Jurisdictional Dispute in Franchise Agreement: Supreme Court Clarifies Order VII Rule 10 CPC

The case of M/S. EXL Careers and Another vs. Frankfinn Aviation Services Private Limited dealt with a significant legal question regarding the return of a plaint under Order VII Rule 10 and 10A of the Code of Civil Procedure (CPC), 1908. The Supreme Court was called upon to resolve a perceived conflict between earlier judgments and to determine whether a suit should proceed de novo or continue from the stage it was at before the plaint was returned.

Background of the Case

The dispute arose from a franchise agreement dated 24.03.2004 between the parties for running courses in Aviation, Hospitality, and Travel Management. The agreement contained a jurisdiction clause stating:

“Only Courts in Delhi shall have exclusive jurisdiction to settle all disputes and differences arising out of the agreement, whether during its term or after expiry/earlier termination thereof.”

Despite this clause, the respondent, Frankfinn Aviation Services, filed a recovery suit in the Civil Judge (Senior Division) at Gurgaon on 06.01.2011, seeking to recover Rs. 23,11,190 from the appellant, M/S. EXL Careers.

Key Events Leading to Supreme Court Appeal

The appellant raised an objection under Order VII Rule 10 on 26.08.2011, arguing that the Gurgaon court lacked jurisdiction due to the exclusive jurisdiction clause.
The Civil Judge, Gurgaon, initially rejected the objection on 12.03.2015, ruling that the issue should be framed as a preliminary matter.
Later, the Civil Judge, Gurgaon, ruled in favor of Frankfinn on 06.09.2016, stating that clause 16B of the agreement did not bar the Gurgaon court from hearing the case.
On revision, the Punjab and Haryana High Court ruled on 05.09.2017 that only the Delhi court had jurisdiction and directed the return of the file to the Delhi court.
By this time, the case had already progressed significantly, with evidence closed and the matter fixed for final arguments.
The respondent sought an order for the judicial file to be transferred instead of restarting the suit at Delhi.
The Civil Judge, Gurgaon, agreed to transfer the entire file to Delhi on 14.02.2018.
The Punjab and Haryana High Court upheld this decision on 13.03.2018, ruling that the case should continue from where it was left, rather than starting afresh.
The appellant challenged this ruling before the Supreme Court.

Arguments by the Appellant (M/S. EXL Careers)

The case should restart de novo at Delhi since the Gurgaon court never had jurisdiction.
Under Order VII Rule 10, when a plaint is returned and presented before a new court, it must be treated as a fresh suit.
The High Court misinterpreted its authority by ordering the transfer of the file instead of directing a new trial.
Legal precedents, including Modern Construction & Co. vs. ONGC Ltd. (2014) and Harshad Chimanlal Modi vs. DLF Universal Ltd. (2006), confirm that a suit must begin afresh when the original court lacks jurisdiction.

Arguments by the Respondent (Frankfinn Aviation Services)

The High Court’s decision was justified because the case had already reached the final argument stage before the return of the plaint.
Starting de novo would cause unnecessary hardship, delay, and a travesty of justice.
The Supreme Court’s ruling in Joginder Tuli vs. S.L. Bhatia (1997) permitted continuation of proceedings even after the return of a plaint.
The case was wrongly filed at Gurgaon only due to an oversight, not as an attempt to evade the jurisdiction clause.

Supreme Court’s Observations

The Supreme Court examined the legal provisions under Order VII Rule 10 and 10A CPC and discussed various precedents, including:

Modern Construction & Co. vs. ONGC Ltd. (2014) – Held that once a plaint is returned, the trial must start de novo in the proper jurisdiction.
Amar Chand Inani vs. Union of India (1973) – Clarified that presenting a plaint in the wrong jurisdiction does not validate proceedings.
Harshad Chimanlal Modi vs. DLF Universal Ltd. (2006) – Reaffirmed that proceedings must restart after a plaint is returned.

However, the Court also considered the practical implications and the conduct of the parties. It noted:

The appellant had not raised the jurisdiction objection at the first opportunity.
The case had already progressed significantly before the plaint was returned.
The High Court’s decision, while legally incorrect, ensured fairness and prevented undue hardship.

Final Judgment and Implications

The Supreme Court ruled that while the correct legal position is that the trial must start de novo, it exercised its discretionary power under Article 136 and Article 142 of the Constitution to uphold the High Court’s decision. It observed:

“In the peculiar facts and circumstances of the case, despite having concluded that the impugned order is not sustainable in view of the law laid down in Modern Construction, in exercise of our discretionary jurisdiction under Article 136 and in order to do complete and substantial justice between the parties under Article 142, we decline to set aside the impugned order.”

The appeal was dismissed, allowing the case to proceed from its advanced stage at Delhi.

This judgment clarifies that while Order VII Rule 10 CPC requires a fresh trial upon return of a plaint, courts can exercise discretion in exceptional cases to prevent injustice.

Petitioner Name: M/S. EXL Careers and Another.
Respondent Name: Frankfinn Aviation Services Private Limited.
Judgment By: Justice R.F. Nariman, Justice Navin Sinha, Justice Indira Banerjee.
Place Of Incident: Delhi.
Judgment Date: 05-08-2020.

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