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Friday, February 20, 2015

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.= 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.


                        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)
AND ANOTHER                             .....Respondent(s)



Leave granted.

2.    The short question that falls for consideration in this appeal  is  as
to whether the Bombay High Court has correctly 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.

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

6.    The respondent no.2 challenged the  Award  by  filing  an  application
under  Section  34  of  1996  Act  before  the  District  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 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
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  [pic]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  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.

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.

                                                                (M.Y. Eqbal)

                                                             (Kurian Joseph)
New Delhi,
February 20, 2015.

ITEM NO.1A           COURT NO.11               SECTION IX

               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).

(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)



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

(INDU POKHRIYAL)                           (PARDEEP KUMAR)
  COURT MASTER                                    AR-cum-PS

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