Territorial Jurisdiction in Shipping Disputes: Supreme Court Affirms Delhi Court’s Authority in Arcadia Shipping Ltd. vs. Tata Steel Ltd. (2024)

Introduction

Date of the Judgment: April 16, 2024
Citation: 2024 INSC 333
Judges: Sanjiv Khanna, J., Dipankar Datta, J.
Can a court in Delhi hear a case against a shipping company based in Mumbai, when the dispute involves goods shipped from Mumbai but related to a sale that originated in Delhi? The Supreme Court of India recently addressed this question in a dispute between Arcadia Shipping Ltd. and Tata Steel Ltd. The core issue was whether the High Court of Delhi had the territorial jurisdiction to hear the case, given that the shipping company’s operations were based in Mumbai, while the initial sale order was placed in Delhi. The Supreme Court, in this judgment, clarified that when multiple transactions are interconnected, a court can have jurisdiction if a part of the cause of action arises within its territory. The judgment was delivered by a bench comprising Justice Sanjiv Khanna and Justice Dipankar Datta.

Case Background

The case revolves around a dispute over a shipment of galvanized steel corrugated sheets. Bhushan Steel & Strips Ltd. (now merged with Tata Steel Limited) received an order from TYO Trading Enterprises, an Ethiopian company, through their agent M.G. Trading. The order, placed in Delhi, was for 400 metric tons of galvanized steel corrugated sheets. Bhushan Steel dispatched the goods from Mumbai via Arcadia Shipping Ltd. The freight charges were prepaid by Bhushan Steel. The goods were to be delivered to the order of the Commercial Bank of Ethiopia, with payment to be made through a Letter of Credit. However, the Bank of Ethiopia refused to honor the Letter of Credit citing discrepancies. Arcadia, the shipping company, released the goods to TYO Trading, allegedly upon presentation of a Bill of Lading endorsed by the Bank of Ethiopia. Bhushan Steel never received payment for the goods, leading to the dispute.

Timeline:

Course of Proceedings

The Single Judge of the High Court at Delhi initially ruled that the court lacked territorial jurisdiction to entertain the suit against Arcadia. The Single Judge noted that Arcadia’s business was in Mumbai, the goods were shipped from Mumbai, and delivered at Djibouti. The Single Judge held that no cause of action arose in Delhi against Arcadia. However, the Division Bench of the High Court at Delhi overturned this decision, holding that a part of the cause of action did arise in Delhi, as the order was placed in Delhi and the payment was to be released in Delhi. The Division Bench allowed the appeal by Tata Steel Limited, leading to the present appeal by Arcadia before the Supreme Court.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 20(c) of the Code of Civil Procedure, 1908: This section deals with territorial jurisdiction, stating that a suit can be instituted in a court within whose local jurisdiction the cause of action, wholly or in part, arises. The court noted that the term “cause of action” includes every fact that the plaintiff must prove to support their right to judgment. The relevant text of the section is as follows:
  
  “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 —
  xxx xxx xxx
  (c) the cause of action, wholly or in part, arises.”
• Order I Rule 3 of the Code of Civil Procedure, 1908: This rule allows the plaintiff to join multiple defendants in one suit if the right to relief arises from the same act or transaction or series of transactions, and if common questions of law or fact would arise. The rule states:
  
  “3. Who may be joined as defendants. —All persons may be joined in one suit as defendants where —
  (a) any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged to exist against such persons, whether jointly, severally or in the alternative; and
  (b) if separate suits were brought against such persons, any common question of law or fact would arise.”
• Order I Rule 7 of the Code of Civil Procedure, 1908: This rule permits a plaintiff who is unsure from whom they are entitled to obtain redress to join multiple defendants, so that the court can determine which defendant is liable and to what extent. The rule states:
  
  “7. When plaintiff in doubt from whom redress is to be sought. — Where the plaintiff is in doubt as to the person from whom he is entitled to obtain redress, he may join two or more defendants in order that the question as to which of the defendants is liable, and to what extent, may be determined as between all parties.”

Arguments

Arcadia Shipping Ltd.’s Submissions:

• Arcadia argued that there were two distinct transactions: the sale of goods and the shipment of goods.
• Their involvement was limited to the shipment of goods from Mumbai to Djibouti.
• The supply orders, which were part of the sale transaction, were placed in Delhi.
• Arcadia contended that since they were not part of the sale transaction and their business was located in Mumbai, a suit could not be brought against them in Delhi.

Tata Steel Ltd.’s Submissions:

• Tata Steel argued that the transactions were intrinsically linked and could not be separated.
• The shipment of goods was connected to the sale of goods through the Bill of Lading.
• The Bill of Lading served as a receipt for the goods, evidence of the contract of carriage, and a document of title.
• The release of goods by Arcadia depended on the presentation of the Bill of Lading, which required endorsement by the Bank of Ethiopia.
• Bhushan Steel remained the owner of the goods until payment was received.
• Tata Steel contended that a part of the cause of action arose in Delhi, as the order was placed and payment was to be released there.

Issues Framed by the Supreme Court

• Whether the High Court of Delhi had the territorial jurisdiction to entertain the suit against Arcadia Shipping Ltd.?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The court relied on Section 20(c) of the Code of Civil Procedure, 1908 to establish that the Delhi High Court had jurisdiction as a part of the cause of action arose in Delhi.
• The court invoked Order I Rule 3 of the Code of Civil Procedure, 1908 to justify the joinder of all defendants in a single suit, as the claims arose from the same series of transactions.
• The court used Order I Rule 7 of the Code of Civil Procedure, 1908 to justify the joinder of multiple defendants when the plaintiff was unsure from whom to seek redress.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interconnected nature of the sale and shipment transactions. The Court emphasized that the Bill of Lading was a crucial document that linked the two transactions. The Court also noted that a part of the cause of action arose in Delhi, as the order was placed there and the payment was to be released there. The Court highlighted that the cause of action could not be adjudicated without impleading all the defendants.

The Court’s reasoning was based on the following points:

• The transactions were intrinsically intertwined and could not be separated into watertight compartments.
• The Bill of Lading served multiple purposes, including as a receipt for the goods, evidence of the contract of carriage, and a document of title.
• The release of goods by Arcadia was contingent upon the presentation of the Bill of Lading, which required proper endorsement by the Bank of Ethiopia.
• A part of the cause of action arose in Delhi, as the order was placed there and the payment was to be released there.

The court quoted from the judgment:

• “The shipment of goods was linked and connected with the sale of goods by Bhushan Steel through, inter alia, the Bill of Lading.”
• “A Bill of Lading essentially serves a tri -fold purpose: (a) it is receipt of the goods shipped and the terms on which they have been received; (b) it is evidence for the contract of carriage of goods; and (c) it is a document of title for the goods specified therein.”
• “The supply order was placed in Delhi and the payment was to be released in Delhi. Accordingly, the cause of action arose in part at Delhi, in terms of Section 20(c) of the Code.”

Key Takeaways

• When multiple transactions are interconnected, a court can have jurisdiction if a part of the cause of action arises within its territory.
• The Bill of Lading is a crucial document that links the sale and shipment of goods.
• A plaintiff can join multiple defendants in a single suit if their claims arise from the same series of transactions.
• Territorial jurisdiction should ordinarily be decided at the outset rather than being deferred till all matters are resolved.

Directions

No specific directions were given by the Supreme Court in this case.

Specific Amendments Analysis

Not applicable as no specific amendment was discussed.

Development of Law

The ratio decidendi of this case is that a court has territorial jurisdiction if a part of the cause of action arises within its territory, especially when transactions are interconnected. This judgment reinforces the principle that the term “cause of action” should be interpreted broadly to include all facts that are necessary for the plaintiff to prove their case. There is no change in the previous positions of law.

Conclusion

The Supreme Court dismissed the appeal filed by Arcadia Shipping Ltd., affirming the decision of the Division Bench of the High Court at Delhi. The court held that the High Court of Delhi had territorial jurisdiction to entertain the suit, as a part of the cause of action arose in Delhi. The court emphasized the interconnected nature of the sale and shipment transactions and the importance of the Bill of Lading.