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Rhodia Ltd. And Ors. vs Neon Laboratories Ltd


Author: Muskaan Bangani, 4th Year student at Mody University of Science and Technology.


Citation: AIR 2002 BOM 502

Date of decision: 15th July, 2004

Bench: R.P. SondurBaldota

Original copy: N/A

 

Facts:

  • Neon laboratories, defendant, is a company registered in Palghar, Mumbai, engaged in manufacturing and selling of Isoflurane and Halothane. The plaintiffs, Rhodia Ltd , Rhodia Chemicals India Limited, registered in England and  Rhodia Organique Fine Limited , registered in Mumbai, entered into an agreement  for marketing and distribution of the products in territories of India, Bangladesh, Nepal and Sri Lanka in the agreement “Isoflurane and Nalothane Distribution Agreement India” for three years in 1997. 
  • In 1998, the agreement was re- executed called “Amendment 1, MOHIT PROJECT”. In 2000, the defendants terminated the distribution agreement. 
  • Later, in 2002, the plaintiff filed a suit in the district court of Palghar for illegal termination and for damages in lieu of the specific performance and for mandatory and prohibitory injunctions. 

Issues:

  1. Whether contracts containing a choice of foreign law clause are enforceable under Indian law, and whether foreign law can be used to determine whether an Indian court has jurisdiction?
  2. Does an Indian court have jurisdiction to hear a suit brought pursuant to an agreement naming a foreign court as the exclusive forum if the cause of action arose in India?
  • Mr. Tulzapurkar supported the order passed by the Trial court and stated that the order is correct in law and facts and doesn’t not have any infirmity in the order under Article 227 of the Constitution of India and also argued that performance of the contract is the subject matter of the suit which is within the jurisdiction of the Trial Court. 
  • He said that the principle of ‘res judicata’ should be applied by relying on the judgement of Satyadhan Ghosh Vs. Smt. Derqjan Devi’ It was held that when a matter is decided on question of fact or law, neither party is allowed in future proceedings or suits between same parties to further file the suit in another court to achieve finality of the litigation under section 11 of Civil Procedure Code, 1908.
  • Further, it was observed that the contract did not have terms like, ‘only’, ‘exclusive’, ‘alone’ which did not oust the jurisdiction of the Trial court. 
  • The trial court has already rightly decided the  issues and now the burden of proof lies upon the defendant under section 101 and 102 of The Indian Evidence Act, 1872.
  • Mr. Devitr contended that the court at Palghar had no territorial jurisdiction to entertain and try the suit as no cause of action had arisen within the jurisdiction of that court. Secondly the parties had agreed by choice to be governed by the English law and that the courts in England alone will have jurisdiction in respect of any disputes arising under the agreement. Also, all the formalities had taken place in England. 
  • The burden of proof  is on the Plaintiff to prove that the Trial court has jurisdiction to proceed with the case.
  • The plaintiff had breached the rule 15.2 of the said agreement by instituting the suit in the Trial Court instead of an English Court, as no cause of action arose in Palghar. 

Judgement:

The trial court of palghar:

    • The Trial Court after hearing both the parties deduced that there was no evidence by either of the parties in respect of the jurisdiction and had decided that it had jurisdiction to hear the matter on the basis of oral arguments presented by the parties.
    • The court applied the section 20(c) of Civil Procedure Code, 1908 and stated that a suit can be filed in the court within whose jurisdiction the cause of action wholly or partly arises, so, the determination of the contract, distribution, bottling and packaging activities took place at Mumbai, Palghar. 
    • In the said agreement, the distribution of the products would be in India, Bangladesh, Sri Lanka and Nepal, so the laws of the respective counties would apply along with English Law

The bombay high court:

  • It was observed by the Learned Judge that no evidence was presented by the parties on the primary question as to what English law means ,subsequently the judge had remanded the suit to the Trial Court to present the said evidence for the Trial Court to examine. 
  • The court relied on the judgement of Modi Entertainment Network V/s W.S.G.Cricket Pte. Ltd., and stated that the burden of proof is upon the defendant to establish that the English court has exclusive jurisdiction and ouster of jurisdiction has to be proved like any other fact. 
  • It was held that there is no infirmity in the order of the Trial Court, and as a result the petition was dismissed. Rule was discharged with no cost. 

Analysis:

  • Clearly, the Indian courts have been following a pattern of upholding the notion of parties’ autonomy in determining the law that governs their contracts as well as the forum. When it comes to parties adopting appropriate legislation, the courts have limited their authority to determining if the parties have expressly or implicitly chosen a law in the terms of the agreement, and the parties’ desire to adopt the suitable law is bona fide and not contrary to public policy, as defined by the agreement is a “correct law.”
  •  Furthermore, based on the court’s findings, it is safe to conclude that two parties can choose the right laws of a separate country. If the contract’s consideration is illegal, the deal may be subject to section 23 of the Indian Contract Act. Furthermore, courts have only allowed the exclusion of Indian courts’ jurisdiction in foreign economic transactions, allowing contracts to avoid being affected by section 28 or public policy. 
  • The court’s inquiry will be limited to whether the exclusionary clause’s intent and interpretation are correct. Exclusive jurisdiction clauses in the agreement would assign the subject matter of the suit to a specific court based on the agreement’s proper law, and the competent Indian court would be without jurisdiction. However, as previously said, the courts have broadened its authority to determine whether or not removing its jurisdiction would result in grave injustice to the party.

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