Exclusive Jurisdictional Clause in Commercial Contracts

Naman Verma

RMLNLU, Lucknow

Editor’s Note: The paper deals with the exclusive jurisdictional clause in Commercial Contracts in light of Section 28 of the Indian Contract Act, 1872. It has been decided time and again that exclusive jurisdictional clauses are not opposed to Section 28 of the Contract Act. The analysis also included the case of Swastik Gas which is a 2013 case dealing with the exclusive jurisdictional clauses and the latin maxim “Expressio unius est exclusio alterius”.”

INTRODUCTION

An agreement is void to the extent it restricts absolutely a party from enforcing his contractual rights by usual proceedings in ordinary courts; or if it limits the time within which he may enforce his rights. It saves two types of contracts: those with a stipulation that an arbitration award shall precede a cause of action and a contract to refer existing disputes to arbitration. The Section 28 of Indian Contract, 1872 declares agreements in restrain of legal proceedings as void with two exceptions.

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to the extent. [1]

Exception 1: Saving of contract to refer to arbitration dispute that may arise. This section shall not render illegal contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subject shall be referred to arbitration, and that only and amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. [2]

Exception 2: Saving of contract to refer question that have already arisen – Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to reference to arbitration.[3]

The principle that parties cannot by consent confer jurisdiction on a court or deprive a court of jurisdiction have been stated to apply to cases of inherent jurisdiction of a court  over the subject matter of the suit, and the question of territorial jurisdiction as not being a question of inherent jurisdiction.[4] Where, thus two courts have jurisdiction to try a case, there is nothing contrary to law in an agreement between parties that disputes between them should be tried at the one court rather than the other.

AGREEMENTS PRESCRIBING JURISDICTION

As per the section 28 of the Indian Contract Act, parties cannot by private agreement confer upon a court jurisdiction which it does not possess, nor can they divest a court of jurisdiction which it possesses under the ordinary law.[5] It can be said that where two courts have a jurisdiction to try a case, there is nothing contrary to law in an agreement between parties that disputes between them should be tried at the one court rather than the other. However, it is specifically forbidden that an agreement cannot confer jurisdiction on the court which has no jurisdiction at all to entertain such suit.[6] The validity of an agreement by which the parties prefer one of the two courts depends upon the fact that both the courts must have jurisdictions in deciding the matter.[7] Where two or more courts have the jurisdiction to hear a case, the agreement between the parties limiting the jurisdiction to one court is neither opposed to public policy nor a contravention of S.28 of the Contract Act. It is now and then reiterated that if one or more courts have the jurisdiction to try a suit, it is open for the parties to choose anyone of such courts to decide their disputes. If the parties expressly agree that their dispute shall be tried by only one of such courts, then the suit could be filed in that court alone.[8]

Therefore, it can be said that the legal principle involved here is that an agreement restraining or preventing the institution of a suit to only one court out of several courts which have jurisdiction, would not violate S.28 and is thereby not contrary to public policy. However, the court chosen by the parties to the said agreement must have a jurisdiction to entertain such suit, meaning thereby that the parties themselves cannot confer jurisdiction to a court which it does not possess.

A clear and unambiguous choice of the parties must be depicted in the agreement itself. However, a landmark judgment of the honorable Supreme Court went on to decide that he use of words ‘subject to ABC jurisdiction’ does not per se excludes or ousts the jurisdiction of the other courts, unless words like ‘only’ or ‘exclusively’ or ‘alone’ or the like are used to show an unambiguous intention to exclude the jurisdiction of the other courts.[9] But the absence of the above mentioned words cannot be taken to infer that the other courts jurisdiction is excluded.

The issues surrounding exclusive jurisdiction clauses in India are to two folded. One is the affect of Sec 28 on exclusive jurisdiction clauses in India and another is the affect on cross border contracts. Are the clauses which restrict the right of parties to approach any court in India which has competent jurisdiction to grant the relief void?

Domestic Jurisdiction of Civil courts in India

All civil courts in India derive their authority to try all kinds of civil suits from Section 9 of the Code of Civil Procedure. 1973

“The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.”

So Courts in India derive jurisdiction solely from the Code. In Hakam Singh v. Gammon (India) Ltd[10] Supreme court of India discussed the issue of jurisdiction of Courts in India as follows:

“By Clause 13 of the agreement between the parties it was expressly stipulated between the parties that the contract shall be deemed to have been entered into by the parties concerned in the City of Bombay. It is not open to the parties by agreement to confer by their agreement jurisdiction on a Court which it does not possess under the Code. But where two courts or more have under the CPC jurisdiction to try a suit or proceedings an agreement between the parties that the dispute between them shall be tried in one of such Courts is not contrary to public policy. Such an agreement does not contravene Section 28 of the Contract Act.”

The Supreme Court in British Steam Navigation case[11] had further interpreted S.28 of the Contract Act as applied to cross border transactions. The key to this interpretation are the words “absolutely” in Section 28. Court considered that S.28 while declaring clauses which are in restraint of judicial/legal proceedings are void is applicable only if the restraint is absolute.

So If the contract is domestic one and the parties are both Indian nationals any clause in contract which confers jurisdiction on some specific court to the exclusion of others is not hit by S.28. However, in such a case the specific court referred to in the contract should have jurisdiction (under the code) i.e. ‘competent to try the suit’. Since partial restraint of the party to limit his legal relief to one court is not against public policy (waiver of private rights under a contract is lawful as long as such waiver is not against public policy) and only partial restraint the clause is enforceable.

Foreign Jurisdiction

Where the other party has an option to get a remedy in another jurisdiction and not necessarily in India the clause holds good as the condition is not absolute restraint. Court had essentially considered whether one party to the contract would be left absolutely remedy less of the exclusive jurisdiction clause is enforced. In a proceeding before the Indian Court if it is proved as a matter of fact by evidence that the other party to the contract has legal remedy in foreign jurisdiction then the Indian court would not further interfere in the matter since the plaintiff still has some legal remedy albeit in foreign jurisdiction. However, in case of cross border transactions the issue is little more complicated. Every Indian Court as per Indian Evidence Act takes judicial notice of all laws of Republic of India. Laws of foreign countries need to be proved in a court of law by production of relevant evidence. So in case of foreign jurisdiction clauses excluding jurisdiction Indian Courts, the defendant has to prove by production of documentary and other evidence that the foreign country referred to in the contract in fact has laws which provide adequate legal remedy to him. In case of domestic contracts since the court already takes judicial notice of the laws, it will only check if the other court in India is competent to try to the suit or not. If the other court is competent to try the suit it will not further entertain the suit arising from the contract.

RECENT TRENDS

Jurisdiction clause is one of the most important clauses of any agreement as it assumes more importance in cases where the scope of the agreement expands to more than one jurisdiction. Generally, parties to an agreement, while negotiating, try to restrict the jurisdiction to court which is more convenient for them to approach. The area which remained distorted for a long time is that whether an agreement which purports to oust the jurisdiction of any Court is contrary to public policy and therefore void. However, now this is a settled principle of law that there is no ambiguity that an agreement which purports to oust the jurisdiction of the Court absolutely is contrary to public policy and hence is void. Section 28 of Indian Contract Act, 1872 as discussed, contains statutory provision to the effect thereto.

However, it is also a settled principle of law of that where two Courts or more have under the Code of Civil Procedure jurisdiction to try the suit or proceeding, an agreement between the parties that the dispute between them shall be tried in one of such Courts is not contrary to public policy and such an agreement did not contravene Section 28 of the Contract Act. Such clauses are valid as it does not amount to an absolute ouster of jurisdiction.

To elucidate that how can the jurisdiction clause in an agreement between the parties be restricted to certain courts, generally parties to the agreement tend to include exclusive jurisdiction clause in the Agreement, which reads as:

“The parties hereto agree that any matter or issues arising hereunder or any dispute hereunder shall be subject to the exclusive jurisdiction of the courts of situated at XY”.

People use the wordings “only”, “exclusively”, “alone” etc. to explicit their intention that only identified court in the clause has the jurisdiction to try the matters connected or arising out of the concerned Agreement. As stated above, such ouster of jurisdiction do not amount to violation of public policy and did not contravene Section 28 of the Contract Act. Although, an ambiguity would still linger if the jurisdiction clause in the  concerned agreement does not use the word “only”, “exclusively”, “alone” etc. However, as a matter of fact this ambiguity has been resolved by the Supreme Court of India in its recent judgment of Swastik Gases Private Ltd. v. Indian Oil Corporation Ltd[12] which has been discussed later in this project.

INTERPRETATION BY COURTS

In S. Manuel Raj & Co. v. J. Manilal & Co.[13] where one of the parties to the contract signed an order form printed by the other party containing the words “subject to Madras jurisdiction” and sent the order form to the other party it was held that the party must be assumed to have agreed that Madras was the place for settlement of the dispute and it was not open to that person who signed the order form of the opposite party containing the printed words to show that printed words were not part of the contract and that those words in the contract was to exclude the jurisdiction of other Courts and to keep sole jurisdiction to one Court, It was observed that the object of printing such words as “subject to Madras jurisdiction” in the contract was to exclude the jurisdiction of other Courts and to give sole jurisdiction to one Court and it was in consonance with the commercial practice in India.

  • Hakam Singh v M/s Gammon [14]

In this case, the Supreme Court determined the contractual validity of a forum clause. The appellant  agreed  to            do  certain construction  work  for the respondents  company registered under  the  Indian Companies Act and  having  its  principal place of business at Bombay on the terms and conditions  of a  written  tender. Clause 13  provided    that notwithstanding the place where the work under the  contract was to be executed the contract shall be deemed to have been entered    into  by  the parties at Bombay and  the  court  in Bombay alone shall have jurisdiction to adjudicate  thereon. On  disputes  arising  between the  parties  the  appellant submitted  a petition to the Court at Varanasi for an  order under s. 20 of the Arbitration Act, 1940 that the  agreement be filed and an order of reference be made to an  arbitrator or  arbitrators          appointed by the court. The        respondent contended that in view of clause 13 of the arbitration agreement, only the courts at Bombay had jurisdiction.

The court struck down an argument that when two courts had the jurisdiction to entertain a dispute, a choice of forum clause or jurisdictional clause would amount to restraint of legal proceedings, or violate public policy. However the issue that remained disenchanted was that when parties chose a jurisdiction for resolution of their disputes, whether it would imply the exclusion of the jurisdiction of the other courts, or whether it was necessary for the parties to specify that the choice such made by them was exclusive.

It was held in this case that the CPC in its entirety applies to proceedings under the Arbitration Act. As stated in the facts, by Clause 13 of the agreement between the parties in the case, it was expressly stipulated between them that the contract shall be deemed to have been entered into by the parties concerned in the City of Bombay. It was also stated further that it is not open to the parties by agreement to confer by their agreement jurisdiction on a Court which it does not possess under the Code.[15] But where two courts or more have under the CPC jurisdiction to try a suit or proceding an agreement between the parties that the dispute between them shall be tried in one of such Courts is not contrary to public policy.[16]

  • ABC Laminart Case [17]

The relevant facts of the case are as follows: a contract entered into between the appellant who had its registered office within the jurisdiction of the courts of Gujarat and the respondent, who carried on its business from Tamil Nadu. The jurisdiction clause in their contract read that- “Any dispute arising out of this sale shall be subject to Kaira (Gujarat) jurisdiction”. When the disputes arose between the parties, the respondents filed proceedings before the court of Salem (Tamil Nadu). The appellant challenged the jurisdiction of the Salem court, and the matter reached the Supreme Court.

The court noted that while there was no difficulty in construing exclusive jurisdiction clause the word such as “only, “alone” and “exclusive”, in the absence of these words the maxim “Expressio Unis est exclusio alterus” i.e., the expression of one is exclusion of the other, may be applied. However, the court went on saying that implied exclusion would have to be inferred from facts and circumstances, thereby stating in this case that as the jurisdiction other than Kaira, Gujarat were not clearly and expressly excluded, the court at Salem, Tamil Nadu had the jurisdiction over the dispute in concern.

This decision led to a situation where even if the parties had expressed a preference for a particular court to have jurisdiction if a dispute arose, unless they used a language indicating exclusivity, the court would infer from the facts and circumstances before considering the forum choice of the parties.

The latest decision of Supreme Court though holds that jurisdiction of courts is ousted other than courts specified in the agreement even in absence of words like “only”, “alone” or “exclusively” , since the principles laid down in A.B.C. Laminart case related to consideration of connecting factors hold good, it is still important to use such words like “only”, “alone” or “exclusively” in jurisdiction clauses to avoid any litigation related to territorial jurisdiction of the courts resulting into delays in adjudication of claims on merits

  • Swastik Gases Pvt Ltd. v Indian Oil Corporation[18]

The Supreme Court in its recent judgment of Swastik Gases Private Limited v. Indian Oil Corporation Limited1  dealt with the issue of “exclusive jurisdiction” clauses in the context of an application of the Arbitration and Conciliation Act, 1996. The Supreme Court specifically held that usage of words, “only”, “exclusively” and “alone” in jurisdiction clauses are not mandatorily required to convey intention of parties to ouster jurisdiction of courts other than courts to which jurisdiction is conferred by the parties under the agreement.

The appellant whose registered office was at Jaipur, Rajasthan had entered into an agreement with the respondent, whose registered office was in Mumbai, Maharashtra for marketing of lubricants in Rajasthan. The jurisdiction clause in the agreement stated that “The agreement shall be subject to the jurisdiction of the courts at Kolkata”. When the dispute arose, the appellants approached the high Court of Rajasthan, where the High Court dismissed the application of the appellants, granting the parties to approach the Calcutta High Court. Thus, the issue came up in the Supreme Court.

The Court thus seemed to affirm that the choice of one of two jurisdictions is sufficient to raise a presumption as to valid ouster of the jurisdiction, even in the absence of specific exclusionary words.  However, Lokur J. delivered a separate concurring judgment, also separately analyzing the case law.  Lokur J, conclusion was:

The absence of words like “alone”, “only”, “exclusive” or “exclusive jurisdiction” is neither decisive nor does it make any material difference in deciding the jurisdiction of a court. The very existence of a jurisdiction clause in an agreement makes the intention of the parties to an agreement quite clear and it is not advisable to read such a clause in the agreement like a statute.”

The judgment as delivered by Justice R.M Lodha, stated the same conclusion as above but on the basis of the maxim “Expressio unius est exclusio alterius”. It was held that where a contract specifies the jurisdiction of the courts at a particular place and that such courts had jurisdiction to deal with the matter, an inference should always be drawn that the parties intended to exclude all other courts. Thus it was held in this case that the court at Kolkata had the jurisdiction to entertain the dispute between the parties, irrespective of exclusionary language in the contract between them.

CONCLUSION

In the light of the above cases and theories discussed, it can be unambiguously concluded that the position in India regarding the exclusive jurisdiction clauses in contracts was made clear by the Supreme Court in the Swastik Gas case recently (2013), which would undoubtedly give a great assistance to the lower courts so as to be able to decide on the matter without any ambiguity which was lingering from the last few years.

Although, the position is made very apparent and clear in the Swastik Gas ruling by the Supreme Court, it would be more of an aid to the Courts in front of whom matters regarding exclusive jurisdictional contracts come up, that the parties must draft a clear and unambiguous clause of forum so as to avoid the prolonged litigations which benefits none, and wastes the courts precious time. When the intentions of the parties to the agreements can be inferred comprehensibly, it would only help the parties themselves to resolve their disputes if any, swiftly.

FINDINGS-

Parties to an Agreement may oust the jurisdiction of the Court. However, such ouster of jurisdiction of the Court should not be absolute. Such clauses do not amount to violation of public policy and does not contravene Section 28 of the Contract Act. Usage of words “alone”, “only”, “exclusive” are not mandatory to oust the jurisdiction to one court. However, it is advised to use to use such wordings to avoid any confusion/ litigation related to territorial jurisdiction of the courts resulting into delays in adjudication of claims on merits. Where two or more courts have jurisdiction, if the parties by agreement have chosen one court, only the Court chosen in the agreement will have jurisdiction.

Edited by Amoolya Khurana

[1] Indian Contract Act, 1872.

[2] Id.

[3] Id.

[4] Sir Dinshaw Fardunji Mulla, The Indian Contract Act, Thirteenth Edition Reprint 2012, Lexis Nexis Butterworths Wadhwa Nagpur.

[5] Avatar Singh, Contracts and Specific Relief, Eleventh Edition, Eastern Book Company.

[6] Patel Roadways Ltd. v. Prasad Training Co AIR 1992 SC 1514.

[7] Amritsar Transport Co. Ltd v. S Sohanlal AIR 1957 J&K 7.

[8] Shriram City Union Finance Corpn Ltd (M/s) v. Rama Mishra AIR 2002 SC 2402.

[9] ABC Laminart Pvt Ltd v. AP Agencies, Salem AIR 1989 SC 1239.

[10] AIR 1971 SC 740.

[11] 1990 2 CompLJ 1 (SC).

[12] (2013) 9 SCC 32.

[13] AIR 1963 Guj 148.

[14] (1971) 1 SCC 286.

[15] Supra note 5.

[16] Id.

[17] (1989) 2 SCC 163.

[18] (2013) 9 SCC 32.

2 Replies to “Exclusive Jurisdictional Clause in Commercial Contracts”

  1. Does it mean that Section 18(3) of Micro Small and Medium Enterprises Act, 2006, which confers exclusive jurisdiction to the Council formed under the Act to conduct arbitration proceedings, will override the Exclusive Jurisdictional Clause provided in the Contract?

  2. sir, I got agrement with jaipur based company they took deposit 1,50000.00 and they never supplied any material so far in their agreement jurisdiction is jaipur court. I live in hyderabad shall I able to file a case in hyderabad court.

    Please response my query asap

    thanks

Leave a Reply

Your email address will not be published. Required fields are marked *