Bench: Justice Dipankar Datta and Justice Manmohan
Introduction:
The Supreme Court in this case dealt with the validity of exclusive jurisdiction clauses in employment contracts under Section 28 of the Indian Contract Act, 1872. The key question was whether such clauses are barred by law, especially when there is a disparity in bargaining power between an employer and an employee. The Court held that exclusive jurisdiction clauses are valid as long as they do not absolutely bar access to legal remedies, and the chosen court has jurisdiction as per law.
- Section 28, Indian Contract Act, 1872 – Agreements in restraint of legal proceedings
- Section 20, Code of Civil Procedure, 1908 – Place of suing
- Order VII Rule 11, CPC – Rejection of plaint
- Case referred: Swastik Gases (P) Ltd. v. Indian Oil Corp. Ltd., (2013) 9 SCC 32
Facts of the Case:
The appeals arose from two separate civil suits filed by former employees of HDFC Bank Ltd – Rakesh Kumar Verma and Deepti Bhatia – who were terminated from service. The employment contracts in both cases conferred exclusive jurisdiction to Mumbai courts for adjudication of disputes. Rakesh filed a suit in Patna and Deepti in Delhi. HDFC Bank filed applications under Order VII Rule 11 CPC seeking rejection of plaints on the ground of lack of jurisdiction, invoking the exclusive jurisdiction clause. The Patna High Court accepted the Bank’s plea and dismissed the suit. The Delhi High Court, however, held the exclusive jurisdiction clause unenforceable in an employment context and allowed the suit to proceed.
Issues:
- Whether Section 28 of the Indian Contract Act, 1872 bars exclusive jurisdiction clauses in contracts, particularly employment contracts?
- Whether a party can be confined to a particular jurisdiction through a contract, and is such a clause valid when there is unequal bargaining power?
- Whether the courts in Mumbai had jurisdiction over the matter as per Section 20 of CPC?
Contentions of the Petitioners:
The exclusive jurisdiction clause was unfair and a result of unequal bargaining power between employer and employee. Relying on the Delhi High Court's earlier judgment in Vishal Gupta v. L&T Finance, they argued that such clauses in employment contracts should not be enforced due to the inherent power imbalance. Claimed that their rights to access justice in the place where they reside or worked were being restricted.
Contentions of the Respondent:
The exclusive jurisdiction clause was valid and binding as per contract law. The contracts were executed, administered, and terminated from Mumbai, hence Mumbai courts naturally had jurisdiction under Section 20 CPC.
Emphasized that such clauses do not bar legal remedy, but merely limit the forum of adjudication for administrative convenience.
Court's Analysis:
The Court relied heavily on the precedent set in Swastik Gases (P) Ltd. v. Indian Oil Corp. Ltd., (2013) 9 SCC 32, which upheld the validity of exclusive jurisdiction clauses. It clarified that Section 28 bars absolute restriction on legal proceedings, but not reasonable forum selection through exclusive jurisdiction clauses.
Distinguished between forum restriction and remedy restriction – only the latter is barred under Section 28. Rejected the argument of unequal bargaining power, stating that “a contract is a contract” – the validity of terms should not vary with the parties' relative strength.
- Quoted:
“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...”
Mumbai courts were found to have jurisdiction since:
- Appointment letters were issued from Mumbai.
- Decisions to hire and terminate were taken in Mumbai.
- Employment agreements were dispatched from Mumbai.
The clause used the word “exclusive”, clearly barring other forums.
Conclusion:
The Supreme Court affirmed the Patna High Court judgment (dismissing the suit for lack of jurisdiction) and overruled the Delhi High Court judgment. Held that exclusive jurisdiction clauses in employment contracts are enforceable, provided the chosen court has jurisdiction under law, and Section 28 of the Contract Act is not violated.
