A company registered in one state but having business in another is sued. Discuss jurisdiction.

The Governing Provision: Section 20 and Its Explanation

Section 20 of the Code permits a suit to be instituted in the court within whose jurisdiction the defendant resides, carries on business, or personally works for gain, or where the cause of action, wholly or in part, arises. A company, being an artificial legal person, cannot reside in the way a natural person does. The legislature therefore provided a special deeming provision — the Explanation to Section 20 — which defines the deemed place of carrying on business for a corporation.

The Explanation reads in two distinct parts. First, a corporation shall be deemed to carry on business at its sole or principal office in India. Second, in respect of any cause of action arising at a place where it also has a subordinate office, it shall be deemed to carry on business at such subordinate place. These two parts work together to produce a precise and equitable answer for the scenario where a company's registered office sits in one state but its field operations and commercial activity lie elsewhere.

Two Situations Carefully Distinguished

The Explanation to Section 20 is not a uniform provision — it draws a very deliberate distinction between two categories of situations, and confusing the two has been the source of much litigation.

Situation One — No subordinate office at the place where the cause of action arises. Where the company has its principal office in State A and the cause of action arises in State B, but the company has no subordinate office in State B, the plaintiff must sue where the principal office is situated. The registered office — the company's permanent legal home — is treated as the place where the corporation carries on business. Here, the plaintiff cannot exploit the cause of action connecting factor under Section 20 to sue in State B with respect to the company's identity as a defendant; only the cause of action itself under Section 20(c) might provide that hook, not the company's place of business.

Situation Two — The company has a subordinate office at the place where the cause of action arises. This is where the law becomes particularly emphatic. The Explanation, properly read, provides that when the company has a subordinate office at the place where the cause of action arises, the suit must be filed at that subordinate office's place alone, and not at the place of the principal office. The Supreme Court itself confirmed this strict reading in New Mogo Transport Co. v. United India Insurance Co. Ltd. (AIR 2004 SC 2154), holding that the expression "at such place" appearing in the later part of the Explanation, combined with the disjunctive "or," clearly suggests that when the cause of action arises at a place where the company also has a subordinate office, it is the court at that subordinate place — and not the court where the principal office is situated — that alone has jurisdiction. Parties cannot by agreement confer jurisdiction on the principal office court where the corporation has a subordinate office at the place of the cause of action.

Why This Rule Makes Sense

The rationale behind this construction is sound and practical. The whole spirit of Section 20 is expressed in a principle the courts have repeatedly reaffirmed: the section is "designed to secure that justice might be brought as near as possible to every man's hearthstone and that the defendant should not be put to the trouble and expense of travelling long distances in order to defend himself." When a company has deliberately chosen to open a subordinate office at a particular place, it has voluntarily submitted itself to the commercial life of that locality. It employs agents there, enters contracts there, and generates the cause of action there. There is no injustice in requiring it to answer at that very place. Compelling the plaintiff to travel across states to the distant principal office, merely because that is where the company was registered, would be an absurdity inconsistent with the design of Section 20.

What Counts as a "Subordinate Office"

A point that requires careful attention is the meaning of "subordinate office." The word "Corporation" in the Explanation includes not only statutory corporations but also companies registered under the Companies Act. The test is not merely the existence of a registered address but whether the company was actually carrying on business at that place at the time of the commencement of the suit. A mere formal address, a warehouse, or a liaison office that does not itself engage in business transactions may not qualify as a subordinate office in the sense the Explanation contemplates. The courts look at whether the defendant company was genuinely doing its commercial business through that office.

It is equally important to note that the mere existence of a company's registered office within the territorial jurisdiction of a court does not by itself create a cause of action. The Supreme Court held that the fact that a company carries on its export and import business from Ahmedabad has no bearing on a dispute that arose elsewhere; it does not give rise to a cause of action merely because the company is registered or has an office there. The cause of action must have a real, material connection to the facts of the dispute.

The Practical Map: Where Can the Suit Be Filed?

Taking all of this together, when a company registered in State A is sued for a cause of action arising in State B, the position can be mapped as follows:

• If the company has no office in State B: The plaintiff may sue either in State A at the court within whose jurisdiction the principal office is situate, or in State B where the cause of action arose under Section 20(c). Both forums are open.

• If the company has a subordinate office in State B where the cause of action arose: The plaintiff must sue in State B. The court at the place of the subordinate office has exclusive jurisdiction in this situation; the court at the principal office in State A does not. The parties cannot reverse this by contract unless both places independently have jurisdiction and the ouster clause is clear and unambiguous.

• Jurisdiction clause in the contract: Where the parties have agreed to submit to a specific court, and that court happens to be the one at the principal office in State A, such a clause will be tested strictly. If the cause of action substantially arose in State B and the company had a subordinate office there, the clause selecting State A courts may not survive judicial scrutiny, because Section 20's Explanation — a mandatory provision — cannot be ousted by mere party agreement where the jurisdiction of the subordinate office court is made exclusive by operation of law.

The Company's Domicile in Law

Finally, a foundational principle bears emphasis. The residence and domicile of a trading company, for purposes of jurisdiction, is its principal place of business — that is, the place where the administrative and controlling business of the company is conducted — which may well be different from the place where its manufacturing or field operations are carried on. This is determined independently of what the Companies Act says about the registered office. The question the court always asks is simply: was the defendant company carrying on business at the place where it has been sued at the time of commencement of the suit? If the answer is yes — either at the principal office or through a subordinate office connected to the cause of action — jurisdiction is established. If not, the suit is brought in the wrong forum and is liable to be returned.