Debtor Must Seek Creditor: Delhi HC Upholds Jurisdiction in Commercial Suit

The Delhi High Court has reinforced the 'debtor must seek the creditor' principle, ruling that the place of business of a supplier constitutes a valid ground for territorial jurisdiction in commercial disputes where no specific payment location is agreed upon. This decision shuts the door on jurisdictional challenges by defendants who attempt to evade legal proceedings in the creditor's forum despite retaining goods and failing to prove formal rejection.

A division bench comprising Justice Anil Kshetarpal and Justice Shail Jain heard an appeal filed by a private limited company challenging a commercial court decree that mandated the recovery of over Rs. 36 lakhs. The Appellant contended that since negotiations and delivery occurred in Bhiwadi, Rajasthan, the Delhi courts lacked jurisdiction to adjudicate the recovery suit filed by a Delhi-based proprietor.

Key Takeaways

Jurisdictional Flexibility in Contracts

Parties to a commercial transaction can be sued at the creditor's place of business if the contract is silent on the specific location for payment.

Deemed Acceptance of Goods

Retention of goods without a documented and communicated rejection within a reasonable time, as per Sale of Goods Act, 1930, serves as a deemed acceptance of the supplies.

Contractual Forum Clauses

While parties cannot confer jurisdiction on a court that has none, they can validly agree to limit disputes to one of multiple competent jurisdictions via invoice clauses.

Evidence Burden on Rejection

Unilateral ledger entries of 'rejected goods' are insufficient to discharge the burden of proof if not supported by contemporaneous communications or purchase order conditions.

Delhi Courts Possess Jurisdiction Despite Cross-Border Deals

The High Court analyzed whether the learned Commercial Court correctly assumed jurisdiction under Section 20(c) of the Code of Civil Procedure, 1908. While acknowledging that negotiations and delivery took place in Bhiwadi, the Court noted that the supplies originated from Delhi and that the respondent/creditor maintained his business establishment there.

The Court observed that in the absence of an agreed place of payment, the obligation to perform the contract (payment) arises at the place of the creditor. Citing A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem, the bench noted that a material part of the cause of action arises where the money is impliedly payable. Furthermore, the court highlighted that the invoices specifically included a clause submitting to Delhi's jurisdiction, which, combined with the 'debtor must seek creditor' principle as applied in Satyapal v. Slick Auto Accessories Pvt. Ltd. & Ors., solidified the Delhi court's authority.

Failure to Prove Rejection of Defective Goods

Regarding the merits of the recovery, the Appellant argued that goods worth Rs. 34,15,742/- were rejected for failing to meet specifications and lacking test reports. However, the Court found the Appellant's defense deficient, as no purchase orders requiring such reports were produced, and no written communication of rejection was ever sent to the respondent.

The Court, in its reasoning, observed: "The material was admittedly delivered to and retained by the Appellant. The allegedly rejected material was never returned. The alleged Test Report condition itself remained unproved. No reliable contemporaneous communication establishing rejection of identified consignments was proved."

The Court has the following directions:

"The present Appeal is, accordingly, dismissed and the impugned Judgment and Decree are affirmed. The Respondent shall be entitled to the decretal amount together with interest in terms of the impugned Judgment and Decree. The amount deposited by the Appellant with the Registry of this Court, together with the interest accrued thereon, if any, shall be released in favour of the Respondent, subject to due verification, and shall stand adjusted towards satisfaction of the decree. The Appellant shall satisfy the balance decretal liability, if any, after giving effect to the aforesaid adjustment, within four weeks from today."

Ratio

Under Section 20(c) of the Code of Civil Procedure, 1908, territorial jurisdiction is determined by where the cause of action arises, which includes the place where payment is impliedly payable. In commercial transactions, where no specific place for payment is contractually fixed, the common law rule that the 'debtor must seek the creditor' applies, thereby vesting jurisdiction in the courts where the creditor carries on business. Furthermore, under Section 42 of the Sale of Goods Act, 1930, a buyer who retains goods beyond a reasonable time without intimating rejection is deemed to have accepted them, and unilateral ledger entries cannot override the lack of communication.

Background

The dispute originated in 2015 from commercial dealings between M/s Mark Splendour Nonwovens (P) Ltd (Appellant) and Rakesh Gupta (Respondent), a Delhi-based supplier of coating powder. The respondent claimed that an outstanding balance of Rs. 36,35,584/- remained unpaid as of October 2018. The Appellant resisted the suit, claiming the goods were defective and were rejected at their Bhiwadi unit.

The trial court at Tis Hazari, Delhi, decreed the suit in favor of the respondent, leading to the current appeal. The High Court, after re-evaluating the evidence specifically the admission by the Appellant's witness that no rejection letters were sent and no purchase orders were on record affirmed the lower court's findings. The appeal was dismissed without any order as to costs.

Case Details:
Case No.: RFA(COMM) 240/2024
CNR No.: DLHC010374502024
Case Title: Mark Splendour Nonwovens (P) Ltd. V. Rakesh Gupta
Appearances:
For the Petitioner(s): Mr. Anjani Kumar Singh, Adv.
For the Respondent(s): Mr. A.K. Thakur, Mr. Rishi Raj, Mr. Ningthem Oinam, Advs.

Source: 2026 CaseBase(DEL) 5705