The Hon'ble Supreme Court in Rakesh Kumar Verma v. HDFC Bank Ltd. and HDFC Bank Ltd. v. Deepti Bhatia, Civil Appeal Nos. 2282 and 2286 of 2025, has held that exclusive jurisdiction clauses in private employment contracts are enforceable, and civil suits instituted in courts other than those agreed upon are not maintainable. The Court held that the presence of such a clause does not violate Section 28 of the Indian Contract Act, 1872, and does not offend principles of natural justice or public policy.
BACKGROUND
Rakesh Kumar Verma and Deepti Bhatia, former employees of HDFC Bank, were terminated from service on allegations of misconduct. Both employees had exclusive jurisdiction clauses in their appointment documents conferring jurisdiction solely on the courts in Mumbai despite which Rakesh instituted a civil suit in Patna and Deepti in Delhi, challenging their terminations and seeking reinstatement. HDFC Bank contested jurisdiction in both cases. While the Patna High Court ruled in favour of the Bank, holding the clause valid and enforceable, the Delhi High Court took the opposite view and declined to interfere.
CONTENTION OF PARTIES
The employees argued that employment contracts should be treated differently due to unequal bargaining power, and enforcing exclusive jurisdiction clauses would unfairly burden employees. It was also argued that the Delhi and Patna courts had jurisdiction as the termination letters were served there.
HDFC Bank contended that both the appointment and termination letters originated in Mumbai, making Mumbai the place where the cause of action arose. Since the employees had agreed to an exclusive jurisdiction clause, only Mumbai courts had the authority to hear the suits.
ISSUES CONSIDERED
Whether exclusive jurisdiction clauses in employment contracts are enforceable and whether the civil suits filed outside the agreed jurisdiction were maintainable.
HELD
The Hon'ble Supreme Court, after an extensive analysis of precedent and statutory interpretation, held that exclusive jurisdiction clauses in private employment contracts are legally valid and enforceable, provided certain legal conditions are satisfied. Relying on established jurisprudence including Swastik Gases (P) Ltd. v. Indian Oil Corporation Ltd. (2013) 9 SCC 32 and ABC Laminart Pvt. Ltd. v. A.P. Agencies (1989) 2 SCC 163, the Court reaffirmed that such clauses do not violate Section 28 of the Indian Contract Act, 1872, which only prohibits contracts that absolutely bar legal remedies.
The Court delineated the following legal requirements for an exclusive jurisdiction clause to be upheld:
- No absolute restraint on legal proceedings: The clause must not oust the right of either party to approach a court altogether; it may only limit such right to a particular competent forum.
- Competence of the chosen forum: The court chosen by the parties must have jurisdiction under Section 20 of the Code of Civil Procedure, 1908. A contractual clause cannot confer jurisdiction on a court that otherwise lacks it.
- Clarity of exclusion: The language of the clause must either explicitly or impliedly exclude the jurisdiction of all other courts. The use of words such as "exclusive" or "alone" is necessary to prove such intent.
Applying these principles, the Court found that the courts in Mumbai inherently had jurisdiction based on where the cause of action arose. Furthermore, the use of the word "exclusive" in the jurisdiction clause unequivocally demonstrated the parties' intention to limit adjudication to Mumbai courts.
Furthermore, the Court rejected the argument that employment contracts should be treated differently due to presumed inequality of bargaining power, emphasizing that contract law treats all parties equally and that enforceability must not depend on perceived disparities in negotiating strength.
MHCO Comment:
This judgment marks a significant development in employment law by reinforcing that private employment contracts can validly include exclusive jurisdiction clauses, provided the chosen forum has legal competence. It also clarifies that the unequal bargaining power of employer-employee relationships does not, by itself, invalidate otherwise legal contractual provisions. The ruling serves as a caution to employees to be mindful of jurisdictional clauses before initiating legal proceedings.
This article was released on 15 April 2025.
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