D.L.F. Industries Ltd. vs Standard Chartered Bank And Anr.
1998 Latest Caselaw 689 Del

JUDGMENT

S.K.Mahajan, J.

1. This petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act"), has been filed for the grant of interim relief restraining respondent No. 2 from invoking the advance bank guarantee No. 316/96/568 for Rs. 2.60 crores and the performance bank guarantee No. 316/96/566 for Rs. 2.60 crores against the letter of intent No. KISKC/1412, dated August 17, 1996. On July 9, 1998, this court, after hearing learned counsel for the petitioner, passed an ex parte order of injunction restraining respondent No. 1 not to make payment under the aforesaid bank guarantees to respondent No. 2. After notice had been issued to the respondents, it filed an application under Order 39, Rule 4 of the Civil Procedure Code, 1908 (IA No. 6720 of 1998), for vacating the ex parte order of injunction. Besides other pleas taken in the said application for vacating the ex parte order of injunction, one of the pleas taken was that this court has no territorial jurisdiction to try or entertain the petition as the jurisdiction vested only before the courts at Bangalore. The petitioner was also alleged to be guilty of concealment of material facts from this court inasmuch as it was not brought to the notice of the court by the petitioner that the contract provided for exclusive jurisdiction of the courts at Bangalore. The pleas, as contained in paragraphs 5 and 6 of the application, for vacation of the ex parte order of injunction were :

"5. That a bare perusal of the general conditions of the contract entered into between the petitioner and the answering respondent would clearly show that this hon'ble court would not have the territorial jurisdiction to try or entertain the present petition. It is respectfully submitted that as per the said general conditions of the contract the jurisdiction would vest only before the courts at Bangalore. Further, the venue of the arbitration is also at Bangalore. Thus, the present application, being a creature of the arbitration clause, jurisdiction, would only be vested in the forum prescribed by the arbitration Clause itself. That being the legal position, this hon'bie court would not have the territorial jurisdiction to entertain the present petition and the fact that the bank guarantees in question are sought to be encashed in Delhi is of no consequence because the petitioner's application is a creature of the main contract and not the terms of the bank guarantee. Even otherwise, the mere fact that some meeting or negotiation in respect of a particular contract were held in Delhi is of no consequence and cannot confer jurisdiction on courts in Delhi inasmuch as the agreement in question was never signed in Delhi. It would, therefore, follow that this hon'ble court is not vested with the territorial jurisdiction to try and entertain the present petition and the same is thus liable to be rejected in limine inasmuch as no cause of action or any part thereof arises within the territorial jurisdiction of this hon'ble court.

The petitioner is guilty of concealment of several material facts from this hon'ble court. Firstly, the factum of having received notice of filing of the caveat had been concealed by the petitioner. Secondly, the petitioner has not annexed the arbitration Clause or the jurisdiction Clause as per the general conditions of the contract which clearly provide for exclusive jurisdiction of courts in Bangalore. Further, the letter terminating the contract has also not been annexed by the petitioner."

2. In reply to this objection it was contended by the petitioner that the contract consisted of letter of intent dated August 17, 1996, which stated that "the contract stands concluded with the issue of this letter of intent. A formal and detailed agreement shall be concluded shortly". It is stated that no formal contract has, thereafter, been executed. It is also stated that the arbitration Clause relied upon by the petitioner was a reproduction of Clause 9.23.3 of the general conditions of the draft contract which formed part of the invitation to tender and it vested the powers with the managing director of respondent No. 2 to appoint the sole arbitrator. In terms of Clause 9.23.11 of this draft contract the venue of the arbitration shall be at Bombay. Pursuant to this Clause the petitioner in para. 12 of the petition stated that the petitioner had invoked the arbitration Clause on July 7, 1998, approaching the managing director to nominate an arbitrator. The petitioner in paragraph 13 of the petition pleading that this court has jurisdiction to decide the petition stated :

"That the hon'ble court of Delhi has jurisdiction as both the petitioner and the respondents work for gain in Delhi, A number of meetings between the parties were held in Delhi and the correspondences were exchanged between the parties from Delhi. The contracts were monitored from the registered office in Delhi. The bank guarantee in question was issued by respondent No. 1 from Delhi and its encashment and payment has been sought from respondent No. 1 in Delhi. The cause of action has arisen in Delhi and no cause of action has arisen in Bombay, even the draft contract proposed by respondent No, 2 does not suggest the Bombay jurisdiction. The hon'ble court has territorial jurisdiction. Further, the value of bank guarantee invoked by respondent No. 2 from respondent No. 1 is Rs. 5.20 crores. Hence, the hon'ble court has pecuniary jurisdiction as well."

3. In reply to the allegations of the respondents about concealment of material fact from this court, the petitioner stated that in terms of the general conditions of contract governing the draft contract which formed part of the invitation to tender the Bombay courts had the jurisdiction to try the petition but as the respondents had their branch office and were carrying on their business from Delhi, various meetings between the parties were held in Delhi, the bank guarantee was given from a bank in Delhi and the same was also invoked in Delhi, the Delhi High Court has the territorial jurisdiction to try this petition. An additional affidavit was filed by the petitioner on August 12, 1998, in the court stating that the petitioner was not aware of the jurisdiction Clause in the revised general conditions of contract in which it is stated that only the courts at Bangalore had the exclusive jurisdiction under the agreement.

4. The letter of intent dated August 17, 1996, made reference to 28 documents which were the basis of the said letter. Two documents which are relevant for the purpose of deciding this petition were : (1) invitation to bid dated October 7, 1995 ; and (2) letter of the petitioner dated February 16, 1996. While condition No. 9.23.11 in the draft contract annexed along with the invitation to tender stated that the venue of the arbitration shall be at Bombay, it also slated that the contract shall be governed by the laws and regulations of India for the time being in force and being subject to the exclusive territorial jurisdiction of the courts at Bombay. This draft contract was a reproduction of another agreement between respondent No. 2 and a third party. However, on February 16, 1996, the petitioner while returning the two sets of draft contract stated that : "We are enclosing herewith two sets of draft contract as sent by you duly signed, stamped and accepted by us." It clearly shows that the draft contract had been signed by the petitioner and was sent along with the letter dated February 16, 1996. This was the contract which had been agreed by the parties as the letter clearly stated that it was accepted by the petitioner and respondent No. 2 had sent it to the petitioner only after approval. Clause 9.23.11 and Clause 9.43 of the said contract read as under :

"9.23.11 The venue of the arbitration shall be at Bangalore."

9.43 Jurisdiction.--This contract shall be governed by the laws and regulations in India for the time being enforced and will be subject to the exclusive jurisdiction of the courts at Bangalore."

5. This clearly shows that the contract was subject to the exclusive jurisdiction of the courts at Bangalore.

6. Mr. Venugopal, learned senior counsel for the petitioner, contended that the bank guarantee given by the petitioner was a contract independent of the main contract and, consequently, the Clause in the main contract regarding exclusive jurisdiction of the courts at Bangalore will not he applicable in the case of dispute relating to the encashment of bank guarantee. It is also his contention that the "court" which had the power to grant interim relief under Section 9 of the Act can be a court other than the "court" defined in Section 2(e) of the Act and till the arbitration commences this "court" will have the jurisdiction to protect the petitioner. According to Mr. Venugopal. Section 9 becomes otiose and ineffective in case it was held that this court will have no jurisdiction. In support of his contention, he has relied upon the judgments reported in State of Maharashtra v. National Construction Co. Hindustan Steelworks Construction Ltd. v. Taraporp and Co. Ltd. and Syndicate Bank v. Vijay Kumar .

7. This court has not been able to persuade itself to agree with Mr. Venugopal. To appreciate the contention of Mr. Venugopal it will be useful to read the provisions of Section 2(e) and Section 9 of the Act which are as under :

"2. (e) 'court' means the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal civil court, or any court of small causes ;

"9. Interim measures, etc., by court.--A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court-

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings ; or

(ii) for an interim measure of protection in respect of any of the following matters, namely :--

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement ;

(b) securing the amount in dispute in the arbitration ;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence ;

(d) interim injunction or the appointment of a receiver ;

(e) such other interim measure of protection as may appear to the court to be just and convenient ;

and the court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it."

8. A plain reading of Section 2(e) of the Act shows that the court which will have the jurisdiction to try a petition under the Act is the court which has the jurisdiction to decide the question forming the subject-matter of arbitration if the same had been the subject matter of the suit. In view of Section 2(e) of the Act, it is only the Bangalore courts which will have the jurisdiction to decide the question forming the subject-matter of arbitration in the present case. Can this court be different from the court in Section 9 of the Act ? In my view, the answer has to be in the negative. "Court" in Section 9 has to be the court which is defined in Section 2(e) of the Act. In case the argument of Mr. Venugopal is accepted, the Legislature should have so mentioned in Section 9 that the court which has the jurisdiction to grant an interim relief could be different from the court mentioned in Section 2(e) of the Act. Under Section 42 of the Act, where with respect to an arbitration agreement any application under that part had been made in a court, that court alone shall have the jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court alone and in no other court. Section 9 and Section 42 of the Act are in Part I of the Act. Under Section 42 any application made under that part will give jurisdiction only to that court and to no other court for any subsequent application arising out of the agreement. It clearly shows that if an application under Section 9 has been made in a court in Delhi, the parties by virtue of Section 42 of the Act will be precluded from filing any subsequent applications in any other court. In case the contention of Mr. Venugopal is accepted the Bangalore courts cannot, thereafter, try any petition under this Act which was neither the intention of the parties nor was it the intention of the Legislature when it defined court in Section 2(e) of the Act. In my view, therefore, the court mentioned in Section 9 can only be the court which has been defined in Section 2(e) of the Act. That being the position, in my view, only Bangalore courts had jurisdiction to try this petition. None of the judgments referred to by Mr. Venugopal have dealt with this aspect of the matter and the same are, therefore, not applicable to the facts and circumstances of the present case.

9. As this court has held that it does not have the jurisdiction to try the petition, the petition has necessarily to be returned for presentation in proper court.

10. Mr. Desai, learned senior counsel appearing on behalf of the respondents, states that if this court comes to the conclusion that it does not have the jurisdiction to try the petition, it should vacate the interim order granted on July 9, 1998, as the same was obtained by concealment of material facts. However, it is the contention of Mr. Venugopal that in case this court holds that it has no jurisdiction to try the petition, it should return the petition to the petitioner for presentation in proper court and till such time the petition is presented in proper court, the petitioner should be protected by the interim order passed on July 9, 1998. For this he relies upon the judgment of this court in D. L. F. Industries Ltd. v. Hong Kong and Shangai Banking Corporation Ltd. (O. M. P. No. 98 of 1997, dated 10th March, 1998). Mr. Desai relying upon the judgment in Satish Khosla v. Eli Lilly Ranbaxy Ltd. [1998] 1 A. D. (Delhi) 927 contends that as the petitioner is guilty of concealment of material facts and has not disclosed to the court all the documents which are relevant for deciding the matter between the parties it has clearly tried to overreach the court in order to gain advantage on the other side and get a stay in the petition. This court, therefore, according to Mr. Desai, should non-suit the petitioner and should vacate the interim order of stay.

11. It is no doubt true that one who comes to the court must come with clean hands and a person whose case is based on falsehood has no right to approach the court and he can be summarily thrown out at any stage of the litigation. A litigant who approaches the court is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds vital documents in order to gain advantage over the other side he would be guilty of playing fraud on the court as well as on the opposite party. In case the petitioner has deliberately withheld the contract which had been accepted by it and returned to the respondent along with the letter dated February 16, 1996, after acceptance, it will not be entitled to any equitable relief from this court and it can be summarily thrown out at any stage of the litigation.

12. In the present case, I find some force in the argument of Mr. Venugopal that the petitioner was not aware of the existence of Clause in the contract when the petition was filed about the exclusivity of jurisdiction to the Bangalore courts. In the draft contract, forming part of the invitation to tender, reference to which has been made in the petition, it is stated that under the agreement the courts at Bombay had the jurisdiction. According to the petitioner, however, as no part of the cause of action had arisen in Bombay, the Bombay court could not have jurisdiction and the Delhi courts have the jurisdiction for the reason that the bank guarantee was issued in Delhi. It is also mentioned in para. 12 of the petition that the petitioner had invoked the arbitration Clause on July 7, 1998, and had approached the managing director of respondent No. 2 to nominate the arbitrator. In the draft agreement forming part of the invitation to tender the arbitration agreement provided that the disputes or differences which were informed in writing to the respondent by the petitioner shall be referred to the "sole arbitrator to be nominated by the Managing Director (Designate), New Note Press Project, Reserve Bank of India, Bombay." The arbitration agreement as contained in the agreement accepted by the petitioner and sent along with the letter dated February 16. 1996, provided that in case of disputes between the parties the same shall be referred to the adjudication of two arbitrators, one to be nominated by the purchaser and the other to be nominated by the contractor and in case of the said arbitrators not agreeing then to the adjudication of an umpire to be appointed by the arbitrators in writing. In case the petitioner was aware of the arbitration agreement regarding the nomination of two arbitrators, one by the purchaser and the other by the contractor, it would not have written to the managing director of the respondent by the letter dated July 7, 1998, to appoint an arbitrator as the same related to the arbitration agreement in the draft contract forming part of the invitation to tender. This draft contract no doubt was superseded by the contract signed by the plaintiff and sent along with the letter dated February 16, 1996. 1 am, therefore, of the prima facie opinion that the non-disclosure of the exclusivity of the Bangalore courts to decide the matter in question was not deliberate and was only by way of ignorance on the part of the petitioner about the Clause in the agreement sent along with the letter dated February 16, 1996. I am, therefore, not inclined to vacate the interim order on the ground of concealment of material facts and non-disclosure of material documents.

13. This court, therefore, having held that it does not have the jurisdiction to decide this petition under Section 9 of the Act, directs the petition to be returned to the petitioner for presentation in proper court in Bangalore. However, as it will take sometime to present the petition in court at Bangalore, I feel that it would be just and fair that the interim orders passed on July 9, 1998, are continued for seven days from today.

14. The petition stands disposed of leaving the parties to bear their own costs.