1988 (2) TMI 466 - SC - Indian Laws

Summary

Issues Involved:
The jurisdiction of the Delhi High Court to entertain a proceeding for making an arbitration award a rule of the court under sections 14 and 17 of the Indian Arbitration Act, 1940, in a dispute arising from a construction contract between a contractor and the Union of India.

Issue 1: Jurisdiction of Delhi High Court
The appellant, a contractor, entered into a construction contract with the Military Engineering Services (M.E.S.) in Uttar Pradesh, but initiated proceedings in the Delhi High Court to enforce an arbitration award. The Delhi High Court initially held that it had jurisdiction, but the Division Bench overturned this decision, citing that the Union of India did not carry on business in Delhi, as required by Section 20 of the CPC. The High Court relied on the case of Binani Bros. Ltd. v. Union of India to support its decision.

Issue 2: Interpretation of "Carries on Business"
The appellant argued against the High Court's decision, contending that the interpretation of "carries on business" in Binani Bros.' case was incorrect. However, the Supreme Court upheld the High Court's decision, emphasizing that the Union of India's activities did not fall under the definition of "carries on business" as per Section 20 of the CPC. The Court cited various precedents to support this interpretation, highlighting that the government's actions in revenue collection and sovereign functions do not constitute business activities.

Issue 3: Application of Precedents
The Supreme Court agreed with the Delhi High Court's reasoning, distinguishing the case of Union of India v. Laddu Lal Jain, which dealt with commercial activities of the Railway Administration, from the present case involving the construction of an ordnance factory for the Military Engineering Services. The Court emphasized that maintaining armed forces is a sovereign function of the State, not a business activity. Therefore, the Delhi High Court's decision on jurisdiction was deemed appropriate, and the appeal was dismissed, allowing the appellant to file a fresh petition in Uttar Pradesh within ninety days.

This judgment clarifies the interpretation of "carries on business" in the context of government activities, reaffirming that sovereign functions do not fall under the purview of business activities for jurisdictional purposes.