“Parties can choose which court will hear their disputes — but only if that court already has jurisdiction under law.”

Introduction

Exclusive jurisdiction clauses are common in commercial agreements, often stating that courts of a particular place shall have exclusive jurisdiction over disputes. But parties cannot simply choose any court they want. In Rakesh Kumar Verma v. HDFC Bank Ltd., 2025 SCC OnLine SC 752, the Supreme Court reaffirmed the limits within which such clauses operate.

Judicial Position: The Three Requirements

The Supreme Court identified three key requirements for an exclusive jurisdiction clause to be valid:

1. It must not violate Section 28 of the Indian Contract Act, 1872
The clause cannot completely prevent a party from enforcing its contractual rights. It can, however, determine which competent court must be approached.

2. The chosen court must have jurisdiction independently of the contract
Parties cannot create jurisdiction by agreement. Where multiple courts already have jurisdiction under law, they may agree to restrict disputes to one of them. But they cannot confer jurisdiction on a court where no part of the cause of action arises.

3. The agreement must clearly show an intention to select a particular forum
Words such as “only”, “alone” or “exclusive” strengthen the intention, but they are not mandatory if the agreement otherwise clearly indicates that one competent court was selected.

The Supreme Court’s Approach

The principle is well established in decisions such as Hakam Singh v. Gammon (India) Ltd. and Swastik Gases Pvt. Ltd. v. Indian Oil Corporation Ltd.

The underlying rule is simple: parties may choose between courts that are already competent to hear the dispute, but cannot create jurisdiction where none exists.

Applicability Beyond Commercial Contracts

The Supreme Court has applied this principle not only to commercial agreements but also to employment contracts. Unequal bargaining strength, by itself, does not make an otherwise lawful jurisdiction clause unenforceable.

This has wider relevance for standard-form agreements, loan documents, franchise arrangements and other commercial contracts, where parties may have unequal economic bargaining power.

Practical Guidance

Before relying on an exclusive jurisdiction clause, parties should ensure that:

• The selected court already has jurisdiction under law.
• The clause does not completely oust legal remedies.
• The contractual language clearly identifies the intended forum.
• The agreement does not attempt to confer jurisdiction on an otherwise incompetent court.

Key Takeaways

✓ Parties can restrict disputes to one court only where that court already has jurisdiction.

✓ A contract cannot create jurisdiction where none exists under law.

✓ “Only”, “alone” and “exclusive” are helpful, but clear intention is the real test.

✓ Unequal bargaining power does not automatically invalidate a jurisdiction clause.

✓ A well-drafted jurisdiction clause can provide certainty and avoid unnecessary forum disputes.

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