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Hassani Stores v. Larsen And Toubro Ltd.
Factual and Procedural Background
The plaintiff (appellant) is a partnership firm carrying on business at Ernakulam. The defendant is Larsen & Toubro Ltd., with its head office at Bombay and a branch at Cochin. The parties' relationship arose from an order for one dry-cleaning machine evidenced by Contract Form No. 5612 dated 2-12-1957 (marked ext. P-1). There was a delay in supply: the machine was despatched by steamer on 6-10-1958 and cleared by the plaintiff on 5-11-1958. On unpacking, the plaintiff alleged the machine supplied was second-hand rather than new and sued for damages (including the cost of purchasing another plant at an increased price).
In the defendant's written statement a preliminary objection was raised that the Ernakulam court lacked jurisdiction because ext. P-1 contained an express clause requiring suits to be instituted in a court of competent jurisdiction located in Bombay. The plaintiff replied that ext. P-1 was only a "provisional" contract subject to the plaintiff obtaining an import licence and that the machine was supplied pursuant to a fresh offer by the defendant dated 28 April 1958 and the plaintiff's acceptance dated 7 May 1958 (ext. D-1). Alternatively, the plaintiff contended that even if the supply was pursuant to ext. P-1, the clause requiring suits to be instituted in Bombay was void under Section 28 of the Indian Contract Act.
The learned Subordinate Judge examined the contract note and subsequent correspondence and held that ext. P-1 evidenced the final contract and that the supply was made pursuant to that contract; accordingly the Bombay forum-selection clause was binding and the Ernakulam sub-court had no jurisdiction. The order directed the return of the plaint for presentation to the proper court. The plaintiff appealed. In the appeal the plaintiff pressed both objections (the factual contention of a subsequent contract and the Section 28 challenge), although the record shows the Section 28 contention was not argued before the Subordinate Judge.
Legal Issues Presented
- Whether Contract Note No. 5612 dated 2-12-1957 (ext. P-1) was the final contract and whether the machine was supplied in pursuance of that contract.
- Whether the clause in ext. P-1 requiring all suits arising out of the contract to be instituted in a court of competent jurisdiction situated in Bombay offends Section 28 of the Indian Contract Act and is therefore void or unenforceable.
Arguments of the Parties
Appellant's (Plaintiff's) Arguments
- The original contract ext. P-1 was only "provisional" because it was subject to the plaintiff obtaining an import licence; therefore the supply was pursuant to a subsequent offer made by the defendant (ext. P-2) on 28 April 1958 and accepted by the plaintiff by letter dated 7 May 1958 (ext. D-1).
- Even if the supply was pursuant to ext. P-1, the clause requiring suits to be brought only in Bombay is void and unenforceable because it offends Section 28 of the Contract Act (it purportedly restricts the plaintiff's right to enforce its contractual rights in the ordinary tribunals).
Respondent's (Defendant's) Arguments
- The suit is not maintainable in the Ernakulam court for want of jurisdiction because ext. P-1 contains an express provision binding the plaintiff to institute any suit in a court of competent jurisdiction situated in Bombay and nowhere else.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court's analysis proceeded in two principal stages corresponding to the issues framed.
1. Was ext. P-1 the operative contract and was the supply pursuant to it?
- The court examined ext. P-1 (the contract note) and the subsequent correspondence between the parties, notably ext. P-2 (letter from the defendant's Cochin branch dated 28 April 1958), ext. D-1 (plaintiff's reply dated 7 May 1958), and ext. D-2 (Madras branch reply of 9 May 1958).
- Ext. P-1 contained the description of the plant, accessories, price, delivery place and transport mode; it included a condition that the import licence had to be furnished by the buyer. There was no pleaded variation of the terms of ext. P-1.
- Ext. P-2 referred expressly to the order "covered by contract note no. 5612 dated 6-12-1957" and offered one machine to the plaintiff "against your above order". Ext. D-1 unambiguously confirmed the order "covered by contract no. 5612 dated 6-12-1957" and enclosed an advance payment of Rs.1,000 "being advance against the above order". Ext. D-2 confirms the shipping instructions to despatch the plant to Cochin.
- The court held that the reference to the original order as "provisional" in ext. P-2 did not convert ext. P-1 into a non-final document; taken together the correspondence showed the supply was made in pursuance of the original contract evidenced by ext. P-1. The Subordinate Judge's finding that ext. P-1 was the final contract and that the supply was pursuant to it was therefore confirmed.
2. Whether the Bombay forum-selection clause offends Section 28 of the Contract Act
- The relevant clauses (9 and 10) printed on the reverse of ext. P-1 require disputes to be referred to the head office in Bombay and stipulate that "All suits arising out of contracts shall be instituted in a court of competent jurisdiction situated in bombay and in no other court."
- The court quoted Section 28 of the Indian Contract Act, which declares void any agreement that absolutely restricts a party from enforcing his contractual rights in ordinary tribunals or limits the time within which he may enforce them.
- The court applied the well-settled principle (as stated in the opinion) that Section 28 does not apply where parties agree upon the selection of one of the ordinary tribunals — i.e., a forum-selection clause is not void under Section 28 where it is a choice between ordinary competent tribunals rather than a restriction depriving the party of access to ordinary tribunals altogether.
- Both Bombay (where the defendant's head office is located) and Cochin (where the defendant had a branch and where the cause of action arose) were competent fora. Because the clause amounted to a selection of forum (Bombay) rather than an absolute restriction on access to ordinary tribunals, it was not hit by Section 28.
- On that basis the court upheld the Subordinate Judge's conclusion that the Ernakulam sub-court lacked jurisdiction and that the plaint should be returned for presentation in the proper court (i.e., Bombay as per the contract clause).
Holding and Implications
APPEAL DISMISSED.
Holding (core ruling): The appeal is dismissed. The court affirmed the Subordinate Judge's findings that (a) ext. P-1 (Contract No. 5612 dated 2-12-1957) was the operative contract under which the machine was supplied, and (b) the contractual clause requiring suits to be instituted in a court situated in Bombay is valid and does not offend Section 28 of the Indian Contract Act. Consequently, the Ernakulam sub-court had no jurisdiction and the order directing return of the plaint for presentation to the proper court is upheld; the appeal is dismissed with costs.
Implications for the parties: The plaintiff is bound by the forum-selection clause in ext. P-1 and must present any suit arising out of that contract in a competent Bombay court as agreed. The immediate practical effect is the return of the plaint in Ernakulam for presentation in the appropriate Bombay court.
The opinion does not set or purport to establish any new legal precedent beyond applying the established principle concerning Section 28 and forum-selection clauses; no external case law was cited in the provided text.
1. The appellant is the plaintiff in o. S. 27 of 1959 on the file of the subordinate judge, Ernakulam.
2. The plaintiff is a partnership firm carrying on business in ernakulam and the defendant is larsen & toubro ltd., Having its head office at bombay and one of its branch offices at cochin the plaintiff placed an order with the defendant company for the supply of dry cleaning machine. Contract form no. 5612/ dated 2/6 - 12 - 1957 evidences the terms of the contract between the parties. There was some delay in the supply of the machine and the defendant was able to despatch the machine by steamer only on 6 - 10 - 1958. The package was cleared by the plaintiff on 5 - 11 - 1958. The plaintiff alleges that on unpacking, It was found that the plant supplied was not a new one as contracted for, But a second - hand one. The suit is brought for the damages alleged to have been incurred by the plaintiff on account of the expenses incurred by the plaintiff in the purchase of anew dry - cleaning plant at an enormous increase in price and several other allied heads. According to the plaintiff the cause of action has arisen at cochin where the defendant through their cochin branch is carrying on business and where the cause of action arose.
3. The defendant in his written statement raised a preliminary objection that the suit was not maintainable in the ernakulam court for want of jurisdiction in view of the express provision in the contract note no. 5612 whereby the plaintiff was bound to institute the suit in a court of competent jurisdiction situated in bombay and nowhere else. By way of reply the plaintiff stated that the contract dated 2/6 - 12 - 1957 was only a "provisional" one subject to the plaintiff getting the import licence and that the contract had fallen through because the plaintiff informed the defendant that it was not possible for the plaintiff to get the import licence - the plaintiff would contend that the supply of the second - hand plant was in pursuance of a fresh offer made by the defendant on the 28th of april 1958 and accepted by the plaintiff by their letter dated 7th may 1958. Hence the provision contained in the contract note regarding the institution of suits did not apply to the subsequent contract in pursuance of which the plant was supplied & did not act as a prohibition to the institution of the suit in a court of competent jurisdiction where the cause of action arose. The plaintiff had also an alternative contention that even if it is found that the plant was supplied to him in pursuance of contract note no. 5612 the provision regarding suits is void and unenforceable as it offends s. 28 of the contract act.
4. The learned subordinate judge after considering the contract note and the subsequent correspondence between the parties which led to the supply of the plant held that the contract note evidenced the contract as finalised and that the supply of the plant was in pursuance of the said contract and hence the clause in the contract note to the effect that all suits arising out of the contract shall be instituted at bombay and in no other court is binding on the parties. It is also seen from the order that the alternative contention based on s. 28 of the contract act was not argued before him.
5. In appeal both the objections are raised though there is no statement in the appeal memo challenging the correctness of the reference in the judgment to the fact that the 2nd objection was not argued.
6. The first point for determination is whether the contract note no. 5612 dated 2/6 - 12 - 1957 which is marked ext. P - 1 is the contract as finalised and whether it was in pursuance of that contract that the plant was actually supplied. Ext. P - 1 gives the description of the plant, And the accessories to be supplied, The price of it, The place where it was to be delivered, The mode of transport etc. There is a condition in the contract that the import licence has to be furnished by the buyer. The plaintiff has no case that there was any variation in any of the terms of that contract. Consequent on the failure of the plaintiff to obtain the licence and the delay in supplying the machine further correspondence passed between the parties. Ext. P - 2 is a letter written by the cochin branch of the defendant company to the plaintiff dated 28th april, 1959. It reads as follows:
"we invite your reference to your provisional order, Covered by contract note no. 5612 dated 6 - 12 - 1957, For one no. Gem white spirit dry cleaning plant. Since at the time of your order we had no stock of there machines nor any licence to import same, We requested you to provide us with the necessary actual user's licence, For which we hope you have already applied. We have now pleasure to advise you that our bombay office have received, One of the above machines for their stocks which we shall be pleased to offer you subject to prior sale, Against your above order. Please therefore confirm your order by return and also send us an advance equal to 1/3rd value of the order, To enable us to request our bombay office to despatch the machine to you.
as we have only one machine in stock, For which we have already serious enquiries and in view of the present import licence difficulties, We would request you to send us your reply by return.
thanking you and assuring you of our best services. "
ext. D1 is the reply of the plaintiff dated 7th may 1958 to the above letter. It is to the following effect:
"we are in receipt of your letter no. Idt: b: 17:164 of 28th ult. We hereby confirm our order, Covered by contract no. 5612 dated 6 - 12 - 1957 for one gem white spirit dry cleaning plant and send you herewith our cheque no. 762800 of date for rs. 1000/ - being advance against the above order. Please acknowledge receipt and arrange for early shipment".
ext. D - 2 is the letter written by the madras branch of the defendant company to the plaintiff on may 9, 1958 in reply to ext. D - 1. That letter reads thus:
"we thank you for your letter dated 7th may 1958 confirming the order for the above together with cheque no. 762800 for rs. 1000/ -.
as desired by you we have advised our bombay office to ship the plant to cochin port by the first available steamer and shall forward the documents through the cochin commercial bank ltd., Ernakulam".
the plaintiff's case that the original contract was only a "provisional one" is based mainly on the reference made in ext. P - 2 to ext. P - 1 as a "provisional order". No such inference is possible as ext. P2 as well as ext. D1 reply sent by the plaintiff to ext. P - 2 makes it absolutely clear that the supply was to be made in pursuance of the original order. It is specifically stated in ext. P - 2 that the defendant is pleased to offer the machine to the plaintiff against the order covered by contract note no. 5612 dated 6 - 12 - 1957. A reading of ext. D - 1 also leaves no room for any doubt. There the plaintiff definitely says that they confirm their order covered by contract note no. 5612 dated 2/6 - 12 - 1957 for the plant and sent them rs. 1000/ - by cheque being advance against that order. Even the suit notice issued on the 27th december 1958 by the plaintiff's advocate to the defendant states in unambiguous terms: "i am informed by my clients that they entered into a contract with you on 2 - 12 - 1957 for the purchase and sale of one gem white spirit dry cleaning plant for rs. 9500 and that you issued contract note no. C. 5612 dated 2 - 12 - 1957 to my client". There is no indication at all of any subsequent contract or the supply of the machine in pursuance of it. We have therefore only to confirm the finding of the learned subordinate judge that the supply of the machine was in pursuance of the contract evidenced by ext. P1 and that the plaintiff is bound by the terms of that contract.
7. The next question for consideration is whether the agreement contained in ext. Pi to have all suits arising out of the contract filed in bombay, Offends s. 28 of the contract act. The relevant provisions are contained in clause. 9 and 10 of the terms of business printed on the reverse of ext. Pi. They are:
"9. Dispute. All disputes must be referred to the head office of larsen & toubro limited in bombay for settlement and no legal proceedings shall be taken to enforce any claim except in a court of competent jurisdiction located within the municipal limits of bombay.
10. Jurisdiction. All suits arising out of contracts shall be instituted in a court of competent jurisdiction situated in bombay and in no other court".
s. 28 of the contract act runs thus:
"every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, By the usual legal proceedings in the ordinary tribunals, Or which limits the time within which he may thus enforce his rights, Is void to that extent."
it is a well - settled proposition of law that
"this section has no application when a party agrees not to restrict his right of enforcing his rights in the ordinary tribunals but only agrees to a selection of one of those ordinary tribunals in which ordinarily a suit would be tried. This section, Prevents parties from divesting courts of their inherent jurisdiction, But it does not in any way vitiate an agreement between the parties by which a person who has the choice of the forum agrees to a limitation of that choice or agrees to the curtailment upon him. An agreement to that effect is not hit by the language of this section". In this case bombay where the head office of the defendant company it situated as well as cochin where the firm has a branch office and where the cause of action arose have both jurisdiction to deal with the suit and the parties were perfectly within their rights in agreeing that the suits should be filed in a court of competent jurisdiction situated in bombay. Hence the finding of the subordinate judge that the ernakulam sub court has no jurisdiction to try the suit and the order directing the return of the plaint for presentation to the proper court are upheld and the appeal is dismissed with costs.
dismissed.
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