Case: Iron &amp; Steel Co. Ltd Vs. M/S. Tiwari Road Lines

The appellant The Indian Iron and Steel Co. Ltd., having its registered office at Kolkata, invited tenders on 17.2.2003 for transportation of pig iron and steel material from Burnpur/Kolkata stockyard to different customer locations in various parts of the country. The tender submitted by the respondent M/s. Tiwari Road Lines was accepted and a letter was issued on 14.5.2003 awarding the contract to the respondent to transport the material with effect from 17.5.2003 for a period of two years. The tender was submitted by the respondent at the Head Office of the company at Kolkata and the agreement was also signed between the parties at Kolkata. In terms of the agreement the respondent furnished a bank guarantee for Rs.5,00,000/-. According to the appellant there was failure on the part of the respondent to comply with the terms of the agreement and accordingly the appellant invoked the bank guarantee on 16.9.2003. Feeling aggrieved by the encashment of the bank guarantee, the respondent filed an application before the Chief Judge, City Civil Courts, Hyderabad, who was the designated authority under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) under the scheme framed by the Andhra Pradesh High Court, for appointment of an arbitrator to decide the dispute between the parties. The appellant contested the application on two grounds, viz., that the City Civil Court at Hyderabad had no territorial jurisdiction to entertain the application and, secondly, under the terms of the agreement between the parties the dispute had to be resolved in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the application filed under Section 11 of the Act was not maintainable. The Chief Judge, City Civil Courts, Hyderabad allowed the application by order dated 31.3.2004 and appointed a retired judicial officer as arbitrator to decide the dispute. The said order was challenged by the appellant by filing a civil revision petition before the Andhra Pradesh High Court. The revision petition was allowed and the matter was remanded to the City Civil Court, Hyderabad to consider the question of jurisdiction. The City Civil Court again allowed the application filed by the respondent by order dated 27.12.2004 and appointed a retired judicial officer as arbitrator to decide the dispute between the parties. This order was challenged by the appellant by filing a writ petition in the High Court on the ground, inter alia, that the application under Section 11 of the Act was not maintainable as the agreement between the parties contained a clause that any dispute between the parties shall be decided in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the respondent had not taken recourse to the said Rules. The other plea taken in the writ petition was that the City Civil Court, Hyderabad, had no territorial jurisdiction to entertain the application under Section 11 of the Act. The High Court negatived the contention raised by the appellant and dismissed the writ petition and it is these orders which are subject-matter of challenge in the present appeal.

Court's reasoning:
9. In the matter of settlement of dispute by arbitration, the agreement executed by the parties has to be given great importance and an agreed procedure for appointing the arbitrators has been placed on high pedestal and has to be given preference to any other mode for securing appointment of an arbitrator. It is for this reason that in clause (a) of(8) of Section 11 of the Act it is specifically provided that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties.10. The judicial pronouncements also show that normally the clause in the agreement providing for settling the dispute by arbitration by arbitrators having certain qualifications or in certain agreed manner should be adhered to and should not be departed with unless there are strong grounds for doing so.This being the settled position of law we are clearly of the opinion that the respondent should have initiated proceedings for settlement of disputes by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration as provided in clause 13.1 of the agreement and the application moved by it to the City Civil Court, Hyderabad, for appointment of an arbitrator was not maintainable. Consequently, the order passed by the City Civil Court, Hyderabad dated 27.12.2004 is wholly illegal and without jurisdiction and is liable to be set aside.Learned counsel for the appellant has also submitted that City Civil Court, Hyderabad had no jurisdiction to entertain the application moved by the respondent as no part of cause of action had accrued there. In this connection, he has referred to clause (b) of) of Section 11 and clause (e) of) of Section 2 of the Act which will govern the question of jurisdiction as to Chief Justice of which High Court has to be approached for moving an application under Section 11 of the Act. Learned counsel has submitted that the tenders were floated at Kolkata, the respondent submitted the tender at Kolkata, the agreement was executed at Kolkata and, therefore, the court at Hyderabad had no jurisdiction to entertain the application. Learned counsel has also submitted that the view taken by the High Court that as the bank guarantee was furnished at Hyderabad and was encashed at Hyderabad, the court at Hyderabad has jurisdiction is erroneous in law inasmuch as the agreement did not contain any clause regarding the place from where the bank guarantee had to be furnished. Learned counsel has submitted that there was only a requirement for furnishing the bank guarantee and that it could be furnished from anywhere in India and since in the present case the bank guarantee was furnished by the respondent from a bank at Hyderabad it was encashed there and, therefore, the said fact was wholly irrelevant for deciding the plea of jurisdiction. He has also relied upon a decision of this Court in South East Asia Shipping Co. Ltd. vs. Nav Bharat Enterprises Pvt. Ltd. (1996) 3 SCC 443 , in support of his contention that the submission of the bank guarantee from Hyderabad or the encashment thereof does not constitute even a part of cause of action to confer jurisdiction on the court at Hyderabad.Though we find substance in the contention raised by the learned counsel for the appellant but in view of our finding recorded on the main point, we do not consider it necessary to express any final opinion on the second contention.