It is a well settled principle of contract law that parties cannot by contract exclude the jurisdiction of all courts. Such a contract would constitute an agreement in restraint of legal proceedings and contravene Section 28 of the Indian Contract Act, 1872. However, where parties to a contract confer jurisdiction on one amongst multiple courts having proper jurisdiction, to the exclusion of all other courts, the parties cannot be said to have ousted the jurisdiction of all courts. Such a contract is valid and will bind the parties to a civil action.
Section 28. Agreements in restraint of legal proceedings, void-Every agreement, -
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to the extent.
Parties cannot by agreement confer jurisdiction on a court which lacks the jurisdiction to adjudicate. But where several several courts would have jurisdiction to try the subject matter of the dispute, they can stipulate that a suit be brought exclusively before one of the several courts, to the exclusion of the others.
‘A’, a resident of Ahmedabad, and ‘B’, a resident of Ranchi, enter into an agreement for sale and supply of goods. The transaction takes place partly in Ahmedabad and partly in Ranchi. Clause 6 of the agreement stipulates that in the event of a dispute arising between ‘A’ and ‘B’ within six months of the entering into contract, they can approach a court in either Ahmedabad or Ranchi (as both are proper places of jurisdiction), or take recourse to any alternative dispute resolution mechanism to settle the dispute. Clause 7 of the agreement stipulates that in the event of a dispute arising between ‘A’ and ‘B’ after the expiry of six months of entering into contract, the courts in Chennai would have exclusive jurisdiction to decide the dispute. In the given situation, which of the following statements is true?
Correct Answer :
Both Clause 6 and Clause 7 are void.
Solution :
The correct answer is Option 4: Both Clause 6 and Clause 7 are void.
Step 1: Analyzing Clause 6 of the Agreement
According to Section 28(a) of the Indian Contract Act, 1872, any agreement that restricts a party absolutely from enforcing their contract rights by usual legal proceedings, or limits the time within which a party may enforce their rights, is void to that extent.
Clause 6 restricts the parties' right to approach the courts in Ahmedabad or Ranchi to a timeframe of within six months. Limiting the period within which legal proceedings can be instituted to less than the statutory limitation period violates Section 28 of the Indian Contract Act, 1872. Therefore, Clause 6 is void.
Step 2: Analyzing Clause 7 of the Agreement
As established by contract law principles, parties cannot by agreement confer jurisdiction on a court that inherently lacks subject matter or territorial jurisdiction over the dispute.
In this scenario, 'A' resides in Ahmedabad, 'B' resides in Ranchi, and the transaction took place partly in Ahmedabad and partly in Ranchi. Thus, the courts in Chennai have no jurisdiction over the cause of action or the parties involved. Conferring exclusive jurisdiction on a court in Chennai (which lacks inherent jurisdiction) renders Clause 7 invalid. Therefore, Clause 7 is also void.
Conclusion:
Because Clause 6 illegally limits the time for legal proceedings under Section 28, and Clause 7 attempts to confer jurisdiction on a court (Chennai) that has no inherent jurisdiction over the dispute, both Clause 6 and Clause 7 are void.
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