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M/S. B.C Paul And Sons (P) Ltd. v. Union Of India Opposite Party.
Factual and Procedural Background
The Union of India (opposite party) invited tenders from Madras for the supply of "oil cocoanut." The petitioner submitted a tender. A dispute arose because the opposite party allegedly prescribed new specifications and did not accept the petitioner's claim for an extra charge of Rs. 25 for those specifications; the opposite party also imposed a 5% security deposit which the petitioner had not agreed to. The petitioner contended that no concluded contract existed and therefore the arbitration clause contained in the alleged contract never came into existence. The opposite party maintained that a concluded contract existed, claimed damages of Rs. 60,340.44 for non-performance, and informed the petitioner it would refer the matter to arbitration.
The petitioner filed an application under Section 33 of the Indian Arbitration Act, 1940, challenging the existence and validity of the arbitration agreement. The Subordinate Judge, First Court, Alipore, by order No. 69 dated Feb. 8, 1972, dismissed that application on the ground that he had no jurisdiction. The present Rule challenges that dismissal.
Legal Issues Presented
- Whether the court (the Subordinate Judge, First Court, Alipore) had jurisdiction to entertain and dispose of the petitioner's application under Section 33 of the Indian Arbitration Act, 1940.
- Whether an arbitration agreement existed and was valid where the petitioner contends no concluded contract came into existence because of disputes over price for new specifications and the requirement of a 5% security deposit.
Arguments of the Parties
Petitioner's Arguments
- The petitioner challenged the very existence and validity of the arbitration agreement because, it was alleged, there was no concluded contract (due to non-acceptance of extra charge and imposition of a security deposit to which the petitioner had not agreed).
- Mr. Ghose submitted that because the petitioner challenged the existence of the arbitration agreement, the learned Subordinate Judge should not have relied on clause 20(3) of the alleged contract to determine jurisdiction.
- It was contended that, on the facts, the learned Subordinate Judge was wrong in holding that he had no jurisdiction to entertain the Section 33 application.
Opposite Party's Arguments (Union of India)
- The opposite party contended that a concluded contract existed and that the arbitration clause therein was binding on the parties.
- The opposite party also contended that the learned Subordinate Judge had no jurisdiction to entertain and hear the application under Section 33.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court considered the jurisdictional question as central. It examined Section 33 of the Indian Arbitration Act, 1940, which provides that any party desiring to challenge the existence or validity of an arbitration agreement shall apply to "the Court" and that the Court shall decide the question on affidavits (with provision for other evidence if deemed just and expedient).
The court then relied on the Act's definition of "Court" in Section 2(c): 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 (excluding Small Cause Courts except for Section 21 purposes). The court treated Section 2(c) as prescribing the proper forum where a Section 33 application can be filed.
The court identified the questions forming the subject-matter of the reference as (1) whether there was a concluded contract and (2) if so, whether the opposite party was entitled to recover damages of Rs. 60,340.44 from the petitioner. It then applied the Code of Civil Procedure (CPC) principles on jurisdiction to determine which civil court would be competent to decide those questions if they were raised in a suit.
The court analysed forum rules under the CPC. If the petitioner were to file a suit seeking declaratory relief on those questions, the proper forum would be a court within whose jurisdiction the opposite party resides or carries on business. The court noted that the Union of India could not be said to reside or carry on business in West Bengal; therefore the petitioner could not institute such a suit in any court in West Bengal. Conversely, if the opposite party sued, it could file in West Bengal because the petitioner resides or carries on business there.
The court further considered clause (c) of Section 20 of the CPC (venue where cause of action arises) and outlined the established places where a cause of action in contract arises: (1) where the contract was entered into, (2) where it was performed or required to be performed, and (3) where payment had to be made. The court found no material to show that any part of the cause of action arose within West Bengal.
On these bases, the court concluded that, in view of Section 2(c) read with Section 33 of the Arbitration Act, any court in West Bengal would not be competent to hear and dispose of the petitioner’s Section 33 application. The court acknowledged that there was some force to the petitioner's submission that the Subordinate Judge should not have referred to terms of the alleged contract (clause 20(3)) when the existence of that contract was in issue, but held that even setting that aside, the Subordinate Judge lacked jurisdiction.
Holding and Implications
Rule discharged.
Direct consequences and implications as stated in the opinion:
- The court discharged the Rule challenging the Subordinate Judge's order; the Subordinate Judge's conclusion that he had no jurisdiction to entertain and hear the application under Section 33 is upheld.
- There will be no order for costs.
- The petitioner's oral prayer for a certificate for appeal to the Supreme Court under Article 133(1) of the Constitution was refused; the court expressed doubt whether such an application could be made orally and declined to grant the certificate.
- No broader precedent or new legal principle beyond the court's application of Sections 2(c) and 33 of the Arbitration Act and relevant CPC venue rules is articulated in the opinion; the direct effect is limited to the parties (i.e., the petitioner cannot maintain the Section 33 application in courts in West Bengal).
The Bench composition and concurrence: M.M. Dutt, J. delivered the opinion; D.C. Chakravorti, J. agreed. The final order records "Rule discharged."
M.M Dutt, J.:— This Rule is directed against order No. 69 dated Feb. 8, 1972 of the Subordinate Judge, First Court, Alipore. By the said order, the learned Subordinate Judge dismissed the application of the petitioner under Section 33 of the Indian Arbitration Act, 1940.
2. It appears that the opposite party, the Union of India, invited tenders from Madras for the supply of “oil cocoanut” on certain terms and conditions. The petitioner submitted a tender for the supply of oil cocoanut. It was alleged that the opposite party prescribed a new standard of specifications whereupon the petitioner claimed an extra charge at the rate of Rs. 25/- for such new specifications. Ultimately the Union of India accepted the tender as submitted by the petitioner and issued the letter of acceptance to the petitioner from Madras. It was, however, alleged by the petitioner that by accepting such tender the opposite party did not accept the extra charge which was claimed by the petitioner for new specifications. Further, the opposite party imposed a condition, namely, the furnishing of security deposit of 5 per cent by the petitioner to which the petitioner never agreed. Upon the said allegations, it was the case of the petitioner that there was no concluded contract and, accordingly, the arbitration clause, which was contained in that contract, never came into existence. The opposite party, however, claimed that because of the non-performance of the terms of the contract, the opposite party had suffered damages to the extent of Rs. 60,340.44 and informed the petitioner that it would refer the matter to arbitration. In the application under S. 33, the petitioner has challenged the existence and validity of the arbitration agreement as contained in the alleged contract, which, according to the petitioner, was not a concluded contract. The opposite party entered appearance in the proceedings which arose out of the said application under S. 33 and opposed the same. The opposite party denied the allegations made in the application.
3. It was the case of the opposite party that the contract was a concluded one and according to the arbitration clause, it was binding upon the parties. It was further contended by the opposite party that the learned Subordinate Judge had no jurisdiction to entertain and hear the application under S. 33.
4. The only question that had to be considered by the learned Subordinate Judge was whether he had jurisdiction to hear and dispose of the application under S. 33. After considering the submission made on behalf of the parties and also the provision of cl. 20(3) of the alleged contract, the learned Subordinate Judge came to the finding that he had no jurisdiction to entertain the application. In that view of the matter, he dismissed the application under S. 33. Hence this Rule.
5. Mr. Ghose, learned Advocate appearing on behalf of the petitioner, submits that as the petitioner had challenged the very existence of the arbitration agreement which was embodied in the alleged contract, the learned Subordinate Judge was not justified in referring to cl. 20(3) of the said contract for the purpose of ascertaining whether he had jurisdiction to entertain and hear the application under S. 33. Further, it is submitted by Mr. Ghose that in the facts and circumstances of the case, the learned Subordinate Judge was wrong in holding that he had no jurisdiction so far as the application under S. 33 was concerned.
6. Section 33 provides as follows:—
“Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits:
Provided that where the Court deems it just and expedient it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.”
7. Section 33 does not give any indication as to the Court where an application under that section can be filed. Section 2 (c), however, defines the word ‘Court’ as meaning 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 S. 21, include a Small Cause Court. In our view, S. 2 (c) lays down the forum where such an application under S. 33 can be filed by an aggrieved party. The questions forming the subject-matter of reference in the instant case would be as follows:
(1) Whether there was a concluded contract; and
(2) if so, whether the opposite party is entitled to recover damages to the extent of Rs. 60,340.44 from the petitioner. Now we are to consider which court would be entitled to entertain a suit having for its subject-matter the above questions. The forum of the suit will, however, be according as who will be the plaintiff in such a suit. But whether the petitioner or the opposite party brings such a suit against the other, the forum will have to be decided in accordance with the provisions of the Code of Civil Procedure. Now, if the petitioner files the suit, he has to ask for declaratory reliefs in terms of the questions that would be the subject-matter of the reference. The forum of such suit would be the court within whose jurisdiction the opposite party resides or carries on business. Admittedly, in the facts and circumstances of the instant case the opposite party Union of India cannot be said to reside or carry on business within the State of West Bengal. Accordingly, such a suit cannot be filed by the petitioner against the opposite party in any court within the State of West Bengal. If the suit is to be instituted by the opposite party, in that case, it may be filed within the State of West Bengal as the petitioner resides or carries on business or works for gain within this State. Be that as it may, in view of Section 2 (c) read with Section 33 of the Arbitration Act, any court in the State of West Bengal will not be competent to hear and dispose of the application under S. 33 at the instance of the petitioner. Even if we consider the suit that may be filed by the petitioner as one on contract, still it cannot be filed in any court within the State of West Bengal. Under cl. (c) of Section 20 of the CPC, a suit can be filed in a court within the local limits of whose jurisdiction the cause of Action, wholly or in part, arises. It is now well settled that in the case of a contract, the cause of action arises in the following places:
(1) The place where the contract has been entered into.
(2) The place where the contract has been performed or is required to be performed under the terms thereof.
(3) The place where, in terms of the contract any payment has to be made. The petitioner has not made out any case that even a part of the cause of action has arisen within the State of West Bengal and we do not find any material on record to hold in that regard. Mr. Ghose also cannot say how and on what basis the Court of the Sub-ordinate Judge at Alipore has jurisdiction to hear the said application under S. 33. In these circumstances, the learned Subordinate Judge has rightly come to the conclusion that he had no jurisdiction to entertain and hear the application under S. 33. There is, however, some justification for the contention as made by Mr. Ghose that the learned Subordinate Judge should not have referred to the terms of the alleged contract, the very existence of which has been challenged in that application. Be that as it may, in view of the aforesaid reasons, the court of the learned Subordinate Judge has no jurisdiction to hear and dispose of the application.
8. The rule is, accordingly, discharged, but there will be no order for costs.
9. Mr. Banerjee, learned Advocate appearing on behalf of the petitioner, orally prays for a certificate for appeal to the Supreme Court under Article 133(1) of the Constitution. It is doubtful whether such an oral application can be made. Be that as it may, we refuse to grant a certificate, as prayed for
10. D.C Chakravorti, J.:— I agree.
11. Rule discharged.
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