August 9,2019:
The Author, Sourav Pandiya is a 2nd Year student of National Law University Odisha.
INTRODUCTION
In the prominent Halsbury’s Laws of England, it is stated that “an agreement purporting to oust the jurisdiction of the courts is illegal and void on grounds of public policy”.[1] This implies that restriction on either party to enforce the agreement in any ordinary court is void and against public policy.
Section 28 of the Indian Contract Act, 1872 states that “ Every agreement,(a) 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; or (b) 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 the extent”.[2]
Section 28 states two kinds of agreement as void. The first being absolute restriction on legal proceedings in an ordinary court or tribunal arising under a contract and the second one is limiting the time period to enforce the contractual rights. It also provides two exceptions on the restrain of legal proceedings.
Exception 1 : “Saving of contract to refer to arbitration dispute that may arise. This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred”[3].
Exception 2 : “Saving of contract to refer questions 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 references to arbitration”[4].
Domestic Jurisdiction in the courts of India
Section 9 of CPC states that “The Courts shall have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred”[5]. Section 28 clearly implies that a party cannot arbitrarily decide the jurisdiction of court which it does not hold on personal grounds. There can be dual jurisdiction of courts to try a case and it is on the discretion of the parties to decide one of the jurisdiction. Nevertheless, it is contrary to entertain the suit in a court which has no jurisdiction on that matter. The authenticity of an agreement to choose one of the courts depend upon the fact that it must have jurisdiction to held the trial. There cannot be “absolute” restriction to legal proceedings in case of violation of rights however, it is valid to have partial restriction. In the case of Raigarh jute and Textile Mills Ltd v New Haryana Transport Co[6], it was stated that parties by mutual agreement choosing one out of several courts having jurisdiction to try the suit, is not against public policy.
- Hakam Singh v Gammon(India) Ltd.[7]
In this case parties got into an agreement for some construction work and having Bombay as Centre place for the business. Under clause 13 of the tender it was conspicuously mentioned that in case of dispute, only the court of Bombay shall have the jurisdiction to try the case. On arising dispute the appellate filed a petition in the court of Varanasi.
The Supreme Court held that “ it is not open to the parties by agreement to confer jurisdiction on a court, which it does not possess under the civil procedure code. But where two courts or more have under the code of civil procedure jurisdiction to try a suit, an agreement between the parties that the dispute between then 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.”[8]
There are predominantly three jurisdiction to a contract given under section 20 of the Code of Civil Procedure, 1908 i.e. the place of making of the contract, the place of performance of the contract and lastly the place of business and residence of the defendant. If on an agreement between the parties only one of the above mentioned jurisdiction competent under civil procedure code is considered will not violate the provisions of Section 28. It is also to be consider that it must be available at reasonable expense and not inaccessible.[9]
- ABC Laminart v A.P Agencies[10]
In this case there was a contract between the parties for the supply of Ruoplon Metallic yarn. The Appellant had the jurisdiction of Kaira, Gujrat and the respondent functioned his business in Salem, Tamil Nadu. The jurisdiction clause in the contract reads as “ Any dispute arising out of this sale shall be subject to Kaira jurisdiction.”[11] The respondent on arising dispute filled a suit in the court of Salem, Tamil Nadu the appellant on this filled a case challenging the jurisdiction of the court of Salem, and the dispute was appealed to the Supreme Court.
It was observed by the Supreme Court that it is not explicitly mentioned in the contract clause regarding exclusive jurisdiction. It was held by the court that in the absence of words – “Only”, “alone” and “exclusive”, the maxim of “Expressio unius est exclusio alterius” is to be used which means the explicit mention of one is the exclusion of another. It was stated by the court that “ Where the clause specifies one of the two courts having jurisdiction without specifically excluding jurisdiction of the other court, held on facts, both the courts had jurisdiction.”[12]
- Swastik gases private limited v Indian Oil Corporation Limited[13]
The appellant as the consignment agent was situated in Jaipur, Rajasthan and the Respondent deals in lubricants, oil, and various petroleum products. There was an agreement between the parties in which the appellant was appointed as marketing agent for lubricants at Jaipur, Rajasthan. Meanwhile, dispute arose between the parties regarding the place of signing the agreement. The respondent argues that the agreement was signed in Kolkata whereas the appellant argues that it was signed in Jaipur. The appellant sent a notice regarding nomination of arbitrator and request the respondent to nominate an arbitrator within 30 days. The respondent failed to appoint an arbitrator resulting the appellant filled an application under Section 11 of the Arbitration and Conciliation Act, 1996.
The supreme court held that the clause in the agreement mentioned that the disputes shall be subjected to the jurisdiction of Kolkata implies the court of Kolkata to have exclusive jurisdiction of the matter. The court held that use of words such as “only”, “alone”, “exclusive” or “exclusive jurisdiction” is not absolutely necessary to exclude jurisdiction of court, what is necessary is the intention of parties to the agreement. It is implied to have excluded the jurisdiction of all other courts when the agreement specifies subject to jurisdiction of a specific place.
It is to be noted that in ABC Laminart case the court put emphasis on the use of words such as “Only”, “alone” and “exclusive”, to be considered as exclusive jurisdiction of a court and held that both the court of Karia and Salem had jurisdiction over the matter. On the contrary, in Swastik case the court ruled out that even without the use of such words it is implied to have exclusive jurisdiction of a court of a particular place.
- Delhi bottling co. ltd. v times guaranty financials ltd.[14]
In this case a purchase agreement was signed by the parties and in clause 12.7 of the agreement it was clearly mentioned that “It is agreed by and between the parties that the civil courts in BOMBAY shall have the exclusive jurisdiction in respect of any matter, claim or dispute arising out of or in any way related to this agreement.”
There was a contention between the parties regarding the jurisdiction of court, it was of the question whether courts of Delhi have jurisdiction over this matter.
The court held that the clause in the agreement clearly stated the exclusive jurisdiction of the courts of Bombay and the courts of Bombay have the exclusive jurisdiction to try the case.
The court also argues that when two or more courts have the jurisdiction to try a case, an exclusive jurisdiction clause signed by the parties would oust the jurisdiction of other courts and only one court would have the jurisdiction to try the case and doing so is not contrary to Section 28 of Indian Contract Act.
It was held that the contract was executed at Bombay and the exclusive jurisdiction clause was signed by the parties made the civil courts of Delhi no control over the matter and is exclusively vested under the control of the civil courts of Bombay.
- Dilip Kumar Ray v. Tata Finance Ltd.[15]
In the above mentioned case parties enter into a sale- purchase agreement, and it was executed in Madras. In a clause of the agreement it was stated that in case of any dispute regarding the same, it is to be referred to arbitration in Bombay. It was made clear by the parties that the place for arbitration is Bombay.
The petitioner argues that some amount of payment is made in Bhubaneswar, the courts of Bhubaneswar have the jurisdiction to try the matter.
The court held that the arbitration clause in the agreement states that disputes shall be resolved in Bombay and therefor Bombay have the jurisdiction regarding the same.
It was also argued by the court that the place in which payment is made does not give jurisdiction to that place, therefor the courts of Bhubaneswar does not have the jurisdiction to try the case.
Provision for foreign jurisdiction: Unilateral Option clause
Unilateral option clause deals with adopting different methods of dispute resolution like Arbitration or litigation etc. Notwithstanding, this clause is only available to only one party and is not mutual.
Emmsons International Ltd v Metal Distributors (UK)[16]
Defendant M/s Metal distributors(UK) filled a case against the plaintiff for recovery of some money. It is mentioned in their agreement that the contract shall be govern by the law of a particular country and only the court of that country is competent to try the case. It is mentioned in the clause that the resolution of dispute through arbitration shall be subject to English law. It is argued by the plaintiff that clause 13 of the agreement i.e. “Governing Law and Forum for Resolution of disputes” to be out of the context and further argued that jurisdiction cannot be conferred or vested upon/in a court of law merely by an agreement between the parties where the Court inherently lacks jurisdiction in the matter.
It was held by the court that clause 13 being Unilateral covenant oppose to the public policy and derived the plaintiff to initiate proceedings under ordinary tribunals or through other dispute resolutions. It was held that it contravene Section 28 of the Indian Contract Act, 1872 and is void.
Black sea state Steamship Line v The Minerals and Metals Trading Corporation of India Ltd.[17]
In this case there was an agreement regarding shipment of some material, the plaintiff bought the case regarding damages incurred due to short delivery of items.
It was mentioned in the bill of lading that “The shipper, the receiver of goods and the holder of the bill of lading as well as any other person interested hereby expressly accept and agree to all printed written or stamped provisions, terms and reserves of this bill of lading, including those on the back hereof.”
It was also mentioned in the document that “All claims and disputes arising under and in connection with this bill of lading shall be judged in the U.S.S.R., and All questions and disputes not mentioned in this bill of lading shall be determined according to the Merchant Shipping Code of the U.S.S.R.”
It was held by the court that it is the matter of recovery of small damages and it would be inappropriate to send the case back to Russian courts.
Consensus ad idem in exclusive jurisdiction clause
It is to be noted that exclusive jurisdiction clause must be clear, unambiguous and must be in the knowledge of contracting parties. Merely printing the clause in the consignment document does not bound the parties.
In the case of Road Transport Organisation of India v Barunai Powerloom Weavers’ Coop Society Ltd[18] it was held that the clause related to exclusive jurisdiction must be of mutual assent and must came to the knowledge of the person to whom the agreement is made.
It is very important to know that the consignor has been adequately informed regarding the exclusive jurisdiction clause, in such a case the question arises that whether the original party is bound by the clause or not. In the case of V. Raja Rao v A.P.T. Co[19] it was put forward by the court that the person to whom the agreement is made to acquire delivery at the destination would also be bound by the condition. It was held that if the original party is not bound by the clause, neither the party which obtain the right would be bound.
The exclusive jurisdiction clause ousting the jurisdiction of one court does not apply to High Court, ousting the territory of any court in the clause only apply to a civil court.[20] The court must take into consideration all the facts and circumstances before deciding on the matter related to exclusive jurisdiction and mere use of words like “alone”, “only” or “exclusive” are not the only things to be taken into consideration.
United India Ins. Co. Ltd. V Associated Transport Corpn. Ltd.[21]
In this case the question regarding knowledge of the exclusive jurisdiction was question. In this case the clause in the consignment note mentioned in printed words “subject to Bombay jurisdiction alone” which imply to oust the jurisdiction of all other civil courts and giving exclusive jurisdiction to try that case only to the courts of Bombay. The clause was signed by the carrier’s employee and not by the consignor. Merely printing the clause does not bound the parties to oust the jurisdiction, the most important thing to look into is the knowledge regarding the clause and meeting of minds.
In this case it was held by the court that printing of words does not ipso facto constitute obligation on the parties regarding ousting clause unless it came to the knowledge of the parties and thereafter meeting of minds regarding the same.
C. Satyanarayan v K.L. Narasimham.[22]
In the above mentioned case the defendant wrote a letter comprising of a clause which says “ Subject to Madras jurisdiction”. It was held by the court that such words does not ouster the jurisdiction of the court until and unless mutually agreed upon.
The exclusive jurisdiction clause cannot be put forward by one party and must not be treated as a unilateral agreement it should be agreed by both the parties.
The court held that “mere recital on the top of the bill and it did not form part of the contract.”
Conclusion
When there are two courts having the jurisdiction to try a case, the Exclusive jurisdiction clause ousting the jurisdiction of a court does not contravene with the provisions of Section 28 of the contract act. The nature of Exclusive jurisdiction clause has been evolved by many cases, in which the ambiguity of this clause has been discussed. In the famous case of ABC Laminart the court ruled out that the use of words like “only”, “alone”, and “exclusive” must be treated as whole perspective to consider the validity of Exclusive jurisdiction clause but after The Swastik Gas case it was a relief for the lower courts to understand the uncertainty of this clause. It was also helpful for people who use standard form of contract on dispute resolution and ousting jurisdiction clause. The ambiguity regarding this clause is still in process and it is better to clearly draft the clause and eliminate all the ambiguous terms. It is also to be noted that mere putting an Exclusive jurisdiction clause does not bound the parties unless done by mutual assent.
References:
[1] Halsbury’s Laws of England, Vol 9, 352.
[2] Indian Contract Act 1872, s 28.
[3] Ibid.
[4] Ibid.
[5] The Code of Civil Procedure 1908, s 9.
[6] 1994 MPLJ 626.
[7] AIR 1971 SC 740.
[8] Ibid.
[9] E.I.D. parry (India) Ltd v Savani Transport (P) Ltd, AIR 1980 AP 30.
[10] (1989) 2 SCC 163.
[11] Ibid.
[12] Ibid.
[13] (2013) 9 SCC 32 (1).
[14] AIR 2003 NOC 7 (Delhi)
[15] AIR 2002 Ori 29
[16] (2005) 116 DLT 559.
[17] (1970) 1 MLJ 548.
[18] (1994) 84 Cut LT 174.
[19] (1969) 2 APLJ 151.
[20] P.R Transport Agency v Union of India, (2005) ALL LJ 3568: AIR 2006 ALL 23 (DB).
[21] AIR 1988 Ker 36.
