DATE: 08/04/2025
COURT: Supreme Court of India
BENCH: Justice Dipankar Datta and Justice Manmohan
FACTS:
In the lead appeal, Rakesh challenged the judgment of the Patna High Court dated 25th January 2022, which allowed a civil revision filed by HDFC Bank. Rakesh was appointed by HDFC Bank in 2002 at its Patna office and was later terminated in 2016 over allegations of fraud and misconduct. He filed a civil suit in the Patna court seeking reinstatement and a declaration that his termination was illegal. HDFC Bank, citing an exclusive jurisdiction clause in the appointment letter favoring courts in Mumbai, sought rejection of the plaint under Order VII, Rule 11 CPC. The trial court rejected this plea, but the Patna High Court later reversed that decision, ruling that the clause effectively ousted the jurisdiction of Patna courts, relying on the Supreme Court’s judgment in Swastik Gases v. Indian Oil Corporation Ltd.
In the connected appeal, HDFC Bank contested the Delhi High Court’s judgment dated 12th November 2011, which had dismissed its revision application. The case involved Deepti, a former employee of Lord Krishna Bank (merged with HDFC Bank in 2009), who was terminated in 2017 under similar allegations. Deepti filed a civil suit in Delhi seeking reinstatement and related relief. HDFC Bank invoked the exclusive jurisdiction clause in her employment contract, which designated Mumbai courts as the sole forum for disputes. However, the trial court held that the Delhi court had jurisdiction since Deepti resided and worked in Delhi and the termination letter was served there. The Delhi High Court upheld this finding, holding that the exclusive jurisdiction clause did not bar the Delhi court’s authority.
ISSUES:
The central question of law arising in these appeals is whether the civil suits filed by Rakesh in Patna and Deepti in Delhi were maintainable, given the presence of specific clauses in their respective appointment letter and employment agreement that conferred exclusive jurisdiction on the courts in Mumbai to adjudicate any disputes between the parties.
JUDGEMENT WITH REASONING:
The Supreme Court held that exclusive jurisdiction clauses in employment contracts are valid, provided they meet three conditions: (1) they do not completely bar legal proceedings (in line with Section 28 of the Contract Act), (2) the chosen court must already have jurisdiction under the law (as per Section 20 of the CPC), and (3) the clause must clearly and explicitly confer exclusive jurisdiction. In this case, the Court ruled that the exclusive jurisdiction clause in favor of Mumbai courts was valid. However, it found that the Patna High Court erred by rejecting the plaint under Order VII Rule 11 of the CPC; instead, it should have returned the plaint under Order VII Rule 10 for presentation before a competent court in Mumbai.
The Supreme Court reasoned that parties to a contract can validly choose one among multiple competent courts to have exclusive jurisdiction over disputes, as long as such a choice does not violate Section 28 of the Indian Contract Act, which renders agreements void if they absolutely restrict legal proceedings. Since the clause in this case did not prohibit legal recourse altogether but only limited the forum to a particular court that already had jurisdiction (i.e., courts in Mumbai), it was held to be legally enforceable. The Court emphasized that parties can exercise this right as long as the chosen court has jurisdiction under the law, and the language of the clause clearly expresses the intention to confer exclusive jurisdiction. This aligns with a consistent line of precedent supporting the enforceability of such clauses in commercial and employment contracts, as long as they do not oust jurisdiction entirely.
Additionally, the Court observed that the Patna High Court made an error in rejecting the plaint under Order VII Rule 11 of the CPC, which applies when a plaint does not disclose a cause of action or is barred by law. Instead, the proper course, when a court lacks jurisdiction due to a valid exclusive jurisdiction clause, is to return the plaint under Order VII Rule 10 so it can be presented before the appropriate court. The distinction is crucial, as rejecting a plaint ends the suit altogether, whereas returning it preserves the plaintiff’s right to seek relief before a competent forum. The Supreme Court thus corrected this procedural mistake and reaffirmed the importance of adhering to proper procedural rules when dealing with jurisdictional issues based on contractual clauses.
ANALYSIS:
This case marks a significant reaffirmation by the Supreme Court of India regarding the enforceability of exclusive jurisdiction clauses in employment contracts. The Court carefully balanced the principles of contractual freedom with statutory protections under the Indian Contract Act and the Code of Civil Procedure. By upholding the clause that conferred jurisdiction on Mumbai courts, the Court emphasized that such clauses are valid if they meet three essential criteria: the chosen court must already have jurisdiction under the law, the language of the clause must clearly express exclusivity, and the clause must not completely bar legal proceedings. This reasoning aligns with earlier jurisprudence such as Swastik Gases v. Indian Oil Corporation Ltd., reinforcing the legal standing of jurisdiction clauses, even in the employment context, where such clauses had traditionally been viewed with more caution.
At the same time, the Court provided important procedural clarity by correcting the Patna High Court’s error in invoking Order VII Rule 11 to reject the plaint. The Supreme Court clarified that in instances where a court lacks jurisdiction due to a valid jurisdiction clause, the proper course is to return the plaint under Order VII Rule 10. This distinction is crucial because it preserves the litigant’s right to approach the correct forum rather than terminating the suit altogether. The Court’s approach strikes a balance between upholding contractual obligations and protecting procedural fairness, thus offering a comprehensive interpretation that will likely influence future disputes involving jurisdiction clauses in both commercial and employment contexts.
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