Sep 11, 2024 14:54 UTC
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Case Study: Patel Roadways Limited, Bombay v. Prasad Trading Company
“Supreme Court invalidates exclusive jurisdiction clause, considered subordinate office as a place of business.”
Citation: AIR 1992 SC 1514.
Date of Judgment: 6th August, 1991
Court: Supreme Court of India
Bench: M. Fathima Beevi (J)
Facts
- Patel Roadways is a transportation company that operates throughout India. Its main office is in Bombay, and its branch offices are in various other locations.
- In two separate incidents, Patel Roadways was involved in transportation disputes. In the first issue, Prasad Trading Company hired them to transport cardamom from Tamil Nadu to Delhi. However, the cardamom was damaged due to a fire at a Delhi warehouse. Prasad Trading Company sued Patel Roadways for negligence in a Tamil Nadu court.
- In another case, Tropical Agro Systems hired Patel Roadways to transport pesticides from Madras to New Delhi. Unfortunately, the pesticides were delivered in a damaged condition. Tropical Agro Systems subsequently filed a lawsuit against Patel Roadways in a Madras court to recover their losses.
- Since both the cases involved an identical question of law, both the suits were merged together to give a common judgment.
Decision of the Trial Court
The trial court dismissed the appellant’s claim in both suits that, owing to the exclusive jurisdiction clause, the suit shall be instituted before the Bombay court only.
Decision of the High Court
The appellant challenged the trial court’s decision before the High Court of Judicature at Madras pursuant to Section 115 of the Code of Civil Procedure. The high court upheld the trial court’s decision. The court stated that the exclusive jurisdiction clause cannot be conferred by the parties in this matter.
Decision of the Supreme Court
The Supreme Court ruled that a suit against a corporation can be filed in a court where the corporation has a subordinate office, even if the registered office is elsewhere. The court also invalidated an exclusive jurisdiction clause in the contract, stating that parties cannot agree to confer jurisdiction on a court that it doesn’t already possess under the Code of Civil Procedure. The court emphasized the importance of convenience for the plaintiff and the fact that the corporation having a subordinate office at the place of the cause of action should not be a disadvantage.
Key legal issues discussed
1. Whether a suit could be instituted in a court outside the place where the registered office of the defendant company was located?
Yes
The Supreme Court interpreted the provisions of Section 20 of the Code of Civil Procedure (hereinafter referred to as C.P.C.) while deciding the issue. The Supreme Court held that under Section 20 of the C.P.C., a suit can be instituted in any court within whose jurisdiction the defendant resides or carries on business, or the cause of action, either wholly or in part, arises. In the present case, the parties had agreed to refer the matter to the Bombay High Court under contractual stipulation.
However, in the present case, the cause of action had not arisen in Mumbai, so the Bombay court does not have jurisdiction to try the case. The appellant stated that since it has its principal office in Mumbai, it will be considered that the place of business is in Mumbai. The appellant relied upon the explanation part of Section 20 C.P.C., which stated that the suit could be instituted where the corporation carries out its business. The court refuted this claim and, in the 9th para of the judgment, remarked, “The latter part of the Explanation takes care of a case where the defendant does not have a sole office but has a principal office at one place and also has a subordinate office at another place. The words “at such place” occurring at the end of the Explanation and the word “or” referred to above which is disjunctive clearly suggest that if the ease falls within the latter part of the Explanation, it is not the Court within whose jurisdiction the principal office of the defendant is situate but the court within whose jurisdiction it has a subordinate office which alone shall have jurisdiction “in respect of any cause of action arising at any place where it has also a subordinate office.”
Since, in the present appeal, the appellant had its subsidiary offices and the cause of action had arisen there, such a subsidiary office will be deemed to be the place of business of the corporation. Subsequently, the suit can be instituted outside the corporation’s registered office.
2. Whether the exclusive jurisdiction clause conferred upon in the present suit is valid?
No
While answering the issue, the court referred to the landmark case of Hakam Singh v. M/s. Gammon (India) Ltd.[1]. In the 7th para, the court remarked, “It was also held that it is not open to the parties by agreement to confer jurisdiction on any court which it did not otherwise possess under the Code.” The court stated that when two different courts have the authority to hear a case, an agreement between the parties to have the case heard in one of those specific courts is not against public policy and does not violate the Indian Contract Act Section 28.
The court stated that the explicit association of the place of origin of the cause of action with the location of a subordinate office unequivocally indicates that the legislature’s intent, in the context of a corporation, was to designate the subordinate office within whose local jurisdiction the cause of action arises as the relevant venue for filing a suit, rather than the principal place of business. In the 13th para, the court observed, “It would be a great hardship if, in spite of the corporation having a subordinate office at the place where the cause of action arises (with which in all probability the plaintiff has had dealings), such plaintiff is to be compelled to travel to the place where the corporation has its principal place. That place should be convenient to the plaintiff; and since the corporation has an office at such place, it will also be under no disadvantage.”
[1] AIR 1971 SC 740.
