2012 (1) TMI 272 - SC - Indian Laws

Mutual agreement on court jurisdiction upheld by Supreme Court, sets aside lower court decisions

The Supreme Court held that both Vijayawada and Calcutta courts had jurisdiction over the suit, despite the exclusion clause in the agreement favoring ... Whether the parties to an agreement can contract in violation of Sections 23 and 28 of the Indian Contract Act, 1872? Whether the parties to an agreement can confer jurisdiction on a Court which has no territorial or pecuniary jurisdiction to entertain a matter? Issues Involved:1. Jurisdiction of the Vijayawada Court to entertain the suit.2. Validity of the exclusion clause in the agreement.3. Whether the cause of action arose in both Vijayawada and Calcutta.4. Applicability of Sections 23 and 28 of the Indian Contract Act, 1872.5. Whether mutual agreement to exclude jurisdiction violates public policy.Issue-wise Detailed Analysis:1. Jurisdiction of the Vijayawada Court to entertain the suit:The Petitioner contested the jurisdiction of the Vijayawada Court based on an exclusion clause in the agreement that stipulated disputes would be subject to Calcutta jurisdiction only. The Principal Senior Civil Judge, Vijayawada, decreed that the Vijayawada Court had jurisdiction as part of the cause of action arose within its jurisdiction. This decision was upheld by the Andhra Pradesh High Court. However, the Supreme Court analyzed whether the cause of action arose exclusively in Vijayawada or also in Calcutta, concluding that both courts had jurisdiction under Section 20 of the Code of Civil Procedure.2. Validity of the exclusion clause in the agreement:The agreement included a clause stating, 'Any dispute arising out of this agreement will be subject to Calcutta jurisdiction only.' The Supreme Court examined whether such an exclusion clause was valid under Sections 23 and 28 of the Indian Contract Act, 1872. The Court referenced previous rulings, including A.B.C. Laminart Pvt. Ltd. vs. A.P. Agencies, Salem, which established that parties could mutually agree to confer jurisdiction to one of the competent courts without violating public policy.3. Whether the cause of action arose in both Vijayawada and Calcutta:The Supreme Court noted that the invoices for the goods were raised at Vijayawada, the goods were dispatched from Vijayawada, and payments were to be made at Vijayawada. Conversely, the agreement was entered into at Calcutta, and the goods were to be delivered there. Hence, part of the cause of action arose in both locations, giving both courts jurisdiction to entertain the suit.4. Applicability of Sections 23 and 28 of the Indian Contract Act, 1872:Section 23 outlines lawful considerations and objects, while Section 28 declares agreements in restraint of legal proceedings void. The Court clarified that an agreement restricting legal proceedings in ordinary tribunals is void. However, if two competent courts have jurisdiction, a mutual agreement to prefer one does not violate these sections, provided the agreement is clear and unambiguous.5. Whether mutual agreement to exclude jurisdiction violates public policy:The Supreme Court reiterated that agreements to oust jurisdiction of competent courts are valid if they do not entirely exclude legal proceedings but rather prefer one competent jurisdiction over another. This principle was upheld in several cases, including Hanil Era Textiles Ltd. vs. Puromatic Filters (P) Ltd., where the Court validated mutual agreements excluding one court's jurisdiction in favor of another.Conclusion:The Supreme Court concluded that although the Vijayawada Court had jurisdiction, the exclusion clause in the agreement ousted this jurisdiction in favor of Calcutta. Consequently, the decree by the Principal Senior Civil Judge, Vijayawada, and the High Court's judgment were set aside. The Trial Court at Vijayawada was directed to return the plaint to the Plaintiff for presentation before the appropriate court in Calcutta. The Special Leave Petition was allowed without any order as to costs.