Best Apparels vs Microtex India Ltd.

Hemant Gupta, J.—The Petitioner has sought appointment of an Arbitrator in the present petition u/s 11(6) of the Indian Arbitration and Conciliation Act, 1996.

The Petitioner was appointed as Carrying & Forwarding Agent and Distributor in the State of Himachal Pradesh, Chandigarh and some parts of Haryana by the Respondent in respect of their products such as Jeans, Shirts, Trousers, T-Shirts and Ready Made Garments as per the agreement dated 01.03.2004. As per the Petitioner, the disputes between the parties have arisen out of the said agreement. The relevant clauses of the agreement read as under:

This agreement shall be interpreted according to the law of Karnataka State and any dispute arising in this respect of agreement shall be subject to jurisdiction at Bangalore.

If there is any dispute regarding the terms of this agreement of interpretation hereof or anything done or omitted to be done in pursuance hereof, the same shall be referred to arbitration of Arbitrator to be appointed by both parties and such arbitration shall be held at Bangalore in accordance with the provisions of the Arbitrator Act, 1940 and such decision shall be binding on the parties and their representatives.

It is the case of the Petitioner that on 16.08.2008, the Petitioner has sought settlement of accounts, but the Respondent has failed to settle the accounts, therefore, the disputes have arisen between the parties. In reply, the Respondent has averred that in terms of Clause 18 of the Agreement, only Bangalore Courts have the jurisdiction to determine any of the disputes or differences that might arise between the parties and, therefore, this Court is not a competent Court for appointment of an Arbitrator.

The Petitioner has filed replication to the said reply admitting the terms and clauses of the Agreement. But it is asserted that "such laws of State of Karnataka are not to be invoked except when the dispute which has arisen in the operational area within jurisdiction of this Hon''ble Court has to be adjudicated by the Arbitrator appointed by this place".

The stand of the Petitioner in the replication is not tenable. Clause 18 of the Agreement, as reproduced above, shows that the parties have restricted the adjudication of dispute between the parties by a Court situated at Bangalore. The issue as to whether the agreement between parties restricting jurisdiction of one court is legal and valid has received the attention of the Courts since long. Recently in a judgment reported as Balaji Coke Industry Pvt. Ltd. Vs. Maa Bhagwati Coke (Guj) Pvt. Ltd., , it has been held:

The aforesaid question has often troubled the courts with one view being that since the parties to the agreement had agreed to a Arb. Case No. 126 of 2009 particular forum, they could no longer resile from the said position and claim that other courts, where a part of the cause of action may have arisen, would also have jurisdiction to entertain a suit or other proceeding. The other view has been that, if by the said agreement the rightful jurisdiction of a court was sought to be ousted and a court was vested with the jurisdiction to entertain a suit, which it did not have, the same would be contrary to the provisions of Section 28 of the Contract Act, 1872, being contrary to public policy. One of the earlier judgments on this dichotomy of views is that of this Court in Hakam Sing Vs. Gammon (India) Ltd., .

Faced with the question as to whether an agreement arrived at between two parties that one of the two courts having jurisdiction, would decide all the disputes relating to such agreement, was hit by the provisions of Section 28 of the Contract Act, 1872, this Court in Hakam Sing Vs. Gammon (India) Ltd., held that where two courts or more have the jurisdiction to try a suit or proceeding under the provisions of the Code of Civil Procedure, an agreement between the parties that one of such courts would have the jurisdiction to decide the disputes arising between the parties from such agreement would not be contrary to public policy and would not, therefore, be contrary to the provisions of Section 28 of the Contract Act, 1872.

27 The said question once again arose in A.B.C. Laminart Pvt. Ltd. and Another Vs. A.P. Agencies, Salem, , wherein following the decision in Hakam Sing Vs. Gammon (India) Ltd., but relying on the maxim ex dolo malo non oritur actio, this Court held that by an agreement which absolutely ousted the jurisdiction of a court having the jurisdiction to decide the matter, would be unlawful and void, being contrary to public policy u/s 28 of the Contract Act. But so long as the parties to a contract do not oust the jurisdiction of all the courts, which would otherwise have the jurisdiction to decide the cause of action under the law, it could not be said that the parties had by their contract ousted the jurisdiction of the court.

28 This Court in A.B.C. Laminart Pvt. Ltd. and Another Vs. A.P. Agencies, Salem, went on to observe that where there may be two or more competent courts which can entertain a suit consequent upon a part of the cause of action having arisen therewithin, if the parties to the contract agree to vest jurisdiction in one such court to try the dispute which might arise between them, the agreement would be valid.

The parties have agreed to submit their disputes to the Bangalore Courts only. In view of the aforesaid judgment, the present petition before this Court for appointment of an Arbitrator is not maintainable. Therefore, the present petition is accordingly dismissed with liberty to the Petitioner to invoke the jurisdiction of the competent Court.