S.28 Contract Act Doesn't Bar Exclusive Jurisdiction Clauses In Contracts : Supreme Court

The Supreme Court held that exclusive jurisdiction clauses in employment contracts, which confers exclusive jurisdiction on the courts of a particular location to decides disputes relating to the contract, are not barred by Section 28 of the Contract Act.

Section 28 of the Indian Contract Act, 1872, declares void any agreement that restricts a party from enforcing their rights under a contract through legal proceedings, or limits the time within which they can do so, except in cases of arbitration agreements.

However, the Court explained that 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.  

A bench comprising Justice Dipankar Datta and Justice Manmohan was deciding two appeals related to two employees of the HDFC Bank Ltd. In both cases, the employment contracts conferred exclusive jurisdiction on the Courts in Mumbai. When the employees were terminated, they filed civil suits - one person filed in Delhi and the other in Patna. The Bank filed petitions to reject the plaint citing the exclusive jurisdiction clause. The Patna High Court held that the suit in Patna was barred. However, the Delhi High Court held that the suit in Delhi was maintainable. The appeals in the Supreme Court questioned the judgments of Patna and Delhi High Courts.

The judgment authored by Justice Datta noted that Section 28 of the Contract Act permitted exclusive jurisdiction clauses and particularly relied on the judgment in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd (2013) 9 SCC 32.

Explaining the reason why such clauses are included, the judgment stated that the private sector employs individuals pan-India to provide services to reach people in the last mile. Therefore, it may not be possible for all employers in the private sector to contest suits at far-off places from the registered office.  

The Delhi High Court had relied on a judgment delivered by its coordinate bench in Vishal Gupta v. L & T Finance. Relying on this judgment, the employee contended that in a situation of unequal bargaining power between the worker and the bank, the exclusive jurisdiction clause cannot be given effect to. However, the Court disagreed with this reasoning, saying that the clauses of a valid contract must be given effect to, regardless of the status of the parties.

"A contract – be it commercial, insurance, sales, service, etc. – is after all a contract. It is a legally binding agreement, regardless of the parties involved or their inter se strengths. To make a distinction for employment contracts on the specious ground that a mighty lion and a timid rabbit are the contracting parties would violate the principle of equality, in the sense that rights and liabilities would not be dependent on the parties' status, power or influence. 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."

The Court also expressly overruled the judgment in Vishal Gupta by stating, "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 have to be enforced regardless of the relative strengths and weakness of the parties."

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. It cannot but be gainsaid that the scope of interference, in such matters, is quite narrow.

The Court explained its reasons for upholding the clauses in the present case as follows :

First, 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.

Secondly, 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.

Lastly, the clause in the contract has clearly and explicitly barred the jurisdiction of all other courts by using the word “exclusive”.

The Court affirmed the judgment of the Patna High Court and set aside the judgment of the Delhi High Court. The parties were allowed to file fresh suits in Mumbai.

Case : Rakesh Kumar Verma vs HDFC Bank Ltd, HDFC Bank vs Deepti Bhatia

Citation : 2025 LiveLaw (SC) 407

Click here to read the judgment