Vandana Global Ltd. vs Sapphire Minmetals Corp. Ltd. and Others

N.K. Agrawal, J.—Instant miscellaneous appeal is directed against the order dated 13.06.2011 passed by the District Judge, Raipur in Civil Suit No. 19-A/2011. Brief facts necessary for disposal of this appeal are as under:

(i) On 06.01.2011, the appellant/plaintiff filed a suit against defendants seeking inter alia the following reliefs:

a) a decree of declaration declaring the contract document dated 4th October, 2010 as void ab-initio and/or canceling the said contract document;

b) a decree of permanent injunction restraining the defendant No. 1 from pursuing the arbitration proceedings initiated by it before the ICC vide the purported request for arbitration dated 22.10.2010;

c) a decree for mandatory injunction directing the defendant No. 1 to terminate or withdraw the arbitration proceedings before the ICC; and

d) a decree for the sum of Rs. 1,45,91,162/- as damages against the defendants jointly and severally.

(ii) According to the plaintiff, plaintiff is a Company registered under the Companies Act, 1956 with its registered office at Vandana Bhawan, M.G. Road, Raipur. The plaintiff is engaged in the manufacture of steel, generation of power and is also engaged, inter alia, in trading in iron ore including fines.

(iii) Defendant No. 1 M/s. Sapphire Minmetals Corporation Limited is a company registered in Hong Kong whose registered office is situated at Second Floor, A1 Barsha Business Center, A1 Barsha, Street No. 329, Dubai, UAE and Indian branch office at 811, Palm Spring, Arore croma Link Road, Malad (W), Mumbai-400064. The defendant No. 2 - Mr. Bipin Bihari Chaudhury was the General Manager (Export) of the Plaintiff Company until 18th October, 2010 when he resigned from the Company.

(iv) The plaintiff had about 30, 000 MT of Iron Ore fines (the "Goods") stored in the premises of its agent Prrathyusha Associates Shipping lying in the port area of Visakhapatnam in the State of Andhra Pradesh.

(v) On 27th August, 2010, the plaintiff had entered into a contract for sale of the said Goods with one PS Exim (HK) Ltd. Thereafter, PS Exim (HK) Ltd. wished to renegotiate the price of Goods assuring long term business relationships and the appellant being engaged inter alia in export of iron ore was willing to consider such relationship and hence acceded to their request. Negotiations, therefore, ensued and continued until 8th October, 2010 when certain price reduction was agreed-the final price being US $ 108. The only persons authorized by the plaintiff to enter into any trading contracts (apart from its Directors and Promoters, Mr. Gopal Agrawal and Mr. Vijit Agrawal), were and are Mr. T.K. Manna, Vice President (Finance) and Arabind Kumar Ghosh being the Vice President (Marketing).

(vi) Defendant No. 2 was aware of the storage of the Goods at Visakhapatnam and the existing contract with PS Exim as also the re-negotiations of the price which were then continuing.

(vii) Defendant No. 3, at the instance and at the behest of defendants No. 4 & 5, being the Promoters and/or Directors of the defendant No. 1, on behalf of defendant No. 1, hatched a criminal conspiracy with defendant No. 2 to defraud the plaintiff in order to cause wrongful gain with themselves and wrongful loss to the plaintiff.

(viii) On 4th October, 2010, the defendant No. 2, in furtherance of the aforesaid criminal conspiracy purported to execute allegedly on behalf of the appellant/plaintiff and with the defendant No. 1, a fraudulent document for the sale of the 30, 000 MT iron ore fines belonging to the plaintiff, one at the rate of US $109 per MT and another at the rate of US $ 108 per MT.

(ix) The defendants were aware and necessarily should have been aware that defendant No. 2 had no authority to enter into any contract for and on behalf of the Plaintiff. There was no resolution of Board of Directors or Power of Attorney of the Plaintiff authorizing Defendant No. 2 to enter into any contract. He was not a Director on the Board of Directors of the plaintiff. No prudent businessman would have, acting bonafidely, entered into a contract with an employee such as Defendant No. 2 unless they were satisfied by way of a written authority such as a resolution of Board of Directors, Power of Attorney or atleast by a letter of authorization.

(x) The plaintiff came to learn of the aforesaid transaction on 9th October, 2010 when by chance a copy of correspondence was marked accidentally to the plaintiffs official id. The plaintiffs representative Mukesh Bhargawa immediately spoke to defendant No. 2, On 9th October, 2010, the defendant No. 2 sent an E-mail to the defendant No. 1 stating that the purported contract was cancelled as the defendant No. 1 had failed to establish a Letter of Credit by 8th October, 2010.

(xi) The defendant No. 1 herein then moved an application purportedly u/s 9 of the Arbitration and Conciliation Act, 1996 (henceforth ''the Act of 1996'') before the Hon''ble High Court of Andhra Pradesh. On 13th October, 2010, the High Court of Andhra Pradesh restrained the plaintiff by way of ad-interim injunction from selling to any third parties or alienating or removing or shifting 30, 000 MT of iron ore fines from Visakhapatnam Port pending resolution of disputes through arbitration and had sent the matter back to the Court of Principal District at Visakhapatnam.

(xii) The defendant No. 1 also purported to invoke arbitration under the Rules of Arbitration of the Court of Arbitration of the International Chamber of Commerce, Paris (ICC) by filing a request for arbitration dated 22nd October, 2010.

(xiii) The District Judge, Visakhapatnam finally vacated the interim order and also dismissed the defendant No. 1''s application filed u/s 9 of the Act of 1996.

(xiv) As per the plaint averments, the arbitration proceedings initiated by the defendant No. 1, being the arbitration case ref. 17487/ARP, is non-est and bad in law as there is/was no contract in existence between the plaintiff and the defendant No. 1 much less any arbitration agreement in existence and ICC Tribunal would have no jurisdiction to entertain the claims made by defendant No. 1 and plaintiff is entitled to an anti-arbitration injunction restraining defendant No. 1 from pursuing the above arbitration proceedings initiated by it.

(xv) As per the plaintiff, the defendant No. 2 resides within the territorial jurisdiction of District Judge, Raipur and as fraud was perpetrated on the plaintiff whose registered Office at Raipur, the cause of action has also arisen within the territorial jurisdiction of District Judge, Raipur.

(xvi) Along with plaint, an application for grant of temporary injunction was also filed.

(xvii) By filing written statement and reply, the defendant No. 1 denied the allegations leveled against it by the plaintiff and besides other objections, took a preliminary objection on the maintainability of the suit, in particular, regarding territorial jurisdiction as none of the defendants are voluntarily residing or carrying on their business within the territorial jurisdiction of the Court.

(xviii) The trial Court, after hearing the parties, dismissed the application for grant of temporary injunction filed by the plaintiff holding: at this stage, it cannot be said, the trial Court has territorial jurisdiction to hear the matter, and therefore, prima facie, plaintiffs case is not in its favour. It is also clear from the plaintiffs case that plaintiff has also alleged regarding financial loss to the plaintiff, and therefore, balance of convenience also does not lie in favour of the plaintiff and if the temporary injunction is not granted in plaintiffs favour, their pecuniary loss can be compensated, it means there would be no possibility of irreparable loss to the plaintiff.

Shri Ciccu Mukhopadhyay, learned Senior Advocate with Shri Kartik Nayar and Shri Vaibhav Shukla for the appellant would submit: the learned trial Court has dismissed the application for grant of temporary injunction only on the ground of territorial jurisdiction (on a prima facie basis) by applying the wrong test that defendants'' residence and the place of execution of the alleged document not being averred to be at Raipur instead of the cause of action test required to be applied in terms of Section 20(c) of the CPC (for short ''the C.P.C.'') based on the law applicable in relation to the suits filed u/s 31 of the Specific Relief Act, 1961 for a declaration and/or cancellation of a fraudulent document. According to Mr. Mukhopadhyay, defendant No. 1 is adversely using the document dated 4th October, 2010 against the plaintiff at their office at Raipur, which is evident from the fact that the ICC Arbitration, which they seek to pursue against the appellant/plaintiff is based on this document where the appellant''s address is shown at Raipur and the service of notice of the claim in arbitration is also made against the appellant at its office address at Raipur. It is from Raipur that by using the document the respondent No. 1 seeks to drag the plaintiff to arbitration in London and the plaintiff apprehends that the plaintiff would be caused loss by way of an award against it being fraudulently obtained by using the said document. For this, reliance has been placed on the judgment of Madras High Court in the case of Nittala Achayya (dead) and Others Vs. Nittala Yellamma, lately a minor but now declared a major and Others, and the judgment of High Court of Bombay in the case of Quadricon Pvt. Ltd. Vs. Bajarang Alloys Ltd.,

Per contra, Shri C. Kondanda Ram, learned Senior Advocate with Shri Rama S. Biswas, Shri P. Vikram and Shri Sachin Singh Rajput for respondents No. 1, 4 & 5 supported the order impugned and submitted: the allegations of the plaintiff that respondent No. 2 was not authorised by the plaintiff is a question of fact and also the above defence has been taken by it before the arbitrator, who is competent to decide the same u/s 16 of the Act of 1996 (equivalent to Section 30 of the Arbitration Act, 1996 of England). He would further submit: the plaintiff has also filed its reply before the Arbitrator and the same is pending adjudication. Placing reliance upon the judgment of the Supreme Court in the case of Kvaaerner Cementation India vs. Bajranglal Agarwal, 2001 (6) Sup 265, he would further submit that in view of Section 16 of the Act of 1996 conferring power on the Arbitrator to decide his own jurisdiction including any objections regarding the existence or validity of the arbitration agreement, the civil Court has no jurisdiction to go into the same question. By placing reliance on the judgment rendered by the A.P. High Court in the case of Cultor Food Science Inc. Vs. Nicholas Piramal India Ltd. and Others, he would further submit: in a case where arbitration agreement providing for resolutions of disputes under English law the questions whether the agreement is opposed to public policy and it is vitiated by fraud can also be decided by the Arbitrator, as such all the allegations of the appellant will be decided by Arbitrator and the trial Court has not committed any error in dismissing the appellant''s application for grant of temporary injunction at this stage. He would further submit: the Raipur Court has no territorial jurisdiction as none of the defendants are residing within the jurisdiction of the Raipur Court and no part of cause of action arose at Raipur. In the absence of any pleadings by the appellant that if the contract is left outstanding, it will cause it serious injury, the provisions of Specific Relief Act are not applicable and consequently the ratio of law laid down by the High Court of Madras in the case of Nittala Achayya v. Nittala Yellamma (supra) and the judgment of Bombay High Court in the case of Quadricon Pvt. Ltd. vs. Bajarang Alloys Ltd. (supra) are also not applicable in the facts and circumstances of the case.

I have heard learned counsel for the parties.

Much emphasis has been given by the appellant''s counsel on the question of territorial, jurisdiction of the trial Court. According to him, in view of Judgment of Madras High Court in the case of Nittala Achayya v. Nittala Yellamma (supra) and that of Bombay High Court in the case of Quadricon Pvt. Ltd. vs. Bajarang Alloys Ltd. (supra), it is crystal clear that part of cause of action also arose at Raipur and the trial Court has territorial jurisdiction to try the same.

True, the Division Bench of High Court of Madras in the case of Nittala Achayya v. Nittala Yellamma (supra) has held: if the document is sought to be used to the detriment of a person at a particular place, the cause of action doubtless arises also at that place.

Placing reliance upon the ratio of law laid down by the Madras High Court''s judgment in the case of Nittala Achayya v. Nittala Yellamma (supra), the High Court of Bombay in the case of Quadricon Pvt. Ltd. (supra) has observed in paragraphs 52 and 53 of its judgment as under:

In Banke Behari Lal''s case the Division Bench held that the cause of action arose in Cawnpore District, where it was sought to enforce a decree inasmuch as some of the properties, were situated within the jurisdiction of that Court. There can be no quarrel with this proposition. However, it was also held that if execution of a decree was never applied for the mere passing of it would not have materially injured the Plaintiff. With the latter observations, I respectfully cannot agree if it was meant to be an absolute proposition. Actual injury or an attempt to injure is not necessary to maintain an action u/s 31 of the Specific Relief Act. A reasonable apprehension of a serious injury is sufficient. The question whether or not there is a reasonable apprehension of serious injury must depend upon the facts of each case. In fact, these observations are also contrary to the observations extracted above from the judgment in Nittala Achayya (dead) and Others Vs. Nittala Yellamma, lately a minor but now declared a major and Others, which were cited with approval by the Division Bench judgment of this Court in Shiv Bhagwan Moti Ram Saraoji Vs. Onkarmal Ishar Dass and Others,

In the present case, the bill of exchange was allegedly drawn on the Plaintiff at its Mumbai address. The Defendant alleged that the bill of exchange was accepted in Mumbai. As evidenced by the correspondence (Exhibit ''CC, ''DD'' and ''EE'' to the plaint) the Defendants sought to enforce their alleged rights under the bill of exchange through the Plaintiffs bankers in Mumbai. The bill of exchange was sought to be negotiated by the Defendant through its bank, Bank of Baroda, at the Mumbai office of the Plaintiffs bank Canara Bank. Thus, independent of where the alleged forgery took place the cause of action has also arisen in Mumbai where the bill of exchange was sought to be used. In the circumstances a material part of the cause of action has arisen within the jurisdiction of this Court.

There is no quarrel with the proposition of law laid down by the Madras High Court and Bombay High Court in the aforesaid cases. However, coming to the facts of the present case, indisputably, the plaintiff/appellant failed to aver necessary facts showing part of cause of action arose at Raipur and also failed to aver in the plaint that "if the document is left outstanding, it will cause serious injury" and "the document was sought to be used against it at Raipur, and therefore, part of cause of action also arose at Raipur Court". In the absence of specific pleadings, it was not possible for the trial Court to hold, part of cause of action also arose within its territorial jurisdiction, for the purpose of consideration of plaintiffs application for grant of temporary injunction. Further, as per the plaint, Mr. Bipin Bihari Chaudhury is resident of Orissa. The contract was executed at Visakhapatnam and none of the defendants reside at Raipur.

The trial Court also had not finally decided the question whether or not the trial Court has territorial jurisdiction to decide the case. In the facts and circumstances of the present case, the question whether or not the Raipur Court has territorial jurisdiction appears to be mixed question of fact and law and as per the provisions of Order 14 Rule 2 of the C.P.C., it is open for the trial Court to deal with this issue along with other issues.

In the instant case, the plaintiff is challenging the existence and validity of contract in question including arbitration agreement mainly on the ground that defendant No. 2 was not authorized to enter into contract with defendant No. 1 on plaintiffs behalf. The Arbitral Tribunal is constituted in the instant case without intervention of the Court u/s 8 or Section 11(6) of the Act of, 1996, and therefore, can rule on its own jurisdiction or on the existence of an arbitration clause, as held by the Supreme Court in the case of S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, in which, the Supreme Court has held in para 20 of its judgment as under:

Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the Arbitral Tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can, and possibly, ought to decide them. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these sections, before a reference is made, Section 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the Arbitral Tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence u/s 11 of the Act are incapable of being reopened before the Arbitral Tribunal. In Konkan Railway Corporation Ltd. and Another Vs. Rani Construction Pvt. Ltd., what is considered is only the fact that u/s 16, the Arbitral Tribunal has the right to rule on its own jurisdiction and any objection, with respect to the existence or validity of the arbitration agreement. What is the impact of Section 11(7) of the Act on the Arbitral Tribunal constituted by an order u/s 11(6) of the Act, was not considered. Obviously, this was because of view taken in that decision that the Chief Justice is not expected to decide anything while entertaining a request u/s 11(6) of the Act and is only performing an administrative function in appointing an Arbitral Tribunal. Once it is held that there is an adjudicatory function entrusted to the Chief Justice by the Act, obviously, the right of the Arbitral Tribunal to go behind the order passed by the Chief Justice would take another hue and would be controlled by Section 11(7) of the Act.

Whether or not defendant No. 2 was authorized by the plaintiff to enter into contract on its behalf is essentially a question of fact. Till such time a fraud is established by evidence, the contract in question should be deemed to be valid. The plaintiff had already raised the above issue before the Arbitral Tribunal and the same shall be decided by the Arbitral Tribunal on its own merits.

The Division Bench of Andhra Pradesh High Court, in the case of Cultor Food Science Inc. New York, U.S.A. v. Nicholas Piramal Indian Ltd. and others (supra) has held, in a case where arbitration agreement providing for resolution of disputes under English law the questions whether the agreement is opposed to public policy and it is vitiated by fraud can also be decided by the Arbitrator and observed in paras 27, 28, 29 and 31 of its judgment as under:

In a petition seeking injunction under Order 39 Rules 1 and 2, or u/s 151 C.P.C., the Court, unless the respondent concedes, should either grant or refuse injunction on the strength of the case of the petitioner but not on the weakness of the case of the respondent. The contention of the 1st respondent, who filed the suit and who sought the injunction against the appellant, that the suit agreement is opposed to public policy because parties agreed to abide by English Law. but not Indian Law, prima facie, has no force, in view of Renusagar (supra) and National Thermal Power Corporation.

The contention of the 1st respondent that the suit agreement is vitiated by fraud, for the reasons mentioned in para 14 above, can be decided only evidence is taken, more so because 1st respondent did not even prima facie establish what fraud was played on him and as to how the contract between him, a surety, and the appellant is vitiated by fraud. In view of Article 23 of LCIA Rules read with clause-27 of the suit agreement, the Arbitral Tribunal has jurisdiction to decide the validity, enforceability of the agreement and also the question whether there is any dispute to be arbitrated between the parties or not. As held in Atlas Export Industries (supra), the suit agreement prima facie is covered by exception-1 to Section 28 of Contract Act, even if the suit agreement is governed by the Indian Law. Therefore, merely because arbitration has to take place in a foreign country, to which forum parties, with their eyes wide open, willingly submitted themselves, and that considerable money has to be spent to participate in those proceedings, would not be a ground to grant an injunction restraining the appellant and 3rd respondent from proceeding with the arbitration. The facts of this case fit into the facts of Ram Kissen (supra) like a glove. In view thereof and in view of the ratio in Sunil Kumar (supra) also 1st respondent cannot be said to have a prima facie case.

It is also well known that party seeking the equitable relief of injunction should come to Court with clean hands. As stated earlier, till such time a fraud is established by evidence, the suit agreement should be deemed to be valid. If the contention of the 1st respondent that the suit agreement was vitiated" by fraud is accepted, as per Sec. 64 of the Contract Act, 1st respondent has to restore the benefit if any received by it from the appellant to the appellant. In a suit for declaration that the suit agreement is void, Court fees would have to be paid on the advantage to be gained, or to loss to be averted under the agreement, but not on a notional values, as in the case of a suit for injunction simplicitor, and 1st respondent, as plaintiff, would have also to allege that he is prepared to return the benefit, if any, received by him under the suit agreement. If injunction, as sought, were to be granted, it would tantamount to holding that the suit agreement is void, thereby granting a relief, on which 1st respondent skilfully avoided payment of Court fees. For that reason also, 1st respondent cannot be granted the relief of injunction, because he failed to seek the relief of declaration about the alleged invalidity of the suit agreement.

Balance of convenience would be in permitting the appellant to proceed with arbitration. 1st respondent would not suffer any injury much less irreparable injury if injunction is not granted, because it can raise all the questions now raised not only before the arbitrator, but also after the award, if any, passed is sought to be made the rule of Court and executed, before the Civil Courts here. Therefore, 1st respondent is not entitled to the injunction sought, and so I.A. No. 1352 of 2000 is liable to be and is dismissed.

The plaintiffs application for grant of temporary injunction also suffers from delay and laches. As per plaint averments, on 9th October, 2010, the plaintiff came to know about the execution of contract document by its employee Bipin Bihari Chaudhury on its behalf with defendant No. 1, Thereafter, respondent No. 1 preferred application u/s 9 of the Act of 1996 before the Andhra Pradesh High Court and also filed a request for arbitration on 22nd October, 2010 but the plaintiff did not take any steps to challenge the existence and validity of the contract agreement which also contains arbitration agreement by immediately filing a suit. It is only in the month of January, 2010, the suit has been filed, that too, after appearing before the Arbitration Tribunal. Considering every aspect of the matter, it is crystal clear that plaintiff failed to establish that it has a prima facie case; if the interim injunction is refused, it will suffer an irreparable injury; and the balance of convenience is in its favour. In the above circumstances, I do not find any scope of interference in the order impugned passed by the trial Court.

The appeal being devoid of merit and substance is liable to be and is hereby dismissed.