Section 28 Contract Act Does Not Bar Exclusive Jurisdiction Clauses: Supreme Court
The Supreme Court said that the law treats all contracts with equal respect and unless a contract is proved to suffer from any of the vitiating factors, the terms and conditions must be enforced regardless of the relative strengths and weakness of the parties.
The Supreme Court held that Section 28 of the Indian Contract Act, 1872 (ICA) does not bar exclusive jurisdiction clauses.
The Court held thus in a batch of two Civil Appeals in which the lead Appeal was filed against the Judgment of the Patna High Court, which allowed a Civil Revisional Application of the HDFC Bank. In the connected Appeal, HDFC Bank challenged the Judgment of the Delhi High Court which dismissed its Civil Revisional Application.
The two-Judge Bench comprising Justice Dipankar Datta and Justice Manmohan observed, “… Section 28 of the Contract Act does not bar exclusive jurisdiction clauses. What has been barred is the absolute restriction of any party from approaching a legal forum. The right to legal adjudication cannot be taken away from any party through contract but can be relegated to a set of Courts for the ease of the parties. In the present dispute, the clause does not take away the right of the employee to pursue a legal claim but only restricts the employee to pursue those claims before the courts in Mumbai alone.”
The Bench said that the law treats all contracts with equal respect and unless a contract is proved to suffer from any of the vitiating factors, the terms and conditions must be enforced regardless of the relative strengths and weakness of the parties.
Factual Background
In the lead Appeal, vide letter, HDFC Bank appointed the Appellant on the post of Executive Transaction Banking Group (Operation), in the Wholesale Banking Operations in the year 2002. Pursuant thereto, he joined his service at Wholesale Banking Operations at Exhibition Road, Patna. The appointment letter had an exclusive jurisdiction clause. In 2016, his service was terminated due to allegations of fraud and misconduct.
Being aggrieved, he instituted a Civil Suit and on receipt of Summons, the Bank filed a Petition under Order VII, Rule 11 of the Code of Civil Procedure, 1908 (CPC) for rejection of Plaint on the ground that it is the Courts in Mumbai which have jurisdiction and not the Court where the Suit was instituted. The Bank’s Appeal was dismissed by the Trial Court and thereafter, he went to the High Court and its Revisional Application succeeded. Hence, the Appellant was before the Apex Court.
Reasoning
The Supreme Court in view of the facts and circumstances of the case, explained, “… for an exclusive jurisdiction clause to be valid, it should be (a) in consonance with Section 28 of the Contract Act, i.e., it should not absolutely restrict any party from initiating legal proceedings pertaining to the contract, (b) the Court that has been given exclusive jurisdiction must be competent to have such jurisdiction in the first place, i.e., a Court not having jurisdiction as per the statutory regime cannot be bestowed jurisdiction by means of a contract and, finally, (c) the parties must either impliedly or explicitly confer jurisdiction on a specific set of courts. These three limbs/criteria have to be mandatorily fulfilled.”
The Court noted that as long as an employment contract does not offend the provisions of any applicable legislation, such as the Contract Act or the CPC, ordinarily, there should be no reason to interfere and that the scope of interference, in such matters, is quite narrow.
“Contracts should be treated equally, without bias or distinction. The fact that one party is more powerful or influential (the mighty lion) and the other more vulnerable (the timid rabbit) does not justify making exceptions or distinctions in the application of contractual principles”, it further elucidated.
The Court also emphasised that unequal bargaining power is not unique to contracts of personal service and in many areas, such as business, commerce, or real estate, contracts may involve parties with dissimilar levels of strength, resources or negotiating power.
“… the Court must already have jurisdiction to entertain such a legal claim. This limb pertains to the fact that a contract cannot confer jurisdiction on a court that did not have such a jurisdiction in the first place. The explanation to Section 20 of the CPC is essential to decide this issue. In the instant case, considering that the decision to employ Rakesh and Deepti were taken in Mumbai, the appointment letter in favour of Rakesh was issued from Mumbai, the employment agreement was dispatched from Mumbai, the decision to terminate the services of Rakesh and Deepti were taken in Mumbai and the letters of termination were dispatched from Mumbai, we are convinced that the courts in Mumbai do have jurisdiction”, it remarked.
The Court said that the clause in the contract has clearly and explicitly barred the jurisdiction of all other Courts by using the word ‘exclusive’ and thus, HDFC Bank is justified in its claim that the Suits ought to have been instituted in an appropriate Court in Mumbai.
“While directing the trial court to return the plaint to Rakesh and to make the necessary endorsement in terms of sub-rule (2) of Rule 10, we grant him the liberty to present such plaint in the competent court in Mumbai”, it ordered.
Accordingly, the Apex Court dismissed the lead Appeal, allowed the connected Appeal, affirmed the Patna High Court’s Judgment, and set aside that of the Delhi High Court.
Cause Title- Rakesh Kumar Verma v. HDFC Bank Ltd. (Neutral Citation: 2025 INSC 473)
Appearance:
Senior Advocate Narender Hooda, AORs Sonal Jain, Surya Kant, Vatsalya Vigya, Advocates Rishab Raj Jain, Kajal Sharma, Grijesh Kumar, Sandeep S Deshmukh, G. S. Chaturvedi, Shantanu Chaturvedi, and Priyanka Tyagi.
