What is an exclusive jurisdiction clause?

Terms in a contract wavering the right of the parties to go to any of the civil courts having jurisdiction to resolve a dispute arising out of that contract by giving exclusive jurisdiction to one or more of the competent courts is known as an exclusive jurisdiction clause.

Illustration: Mr. B (buyer) went to Bombay for a conference and ordered 50 pendrives in a stationary shop near his hotel. Mr. B gave some advance money to the shopkeeper Mr. S (seller)  on Mr. S’s assurance that he can arrange 50 pendrives in a day, as Mr. B informed him that he needs these pendrives for the conference day after. Now when S delivers the pendirves the conference was over. Mr. B refused to take the pendrives and asked Mr. S to return the advanced money. Mr. B is a permanent resident in Kolkata. Now let’s say S wants to sue B. The cause of action arises at Bombay whereas the defendant’s residence is in Kolkata. Thus courts of both the places Bombay and Kolkata will have jurisdiction to try the dispute.

If it was written in Mr. B’s bill that disputes are to be referred to Bombay and this bill was signed by Mr. B while placing the order. This is an exclusive jurisdiction clause agreed by the parties through a contract,thus it will take away the power of a civil court in Kolkata to try this particular matter which was otherwise competent to try the matter according to the Civil Procedure Code , 1908 (“CPC”).

What is a competent court? Can there be more than one competent court to try a matter?

Several courts can be competent to try a single dispute arising out of a contract. In case of a dispute regarding an immovable property, the court within whose jurisdiction the immovable property situated will be the competent court to try the matter.  If the property situated within the jurisdiction of different courts then all the courts, within the local limits of whose jurisdiction any portion of the property situates, are competent to try the matter. The choice is with the petitioner to file the suit in any one of those competent courts.

When the dispute is not regarding any immovable property, then competency is derived from various facts like:

1. defendant’s place of residence, business place or his for profit work place
2. place where the cause of action arises, wholly or in part

Thus all the courts within whose jurisdiction such places fall will be competent to try dispute. The petitioner have the choice to approach the one he finds easy to work with.

Why should one keep an exclusive jurisdiction clause in a contract?

As it is evident from the above mentioned discussion that various courts can be competent to try a matter arising out of a contract. Thus to create certainty on the place of the forum in case of a dispute, it is strongly advised that a court is specified to have exclusive jurisdiction so that parties cannot take their disputes to other courts.

Power of the parties to impose jurisdiction on a court:

The parties cannot impose jurisdiction on a court which does not possesses the power to try the matter otherwise as per the law of the land. To try a matter, the court has to be a competent court to try the matter as per the Code of Civil Procedure, 1908 (“CPC”) or any other parallel prevailing law of the country (such as Arbitration and Conciliation Act, 1996). Contracting parties have the right to waive their rights which have been given to to them by the statutes without destroying the very essence or purpose of the statute. That is why absolute exclusion of all the competent courts is not permissible as that will destroy the very purpose of “CPC” i.e., to provide justice to all.

In the earlier discussed illustration the parties cannot confer the right to adjudicate such matters to the Gujarat High Court, even if Gujarat is the place of residence of the petitioner. Similarly, they can not specify in their contract that courts in UP will have exclusive jurisdiction over disputes arising out of the contract – as according to the land of the law such courts have no power to adjudicate such disputes. If such clauses are indeed mentioned, they will not be enforceable.

Whether such clauses are against public policy?  

As long as an exclusive jurisdiction clause does not oust jurisdiction of all the Civil Courts absolutely or does not confer jurisdiction on a civil court which does not possess any jurisdiction to try the matter under (Section 20) “CPC”, an exclusive jurisdiction clause is valid. Such clauses are not contrary to the public policy as they do not impose any absolute restriction on the parties to enforce their rights in respect of a contract through usual legal proceedings in the ordinary courts/ tribunals.

Whether exclusion of jurisdiction of other competent courts have to be expressed in the clause itself?

It is not necessary to expressly state in the clause itself that the jurisdiction of the all other competent courts are ousted thereunder. A mere reference to an appropriate, competent court under  a heading of “exclusive jurisdiction” ousts jurisdiction of all other competent courts not expressly mentioned in the clause.