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Exclusivity Of Jurisdiction Clause In Contracts/Agreements

Introduction of exclusive jurisdiction clause
The laws in India have prescribed certain set of rules by which an aggrieved party can institute a suit in Court of law. The general scenario to refer the disputes to the Courts is provided under Code of Civil Procedure, 1908 (CPC). One of the provision is enumerated in section 20 of the CPC which provides that a suit may be instituted either at the place where the defendant ordinarily resides or carries on business or where any part of the cause of action arises.[1]

The parties to a contract may mutually agree to refer the disputes to a particular Court or Courts. Such a clause in a contract is called as exclusive jurisdiction clause. The parties agree to exclusively refer the disputes arising from the contract, if any, to a particular Court or Courts.

Elements of exclusive jurisdiction clause
Even if CPC provides for the rules where the parties can file suits, an exclusive jurisdiction clause in a contract would not violate the provisions of CPC.

Exclusive jurisdiction has to qualify the following:

  1. Where one or more Courts have jurisdiction, parties can agree to exclusive jurisdiction of one Court and exclude the other courts.
  2. Where one or more Courts have jurisdiction, parties cannot agree to exclusive jurisdiction of some other third Court.

Contract and exclusive jurisdiction clause

Where one or more courts have jurisdiction, parties by agreement choosing one jurisdiction would not violate the provisions of section 23 and 28 of The Indian Contract Act, 1872. Thus, when parties come to such an agreement, the contract would not be termed as unlawful or restraint to legal proceedings.[2]

Exclusive Jurisdiction Clauses are extensively used by parties to an agreement as often it may not be convenient for the parties to sue at the place at which the cause of action for the dispute may have arisen. In such cases the exclusive jurisdiction clause offers a party the opportunity to establish a convenient pre-determined place where disputes arising in regard to the contract would be referred to, if and when they arise.

Arbitration and exclusive jurisdiction clause:

The Supreme Court has also provided clarity on exclusive jurisdiction clause in case of Arbitration Agreement. The Supreme Court in Indus Mobile Distribution Case[3], stated that in cases where the parties include an exclusive jurisdiction clause in an arbitration agreement designating a particular place as the seat of the arbitration, the Court in whose jurisdiction the seat of the arbitration falls would have sole jurisdiction to entertain petitions in respective of non-arbitral issues arising out of the agreement, to the exclusion of any other Courts.

Once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration. A ‘Juridical seat' in arbitration is nothing but the legal place of arbitration.

Once the parties have decided a particular place as the juridical seat or legal place of arbitration (example: Mumbai or a foreign country), then the courts of that place alone would have jurisdiction over the arbitration. Therefore, in cases where the seat of arbitration is located outside India, by necessary implication Part I of the Arbitration Act is excluded as the supervisory jurisdiction of courts over the arbitration goes along with the “seat”.

The mere choosing of the juridical seat of arbitration attracts the law applicable to such location. In other words, it would not be necessary to specify which law would apply to the arbitration proceedings, since the law of the particular country would apply ipso jure. Accordingly, parties may well choose a particular place of arbitration precisely

Drafting of exclusive jurisdiction clause

The exclusive jurisdiction clause has to be drafted in such a manner that it does not lead to any ambiguity or vagueness. If the parties do not agree to the said clause, it is suggested that no reference to any exclusive jurisdiction be made in the contract.

In the case of M/S Swastik Gases Pvt. Ltd v. Indian Oil Corp. Ltd, the Supreme Court stated that no specific reference of words like “alone”, “only”, “exclusive” or “exclusive jurisdiction” can decide the jurisdiction of a Court. It was held that the very explicit mention of a jurisdiction clause in an agreement makes the intention of the parties very much clear.[4]

Conclusion
An exclusive jurisdiction clause is that part of a contract whereby the parties mutually decide and agree to refer the disputes arising from the contracts to a particular Court or Courts. Thus, an exclusive jurisdiction clause is choosing a particular Court or Courts where the parties can refer their dispute to the exclusion of all the other Courts. Such a clause empowers the parties to the contract to exclude the other Courts form referring any disputes related to the contract that is entered into by them.

End-Notes:
  1. Section 20 of Code of Civil Procedure, 1908
  2. Hakam Singh v. Gammon (India) Ltd [1971 SCR (3) 314]
  3. Indus Mobile Distribution Pvt. vs Datawind Innovations Pvt. Ltd
  4. M/S Swastik Gases Pvt. Ltd v. Indian Oil Corp.Ltd [(2013) 9 SCC 32
Written By:
  1. Advocate Kinjal Gala &
  2. Advocate Priyanka Shah.

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