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Where can a suit arising out of a contract be filed

Parul Dhingra ,
  27 August 2020       Share Bookmark

Court :
Supreme Court of India
Brief :
The Supreme Court dismissed the appeal. The jurisdiction of other courts has not been excluded in the contract. 
Citation :
Appellant : A.B.C. Laminart Pvt. Ltd. & Anr Respondents : A.P. Agencies, Salem Citation : (1989) 2 SCC 163

Bench: Justice G.L Oza and Justice K.N Saikia

Issue: Where can a suit  arising out of a contract be filed ? 
 
Facts:

•  The appellant, manufacturer of metallic yarn at Udyognagar, Gujarat entered into  contract with respondent for supply of yarn to respondent.

•  Clause 11 of the said contract mentioned : ‘Any dispute arising out of this sale shall be subject to Kaira jurisdiction’. The order of confirmation was sent to respondent’s address in Salem.

• Due to disputes from contract, respondent filed a suit in Court of Subordinate Judge at Salem. The trial court held that it had no jurisdiction to entertain the case because of clause 11. 

• Thereafter, HC allowed the appeal filed by respondent & ordered the trial court to hear the matter. 

•  Appellant filed special leave in SC. 

Appellant’s contentions:

•  It was contended that clause 11 of the contract only permits the parties to file a suit within Kaira jurisdiction & not Salem.  

Respondent’s contentions :

• Clause 11 was only general terms & conditions of the sale & not a clause in the agreement. The clause cannot take away the jurisdictions of the other courts. 

Judgement:

The Supreme Court dismissed the appeal. The jurisdiction of other courts has not been excluded in the contract. 

“Under Section 20(c) of the Code of Civil Procedure subject to the limitation stated theretofore, every suit shall be instituted in a court within the local limits of whose jurisdiction the cause of action, wholly or in part arises. It may be remembered that earlier Section 7 of Act 7 of 1888 added Explanation III as under:

“Explanation III.—In suits arising out of contract the cause of action arises within the meaning of this section at any of the following places, namely:

(1) the place where the contract was made;
(2) the place where the contract was to be performed or performance thereof completed;
(3) the place where in performance of the contract any money to which the suit relates was expressly or impliedly payable.”

The above Explanation III has now been omitted but nevertheless it may serve as a guide. There must be a connecting factor.

In the matter of a contract there may arise causes of action of various kinds. In a suit for damages for breach of contract the cause of action consists of the making of the contract, and of its breach, so that the suit may be filed either at the place where the contract was made or at the place where it should have been performed and the breach occurred. The making of the contract is part of the cause of action. A suit on a contract, therefore, can be filed at the place where it was made. The determination of the place where the contract was made is part of the law of contract. But making of an offer on a particular place does not form cause of action in a suit for damages for breach of contract. Ordinarily, acceptance of an offer and its intimation result in a contract and hence a suit can be filed in a court within whose jurisdiction the acceptance was communicated. The performance of a contract is part of cause of action and a suit in respect of the breach can always be filed at the place where the contract should have been performed or its performance completed. The above are some of the connecting factors.”

-Para 13, 14, 15 A.B.C. Laminart Pvt. Ltd. & Anr v. A.P. Agencies, Salem

 
 
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