff instituted the suit in this Court claiming territorial jurisdiction based on the cause of action arising in Delhi, where the defendant appointed the plaintiff and where commission payments were to be made. The defendant challenged the territorial jurisdiction of this Court by filing an application under Order 7 Rule 10 of the Code of Civil Procedure (CPC), seeking the return of the plaint.
Legal Issues Presented
- Whether this Court has territorial jurisdiction to try the suit against the defendant company under Section 20 of the Code of Civil Procedure, given that the defendant’s registered office is in Bhavnagar but the cause of action arose in Delhi.
- Whether the Explanation attached to clause (c) of Section 20 CPC, which addresses jurisdiction over corporations, applies to clause (c) relating to cause of action, or only to clauses (a) and (b) relating to residence or business of the defendant.
Arguments of the Parties
Defendant's Arguments
- The Explanation to clause (c) of Section 20 CPC restricts territorial jurisdiction over a corporation to places where it carries on business or has a subordinate office.
- The defendant contended that the Explanation applies to the entire Section 20, including clause (c), and thus this Court lacks jurisdiction as the defendant’s principal office is at Bhavnagar and it does not have a subordinate office in Delhi.
- Reliance was placed on the Supreme Court decision in Patel Roadways Limited, Bombay v. Prasad Trading Company, AIR 1992 SC 1514, particularly para 12, to support the contention that cause of action alone does not confer jurisdiction without a subordinate office.
Plaintiff's Arguments
- The plaintiff argued that the cause of action arose in Delhi because the defendant approached and appointed the plaintiff there and commissions were payable there, thereby conferring jurisdiction on this Court under clause (c) of Section 20 CPC.
- The plaintiff relied on the Supreme Court’s observations in para 13 of the Patel Roadways judgment, emphasizing that the Explanation relates only to clauses (a) and (b) and not to clause (c), allowing a suit to be filed where the cause of action arises regardless of a subordinate office.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Patel Roadways Limited, Bombay v. Prasad Trading Company, AIR 1992 SC 1514 | Clarification on the scope of Explanation to Section 20 CPC, distinguishing its application to clauses (a) and (b) but not clause (c), and principles governing territorial jurisdiction over corporations. | The Court relied on this precedent to hold that the Explanation relates only to clauses (a) and (b), not clause (c), thereby affirming jurisdiction based on cause of action arising in Delhi despite the defendant’s principal office being elsewhere. |
Court's Reasoning and Analysis
The Court analyzed the provisions of Section 20 of the CPC, which provides jurisdiction based on (a) residence or business of the defendant, (b) residence or business of some defendants with leave or acquiescence, and (c) cause of action arising wholly or in part within the jurisdiction. The Explanation attached to Section 20 clarifies that a corporation is deemed to carry on business at its principal office or subordinate office.
The defendant argued that this Explanation applies to clause (c) concerning cause of action, thus restricting jurisdiction to places where the corporation has a subordinate office. However, the Court scrutinized the Supreme Court ruling in Patel Roadways, which clarified that the Explanation is an explanation of clause (a) only and does not limit clause (c).
The Court noted the linguistic and contextual differences between the Explanation now in force and the earlier Explanation I, which was omitted. The current Explanation is intended to clarify where a corporation can be said to carry on business for clauses (a) and (b), not to restrict jurisdiction under clause (c).
Therefore, the Court concluded that it has territorial jurisdiction since the cause of action arose in Delhi where the defendant appointed the plaintiff and commission payments were to be made, independently of whether the defendant has a subordinate office there.
Holding and Implications
The Court dismissed the defendant’s application challenging territorial jurisdiction and held that this Court has jurisdiction to try the suit.
The direct effect of this decision is that the suit will continue in this Court based on the cause of action arising in Delhi. The ruling clarifies that the Explanation to Section 20 CPC applies only to clauses (a) and (b), and does not restrict jurisdiction under clause (c) based on cause of action. No new precedent was established beyond affirming the existing Supreme Court interpretation.
J.D Kapoor, J.— Defendant has challenged the territorial jurisdiction of this Court to try this suit and by way of an application under Order 7 Rule 10 of the Code of Civil Procedure has sought return of the plaint to the plaintiff.
2. The defendant is a private limited company having its registered office at Bhavnagar. It approached the plaintiff sometime in the month of April 1996 with a view to have business relationship. As a result of various discussions the defendant appointed him as its representative/agent initially for the Northern Region. Amongst other terms and conditions it was also agreed between the parties that the billing of material would be done by the defendant directly on various clients and documents shall be negotiated directly to such clients as per terms and conditions of the purchase order. It was further agreed that the defendant shall settle the commission amount every quarter by way of cheques. Plaintiff has sought recovery of Rs. 15,14,872.50 p. towards commission for the period ending 31st of March, 1998.
3. The plaintiff has invoked jurisdiction of this Court on account of cause of action having arisen in Delhi inasmuch as that the defendant had approached the plaintiff at Delhi and appointed the plaintiff as its agent at Delhi and as per the terms and conditions of the agreement the commission was payable at Delhi and as such the entire cause of action has arisen at Delhi.
4. The main gravemen of the contention of the learned counsel for the defendant is that Explanation attached to clause (c) of Section 20 of the Code of Civil Procedure provides that territorial jurisdiction of the Court in case of a Company is either at a place where it carries on the business or at a place where it has also a subordinate office. Learned counsel contends that Clause (c) provides that a place where the cause of action wholly or in part arises will be the territorial jurisdiction of the Court but by of Explanation it has been clarified that a Corporation shall be deemed to carry on its business at a place where its principal office is situated or where it has also a subordinate office.
5. In order to appreciate the contention of the learned counsel in correct perspective the provisions of section 20 of the cpc need to be reproduced -
“Other suits to be instituted where defendants reside or cause of action arises:—
20. Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction:—
(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business or personally works for gain; or
(b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally works for gain, as aforesaid, acquiesce in such institution;
(c) the cause of action, wholly or in part, arises.
Explanation: A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.
6. It is contended by the learned counsel that the purpose of the Explanation was to avoid the plaintiff to travel to the place where the corporation has its principal office as it may cause great hardship and therefore allowed him to sue at a place where the Corporation has a subordinate office also.
7. As is apparent, clauses (a) & (b) of section 20 refer to a Court within the local limits of whose jurisdiction the defendant inter alia “carries on business”. Clause (c) on the other hand refers to a Court within the local limits of whose jurisdiction the cause of action wholly or in part arises.
8. Now the question arises Whether the explanation is applicable and relates to clause (c) or not. Clause (a) provides the jurisdiction to the plaintiff in case the defendant or each of the defendants, at the time of the commencement of the suit actually or voluntarily resides or carries on business or personally works for gain. According to the learned counsel for the defendant Clause (a) is in relation to an individual and not in respect of the corporation or the company, otherwise, phraseology that ‘the defendant actually or voluntarily resides’ would not have been there and by way of Explanation it was clarified that in case of Corporation, it shall be deemed to carry on business at a place of its principal office or at any place where it has its subordinate office.
9. Interestingly counsel for both the parties have relied upon Patel Roadways Limited, Bombay v. Prasad Trading Company., AIR 1992 SC 1514.
10. Hon'ble Supreme Court while imparting the meaning to Explanation in question referred to the original unamended provisions of section 20 wherein the Explanation I existed which was subsequently by way of amendment Act omitted. Original Explanation read as under:—
11. Explanation I: Where a, person has a permanent dwelling at one place and also temporary residence at another place, he shall be deemed to reside at both places in respect of any cause of action arising at the place where he has such temporary residence.
12. In the aforesaid case, the respondent instituted a suit in the Court within whose territorial jurisdiction the subordinate office of the appellant where the goods were entrusted for transport was situated whereas the respondent No. 1 on the other hand entrusted certain packets of pesticides insured with the respondent No. 2 to the appellant at its subordinate office at Madras for being carried to New Delhi. According to the respondents, the goods were delivered at New Delhi in a damaged condition resulting in loss to the first respondent and a suit was instituted for recovery of the loss so sustained by the respondents at Madras. Both the parties had agreed that jurisdiction to decide any dispute between them would be only with the Courts at Bombay and consequently it was held that the Courts in Madras where the two suits referred to above had been instituted had no jurisdiction.
13. Learned counsel for the defendant has placed reliance upon para 12 of the judgment in support of the contention that the cause of action alone will not confer jurisdiction if the Corporation does not have subordinate office at such a place in terms of Explanation II of Section 20 CPC and the Explanation relates to the entire section and is of classificatory nature and thus applies to clause (c) also because there is reference of cause of action in the Explanation itself.
14. However, observations of Supreme Court in para 12 of the judgment need to be reproduced. These are as under:—
“If the intention of the Legislature was that a suit against a Corporation could be instituted either at the place of its sole or principal office (whether or not the corporation carries on business at that place) or at any other place where the cause of action arises, the provisions of clauses (a), (b) and (c) together with the first part of the Explanation would have completely achieved the purpose. It means that 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 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 is clarified will be the place where the principal office if 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.”
15. On the contrary, learned counsel for the plaintiff has referred to the observation of the Supreme Court in para 13 of the judgment. These are as under:—
“It is true that normally, under Clauses (a) to (c) the plaintiff has a choice of forum and cannot be compelled to go to the place of residence or business of the corporation and can file a suit at a place where the cause of action arises. If a corporation desires to be protected from being dragged into litigation at some place merely because a cause of action arises there it can save itself from such a situation by an exclusion clause. 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 place. Thus the Explanation provides an alternative locus for the corporation's place of business, not an additional one.”
16. Since in the aforesaid case, provision of Clause (c) was not a subject matter of controversy, the Supreme Court observed that Clause (c) refers to a Court within the local limits of whose jurisdiction the cause of action wholly or in part arises and, therefore, Explanation I referred above, which was subsequently omitted, did not relate to Clauses (a) and (b). So far as the existing and relevant Explanation is concerned that relates to Clauses (a) & (b) and not to Clause (c). The language used in Explanation II is entirely different from the language used in Explanation I which was subsequently removed.
17. It was observed that had the intention been that if a corporation had its principal office at one place and a subordinate office at another place and the cause of action arose at the place where it had its subordinate office as it shall be deemed to be carrying on business at both the places, the language used in Explanation II would have been identical to that of Explanation I that dealt with a case of a person having a permanent dwelling at one place and also temporary residence at another place.
18. The Marked difference in the language of the two Explanations clearly shows that the Explanation to Section 20 relates to Clauses (a) and (b) only.
19. It was categorically held that the Explanation is really an Explanation to Clause (a) and not to the Clause (c). 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. Both the places provide territorial jurisdiction to the Court i.e 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.
20. It was further observed that 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 purposes of Clause (a), the place of the subordinate office, within the local limits of which a cause of action arises, is to be the relevant place for filing of a suit and not necessarily the principal place of business.
21. In view of the specific observations of the Supreme Court that Explanation relates to Clauses (a) and (b) and not to Clause (c), this Court had the territorial jurisdiction as cause of action has arisen in Delhi as the defendant approached the plaintiff in Delhi and appointed him as its Agent at Delhi and as per terms and conditions of the agreement, the commission was also payable at Delhi.
22. I find no merit in the application and dismiss the same.
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