Update on ex parte orders and exclusive jurisdiction

In two recent cases, the Supreme Court of India has rendered important decisions in the areas of exclusive jurisdiction clauses and ex parte orders.

Exclusive jurisdiction

On 3 July, in M/s Swastik Gases P Ltd v Indian Oil Corp Ltd, the court held that when an agreement provides for the jurisdiction of a certain court, even without using ouster words such as “exclusive”, “only” or “alone”, the designated court will have exclusive jurisdiction over the contract.

In this case, an agreement was executed in Kolkata, while the cause of action arose in Jaipur. Clause 17 of the agreement provided for arbitration in accordance with the Arbitration and Conciliation Act, 1996, without specifying any seat. Clause 18 stated: “The Agreement shall be subject to jurisdiction of the Courts at Kolkata.”

The appellant had filed a petition for appointment of a tribunal before Rajasthan High Court, on the basis that the parties were carrying on business in Jaipur, the goods were located in Jaipur, and the agreement was signed in Jaipur. The respondent opposed the petition on the basis of clause 18 of the agreement.

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Decision

The Supreme Court held that when a certain jurisdiction is specified in a contract, an intention to exclude all others from its operation has to be inferred, and that in this case “the maxim expressio unius est exclusio alterius [expression of one is the exclusion of another] comes into play as there is nothing to indicate to the contrary”. The parties would not have added the exclusion clause to begin with if they had intended that all courts where the cause of action had arisen would continue to have jurisdiction over the dispute.

In other circumstances, sections 16, 19 and 20 of the Code of Civil Procedure, 1908 (CPC), can help in deciding the jurisdiction in an agreement. The court reasoned that the sole purpose of a jurisdiction clause is to specify the territorial jurisdiction of the agreement and avoid the application of the CPC. The court accordingly dismissed the appeal and upheld the lower court’s order.

In earlier cases (illustratively ABC Laminart v AP Agencies, 1989), parties had to prove to the court the reason and rationale behind choosing to give exclusive jurisdiction to a particular court, and courts had refused to grant exclusive jurisdiction to the court specified in the jurisdictional clause. Given the past approach of the courts, this decision comes as a forceful thump on the table, and graciously saves parties from proving the exclusivity of any specific jurisdictional clauses in agreements.

Ex parte orders

In the second case, the Supreme Court laid down guidelines for trial courts to follow before passing ex parte orders or decrees.

The appellant, Shantilal Gulachand Mutha, had purchased five Tata diesel vehicles from the respondent, Tata Engineering and Locomotive Company Ltd (Telco), to be paid for in eight instalments through the appellant’s banker, the second respondent. Telco filed a suit for the recovery of a part of the agreed purchase price. The appellant entered an appearance but, believing that the entire amount had been paid, did not file a statement of defence. The trial court subsequently decided the matter ex parte in Telco’s favour under order VIII rule 10 of the CPC, without considering the pleadings in the plaint or any issue involved.

An application by the appellant to set aside the ex parte decree was dismissed on grounds of maintainability and a subsequent appeal was also dismissed.

The Supreme Court set aside the ex parte decree, permitted the appellant to file a written statement, and remanded the matter for a timely de novo trial, but did not deal with the maintainability of the appellant’s application.

Guidelines

The court relied heavily on its findings in Balraj Taneja v Sunil Madan (1999): (1) the court should not act blindly on averments made in the plaint, merely because the written statement has not been filed; (2) even if no written statement has been filed, the burden is on the plaintiff to prove every averment made in the plaint and settle any factual controversy arising; (3) the court should be cautious in passing any judgment under order VIII rule 9 of the CPC; (4) an order under order VIII rule 9 is a judgment and must include the judge’s reasons; (5) the facts giving rise to the plaintiff’s case and the judge’s reasons for passing the order have to be justified even in the absence of a written statement by the defendant; (6) the judge has to apply extra caution in exercising discretion when the defendant fails to file a statement or reply; (7) the court must examine the plaintiff’s case on a prima facie basis to see if the relief sought can be granted from the facts on the record.

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Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shamika Haldipurkar is an associate.