Order VII Rule 11 CPC: Madhya Pradesh High Court Refuses Rejection, Terms Jurisdiction Mixed Question

The Madhya Pradesh High Court has reiterated that jurisdiction in commercial disputes cannot be determined solely on the basis of a clause contained in a bank guarantee when the underlying dispute arises from a separate contract, dismissing a civil revision petition filed by BGR Energy Systems Ltd. against Universal Cables Ltd.

In doing so, the Court upheld an order of the Commercial Court at Rewa which had refused to reject the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908, and affirmed that the suit was maintainable before courts in Madhya Pradesh.

The Bench of Justice Vivek Rusia and Justice Pradeep Mittal was dealing with a challenge to the Commercial Court’s order dated February 5, 2026, whereby an application seeking rejection of the plaint on grounds of lack of territorial jurisdiction and absence of cause of action had been dismissed.

The petitioner-defendant argued that the dispute stemmed from a bank guarantee which contained an exclusive jurisdiction clause vesting authority in courts at Chennai. Relying on this clause, it was contended that the Commercial Court at Rewa lacked jurisdiction and that the plaint deserved rejection at the threshold.

The clause in question stated, “This Guarantee shall be governed by and construed in accordance with Indian laws, and only the competent courts in the city of Chennai, India, shall have jurisdiction over all matters covered under this Guarantee.”

It was further argued that the plaintiff had failed to properly plead territorial jurisdiction and that the suit was therefore not maintainable. The petitioner also contended that the Commercial Court had ignored binding contractual terms voluntarily agreed upon between the parties.

Opposing the revision, the plaintiff submitted that the dispute did not arise out of the bank guarantee itself but from the wrongful invocation of the performance bank guarantee in relation to a purchase order executed and performed in Satna. It was emphasized that the bank guarantee was merely a mode of payment and not the source of the dispute.

Accepting this contention, the High Court drew a clear distinction between disputes arising from a bank guarantee and those emanating from the underlying contract. The Court noted that there were no allegations of breach or misconduct against the issuing banks, which had been impleaded only as formal parties.

“The dispute essentially pertains to the alleged wrongful invocation of the Performance Bank Guarantee by Defendant No. 1 in relation to the Purchase Order. Therefore, the jurisdiction clause contained in the Bank Guarantee cannot be determinative of jurisdiction for the present dispute,” the Court observed.

The Bench further held that the purchase order and the bank guarantee constituted distinct agreements. Since the dispute arose out of the purchase order, the jurisdiction clause in the bank guarantee could not override other relevant factors.

On facts, the Court found that the purchase order had been accepted at Satna, the goods were manufactured and supplied from there, and the tax invoices also specified Satna as the place of jurisdiction. These elements, the Court held, established that a substantial part of the cause of action had arisen within the territorial jurisdiction of the courts in Madhya Pradesh.

“The dispute arises out of the purchase order, which constitutes a separate contract, and not out of the bank guarantee. Both agreements are distinct,” the Court stated while affirming the findings of the Commercial Court.

Dealing with the scope of Order VII Rule 11 CPC, the High Court reiterated the settled principle that only the averments in the plaint are to be examined at the stage of deciding an application for rejection of plaint. The defence taken by the defendant, it said, cannot be considered at this preliminary stage.

The Court noted that the plaint disclosed a clear cause of action alleging wrongful and malicious invocation of the bank guarantee and that such issues required adjudication on evidence. Questions relating to territorial jurisdiction, it added, involved mixed questions of law and fact and could not be conclusively determined without trial.

“The plaint, on its face, clearly discloses a cause of action, and the issues raised by the petitioner involve mixed questions of law and fact, which require adjudication upon evidence and cannot be decided at the threshold,” the Bench held.

Finding no illegality or perversity in the Commercial Court’s reasoning, the High Court concluded that the revision petition was devoid of merit and dismissed it.

Case Title: BGR Energy System Ltd. Through Mr. K. Ragupathy v. Universal Cables Ltd. and Others

Date of Order: April 10, 2026

Bench: Justice Vivek Rusia and Justice Pradeep Mittal