Exclusive Jurisdiction Clause In Contracts

September 9, 2020by Akshay A. Nair0

Author Akshay A. Nair, Associate

 

The law relating to ‘Contracts’[1] in India is dealt under the Indian Contract Act, 1872. The Contracts/ Agreements can be with respect to  an individual working at an organization, a businessman involved across various trades or a professional in the financial and legal field. These Contracts provide us with an opportunity to secure rights and define responsibilities between parties which are legally enforceable by way of various terms and conditions. A well drafted Contract provides clarity along with freedom to the parties in mutually determining the terms and conditions of their relationship. These terms and conditions involve various aspects relating to the relationship between the parties and also include the future possibilities which may arise among the parties. Such terms and conditions of a Contract include but are not limited to the following clauses like; Title, Effective Date, Definitions, Obligation and Duties of the Parties, Consideration, Term of Contract, Termination, Representation and Warranties, Exclusivity, Indemnification, Mode of Payment, Governing Law, Dispute Resolution, Waiver, Non- compete, Assignment, Confidentiality, Force Majeure, Severability, Intellectual Property Rights, Amendments, Breach of Contract and Remedies, Jurisdiction, etc.

Breach of Contract

The effect of a breach of Contract and its remedies are laid down in the Contract itself, this helps the parties to take recourse to appropriate forums to get damages arising due to such breach of Contract or for the performance of the Contract. When a breach of Contract occurs due to disputes, the clauses; Governing Law, Dispute Resolution and Jurisdiction, provide clarity to the parties with regard to how to get remedies for such a breach. The parties entering into such Contracts can to a certain extent, mutually decide the most suitable forums to resolve the disputes. The parties can even choose to resolve the disputes either through Arbitration or through the civil courts. Every breach of Contract confers contractual obligation upon a party to make good of the other party with regard to such a breach. The parties enter into a Contract only to give effect to the purpose of such Contract and any breach will cause either parties to suffer losses on account of acts of the other party.

Exclusive Jurisdiction in Contracts

When the dispute resolution is to be done through litigation in the civil courts, the parties to a Contract can limit their legal proceedings to a specific court. This is done by including an “Exclusive Jurisdiction” clause in the Contract. A typical ‘exclusive jurisdiction’ clause in a Contract is worded in the following manner:

‘The Agreement shall be subject to jurisdiction of the courts at New Delhi.’

Such a clause is often misinterpreted to include all and any courts by the parties. But, in fact with accordance to the law, this is not the case. Section 9 of The Code of Civil Procedure, 1908 (“CPC”) states that, all courts shall have jurisdiction to try all suits of civil nature unless the jurisdiction is either expressly or impliedly barred. The CPC, through Section 20 lays down the various jurisdiction of the Courts where a suit can be instituted, such Courts, may be in the jurisdiction of the defendants’ resident or place of business or jurisdiction of the place where the cause of action wholly or partially arises.

With a view of convenience and minimizing legal costs for the parties, The Indian Contract Act gives an extent of liberty to the parties to limit the place of legal proceedings to one place and forum. This is done by expressly including a valid “Exclusive Jurisdiction” clause in the Contract.

Section 28 of the Indian Contract Act, makes agreements in restraint of legal proceedings void. The Section provides:

’(i) every agreement by which a 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 rightsor

(ii) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent, except those where parties agree to refer the disputes to Arbitration.

The Indian Contract Act and myriad precedents have established, it is not open to the parties through a Contract to confer jurisdiction on any Court which did not otherwise have such jurisdiction at all. It is clear through the provisions of the CPC and the Indian Contract Act that the parties are thus free to mutually limit the place of legal proceedings only to one such a place and forum which is legally within the jurisdiction to initiate such proceedings. With help of “Exclusive Jurisdiction” clause in a Contract, the parties can reduce the inconvenience of initiating legal proceedings at different places and thereby also minimize costs incurred in such proceedings. Such a clause in the Contract, has an effect of excluding the jurisdiction of another court which may otherwise have appropriate jurisdiction to initiate proceedings.

The parties by including such a clause in the contract clearly incorporate their clear and unambiguous intention that only a specific court alone shall have jurisdiction. Where the parties through a contract have specified jurisdiction at a particular place and such courts have valid jurisdiction to initiate the proceedings, then it can be understood that the parties truly intended to exclude the other courts. Hence, such a clause does not contradict with Section 28 of the Indian Contract Act and is neither forbidden by law or against public policy. The maxim ‘expressio unius est exclusio alterius’ – expression of one is the exclusion of another is to be applied with respect to “Exclusive Jurisdiction” clauses.

Judicial Precedents

The legality of an “Exclusive Jurisdiction” clause has been decided in several cases like Hakam Singh v. Gammon (India) Ltd.[2], where the Supreme Court was of the view that, whenever it has been specified in the contract that a particular court shall have jurisdiction, then, the other courts otherwise having a valid jurisdiction will not entertain such dispute proceedings and only the particular court as agreed by the parties shall try the proceedings.

M/S Swastik Gases Pvt. Ltd v. Indian Oil Corp.Ltd[3], where the Supreme Court has held the view that if a Contract specifies jurisdiction at a particular place which also has valid jurisdiction to institute the matter, then it is to be construed that the parties intentionally intended to exclude the other courts which might have a valid jurisdiction as well. Such a view has also been held in Shridhar Vyapar v. Gammon India[4] , where the Calcutta High Court is of the view that though an Exclusive Jurisdiction was present in the Contract, there were also different cause of action factors which justified the filing of proceedings elsewhere as well. The Court upheld the validity of such an Exclusive Jurisdiction clause which states that the intention of parties to exclude all other courts must be given primacy. The Court has also stressed on the fact that parties to the Contract need to have a mutual agreement or a meeting of the minds in selecting such place and conferring Exclusive Jurisdiction upon it.

The Supreme Court, in a recent case EXL Careers Ors v. Frankfinn Aviation Services Pvt. Ltd.[5], held that “it is no more res-integra that in a dispute between parties where two or more courts may have jurisdiction, it is always open for them by agreement to confer exclusive jurisdiction by consent on one of the two courts”. The clause in the agreement leaves no doubt that the parties clearly indicated that it was only a particular court which shall have Exclusive Jurisdiction with regard to any dispute concerning the agreement and no other court shall have the jurisdiction over the same.

Conclusion

The Courts through its various decisions, have indisputably established that  parties to a contract at their option can opt to include a an “Exclusive Jurisdiction” clause to limit the dispute proceedings to be initiated within the true and valid jurisdiction of one particular court, thereby excluding other courts which also might have such jurisdiction. The inclusion of such a clause does not impede upon any legal provisions, but in fact, provides an opportunity to the parties through a mutual agreement to select such a place which will provide them with convenience and affordability to initiate court proceedings. It is now advised by professionals to clearly include the “Exclusive Jurisdiction” clause while drafting Contracts between parties keeping in view the convenience of the parties.

[1] Section 2 (h), Indian Contract Act, 1872

[2] AIR 1971 SC 740

[3] (2013) 9 SCC 32

[4] GA 44 of 2018

[5] (2020) 12 SCC 667

 

Akshay A. Nair

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