Parties often mutually agree to subject their disputes in relation to a contract to a Court of their choice. However, the question remains as to whether the parties can agree to subject their disputes to a Court which may not otherwise have jurisdiction?
Parties to a contract are barred from agreeing to absolutely oust the jurisdiction of all the Courts which would otherwise have the jurisdiction to decide a dispute in relation to a contract between them. Such agreements are considered as unlawful and void by Section 28 of the Indian Contract Act, 1872. Therefore, parties to a contract are often seen to mutually agree that a dispute in respect of a contract would be subject to the jurisdiction of a particular Court. Where there may be 2 or more Courts having jurisdiction to entertain a dispute consequent to part cause of action having arisen therewith, the parties may agree to oust the jurisdiction of one Court and may agree to subject their dispute absolutely and exclusively to the jurisdiction of the other Court.
When it comes to the question of territorial jurisdiction, Section 20 of the Code of Civil Procedure, 1908 is relevant1. Under Section 20 of the Code of Civil Procedure, 1908, a Suit can be instituted in a Court within the local limits of whose jurisdiction—
(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or
(b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or
(c) the cause of action, wholly or in part, arises
Therefore, would a Court have jurisdiction to entertain a Suit in relation to a dispute under a contract merely because the parties have mutually agreed to such a Court even if neither the Defendants reside or carry on business within its local limits nor the cause of action has wholly or partly arisen within its local limits?
The jurisdiction of a Court depends on the situs of the contract and the cause of action arising through connecting factors2. However, which acts can be construed as cause of action?
The Hon'ble Supreme Court in A.B.C. Laminart Private Limited v. A. P Agencies, Salem3 has defined cause of action to mean every fact, which if traversed, would be necessary for the plaintiff to prove in order to support his right to a judgment of the court. It is a bundle of facts which taken with the law applicable to them gives the plaintiff a right to relief against the defendant. It must include some act done by the defendant since in the absence of such an act no cause of action can possibly accrue. It is not limited to the actual infringement of a right sued on but includes all the material facts on which it is founded. It does not comprise evidence necessary to prove such facts, but every fact necessary for the plaintiff to obtain a decree.
The Hon'ble Supreme Court further observed that in the matter of contract there may arise cause of action of various kinds. In a suit for damages for breach of a contract the cause of action consists of making of the contract, and of its breach, so that the suit may be filed either at the place where the contract was made or at the place where it should have been performed and the breach occurred. But making of an offer in a particular place does not form cause of action in a suit for damages for breach of contract. Ordinarily, acceptance of an offer and its intimation result in a contract and hence a suit can be filed in a court within whose jurisdiction the acceptance was communicated.
However, when is a contract said to be performed? The Hon'ble Supreme Court in the aforesaid case observed further that the performance of a contract is part of cause of action and a suit in respect of the breach can always be filed at the place where the contract should have been performed or its performance completed. Part of the cause of action arises where the money is expressly or impliedly payable under a contract.
While dealing with the question of whether the parties are required to use the words such as 'alone', 'only', 'exclusive' or 'exclusive jurisdiction' in order to subject their disputes exclusively to the jurisdiction of a particular Court which would otherwise have jurisdiction, the Hon'ble Supreme Court in Swastik Gases Private Limited v. Indian Oil Corporation Limited, held that the use of such words is not decisive and does not make any material difference. Where the contract specifies the jurisdiction of the courts at a particular place and such courts have jurisdiction to deal with the matter, an inference can be drawn that the parties intended to exclude all other courts.
In view of the judgments passed by the Hon'ble Supreme Court, it can be concluded that the parties cannot mutually agree to subject their disputes to the jurisdiction of a Court which would not otherwise have jurisdiction to entertain the dispute between them. However, if a part of cause of action had taken place in the local limits of the Court on which the parties had agreed to subject their disputes to, then such Courts can entertain and try such disputes.
1 Swastik Gases Private Limited v. Indian Oil Corporation Limited (2013) 9 SCC 32
2 (1989) 2 SCC 163
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