Foreign Jurisdiction Clauses in Commercial Contracts: An Indian Perspective

[Sneha Kalia is a 5^th year B.B.A. L.L.B. (Hons.) student at Jindal Global Law School, Haryana]

The advent of globalisation and burgeoning international business transactions essentially necessitate contracts with carefully carved-out dispute resolution provisions so as to mitigate the hassle of litigating in an inconvenient or time-consuming forum. To further that end, the incorporation of a “foreign jurisdiction clause” has emerged as a customary practice in international commercial contracts, whereby the avenues for the resolution of any disputes arising in the implementation or performance of the contract are decided beforehand, and jurisdiction is exclusively or non-exclusively vested in a forum of choice. Foreign jurisdiction clauses aim to discharge a dual objective. They foster the parties’ autonomy and flexibility in so far as they may freely select a specific forum according to their geographic or economic convenience. Moreover, they inject speed, predictability and certainty into the dispute resolution process, thereby putting the minds of prospective foreign investors at ease, and fostering economic participation in cross-border investments.

Looking at the Indian milieu, litigation before the Indian courts has typically been a challenging experience for foreign commercial parties due to the perceived limitation on the judicial resources, rampant delays and the relatively limited experience in the adjudication of complex commercial matters. Against this background, offshore litigation by way of a foreign jurisdiction clause is generally regarded to be a more desirable alternative to onshore litigation. Yet, this recourse may be ill-suited to Indian cross-border transactions and is likely to beset the following two-pronged challenge for the parties. For one, the enforceability of a foreign jurisdiction clause remains shrouded in uncertainty in the event that a disgruntled counterparty approaches the Indian courts even when the contract expressly prohibits it. Two, the recognition and enforcement of foreign judgments in India is in itself a complex process with several conditionalities at play.

(Un)Enforceability of Foreign Jurisdiction Clauses

In India, the provisions of the Code of Civil Procedure, 1908 (“C.P.C.”) and the Indian Contract Act, 1872 (“the Act”) have a bearing upon the enforceability of foreign jurisdiction clauses. Section 20 of the C.P.C. stipulates that every suit that concerns a breach of contract is required to be commenced in the Court within whose jurisdiction the cause of action arises. However, it has been held that an Indian court is not vested with the jurisdiction to try a suit based on cause of action where it has arisen wholly outside the territory of India. Most judicial dicta concerning jurisdiction clauses pertain to the exclusive domestic jurisdiction of one Indian court over another, and this proposition has been uniformly enforced, subject to the exception that jurisdiction cannot be conferred by the parties’ agreement on a court which would ordinarily not have jurisdiction under C.P.C., as illustrated in Hakkam Singh v. Gammon (India) Ltd.

For exclusive or non-exclusive jurisdiction clauses concerning foreign courts, the Supreme Court in Modi Entertainment Network v. W.S.G. Cricket Pte. Ltd has upheld a view that enables the parties to a contract in international trade to mutually agree to confer jurisdiction upon a forum for the resolution of their disputes, which may be in the country of either party or a ‘neutral’ court not connected to any of the parties or the transaction. Such contracts operate as an exception to the aforementioned principle against conferment of jurisdiction in so far as it does not apply where the parties assent to submit to the jurisdiction of a foreign court. Hence, if a neutral forum is preferred over the natural forum, the jurisdiction of the neutral forum would ordinarily bind parties.

However, the jurisdiction clause is liable to be quashed in the event of extraordinary and unforeseen circumstances and on discharging the heavy burden that signifies that grave injustice would be caused to the party by such ouster depending upon the facts and circumstances of the case. Alternatively, relief from the contract may take the form of an anti-suit injunction, i.e., an injunction to stop the counterparty from initiating a suit in the agreed-upon forum, where an exceptional case exists for good and sufficient reasons to prevent injustice, or where the circumstances of the party have drastically changed subsequently. At the same time, where the parties have freely agreed to the terms of the contract, it cannot be avoided merely because it contains stringent obligations or precipitates inconvenience, hardship or expenses unless it found to be void or voidable in law.

Subsequently, in Man Roland Druckimachinen Ag v. Multicolour Offset Ltd, the Supreme Court reaffirmed that where the parties to the contract have agreed on a particular forum for the resolution of their disputes, courts shall enforce the same. The rationale lies not in the ouster of jurisdiction due to the agreement between the parties, but because the court would not be a party to the breach of the agreement. Further, in BHEL Ltd v. Electricity Generation Incorporation, the Delhi High Court held that the courts ought to give effect to a jurisdiction clause that alludes to a specific forum and plainly follows the intention of the parties. In this regard, paucity of time was manifestly rejected as a ground for conferment of jurisdiction. The Court further clarified that only where one party is not subjected to Indian law could the parties choose to provide jurisdiction outside the country to a neutral forum. More recently, the Delhi High Court and Calcutta High Court have also recognised the concept of an anti-anti-suit injunction which is an injunction to restrain the Court where anti-suit proceedings are pending and/or an order has been passed from continuing with the same.

Additionally, section 28 of the Act declares that any contract that absolutely restrains usual legal proceedings in ordinary courts and tribunals is void. However, the Supreme Court held that a contractual clause which restrains legal proceedings shall be void only where the clause imposes an absolute restraint. Resultantly, a clause which partially restrains legal proceedings by granting a legal remedy before a foreign court is regarded as a waiver of private rights and, thus, permitted under Indian law. Furthermore, there is no specific language in the provision, which makes it appliable in international trade transactions. Hence, an agreement that binds parties with a foreign jurisdiction clause does not contravene this provision; regardless, in the event of the commission of a criminal offence by one of the parties, the filing of the complaint cannot be restricted to the court that has been vested with the jurisdiction under the contract.

Thus, Indian law does not regard an exclusive or non-exclusive jurisdiction clause to be illegal per se and recognises the choice of the parties to provide for dispute resolution before a “forum of choice” or “neutral court”. However, Indian courts do not perceive such contractual clauses to be determinative, and they have occasionally restrained foreign proceedings and assumed jurisdiction on the wide-ranging grounds of balance of convenience, interests of justice or forum non conveniens and if it is construed to be unjust or unfair depending on the facts and circumstances of the case. The quandary created by the pronouncement of anti-suit and anti-anti-suit injunctions further complicates the issue, as an exclusive jurisdiction clause does not conclusively constitute the criteria for granting such injunctions and the same could very well be granted in derogation of the clause. Therefore, notwithstanding a contractual clause that expressly elucidates the forum for dispute resolution and ousts the jurisdiction of Indian courts, the foreign party may eventually involuntarily end up litigating their disputes in India.

(Un)Enforceability of Foreign Judgments

The Hague Convention on Choice of Court Agreements fundamentally governs forum selection clauses adopted in international commercial and civil transactions and their manner of enforcement; however, India has not yet signed and ratified the Convention. In the domestic realm, the recognition and enforcement of judgments and decrees – foreign or domestic – is governed by the provisions of the C.P.C. A foreign judgment is defined under section 2(6) of the C.P.C. as a judgment pronounced by a foreign court. In turn, a foreign court has been defined under section 2(5) as a court located outside India that is not established or operated under the authority of the Central Government. Further, the statute delineates the pre-conditions for the recognition and enforcement of foreign judgments and decrees which vary depending upon whether the judgment emanates from a reciprocating or non-reciprocating territory.

For reciprocating territories, section 44-A of the C.P.C. envisages a legal fiction whereby a “decree” rendered by a “superior court” situated in a “reciprocating territory” is entitled to direct recognition and enforcement in India as if it were a decree passed by an Indian district court, by filing execution proceedings before an Indian court. Such deference is grounded in the bilateral treaties with reciprocating countries as regards the recognition and enforcement of foreign judgments contracted by the Indian Government and notified in the official gazette from time to time. Presently, the reciprocating territories include the United Kingdom, Aden, Fiji, Singapore, the United Arab Emirates, Malaysia, Trinidad and Tobago, New Zealand, the Cook Islands and the Trust Territories of Western Samoa, Hong Kong, Papua and New Guinea, and Bangladesh. However, there is no similar obligation on the Indian courts to directly recognise and enforce a judgment emanating from a non-reciprocating territory. Accordingly, such judgments could be enforced solely by preferring a new suit before a competent court based on either the foreign decree or the underlying cause of action or both, wherein such judgment shall merely hold evidentiary value, and upon undertaking subsequent execution proceedings. This position has been reasserted in the recent Bombay High Court in Marine Geotechnics L.L.C. v. Coastal Marine Construction and Engineering Ltd.

Furthermore, in both cases, the foreign judgment ought to pass the muster of conditions enumerated in section 13 of C.P.C., failing which the judgment shall be inconclusive and unenforceable in India. Sections 13 and 14 of C.P.C. have been held to have envisaged a rule of res judicata for foreign judgments, and a judgment that has acquired finality and conclusiveness between the parties shall not be impeachable on facts or law except in the six instances expounded in section 13. An analysis of the factors and judicial dicta on the subject illustrates where a foreign decree would be enforceable. Firstly, a judgment precludes enforcement if it has not been pronounced by a court of competent jurisdiction; however, the statute presumes the competency of jurisdiction of the foreign court unless evidence is provided to the contrary under section 14. According to Ramanathan Chettiar v. Kalimuthu Pillay and Moloji Rao Narsingh Rao v. Shankar Saran, the conditions to determine the competency of the court include – whether the defendant is the resident or subject of the country where the action is commenced, or judgment is pronounced, whether the defendant has filed a previous suit in the same forum, whether the defendant has voluntarily appeared or whether the defendant has contracted to abide by the jurisdiction of the foreign court. Secondly, the judgment ought to have been given on the merits of the case, i.e., after taking due evidence and upon application of mind regarding the truth or falsity of the case. In Gurdas Mann v. Mohinder Singh Brar, an ex-parte judgment which did not exhibit that the plaintiff had adduced evidence to prove his claim before the court, was held not to be executable, having not been passed on the merits of the case.  

Thirdly, a judgment that appears to be enacted contrary to the fundamental rules of international law or upon a refusal to recognise Indian law shall be inconclusive. In Indian & General Investment Trust v. Ramchandra Mardaraja Deo, Raja of Khalikote, a judgment emanating from a suit instituted under the English jurisdiction to circumvent the repercussions of the Orissa Money Lenders Act, 1939 was held to be unenforceable having been passed on an incorrect notion of international law. Fourthly, a judgment must have been obtained upon due observance of the principles of natural justice. In this regard, the case of R. Viswanathan v. Rukn-Ul-Mulk Syed Abdul Wajid expounds that the arbiter must be an impartial person who must act fairly, in good faith and in an unbiased manner, giving reasonable notice and equal opportunity to the parties to present their case. Fifthly, fraud as to the jurisdiction of the court pronouncing the judgment constitutes a crucial determinant in its recognition, and the ruling in Satya v Teja Singh dictates that a judgment obtained by fraud would be unenforceable in India. Lastly, a judgment is inconclusive if it is in breach of the substantive laws of the country. Accordingly, the case of Padmini Hindupur v. Abhijit S. Bellur prescribes that the judgment must conform to the public policy of India, i.e., good conscience and equity, which comprise the constitutional foundation for Indian legislation. Based on the above considerations, Indian courts have permitted the enforcement of interlocutory orders in Alcon Electronics (P). Ltd. v. Celem S.A of France and ex-parte orders in International Woollen Mills v. Standard Wool (U.K.) Ltd; however, default judgments, quasi-judicial orders, judgments from summary/special procedures or judgments foisting penalties or punitive damages have been held to be unenforceable in India.

Thus, Indian courts accord the privilege of recognition and enforcement to only specific “decrees” pronounced by countries identified as “reciprocating territories”, and decrees emanating from other offshore jurisdictions are not directly executable and require the undertaking of a lengthy and complex procedure for enforcement. Amongst the notified reciprocating territories, only Singapore and England constitute common commercial offshore jurisdictions, and India is yet to form reciprocal relations with other commercially developed nations. Hence, granting jurisdiction to a foreign court would more often lead to the undesirable scenario where the entire case is effectively re-litigated by the Indian courts under a fresh cause of action to finally secure relief after obtaining a foreign decree. Moreover, the criteria for rejecting enforcement of a foreign judgment are broader than that of an arbitral award, and courts have often been disinclined to enforce foreign judgments without subjecting them to some degree of scrutiny on merits. Thus, even where the decree is from a reciprocating territory, the enforcement process may take at least three-to-four years, if it is contested on any of the exceptions enumerated under section 13.

Concluding Remarks

Based on the aforementioned legal position, it is advisable that where a foreign party contracts with an Indian party, jurisdiction ought not to be vested with a foreign court and disputes should be resolved by instituting claims in Indian courts itself to save time, costs and in the interests of efficiency. By adopting a foreign jurisdiction clause, the foreign party merely circumvents the inconvenience of leading evidence before the Indian courts. However, it runs a much more considerable risk as the Indian courts may anyhow disregard the foreign jurisdiction clause and assume jurisdiction on certain vague grounds or, in the alternative, upon obtaining the foreign decree the foreign party is likely to face significant difficulties in ensuring that it is recognised and enforced in India. However, if trial in an offshore jurisdiction is most preferable to the foreign party, at the very minimum, it must be ensured that the clause does surpasses the hurdles constructed to ensure conclusiveness and vests jurisdiction in a country which is a “reciprocating territory” as under Indian law to foster ease of execution of the foreign decree.

– Sneha Kalia