Can parties to an agreement agree to exclude the jurisdiction of one court in preference to another, if two courts are equally competent to try a suit?
Allowing an appeal in AVM Sales Corporation v M/s Anuradha Chemicals Pvt Ltd, a two-judge bench of the Supreme Court recently held that “if the parties agree in clear and unambiguous terms” to exclude the jurisdiction of a court, their decision would be valid and not contrary to the Indian Contract Act, 1872.
The dispute in AVM Sales Corporation involved an agreement drawn up in August 1989, which contained an exclusion clause indicating that disputes arising out of the agreement would be subject to “Calcutta jurisdiction only”.
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Subsequently AVM filed a recovery suit at Calcutta High Court and Anuradha Chemicals filed a separate recovery suit in Vijayawada. AVM challenged the suit filed in Vijayawada on the grounds that it was contrary to their agreement and also to section 20 of the Code of Civil Procedure, 1908, as no part of the cause of action had arisen within the jurisdiction of the Vijayawada courts. The court in Vijayawada and Andhra Pradesh High Court dismissed AVM’s challenge.
Acknowledging that both Calcutta and Vijayawada had jurisdiction, the Supreme Court held that the jurisdiction of the court in Vijayawada would stand ousted by virtue of the clause in the agreement. It ruled that if there were two or more competent courts and if the parties to the contract had agreed to vest jurisdiction in one such court, such an agreement would be valid and the contract would not contravene sections 23 and 28 of the Contract Act.
Section 23 details what considerations and objects are or are not lawful, and section 28 states that an agreement in restraint of legal proceedings is void.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
