Dr. Joy P. Chungath v. M/S Lawkin Ltd. (FAO No. 202/2006; OS.228/2005, II Addl. Sub Court, Ernakulam)

“CR” IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE & THE HONOURABLE MR. JUSTICE K.HARILAL THURSDAY, THE 10TH NOVEMBER 2011 / 19TH KARTHIKA 1933 FAO.No. 202 of 2006() --------------------OS.228/2005 of II ADDL.SUB COURT,ERNAKULAM .................... APPELLANT/PLAINTIFF: ---------------------------------------- DR.JOY P.CHUNGATH, AGED 60 YEARS, S/O. PAKUNNY, "CHUNGATH", VALANJAMBALAM, KOCHI-16, REPRESENTED BY POWER OF ATTORNEY HOLDER, MRS.ALFO JOY, W/O.DR.JOY CHUNGATH, AGED 52 YEARS. BY ADV. SRI.A.KUMAR RESPONDENT(S): DEFENDANT: ------------------------- M/S.LAWKIN LTD.,REGD.OFFICE AT PIROSHNAGAR,LBS MARG,VIKHROLI,MUMBAI & CORPORATE OFFICE AT CHITALSAR,MANPADA,WS.V.ROAD,THANE-400 607, MAHARASHTRA,INDIA AND REP.BY ITS PRINCIPAL OFFICER AND V.P.FINANCE & COMMERCIAL AND CO.SECRETARY MR.X.K.MARKER,AGED AND FATHER'S NAME NOT KNOWN. ADV. SRI.MARTIN P.JOSE SRI.P.K.SOYUZ THIS FIRST APPEAL FROM ORDERS HAVING BEEN FINALLY HEARD ON 10/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **PIUS C.KURIAKOSE & K. HARILAL, JJ.** .................................................... F.A.O.No.202 OF 2006 .................................................... “CR” Dated this the 10[th] day of November, 2011 **JUDGMENT** ## **Harilal, J.** The determination of 'territorial jurisdiction' under Section 20 of the Civil Procedure Code and the intent, purpose and legal effect of the 'Explanation' to that section are the issues arose for our consideration in this appeal. 2. An order directing that the plaint be returned for presentation before the proper court in which the suit should have been instituted, passed by the II[nd] Additional Subordinate Court, Ernakulam in O.S.No.228/2005 under Order VII Rule 10 of the Civil Procedure Code, on the premise that the above said court has no territorial jurisdiction to try the suit, is challenged in this appeal. The plaintiff is a consultant (Pediatric and Hospital service) at Kochi and represented by his power of attorney holder. The defendant is a company incorporated under the Companies Act and having its registered office at Firosh Nagar, Mumbai. 3. Facts: The facts relevant in the context of issue involved in this appeal can briefly be stated as follows: ## F.A.O No.202 OF 2006 : 2 : In response to an advertisement made by the defendant Company calling for appointing a franchisee at Kochi for their ITES Division, plaintiff applied and defendant chose the plaintiff as their franchisee in Kerala. Subsequently they entered into a Memorandum of Understanding (MOU) which was signed at Mumbai. Pursuant to the MOU, the plaintiff has taken a building on rent at Ernakulam, made preparations and the premises was got ready by spending money for infrastructure lay out and furniture. But later they could not arrive on an agreement acceptable to both parties and consequently the understanding fell down. Subsequently the defendant unilaterally cancelled the MOU by a letter and that culminated to the institution of the present suit for realisation of a total amount of Rs.5 lakhs as damages including an amount of Rs.50,000/- paid to the defendant as franchisee fee. The remaining amount was the compensation for the expenses incurred for the renovation and payment of rent for the building which has been taken on rent at Ernakulam. 4. The defendant entered appearance in the suit and filed a written statement disputing the territorial jurisdiction of the Sub Court at Ernakulam, among other serious F.A.O No.202 OF 2006 : 3 : contentions. It is contended that the memorandum of understanding was executed at the corporate office of the defendant at Mumbai in the State of Maharashtra. The defendant is having its registered office and principal place of business at Mumbai in the State of Maharshtra and no part of the transaction alleged in the plaint has taken place in Kerala. It is also contended that the defendant company is neither having an office nor carries on business or personally works for gain at Ernakulam. No part of the cause of action has arisen at Ernakulam. Therefore the Sub Court at Ernakulam has no territorial jurisdiction to entertain the suit and the suit is liable to be returned for presentation before the proper court. Thus the issue regarding territorial jurisdiction has been taken as a preliminary issue. ## 5. Findings of the court below: In view of the rival contentions disputing territorial jurisdiction, the court below has considered the question whether the Sub Court at Ernakulam has territorial jurisdiction to try the suit. After considering the above said rival contentions in detail, the court below accepted the preliminary objection raised by the defendant and returned F.A.O No.202 OF 2006 : 4 : the plaint for presentation before the proper court on the basis of the following reasons: As the defendant is a Corporation, the 'Explanation' to Section 20 is applicable regarding the place of jurisdiction. It is provided that the Corporation shall be deemed to carry on business at its sole or principal office in India or in respect of any cause of action arising at any place where it has also a subordinate office at such place. The plaintiff has no case that the defendant Corporation has a subordinate office at Ernakulam. So, the defendant Corporation shall be deemed to carry on business at its sole or principal office which is at Mumbai. Therefore it is clear that Section 20 (a) of the CPC is applicable and the suit has to be filed at Mumbai where the defendant actually carries on business. On the above reasoning the learned Sub Judge found that Sub Court, Ernakulam has no territorial jurisdiction to try the suit. ## 6. Submissions at the Bar: Sri.A.Kumar, the learned counsel for the appellant/plaintiff challenges the above findings pointing out that the court below has not considered the pleadings ## F.A.O No.202 OF 2006 : 5 : and law applicable to it in the determination of the territorial jurisdiction in its correct perspective. The court below failed to take note of the fact that a part of the cause of action has arisen at Ernakulam. Pursuant to the memorandum of understanding, the plaintiff has taken a building on rent at Ernakulam and he spent huge amount for renovation and modernization of the building in accordance with the need of the franchiser. Thus major portion of the transaction was effected at Ernakulam and thereby a part of the cause of action has arisen at Ernakulam also, within the jurisdiction of the Sub Court, Ernakulam. The counsel further submits that considering the transaction occurred at Ernakulam which gives him a right to sue against the defendant, the instant case falls under Section 20 (C) of the Civil Procedure Code and the fact that the defendant company has no subordinate office at Ernakulam is of no consequences. Section 20(a) alone cannot be taken for returning the suit on the count of territorial jurisdiction. Clauses a, b and c in Section 20 are disjunctive and each clause must be interpreted independently. Any one of the clauses alone need be satisfied to attract the jurisdiction of the court and one of ## F.A.O No.202 OF 2006 : 6 : the clauses of the Section 20 cannot be read to oust the jurisdiction of the other. In support of his argument, the learned counsel drew our attention to the dictum laid down in the decisions reported in **Central Warehousing Corporation v. Central Bank of India** [AIR 1973 AP 387 (FB)], **A.B.C. Laminart Pvt. Ltd. v. A. P. Agencies, Salem** (1989 SC 1239) and **M/s. Patel Roadways Ltd. Bombay v. Prasad Trading Company** ( AIR 1992 SC 1514). 7. Per contra, Sri. Martin Jose, the counsel for the respondent/defendant argues as follows: No business has been commenced at Ernakulam so far, pursuant to the MOU signed at Mumbai. The advance money was received at Mumbai when the MOU was signed there. Therefore no part of the cause of action has arisen at Ernakulam, within the jurisdiction of the Sub Court, Ernakulam. He further contended that in view of the explanation to Section 20 of the Civil Procedure Code, even if any part of the cause of action has arisen at Ernakulam, the suit will not lie in Sub Court, Ernakulam on the reason that the defendant company has no subordinate office at Ernakulam and the defendant company carries on business F.A.O No.202 OF 2006 : 7 : at Mumbai only as the principal office is situated at Mumbai. Section 20 (C) has no application as no part of the cause of action has arisen at Ernakulam. The learned counsel submits that the court below can be perfectly justified in returning the suit, due to lack of territorial jurisdiction in view of explanation to Section 20 of the Civil Procedure Code. In support of his argument, the learned counsel has cited (2007 (3) KLT 395), (AIR 1992 SC 1514) and (AIR 2002 SC 126(1). 8. Appreciation and analysis by court: We have given our anxious consideration to the rival submissions made by the learned counsel for the appellant and the respondent at the bar. Since the 'issue' arises out from the interpretation of Section 20 C.P.C, Section 20 C.P.C may now be extracted for easy reference. “S. 20. Other suits to be instituted where defendants reside or cause of action arises:Subject to the limitations aforesaid, every suit shall be instituted in a court within the local limits of whose jurisdiction- (a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain ;or (b) any of the defendants, where there ## F.A.O No.202 OF 2006 : 8 : are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution: or ( c) the cause of action, wholly or in part, arises. [Explanation]- A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place”. ## 9. Point No.1. 'Cause of action': In view of the rival contentions the main “point” that arises for decision is whether the 'cause of action' wholly or in part has arisen at Ernakulam, within the jurisdiction of the Sub Court, Ernakulam? 10. Since the factual dispute centers around the 'cause of action' we have given our anxious consideration on the expression ”cause of action”. Then the question to be considered is what does the expression “cause of action” mean and convey? The cause of action is decisive for acquiring territorial jurisdiction to decide a lis. Though the “cause of action” has not been defined in Civil Procedure F.A.O No.202 OF 2006 : 9 : Code, the expression has already acquired a well settled meaning by judicial precedence from **Read v. Brown** (1888) 22 QBD 128 to **Kunhamu v. Arunkumar** 2010 (3) KLT 640. 11. In **Read v. Brown** , Lord Esher, M.R., adopted a definition for the phrase “cause of action” that it meant: “every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved”. ## 12. In **Mohd. Khalikhan v. Mahbub Ali** (AIR 1949 PC 78), the Privy Council has noted that “the definition adopted by Lord Esher M.R. in **Read v. Brown** has been followed in India. The courts in India have consistently followed the said interpretation without exception for understanding the scope of the expression 'cause of action'”. In **Oil and Natural Gas Commission v. Utpalkumar Basu** (1994 (4) SCC 711), a three judge bench of the Supreme Court observed that “it is well settled that the expression 'cause of action' means that bundle of facts which the petitioner must prove, if traversed, to entitle him to a judgment in his favour”. ## F.A.O No.202 OF 2006 : 10 : 13. In **South East Asia Shipping Co. Ltd. v. Nava Bharat Enterprises (P) Ltd.** (1996 (3) SCC 443), the Apex court followed the earlier decisions and put it in a different way. “The 'cause of action' consists of a bundle of facts, which give cause to enforce the legal inquiry for redress in a court of law. In other words, it is a bundle of facts, which taken with the law applicable to them, gives the plaintiff a right to claim relief against the defendant. It must include some act done by the defendant since in the absence of such an act no cause of action would possibly accrue or would arise”. 14. In **Rajasthan High Court Advocates' Assn. v. Union of India** (2001 (2) SCC 294) the Supreme Court followed earlier decisions and put it in another angle. The expression “cause of action” has acquired a judicially settled meaning. In the restricted sense “cause of action” means the circumstances forming the infraction of the right or the immediate occasion for the reaction. In the wider sense, it means the necessary conditions for the maintenance of the suit, including not only the infraction of the right, but also the infraction coupled with the right itself. As noted above, the F.A.O No.202 OF 2006 : 11 : expression means every fact, which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court. Every fact, which is necessary to be proved, as distinguished from every piece of evidence, which is necessary to prove each fact, comprises in “cause of action”. 15. In **Sonic Surgicals v. National Insurance Company Ltd.** (2010 (1) SCC 135), the Supreme Court reiterated the earlier preposition and put it in a simplified manner. “The expression cause of action means the bundle of facts which gives rise to a right or liability”. 16. Relevant Pleadings: Thus the expression “cause of action” has been well defined by Judicial precedents. In the light of the meaning given to “cause of action” by the authorities cited above, we have analysed the pleadings in the plaint in detail. Going by para-4 it could be seen that the plaintiff has averred that pursuant to his selection, even before the signing of MOU on 26[th] September,2003, to inspect the infrastructure available, and to suggest modification and improvements, defendant sent one of his officers by name Gopakumar G. Nair to F.A.O No.202 OF 2006 : 12 : Ernakulam. He visited the premises taken on rent at Ernakulam and explained about the working modality of the business. Again in para-7 it is stated that a top officer of the company by name Mr. Sathyendra Moully along with Gopakumar visited Ernakulam in November, 2003, discussed the form of agreement to be signed by the parties and received an amount of Rs.1,50,000/- by cheque. It is also averred that pursuant to MOU, the plaintiff has taken a building on rent and he has renovated the building in accordance with the need of the franchiser and thereby spent substantial amount. Out of Rs.5 lakhs claimed, about Rs.4 lakhs was spent at Ernakulam as expenses incurred for renovation of the building. 17. In para-14 of the plaint, it is specifically stated that cause of action of the suit arose within Ernakulam village where the contract entered into and where negotiations took place. 18. The counsel for the respondent further argued that the business has not been commenced at Ernakulam and MOU was signed at Bombay. As such no part of the cause of action has arisen at Ernakulam. This argument is a F.A.O No.202 OF 2006 : 13 : defence version only and it is unsustainable in view of the decision in **Kunham v. Arunkumar** (2010 (3) KLT 640). Relying on decision in **Om Prakash Srivasthava v. Union of India & Another** (2006(4) KLT S.N.6) this Court held that “ the cause of action of a given suit or other proceedings can have no relation to the defence contention taken up. The counsel for the defendant cited **Union of India and Others v. Adani Experts Ltd & another** (AIR 2002 SC 126), wherein Supreme Court held that “facts which have no bearing with the lis or the dispute involved in the case do not give rise to cause of action so as to confer territorial jurisdiction”. But going by the pleadings stated above in the plaint, we are of the opinion that facts pleaded have bearing with the dispute involved in the case and that give rise to a cause of action to claim an amount of about Rs. 4 lakhs spent at Ernakulam. Therefore we reject the argument based on the above said decision. 19. The determination of 'cause of action' wholly or in part which gives rise to a right to sue against the defendant depends upon the facts set up in each cases. But it can be held as follows: F.A.O No.202 OF 2006 : 14 : “The “cause of action” is the basis from which issues can be formulated and issue arises when material proposition of fact or law is affirmed by one party and denied by other party. So when material proposition of fact in connection with the transaction between the plaintiff and the defendant occurred at a particular place is specifically affirmed or alleged in the plaint to show a right to sue against the defendant, it can be held that, that part of the cause of action has arisen at that particular place of occurrence and the suit can be instituted in the court within the local limits of whose jurisdiction that transaction occurred”. 20. In the instant case, material proposition of facts in connection with the transaction between the plaintiff and the defendant occurred at Ernakulam are specifically affirmed and alleged in the plaint in order to get a right to sue against the defendant for the realisation of money for the damages occurred at Ernakulam and thereby a part of the 'cause of action' has arisen at Ernakulam. “ ” - 21. Point No.2. Explanations purpose and functions: ## F.A.O No.202 OF 2006 : 15 : Another argument advanced alternatively by the counsel for the defendant is that in view of the “Explanation” to Section 20 CPC, even if a part of the 'cause of action' has arisen at Ernakulam, the suit would not lie in Sub Court, Ernakulam, in the absence of a subordinate office of the company at Ernakulam. The learned counsel relied on **HCL Infosystem Ltd. v. Anilkumar** (2007 (3) KLT 395) to get support to his argument. 22. Now we have to embark on an enquiry into the intent, purpose and legal effect of an “Explanation”. The question to be considered is what is the legal effect of an “Explanation” appended to a Section? In view of the decisions laid down by the Supreme Court in **Hakam Singh v. Gamman India Ltd.** (AIR 1971 SC 740), it is not disputed that 'Corporation' referred to in Section 20 meant not only a statutory corporation but also a company registered under the Indian Companies Act. ## 23. In **Bihta Co-operative Development and Cane** **Marketing Union Ltd. V. Bank of Bihar** (AIR 1967 SC 389), the Supreme Court observed thus “the explanation must be construed so as to harmonise and clear up any ambiguity in ## F.A.O No.202 OF 2006 : 16 : the main section. It should not be considered as to widen the ambit of Section”. 24. In **Surenderan Pillai and Others v. Pattabhi Raman & Others** (1985 KHC 551) after referring to various case laws and treatises on interpretation of statutes Swarup's 'Legislation and interpretation' and Bindra's 'interpretation of statutes' (5[th] Edn), the Supreme Court held “thus from a conspectus of the authorities referred to above, it is manifest that the object of an 'explanation' to a statutory provision is a) to explain the meaning and intendment of the Act itself. b) where there is any obscurity or vagueness in the main enactment, to clarify the same as to make it consistent with the dominant object which it seems to subserve. c) To provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful. d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same” ## F.A.O No.202 OF 2006 : 17 : 25. Relying on the above decision and other decisions, in **Dipak Chandra Ruhidas v. Chandrankumar Sankar** (2003 KHC 1510) the Supreme Court held that “explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning to explain or to clarify certain ambiguities which may have crept in the statutory provision”. 26. Going by the explanation to Section 20 of the C.P.C it could be seen that the explanation is appended to give meaning to “carry on business” seen in clause (a) and (b) only in the case of 'Corporations'. The explanation can be divided as (i) A Corporation shall be deemed to 'carry on business' at its sole or principle office in India. (ii) A Corporation shall be deemed to carry on business in respect of any cause of action arising at any place where it has also a subordinate office at such place. According to us, “carrying on business” occurs only in clauses (a) and (b) and the same has no significance or relevancy in interpreting clause 'c' of Section 20. Thus the explanation is intended to give meaning to “carry on business” in clause (a) and (b), in the case of Corporation or Companies. The word 'or' F.A.O No.202 OF 2006 : 18 : is used in between each clause under Section 20. So each clause is independent of each other. More over an explanation cannot be allowed to override a main provision to which it is appended. In view of the above interpretation, we hold that the presence of a subordinate office of the company in the place where cause of action wholly or in part arises is not necessary to attract clause 'c” of Section 20 CPC, in the case of Corporation or Companies. The view which we take gets support from **Central Warehousing Corporation New Delhi v. Central Bank of India** [AIR 1973 (AP) 387 (FB)] and 1979 KLT 236. 27. What does the second part of the explanation to Section 20 mean? The linking together of the 'place where cause of action arises' with the 'place where a subordinate office is located' may cause some confusion. But in **M/s.Patel Roadways Ltd, Bombay v. Prasad Trading Company** (AIR 1992 SC 1514) the Supreme Court clarified that intention of the legislature was that in the case of Corporation for the purpose of clause (a), the location of the subordinate office, within limits of which a cause of action arises, is to be the F.A.O No.202 OF 2006 : 19 : relevant place for filing of a suit and not the principal place of business. The words “at such place occurring at the end of the explanation of Section 20 of C.P.C and the word 'or' which is disjunctive clearly suggest that if the case falls within the latter part of the explanation, the court within whose jurisdiction it has a subordinate office alone shall have jurisdiction and it is not the court within whose jurisdiction the principal office of the company is situate. Though the 'explanation' has no bearing with clause 'c', within which this case falls, above interpretation given by the Supreme Court is referred here to remove any room for doubt and give more clarity to the findings on which we arrived. 28. In **HCL Infosystem Ltd. v. Anilkumr** (2007 (3) KLT 39) cited by the learned counsel for the defendant the question that arose for the consideration was whether a civil court will have territorial jurisdiction to entertain a suit against a company having a branch office within its jurisdiction in respect of a cause of action that did not arise at least in part, within the jurisdiction. As we held above, this question relates to “carry on business” coming F.A.O No.202 OF 2006 : 20 : under clause (a) and no connection with close (c ). Therefore this decision is not applicable and we are not inclined to accept the argument based on this decision. If we accept the argument advanced by the learned counsel for the defendant, the companies having no subordinate offices in India will get an undue privilege which the legislature never intended i.e. such companies territorial jurisdiction will be confined to the court within whose jurisdiction the principal or sole office situates only and the plaintiff who intends to sue against the company has to go to the court within whose jurisdiction the principal or sole office situates. However, Civil Procedure Code does not recognise such a privilege to the companies under Section 20(c). 29. We hold that in a suit against company, wherein facts involving several transactions took place in different places where the company has no subordinate office, are pleaded, the cause of action can be arisen from the transaction occurred at any such places and the suit against the company would lie in the court, within local limits of whose jurisdiction such cause of action has arisen notwithstanding the fact that the company has no subordinate F.A.O No.202 OF 2006 : 21 : office at such places. ## 30. Conclusion: On an analysis of the pleadings, in the light of the discussions at the Bar and judicial precedents cited above, we find that a part of 'cause of action', which give rise to a right to sue against the defendant has arisen at Ernakulam and consequently the suit will lie before the Sub Court at Ernakulam, within the local limits of whose jurisdiction that part of the cause of action has arisen. Therefore we are inclined to set aside the impugned order passed by the Sub Court, Ernakulam. The Sub Court, Ernakulam has territorial jurisdiction to try the suit and the '1[st] point' raised in para 9 is answered accordingly. 31. The court below failed to analyse the pleadings at its entirety to determine the cause of action and each clause under Section 20 of the C.P.C was not considered independently. Similarly court below failed to consider the purpose and function of 'Explanation' to a section at its correct perspective and that resulted in returning of the plaint erroneously. 32. We make it clear that the question of territorial F.A.O No.202 OF 2006 : 22 : jurisdiction can be viewed in another angle also. In the instant case, the company shall be deemed to carry on business at Bombay as its sole or principal office is at Bombay and there is no subordinate office at Ernakulam. It is also seen from the pleadings that a part of the cause of action has arisen at Bombay also. In such circumstance, territorial jurisdiction may fall under clause (a) also, and the suit can be instituted at the concerned court at Bombay also, the court within whose jurisdiction defendant company carries on business. But according to the scheme of Section 20 C.P.C, territorial jurisdiction may fall under more than one clause and the suit can be filed in more than one court. But plaintiff who is the master of the suit has the right and liberty to choose any one of the courts simultaneously having jurisdiction. Therefore in this case nothing wrong in choosing Sub Court, Ernakulam, the court within whose jurisdiction part of the cause of action has arisen. In the result, this FAO is allowed and impugned order under challenge is set aside. If the plaint stands returned, the plaintiff has an option to refile it before the Sub Court, F.A.O No.202 OF 2006 : 23 : Ernakulam and learned Sub Judge is directed to proceed in accordance with law. **PIUS C.KURIAKOSE, JUDGE.** **K. HARILAL, JUDGE.** **dpk/cl**