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Bhandari Udyog Limited v. Industrial Facilitation Council And Another
Factual and Procedural Background
M/s. Bhandari Udyog Ltd. (“the appellant”) is a small-scale industry situated at Raichur, Karnataka, engaged in cotton ginning and pressing. Respondent No. 2, a cotton-spinning mill located at Latur, Maharashtra, purchased 750 bales of cotton from the appellant, made only part-payment, and a dispute arose over the unpaid balance.
The appellant invoked the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 and moved the Industrial Facilitation Council, Bengaluru (“IFC”) to arbitrate the dispute. Simultaneously, it filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 before the Karnataka High Court for appointment of an arbitrator. The Chief Justice’s designate referred the dispute to IFC, which on 16 August 2010 passed an award directing Respondent No. 2 to pay ₹20,25,213.54 plus interest.
Respondent No. 2 challenged the award under Section 34 of the 1996 Act before the District Court at Latur. The appellant objected, contending that only the Raichur court had jurisdiction. The District Judge, Latur, nevertheless held that he had jurisdiction. A revisional petition before the Bombay High Court was dismissed on 21 November 2013. The present Civil Appeal arises from that order.
Legal Issues Presented
- Whether the District Court at Latur, and consequently the Bombay High Court, had territorial jurisdiction to entertain a petition under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside an arbitral award rendered in proceedings conducted at Bengaluru pursuant to orders of the Karnataka High Court.
Arguments of the Parties
Appellant's Arguments
- All invoices for the cotton bales bore the endorsement “subject to Raichur jurisdiction”, demonstrating the parties’ agreement on exclusive jurisdiction.
- The arbitral proceedings were conducted within the territorial jurisdiction of Raichur; hence, under Section 42 of the 1996 Act, only a court subordinate to the Karnataka High Court could entertain a Section 34 petition.
- Respondent No. 2 had participated in the arbitration without objecting to jurisdiction, further reinforcing Raichur’s competence.
Respondent No. 2's Arguments
- The cotton was delivered at Latur, Respondent No. 2 carries on business there, and no application had earlier been made in any court; therefore, the District Court at Latur could entertain the Section 34 application.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of West Bengal v. Associated Contractors, (2015) 1 SCC 32 | Section 42 of the Arbitration and Conciliation Act, 1996 mandates that all subsequent applications must be made in the court where the first application under that Act was filed. | Provided the controlling principle that only a court subordinate to the Karnataka High Court (which entertained the Section 11 application) could hear the Section 34 petition. |
| F.C.I. v. A.M. Ahmed & Co., (2001) 10 SCC 532 | An application filed in a court lacking jurisdiction does not trigger the exclusive-court bar. | Cited (via Associated Contractors) to emphasise that jurisdiction must exist in the first court approached. |
| Neycer India Ltd. v. GMB Ceramics Ltd., (2002) 9 SCC 489 | Same proposition as above under the 1940 Act. | Reinforced the requirement of a competent first forum. |
| Jatinder Nath v. Chopra Land Developers (P) Ltd., (2007) 11 SCC 453 | Where parties agree to exclusive jurisdiction, that agreement prevails. | Supported the effect of the “subject to Raichur jurisdiction” stipulation. |
| Rajasthan SEB v. Universal Petro Chemicals Ltd., (2009) 2 SCC 107 | Exclusive-jurisdiction clauses are not overridden by Sections 31(4) or 42. | Used to validate the parties’ contractual choice of Raichur. |
| Swastik Gases (P) Ltd. v. Indian Oil Corp. Ltd., (2013) 9 SCC 32 | Reaffirmed enforceability of exclusive-jurisdiction clauses. | Further bolstered the conclusion that Latur lacked jurisdiction. |
Court's Reasoning and Analysis
The Supreme Court noted that the arbitral proceedings were conducted under the aegis of IFC at Bengaluru, pursuant to an order of the Karnataka High Court on a Section 11 petition. Consequently, the “first application” within the meaning of Section 42 of the Arbitration and Conciliation Act, 1996 was made in a court subordinate to the Karnataka High Court. Under Section 42, every subsequent application arising out of the arbitration agreement had to be made in that very court or a court subordinate to the same High Court.
The Court relied heavily on the three-judge bench judgment in Associated Contractors, which clarified that (a) Section 42 is mandatory; (b) applications to a court without jurisdiction are a nullity; and (c) contractual clauses conferring exclusive jurisdiction are respected. Applying these principles, the Court found:
- The endorsement “subject to Raichur jurisdiction” reflected the parties’ agreement.
- Respondent No. 2 had not objected to jurisdiction during arbitration, implying acquiescence.
- The District Court at Latur, being subordinate to the Bombay High Court, could not assume jurisdiction when the Karnataka High Court had already been seised of a Section 11 application.
Hence, the orders of the District Court, Latur and the Bombay High Court contravened Section 42 and were legally unsustainable.
Holding and Implications
Appeal Allowed; orders of the District Court at Latur and the Bombay High Court are set aside.
The immediate consequence is that the Section 34 petition filed at Latur stands dismissed for want of jurisdiction, and any challenge to the arbitral award must be filed before the competent civil court at Raichur. The decision reiterates the binding effect of Section 42 and exclusive-jurisdiction clauses, but it does not create new law beyond affirming existing precedent.
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'REPORTABLE'
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2077 OF 2015
(Arising out of SLP (C) NO. 8675 OF 2014) M/S. BHANDARI UDYOG LIMITED …..Appellant(s) versus
INDUSTRIAL FACILITATION COUNCIL
AND ANOTHER …..Respondent(s)
JUDGMENT
M. Y. EQBAL, J.
Leave granted.
2. The short question that falls for consideration in this appeal is as to whether the Bombay High Court has correctly
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decided the jurisdiction of a Court to entertain application under Section 34 of the Arbitration and Conciliation Act, 1996?
3. The facts of the case lie in a narrow compass.
4. The Appellant Company is running a small scale industry at Raichur in the State of Karnataka and is engaged in the business of cotton ginning, pressing while extraction and in marketing the finished products. Whereas Respondent No.2 is running a cotton spinning mill at Latur in the State of Maharashtra. Respondent no.2 purchased 750 bales of cotton from the appellant-company and made part payment to the appellant. The balance amount was not paid which led to a dispute between the parties.
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5. It further appears that the appellant filed an application under Sections 3 and 4 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act,1993 (for short 'IDP Act') before respondent no.1, the Industrial Facilitation Council (for short 'IFC') to arbitrate the dispute between the appellant and respondent no.2. The appellant thereafter filed a petition before the Karnataka High Court under Section 11 of the Arbitration and Conciliation Act, 1996 (for short 'Act of 1996') for appointment of Arbitrator. The said petition was allowed by the Chief Justice Designate and directed respondent No.1 (IFC) to decide the dispute between the parties. The respondent no.1 passed an Award on 16.8.2010 directing respondent no.2 to pay a sum of Rs.20,25,213.54 with interest.
6. The respondent no.2 challenged the Award by filing an application under Section 34 of 1996 Act before the District
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Court at Latur, Maharashtra for setting aside the Award. The appellant opposed the said application by challenging the jurisdiction of the District Court in Latur. The appellant contended that the District Court at Raichur has jurisdiction to hear the application under Section 34 of the Act. The District Judge proceeded to decide the jurisdiction by referring various provisions including Sections 15 to 20 of the Code of Civil Procedure and held that since respondent no.2 resides at Latur, delivery of cotton bales was taken at Latur and the place of business of respondent no.2 was at Latur, it is the District Judge, Latur, who has jurisdiction to entertain the application under Section 34 of the Act.
7. As against the aforesaid order passed by the District Judge, Latur, appellant preferred a revision before the Bombay High Court. The Bombay High Court dismissed the revision holding that since the Chief Justice of the High Court
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dealing with an application under Section 11 of the Act is not a court, and that no application was filed in any court prior to the filing of application under Section 34 of the Act and further the bales were supplied at Latur, it is the Latur Court which has jurisdiction to entertain the application under Section 34 of the Act.
8. We have heard Mr. Jayant Bhushan, learned senior counsel appearing for the appellant and Mr. Shrish K. Deshpande, learned counsel appearing for respondent no.2. It is not in dispute that pursuant to the order passed by respondent no.2, the cotton bales were dispatched by the appellant from Raichur supported by all bills/invoices specifically mentioning that "subject to Raichur jurisdiction".
The dispute arose and the matter was referred to respondent no.1, IFC Bangalore. Respondent No.2 participated in the arbitration proceedings in Bangalore without raising
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objection with regard to the jurisdiction of the Karnataka High Court referring the matter to arbitration or the jurisdiction of IFC to decide the dispute. Admittedly, the arbitration proceeding was concluded within the jurisdiction of Raichur Court. The only forum available to respondent no.2 was to make an application under Section 34 of the Act before the Civil Court of original jurisdiction at Raichur, since the Karnataka High Court has no original jurisdiction.
9. Recently, when a similar question for consideration arose before three Judges Bench of this Court in the case of
State of West Bengal & Ors. vs. Associated contractors, (2015) 1 SCC 32, this Court held:-
"22. One more question that may arise under Section 42 is whether Section 42 would apply in cases where an application made in a court is found to be without jurisdiction. Under Section 31(4) of the old Act, it has been held in F.C.I. v. A.M. Ahmed & Co.,(2001) 10 SCC 532 at p. 532, para 6 and Neycer India Ltd. v. GMB Ceramics Ltd. (2002) 9 SCC 489 at pp. 490-91, para 3 that Section 31(4) of the 1940 Act would not be
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applicable if it were found that an application was to be made before a court which had no jurisdiction. In Jatinder Nath v. Chopra Land Developers (P) Ltd.,(2007) 11 SCC 453 at p. 460, para 9 and Rajasthan SEB v. Universal Petro Chemicals Ltd. (2009) 2 SCC 107 at p. 116, paras 33 to 36 and Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. (2013) 9 SCC 32 at pp. 47-48, para 32, it was held that where the agreement between the parties restricted jurisdiction to only one particular court, that court alone would have jurisdiction as neither Section 31(4) nor Section 42 contains a non obstante clause wiping out a contrary agreement between the parties. It has thus been held that applications preferred to courts outside the exclusive court agreed to by parties would also be without jurisdiction."
10. Indisputably, the Arbitration proceeding has been conducted within the jurisdiction of Raichur court, which has jurisdiction as per Section 20 of the Code of Civil Procedure and is subordinate to the High Court of Karnataka which entertained Section 11 Application. Hence, the Award cannot be challenged before a Court subordinate to the High Court of Bombay. Exercise of jurisdiction by such court shall be against the provision of Section 42 of the Act.
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11. We, after giving our anxious consideration to the matter, are of the view that the District Court at Latur and High Court of Bombay have committed error of law in entertaining the application under Section 34 of the Act and dismissing the revision petition.
12. We, therefore, allow this appeal and set aside the order passed by the High Court. There shall be no order as to costs.
…………………………….J. (M.Y. Eqbal) …………………………….J. (Kurian Joseph)
New Delhi, February 20, 2015.
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ITEM NO.1A COURT NO.11 SECTION IX
[FOR JUDGMENT]
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
C.A. No. 2077 of 2015 @ Petition(s) for Special Leave to Appeal (C) No(s). 8675/2014
(Arising out of impugned final judgment and order dated 21/11/2013 in CRA No. 179/2013 passed by the High Court Of Bombay Bench at Aurangabad)
M/S BHANDARI UDYOG LTD Petitioner(s)
VERSUS
INDUSTRIAL FACILITATION COUNCIL & ANR Respondent(s) Date : 20/02/2015 This appeal was called on for judgment today. For Petitioner(s) Mr. Anand Shrivastava, Adv. for M/s. Lex Regis Law Offices
For Respondent(s) Mr. Shirish K. Deshpande,Adv. Hon'ble Mr. Justice M.Y. Eqbal pronounced the judgment of the Bench comprising His Lordship and Hon'ble Mr. Justice Kurian Joseph.
Leave granted.
Appeal is allowed in terms of signed reportable judgment. No costs.
(INDU POKHRIYAL) (PARDEEP KUMAR)
COURT MASTER AR-cum-PS
[SIGNED REPORTABLE JUDGMENT IS PLACED ON THE FILE]
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