In a landmark ruling on contractual freedom and jurisdiction, the Supreme Court has clarified that exclusive jurisdiction clauses in contracts are valid under Section 28 of the Indian Contract Act, 1872.
NEW DELHI: In a significant judgment addressing contractual autonomy and jurisdictional issues, the Supreme Court has ruled that
“Section 28 of the Indian Contract Act, 1872, does not prohibit exclusive jurisdiction clauses in contracts“
The Court emphasized that
“while the right to seek legal remedies cannot be extinguished by contract, parties can validly agree to restrict disputes to a particular forum, provided that the chosen court is competent under the law”
This observation came in a pair of civil appeals, with the lead case arising from a judgment of the Patna High Court that allowed a revisional application filed by HDFC Bank. In the connected appeal, the Bank had contested a contrary ruling of the Delhi High Court, which had dismissed its revisional plea.
A Bench comprising Justice Dipankar Datta and Justice Manmohan held that
“an exclusive jurisdiction clause is enforceable as long as it does not impose an absolute bar on legal recourse“
The Court noted that such clauses only limit the choice of courts and do not deprive the parties of their substantive right to approach the judiciary.
“Section 28 does not prohibit exclusive jurisdiction clauses. What it bars is the complete exclusion of the right to legal adjudication. A contractual clause that limits jurisdiction to a particular set of courts—provided they are competent—is not in violation of the law,”
the Bench observed.
Background of the Dispute
The lead appeal involved an employment dispute between HDFC Bank and its former employee, Rakesh Kumar Verma. He was appointed to the role of Executive in the Transaction Banking Group (Operations) in 2002, stationed at the Bank’s office in Patna. His appointment letter contained an exclusive jurisdiction clause, vesting legal jurisdiction solely in the courts of Mumbai.
In 2016, following allegations of misconduct and fraud, Verma’s employment was terminated. Challenging his dismissal, he filed a civil suit in a local court outside Mumbai. HDFC Bank sought rejection of the plaint under Order VII Rule 11 CPC, arguing that only Mumbai courts had jurisdiction pursuant to the contract.
While the trial court rejected the Bank’s application, the High Court at Patna allowed the Bank’s revisional plea. However, in a similar matter, the Delhi High Court dismissed HDFC Bank’s application. This conflicting outcome led to appeals before the Supreme Court.
Supreme Court’s Reasoning
The Court laid down three key criteria that determine the validity of an exclusive jurisdiction clause:
- Compliance with Section 28 of the Contract Act – The clause must not create an absolute bar to seeking legal remedy.
- Competency of the Chosen Court – The court designated in the clause must inherently possess jurisdiction under applicable laws, such as Section 20 of the Code of Civil Procedure.
- Intent of the Parties – There must be clear, express or implied intent to confer jurisdiction exclusively on a particular court or set of courts.
Applying these standards, the Court found that Mumbai courts were validly chosen, as critical decisions such as appointment, termination, and issuance of related letters had all originated in Mumbai. Therefore, the courts in Mumbai had sufficient territorial jurisdiction under the CPC.
The judgment underscored that contractual terms must be respected, and courts should refrain from undue interference unless the contract is vitiated by illegality, coercion, or other recognized exceptions.
“Contracts must be treated with equal respect regardless of the parties’ bargaining power. Disparity in negotiating strength alone is insufficient to invalidate a freely agreed contractual term,”
the Court asserted, drawing an analogy to a “mighty lion and timid rabbit” to illustrate the futility of skewing contractual enforcement on perceived inequalities.
The Court also clarified that employment contracts are not per se unequal or unfair and must be enforced like any other commercial contract, unless there is a statutory or constitutional violation.
Final Directions and Outcome
Having found the clause valid, the Supreme Court ordered that the plaint filed by Rakesh Kumar Verma be returned under Order VII Rule 10(2) CPC, with liberty to refile the same before a competent court in Mumbai.
Accordingly:
- The appeal against the Patna High Court’s ruling was dismissed, thereby affirming its judgment.
- The connected appeal against the Delhi High Court’s judgment was allowed, setting it aside.
This authoritative decision in Rakesh Kumar Verma v. HDFC Bank Ltd. (Neutral Citation: 2025 INSC 473) reaffirms the freedom of contract and the sanctity of jurisdictional clauses, provided they conform to established legal principles.
Cause Title- Rakesh Kumar Verma v. HDFC Bank Ltd.
Neutral Citation: 2025 INSC 473
Appearance:
Senior Advocate Narender Hooda led the arguments for the appellant, supported by a legal team comprising Sonal Jain, Surya Kant, Vatsalya Vigya, Rishab Raj Jain, Kajal Sharma, Grijesh Kumar, Sandeep S. Deshmukh, G.S. Chaturvedi, Shantanu Chaturvedi, and Priyanka Tyagi.
READ JUDGEMENT HERE:
FOR MORE LEGAL UPDATES FOLLOW US ON YOUTUBE