JURISDICTION BY MUTUAL AGREEMENT
In general, when someone enter into an agreement, the understanding between the parties included other terms and conditions a clause indicating that "Any dispute arising out of this agreement will be subject to.....( Calcutta ).... jurisdiction only". Question arises (1) whether the same was binding upon the parties.? (2) Whether in breach of the agreement the one of the party to the agreement is entitled to invoke the jurisdiction of an other Court.? (3) Whether the parties to an agreement can contract in violation of section 23 and 28 of the Indian Contract Act, 1872.? (4) Whether the parties to an agreement can confer jurisdiction on a court which has no territorial or pecuniary jurisdiction to entertain a matter? (5) Whether if two Courts have jurisdiction to try a suit, can the parties to an agreement mutually agree to exclude the jurisdiction of one court in preference to the other and as to whether the same would amount to violation of the provisions of Sections 23 and 28 of the Indian Contract Act?
Section 23 of the Indian Contract Act, 1872 indicates what considerations and objects are lawful and what are not, including the considerations or objects of an agreement, if forbidden by law. Section 28 of the Act, clearly spell out that any agreement in restraint of legal proceedings is void. For the sake of reference, the same is extracted hereinbelow:
"28.Agreement in restrain 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 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 right, is void to the extent.)
Exception 1 : Saving of contract to refer to arbitration dispute that may arise.- This section shall not render illegal contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
Exception 2 : Saving of contract to refer question that have already arisen.- Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to reference to arbitration.")
Basically, what Section 28 read with Section 23 does, is to make it very clear that if any mutual agreement is intended to restrict or extinguish the right of a party from enforcing his/her right under or in respect of a contract, by the usual legal proceedings in the ordinary Tribunals, such an agreement would to that extent be void. In other words, parties cannot contract against a statute.
A.B.C Laminart Pvt. Ltd. & Anr. Vs A.P. Agencies, Salem AIR 1989 SC 1239, (1989) 2 SCC 1631. The similar question had arisen, in the said case, the cause of action for the suit arisen both within the jurisdiction of the Civil Court at Salem in Andhra Pradesh and in the Civil Court of Kaira in the State of Gujarat. The question arose as to whether since by mutual agreement the jurisdiction had been confined only to the Courts within Kaira jurisdiction, the suit filed at Salem was at all maintainable? The Hon'ble Supreme Court, inter alia, held that there could be no doubt that an agreement to oust absolutely the jurisdiction of the Court will be unlawful and void, being against public policy. However, such a result would ensue if it is shown that the jurisdiction to which the parties had agreed to submit had nothing to do with the contract. If, on the other hand, It is found that the jurisdiction agreed would also be a proper jurisdiction in the matter of the contract, it could not be said that it oust the jurisdiction of the court.
In Angile Insulations VS. Davy Ashmore India Ltd.& Anr.(1995) 4 SCC 153. Honorable Supreme Court held that where two Courts have jurisdiction consequent upon the cause of action or a part thereof arising therein, if the parties agree in clear and unambiguous terms to exclude the jurisdiction of the other, the said decision could not offend the provisions of Section 23 of the Contract Act. In such a case; the suit would lie in the Court to be agreed upon by the parties.
In Hanil Era Textile Ltd.Vs. Puromatic Filter (p) Ltd. AIR 2004 SC 2432, (2004) 4 SCC 671 ), Where part of the cause of action arose at both Delhi and Bombay. honorable Supreme Court held that the mutual agreement to exclude the jurisdiction of the Delhi Courts to entertain the suit was not opposed to public policy and was valid.
In a recent judgment A. V. M. Sales Corporation Vs. M/S. Anuradha Chemicals Pvt. Ltd. 2012 (1) UAD 484 SC. Honorable Supreme Court held that " thus it is now a settled principle that where there may be two or more competent Courts which can entertain a suit consequent upon a part of the cause of action having arisen therewith, if the parties to the contract agreed to vest jurisdiction in one such Court to try the dispute which might arise as between themselves, the agreement would be valid. If such a contract is clear, unambiguous and explicit and not vague, it is not hit by Section 23 and 28 of the Contract Act and cannot also be understood as parties contracting against the statute.