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M/S. Pattnaik Industries (Pvt.) Ltd. v. Kalinga Iron Works & Another Opp. Parties.
Factual and Procedural Background
The petitioner, a Private Limited Company manufacturing cast iron articles, entered into a contract with Opposite Party No. 1, a Government of Orissa undertaking under the Industrial Development Corporation of Orissa (Opposite Party No. 2), for the purchase of scrap. The petitioner deposited security money, employed labourers, and supervisory staff for collection of materials. Subsequently, the petitioner received a letter on 3-1-1975 demanding payment of certain dues to Opposite Party No. 1 and a Ferro Chrome Project, warning that lifting of scrap would be barred unless payment was made. Despite protests, the petitioner was denied access to lift scrap, and on 27-1-1975 was informed that the contract was cancelled due to non-payment. The petitioner filed Money Suit No. 600 of 1977 in the Court of the Subordinate Judge, Bhubaneswar, claiming damages of Rs. 67,569.43. The opposite parties challenged the jurisdiction of this court, relying on a contractual clause specifying jurisdiction at Keonjhar. The trial court ruled that the court at Keonjhar had exclusive jurisdiction and directed the plaint to be returned for presentation there. The petitioner initially contested Keonjhar's jurisdiction but later agreed both courts had jurisdiction under Section 20 of the Code of Civil Procedure. The petitioner sought relief from the jurisdiction clause, arguing the contract cancellation precluded reliance on it.
Legal Issues Presented
- Whether a party can be relieved from an agreement that a dispute shall be tried in one of the courts having jurisdiction when two or more courts have jurisdiction under the Code of Civil Procedure.
- Whether repudiation or cancellation of a contract affects the survival of jurisdiction clauses within the contract.
- Whether contractual jurisdiction clauses oust the jurisdiction of courts otherwise competent under the Code of Civil Procedure.
- Under what circumstances can a court ignore a jurisdiction clause that restricts the forum for dispute resolution.
Arguments of the Parties
Petitioner’s Arguments
- The petitioner initially argued that the court at Keonjhar lacked jurisdiction.
- Later conceded that both Keonjhar and Bhubaneswar courts had jurisdiction under Section 20 of the Code of Civil Procedure.
- Contended that the cancellation of the contract by Opposite Party No. 1 invalidated the jurisdiction clause, thus allowing the suit to be tried at Bhubaneswar.
- Requested relief from the agreement restricting jurisdiction to Keonjhar, asserting that such enforcement would be unjust or oppressive.
Opposite Parties’ Arguments
- Relied on clause 5(f) of the Tender Call Notice and clause 12 of the letter of acceptance, which stipulated that the court at Keonjhar shall have jurisdiction.
- Raised a preliminary objection on the jurisdiction of the Bhubaneswar court to entertain the suit.
- Asserted that the jurisdiction clause survived despite cancellation of the contract.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union Of India v. Kishorilal Gupta & Bros, A.I.R 1959 S.C 1362 | Repudiation or total breach of contract does not abrogate the contract, and arbitration/jurisdiction clauses survive for settlement of disputes. | The court applied the principle that repudiation ends future performance but does not extinguish the contract or jurisdiction clauses. |
| Heyman v. Darwine Ltd, 1942 1 All.E.R 337 (House of Lords) | Repudiation does not terminate the contract; contract survives for damages and dispute resolution clauses survive. | Supported the survival of jurisdiction clauses after repudiation of contract. |
| Damodar Valley Corporation v. K.K Kar, 1974 1 SCC 141 | Repudiation by one party does not terminate contract; arbitration and jurisdiction clauses survive unless contract is wholly superseded. | The court held that jurisdiction clauses continue to regulate dispute resolution even after contract rescission. |
| Rai & Sons P. Ltd. v. M/s. Trikamji Kanji, 1975 16 Guj.L.R 31 | Selection of one competent forum by parties does not oust jurisdiction of other competent courts; jurisdiction clause is a factor, not an absolute bar. | Referred to the discretion courts have to consider jurisdiction clauses as one factor among others. |
| M/s. Snehal Kumar Sarabhai v. M/s. Economic Transport Organisation, A.I.R 1975 Guj. 72 | Jurisdiction clauses cannot deprive courts of power to do justice; courts may ignore oppressive jurisdiction clauses. | Emphasized that courts may refuse to enforce jurisdiction clauses that are oppressive or unjust in the circumstances. |
| Messrs. Black Sea State Steamship Line v. The Minerals and Metals Trading Corporation of India Ltd, 1970 1 M.L.J 548 | Choice of forum clauses must be balanced against convenience and ends of justice; small claims should not be forced to distant courts. | Cited to support the principle that jurisdiction clauses are subject to considerations of fairness and convenience. |
| Hakam Singh v. Gammon (India) Ltd., See Section 28 of the Contract Act | Agreements conferring jurisdiction on courts having jurisdiction under the Code are valid and not against public policy. | Used to affirm that parties can validly agree on jurisdiction among courts competent under the Code. |
Court's Reasoning and Analysis
The court first identified that both the courts at Keonjhar and Bhubaneswar had jurisdiction under clauses (a) to (c) of Section 20 of the Code of Civil Procedure. It examined whether cancellation or repudiation of the contract by one party extinguished the jurisdiction clause and found, relying on authoritative precedents, that repudiation ends future obligations but does not terminate the contract for purposes of dispute resolution and damages claims. The jurisdiction clause therefore survived the contract's cancellation.
The court further reasoned that while parties cannot confer jurisdiction on a court which it does not possess, they may validly agree to have disputes tried in one of the courts competent under the Code. Such agreements are not against public policy.
Regarding the petitioner’s plea for relief from the jurisdiction clause, the court reviewed relevant case law establishing that although jurisdiction clauses bind parties, courts retain discretion to ignore such clauses if they operate oppressively or unjustly. However, in this case, no material was presented to demonstrate that enforcing the jurisdiction clause would be harsh, oppressive, or inequitable. The petitioner did not allege or prove any such hardship or injustice.
Therefore, the court concluded that the jurisdiction clause was binding and should be enforced, requiring the suit to be tried in the court at Keonjhar as agreed by the parties.
Holding and Implications
The revision petition is dismissed.
The court held that the contractual clause conferring exclusive jurisdiction to the court at Keonjhar survives repudiation or cancellation of the contract and is binding on the parties. Both courts had jurisdiction under the Code, but the parties’ agreement to litigate at Keonjhar is valid and enforceable. The court found no evidence that enforcing the jurisdiction clause would cause injustice or oppression to the petitioner. Consequently, the petitioner cannot be relieved of the jurisdiction agreement.
This decision directly affects the parties by upholding the contractual forum selection clause without creating any new precedent beyond reaffirming established principles on jurisdiction clauses, contract repudiation, and court discretion in enforcing such clauses.
R.C Patnaik, J.:— The question posed for decision in this case is, if a party can be relieved of an agreement that a dispute arising between him and the other contracting party shall be tried in one of the courts where two or more courts under the Code of Civil Procedure have jurisdiction to try the suitor proceeding ?
2. The facts leading to the present dispute in nutshell are as follows:
3. The petitioner is a Private Limited Company dealing in manufacture of cast iron articles. Opposite party No. 1 is a Government of Orissa undertaking being a unit of Industrial Development Corporation of Orissa, opposite party No. 2. The petitioner entered into a contract with opposite party No. 1 for purchase of scrap. The petitioner has alleged that he deposited the security money. It appointed labourers for collection of materials and other staff for supervision thereof. It received a letter from opposite party No. 1 on 3-1-1975 for payment of certain amount owed to opposite party No. 1 and to one Ferro Chrome Project. The petitioner was intimated that unless the amount was deposited lifting of the scrap would not be permitted. Despite protest, the petitioner was not allowed to lift the materials. On 27-1-1975 it received a letter that for non-payment of the outstanding dues the contract was cancelled. So, it filed Money Suit No. 600 of 1977 in the Court of the Subordinate Judge, Bhubaneswar, claiming damages of a sum of Rs. 67,569.43. The opposite parties besides other defences raised the question of jurisdiction of the court to entertain the suit. The opposite parties relied upon clause 5(f) of the terms and conditions. Clause 5(f) of Ext. B, the Tender Call Notice, is the same as clause 12 in the letter of acceptance, Ext. A.
4. The question of jurisdiction was taken as a preliminary issue and the court relying upon the condition stipulating that in case of dispute the “court at Keonjhar shall have jurisdiction to entertain the suit or proceeding”, directed return of the plaint for presentation in the appropriate court.
5. The learned counsel for the petitioner though initially vehemently urged that the court at Keonjhar had no jurisdiction to entertain the suit, ultimately agreed that the courts both at Keonjhar and at Bhubaneswar would have jurisdiction to try the suit. The case is covered by clauses (a) to (c) of section 20 of the Code of Civil Procedure (for short ‘the Code’).
6. The next ground of attack was that the opposite party No. 1 having cancelled the contract, it could not rely on clause 5(f) of Ext. B or clause 12 of Ext. A for the purpose of ousting the jurisdiction of the court at Bhubaneswar. The short answer is in Union Of India v. Kishorilal Gupta & Bros . A.I.R 1959 S.C 1362.. Their Lordships relied upon a decision of the House of Lords in Heyman v. Darwine Ltd. . 1942 1 All.E.R 337., where a contract was repudiated by one party and accepted as such by the other. The dispute arose in regard to damages under a number of heads covered by the contract. The arbitration clause provided that any dispute between the parties in respect of the agreement or any of the provisions contained therein or anything arising thereout should be referred to arbitration. Lord Macmillan observed :—
“I am accordingly of opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate a contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by a contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations-undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement.”
7. To the same effect was the observations of Lord Wright:
“In such a case, if the repudiation is wrongful and the rescission is rightful, the contract is ended by the rescission, but only as far as concerns future performance. It remains alive for the awarding of damages, either for previous breaches, or for the breach which constitutes the repudiation…….”
8. Relying on the aforesaid observation, the Supreme Court has held that if an arbitration clause is couched in widest terms, the dispute, whether there is frustration or repudiation of the contract, will be covered by it. It is not because the arbitration clause survives, but because, though such repudiation ends the liability of the parties to perform the contract, it does not put an end to their liability to pay damages for any breach of the contract. The contract is still in existence for certain purposes. Where, however, the contract is wholly superseded by a new contract between the parties, that is to say, where a party to the contract brings the contract to an end for all intents and purposes and to treat it as if it had never existed, the clause in the old contract perishes with the contract and cannot be invoked. In Damodar Valley Corporation v. K.K Kar . 1974 1 SCC 141, it has been held :—
“………….A repudiation by one party alone does not terminate the contract. It takes two to end it, and hence it follows that as the contract subsists for the determination of the rights and obligations of the parties, the arbitration clause also survives………..”
“In certain circumstances, it may be that there has been a termination of the contract unilaterally and as a consequence the parties may agree to rescind the contract. In such a situation the rescission would put an end to the performance of the contract in future, but it may remain alive for claiming damages either for previous breaches or for the breach which constituted the termination.”
9. In this case, there may have been a breach, the con tract may have been rescinded but the clause relating to jurisdiction does not perish. It subsists to regulate the jurisdiction of the court where the dispute can be tried. There is another answer also to the argument. The plaintiff relies upon the contract for the enforcement of his claim. It cannot bypass the clause relating to jurisdiction. So, I hold though the courts at Keonjhar and Bhubaneswar, both, have jurisdiction to entertain the suit, the parties agreed that the court at Keonjhar alone shall have jurisdiction to entertain the suit.
10. It is well settled that it is not open to the parties by agreement to confer jurisdiction on a court which it does not possess under the Code; but where two courts or more have under the Code jurisdiction 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. It does not contravene section 28 of the Contract Act (see Hakam Singh v. Gammon (India) Ltd.† .)4.
11. The last submission of the counsel for the petitioner was that in the facts and circumstances of the case the petitioner should be relieved of his agreement and inasmuch as the courts both at Keonjhar and at Bhubaneswar had jurisdiction, the suit should have been entertained by the court at the latter place.
12. This leads me to a consideration if a party can be relieved of such an agreement and if so, under what circumstances ? The question has been answered by some of the High Courts.
13. In Rai & Sons P. Ltd. v. M/s. Trikamji Kanji . 1975 16 Guj.L.R 31.. Mehta, J. observed:
“………..the settled legal position entirely to the effect that such a contract, by which the parties selected one of the two competent forums, does not amount to ouster of the jurisdiction of the ordinary court. Therefore, such a contractual stipulation, in favour of which the Court would have prima facie a great leaning for upholding the solemnity of the contract so as to bind the parties to their own bargains, could never operate as an absolute bar to the jurisdiction of the competent court. Therefore, the competent court would always have a discretion to resolve this question by taking into consideration this stipulation as only one of the factors, which would be given great weight as the parties had selected a particular forum, but ultimately the question would have to be decided not by treating the stipulation as if there was an absolute bar to the existence of the jurisdiction but as one of the factors to be considered for exercise of the jurisdiction on sound judicial principles.”
14. In M/s. Snehal Kumar Sarabhai v. M/s. Economic Transport Organisation . A.I.R 1975 Guj. 72., M.P Thakkar, J. (as he then was) observed:
“While parties can lawfully enter into an agreement to restrict a dispute to a particular Court having jurisdiction, that stipulation though valid cannot take away the jurisdiction of the Court, which admittedly has jurisdiction. The ouster clause can operate as estoppal against the parties to the contract. It cannot tie the hands of the Court and denude it of the power to do justice. It is no doubt true that ordinarily Courts would respect the agreement between the parties which is born out of the meeting of their minds and out of consideration of convenience. But the Courts are not obliged to do so in every case. In case like the present where the claim is of Rs. 1,207 92 to oblige the plaintiff to go to Calcutta for the pleasure of respecting the stipulation embedded in the contract between the parties is to deny justice. A new approach to this question deserves to be made for the ouster clause is calculated to operate as an engine of oppression and as a means to defeat the ends of justice for in a case like the present it would be oppressive to drive the plaintiff all the way to Calcutta to recover a small sum of Rs. 1208/- . The costs of travelling and litigation will far exceed the stakes involved, and even a rightful claimant would be obliged to abandon his claim rather than incur greater expenditure than the sum involved in order to seek redress. In this backdrop the question assumes importance whether the stipulation to confine the jurisdiction in one of the Courts robs the excluded Court of its power to try the suit. Now such a stipulation may be legal and binding to parties. That however, does not mean that it divests the court of its jurisdictions. The plaintiff cannot insist that a Court other than the stipulated Court should try the suit. But the Court on its part is not bound by the stipulation. The stipulation can be ignored by the excluded Court which otherwise possesses jurisdiction if it is considered to be oppressive having regard to the surrounding circumstances including the stakes involved. More particularly so when the defendant firm has its office and is doing business within the local limits of the Court and it would be unjust to enforce the stipulation against the plaintiff whilst it would not cause any real prejudice to the other side. In such cases the Court will doubtless refuse to respect the contractual commitments made by the contesting parties. In such circumstances the Court should ignore the ouster clause and should exercise its jurisdiction.”
15. In Messrs. Black Sea State Steamship Line v. The Minerals and Metals Trading Corporation of India Ltd. . 1970 1 M.L.J 548., the Bill of Lading clearly provided that all disputes arising in and in connection with the same shall be judged in U.S.S.R The plaintiff brought an action in the Court of Small Causes at Madras. Objection was taken to the jurisdiction of the Court. That case involved the foreign jurisdiction clause and it was held:
“…………..the question is not so much of freedom of contract and the parties being bound by their choice as of expediency in the light of what may be called the balance of convenience and the ends of justice………..”
16. Chief Justice Veeraswami observed:
“…………….The claim is so small that it would be unrealistic and unfair to drive the respondent to resort to the Russian Courts.”
17. The principle that can be culled from the aforesaid decisions is that the agreement between the parties does not oust the jurisdiction of the Court. It may operate as an estoppel against the parties but it cannot deprive the Court of its power to do justice. Ordinarily the Court would have regard to the choice of the parties where, however, the Court whose jurisdiction has been ousted is satisfied that the stipulation would operate harshly, is oppressive in character, inequitable or unfair, for the ends of justice, it can relieve the party of the bargain. The ouster clause can be ignored.
18. Coming to the facts of the present case, I see that no material was placed before the trial Court to show that the stipulation would operate harshly or is oppressive in character or it would be inequitable to drive the plaintiff to get its dispute tried at Keonjhar or that justice would be a casualty if the agreement is enforced. Nor is there any such averment in the revision petition. The submission in the revision petition, as in the Court below, has proceeded in different line.
19. I, therefore, see no merit in this revision which is accordingly dismissed. In the circumstances of the case, there would be no order as to costs.
Revision dismissed.
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