Summary
Two former HDFC Bank employees sued in Patna and Delhi to challenge their terminations, although their appointment letter and employment agreement provided that courts in Mumbai would have exclusive jurisdiction. The Supreme Court held that an exclusive jurisdiction clause in a private employment contract is as binding as in any other contract, provided it does not absolutely bar legal proceedings (Section 28, Contract Act), the chosen court otherwise has jurisdiction under the CPC, and the clause clearly selects that court; the Delhi High Court's contrary view in Vishal Gupta v. L&T Finance was disapproved. The plaints were ordered to be returned under Order VII Rule 10 CPC for presentation in Mumbai, the Patna High Court having erred in rejecting the plaint under Order VII Rule 11.
Issues
- Whether civil suits challenging termination of employment could be instituted in Patna and Delhi when the appointment letter/employment agreement conferred exclusive jurisdiction on courts in Mumbai.
- Whether the settled principles on exclusive jurisdiction clauses apply to private service/employment contracts, or whether unequal bargaining power between employer and employee warrants an exception.
- Whether the Delhi High Court decision in Vishal Gupta v. L & T Finance, holding that such clauses do not oust jurisdiction in employment disputes, lays down the correct law.
- Whether, on finding that the court lacked territorial jurisdiction, the proper order was rejection of the plaint under Order VII Rule 11 CPC or its return under Order VII Rule 10 CPC.
Provisions considered
- Section 28, Indian Contract Act, 1872Section 28 voids only agreements that absolutely restrict a party from enforcing its rights by legal proceedings. An exclusive jurisdiction clause does not take away the employee's right to sue but merely relegates the claim to courts in Mumbai, and so is not hit by the section. (¶¶ 9, 18, 29)
- Section 20, Code of Civil Procedure, 1908A contract cannot confer jurisdiction on a court which lacks it under the CPC. Applying Section 20 and its Explanation, the Court found that the decisions to employ and to terminate both employees were taken in Mumbai and the appointment, employment and termination letters were issued or dispatched from Mumbai, so the Mumbai courts had jurisdiction and could validly be selected as the exclusive forum. (¶¶ 10, 18, 30)
- Order VII Rule 10, Code of Civil Procedure, 1908Since the Mumbai courts had jurisdiction and the plaint was not otherwise liable to rejection, the correct course was to return the plaint under Order VII Rule 10 with the endorsement required by sub-rule (2) for presentation to the competent court in Mumbai, not to reject it. (¶¶ 33, 35)
- Order VII Rule 11, Code of Civil Procedure, 1908The Patna High Court erred in allowing the bank's application under Order VII Rule 11, which results in rejection of the plaint, when none of the grounds in that rule applied; want of territorial jurisdiction calls for return of the plaint. (¶ 33)
- Order VII Rule 6, Code of Civil Procedure, 1908If fresh suits are filed in Mumbai, the plaintiffs may plead in their plaints the grounds on which they claim exemption from the law of limitation. (¶ 37)
Held
- The law on exclusive jurisdiction clauses, settled in Hakam Singh, Globe Transport, A.B.C. Laminart and Swastik Gases, is no longer res integra. Such a clause is valid if (a) it is consistent with Section 28 of the Contract Act, i.e. it does not absolutely restrict a party from initiating legal proceedings; (b) the chosen court is otherwise competent under the statutory regime, since a contract cannot confer jurisdiction a court does not possess; and (c) the parties have, expressly or impliedly, conferred jurisdiction on a specific set of courts. All three criteria must be satisfied. Swastik Gases, a three-judge Bench decision, binds the Court. (¶¶ 11, 12, 13, 14, 15, 17, 18, 19)
- There is a gulf between public service and private employment: a government servant acquires a status governed by statute and statutory rules, and Articles 14, 16 and 21 may prevent the State from tying him to a court at a particular place. Private employment is governed by the contract between the parties; once a concluded contract exists, the parties' intentions are gathered from it, and an employee who accepted the appointment letter and joined service was ad idem on a clause making Mumbai the exclusive situs of dispute resolution. (¶¶ 21, 22)
- A contract, whether commercial, insurance, sales or service, is a legally binding agreement regardless of the parties' relative strength. Carving out an exception for employment contracts on the ground that the employer is a mighty lion and the employee a timid rabbit would violate the principle that contractual rights and liabilities do not depend on the parties' status or power. Unequal bargaining power is not unique to contracts of personal service, and unless a contract is shown to suffer from a vitiating factor its terms must be enforced. The scope of interference with an employment contract that does not offend applicable legislation is narrow. (¶¶ 23, 24, 25, 26)
- The law laid down by the Delhi High Court in Vishal Gupta v. L & T Finance, that an exclusive jurisdiction clause does not oust jurisdiction in employment disputes, is not approved. (¶¶ 27, 28)
- On the facts, all three criteria were met: the clause only restricts the employee to courts in Mumbai without taking away the right to sue; the Mumbai courts had jurisdiction under Section 20 CPC because the decisions to employ and terminate were taken there and the relevant letters were issued or dispatched from there; and the clause expressly used the word 'exclusive'. The suits should therefore have been instituted in Mumbai. (¶¶ 29, 30, 31, 32)
- Where a court lacks territorial jurisdiction because of an exclusive jurisdiction clause but the plaint is not otherwise liable to rejection under any clause of Order VII Rule 11, the plaint must be returned under Order VII Rule 10 for presentation to the competent court, not rejected. The Patna High Court committed a fundamental error in allowing the Order VII Rule 11 application. (¶ 33)
Result
Lead appeal (Rakesh Kumar Verma) dismissed, the Patna High Court's judgment being affirmed to the extent indicated; connected appeal (HDFC Bank) allowed and the Delhi High Court's judgment set aside. Both plaints to be returned under Order VII Rule 10 CPC for presentation in the competent court in Mumbai, with liberty instead to withdraw the suits and file fresh ones there, to seek amendment of the defective plaints, and to plead grounds for exemption from limitation in any fresh suit. Merits left open; no order as to costs.