“Exclusive Jurisdiction” Clause and its application

A person involved in negotiation or drafting of any Agreement will definitely agree that jurisdiction clause is one of the most important clauses of any Agreement. Jurisdiction clause assumes more importance in cases where the scope of the Agreement expands to more than one area or jurisdiction. Generally, parties to the Agreement, while negotiating, try to restrict the jurisdiction to court which is more convenient for them to approach.

Before we delve further in the discussion, the first question which comes to our mind is that whether an agreement which purports to oust the jurisdiction of the Court is contrary to public policy and hence void? It is a settled principle of law and there is no ambiguity that an agreement which purports to oust the jurisdiction of the Court absolutely is contrary to public policy and hence void. Section 28 of Indian Contract Act, 1872 also contains statutory provision to the effect thereto and reproduced below:

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 that extent.

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 was 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.

Now, we come to second question that how can the jurisdiction to deal with the disputes arising out of an Agreement be restricted to the identified courts? Generally, Parties to the Agreement tend to include exclusive jurisdiction clause in the Agreement, which reads as below:

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 XYZ.

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.

Now, we come to third and tricky question that what will happen if the jurisdiction clause does not use the word “only”, “exclusively”, “alone” etc. in the jurisdiction clause and simply includes below jurisdiction clause in the Agreement:

“The Agreement shall be subject to jurisdiction of the courts at XYZ”

The answer to the above question has been decided recently by Supreme Court in Swastik Gases Private Limited vs. Indian Oil Corporation Limited (Please click here to read full judgment)

In the present case, disputes arose between the parties and the appellant approached Rajasthan High Court for appointment of arbitrator in respect of the disputes arising out of concerned agreement. . The Respondent defended the application on the ground of lack of territorial jurisdiction of the Rajasthan High Court as the relevant clause related to jurisdiction of courts as per the agreement states that this agreement shall be subject to jurisdiction of the courts ar Kolkata. Relevant clause is reproduced herein below:-

“The Agreement shall be subject to jurisdiction of the courts at Kolkata.”

Supreme Court while deciding this case categorized the jurisdiction clause into two sets- (i) where the intention of the parties can be culled out from use of the expressions “only”, “alone”, “exclusive” and (ii) the other where such words like “only”, “alone” or “exclusively” are not used.

The present case falls under the second category where the maxim “expressio unius est exclusio alterius (expression of one is the exclusion of another)” would be applicable. It was held that the absence of words “alone”, “only”, “exclusive” is neither decisive nor does it make any material difference in deciding the jurisdiction of the court. The very existence of the clause clarifies the intention of the parties which is of utmost relevance.

Conclusion:

1) 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.

2) 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

3) 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.