Section 28 Of The Indian Contract Act And Exclusive Jurisdiction Clauses

Posted On - 5 May, 2025 • By - Sarthak Miglani

Introduction

Section 28 of the Indian Contract Act, 1872 (“ICA”), invalidates agreements that unduly restrict legal recourse or shorten limitation periods. The recent Supreme Court judgment in Rakesh Kumar Verma v. HDFC Bank Ltd. reaffirmed the validity of exclusive jurisdiction clauses, even in employment contracts, under certain conditions.[1]

Section 28 protects the right to judicial recourse by holding void any agreement that aims to exclude or restrict unreasonably the enforcement of legal rights in ordinary courts.

Statutory Language and Principle

The section stipulates that any contract:

  1. which completely bars a party from enforcing rights under or in respect of any contract by normal legal processes in ordinary courts, or which restricts the time within which such enforcement may be pursued, and
  2. which deprives a party of its rights or releases another from liability upon the expiration of a specified time limit, is to that extent void.

The fundamental aim of Section 28 is to prevent contracting parties from attempting to preclude one or both parties from being able to approach a court, or from being obliged to do so within a period shorter than the one specified under the Limitation Act, 1963.

Rationale Behind the Provision

This provision is based on the fundamental notion that justice has to not just be available but also beyond private waiver through contract. Contracting autonomy is desirable, but where this erodes the legal rights of parties to seek recourse to the judiciary or evades statutory restrictions, it cannot be allowed. Courts have always recognized that although freedom of contract is upheld, it cannot be used to undermine the rule of law or the legal framework that safeguards individuals from coercive or exploitative behavior.

Key Judicial Pronouncements

In Koegler v. Coringa Oil Co. Ltd., the Calcutta High Court noted particularly that contracts precluding judicial remedies cannot be enforced.[2] This early landmark judgment laid the way for a uniform judicial stance. Similarly, in Continental Drug & Co. Ltd. v. Chemoids & Industries Ltd., the Bombay High Court reaffirmed that even a clause excluding legal remedies entirely would be negated, although partial prohibitions could still stand.[3]

In A.N. Ghose v. Reliance Insurance Co., the Court upheld a clause that called for the insured to institute an action within a specified time after rejection of claim, as it did not absolutely exclude access but only imposed a procedural condition, which was found to be reasonable.[4]

Common Scenarios Invalidated Under Section 28

  • Absolute Bar on Legal Recourse: Agreements that prevent parties from approaching courts under any circumstances. For example, a clause stating that “no disputes shall be adjudicated in any court of law” is void.
  • Unlawful Shortening of Time: Clauses that stipulate a limitation period less than that allowed by the Limitation Act. For example, limiting a claim in breach of contract to two years rather than the statutory three years would make the clause void.
  • Extinguishment of Rights or Liability: Clauses that relieve a party from liability or extinguish rights after a specified period of time – if contrary to statute provisions – are void.

Exceptions to Section 28

Even with its protective structure, the law acknowledges certain pragmatic needs and therefore carves out certain exceptions:

  1. Arbitration Agreements: Under this exception, contracts referring disputes to arbitration are enforceable even if they exclude court proceedings. The courts have upheld that arbitration as a different forum does not offend Section 28. In Jawahar Lal Burman v. Union of India, the Supreme Court held that although the main contract is revoked, the arbitration clause continues.[5]
  2. Agreements on Pre-existing Disputes: This exception allows parties to submit already-occurred disputes to arbitration. As opposed to the first exception, dealing with future disputes, this supports arbitration clauses for existing or past disputes. In Atlas Export Industries v. Kotak & Co., the Supreme Court held in favor of such a clause despite the fact that the arbitrators were foreign-based, that parties voluntarily agreeing to refer disputes overseas must live up to their commitment.[6]
  3. Time-limited Guarantee Agreements for Banks: This exception is directed at financial institutions and permits banks to insert clauses into guarantees stipulating a precise time limit for enforcing obligations. It creates certainty and finality in banking relationships, provided that the period is not unreasonably brief – usually, not shorter than a year. For instance, a guarantor’s responsibility can be limited by contract to one year in case the principal debtor makes a default. Such provisions are admissible and enforceable as they accommodate the special requirements of the banking industry.

The Meaning of “Absolutely” in Section 28

One interpretive nuance is the use of the word “absolutely.” The limitation has to entirely exclude courts’ jurisdiction in order to be affected by Section 28. Where the limitation is not total—excluding recourse to some forms of actions or imposing a reasonable condition—it does not become void. The difference between complete exclusion and reasonableness is crucial in assessing whether such conditions are enforceable.

The Recent SC Decision

Recently, the Supreme Court in Rakesh Kumar Verma v. HDFC Bank Ltd. discussed the controversial topic of exclusive jurisdiction clauses in employment contracts.[7] The Court upheld the enforceability of such clauses even for employment disputes, settling conflicting High Court decisions and interpreting the scope of Section 28 of the Indian Contract Act, 1872.

Background of the Case

The appeal was from two identical cases of former employees of HDFC Bank – Rakesh Kumar Verma and Deepti Bhatia – who had filed civil suits for challenging their dismissal from service. Verma had filed proceedings in Patna, whereas Bhatia had filed in Delhi. Both their agreements, however, had clauses granting exclusive jurisdiction to the courts in Mumbai for any dispute arising out of their employment.

HDFC Bank sought to have the suits dismissed on the grounds of jurisdiction. In the case of the Patna High Court, it affirmed the exclusivity clause and ordered rejection of Verma’s plaint, but the Delhi High Court disagreed in the case of Bhatia by basing its decision on an earlier Delhi precedent (Vishal Gupta v. L&T Finance[8]) and held that the employee could go on in Delhi based on the imbalance of bargaining power.

The core question before the Supreme Court was whether the employees could validly file suits in Patna and Delhi even though the employment contracts contained exclusive jurisdiction clauses mentioning Mumbai as the forum for legal disputes.

Supreme Court’s Ruling

The Court, through Justice Dipankar Datta, categorically held that exclusive jurisdiction clauses are not struck by Section 28 of the Contract Act, 1872, subject to the fulfillment of certain conditions:

  • The clause should not entirely preclude legal proceedings.
  • The conferring court must already have the competence under law.
  • The intention to grant exclusive jurisdiction must be either express or implied.

Relying on a straight line of precedents starting from Hakam Singh v. Gammon (India) Ltd.[9], and reinforced in ABC Laminart v. A.P. Agencies[10], and recently once again in Swastik Gases (P) Ltd. v. Indian Oil Corp.[11], the Court reasserted that parties could limit the jurisdiction to one among several competent fora, provided that such limitation did not vest jurisdiction in an incompetent court.

Significantly, the Court overturned the rationale in Vishal Gupta, rejecting the idea that the enforceability of an employment contract should depend on perceived imbalance between employer and employee. It stated that it would be destructive to the principle of equality before law to make a legal distinction based on parties being “the mighty lion and the timid rabbit.” Commercial as well as employment contracts have to be interpreted uniformly unless vitiated by fraud, coercion, or other factors leading to invalidity.

Conclusion

Section 28 of the ICA strikes a careful balance between contractual freedom and judicial access, voiding clauses that curtail legal remedies while allowing reasonable procedural limitations. The Supreme Court’s decision in Rakesh Kumar Verma reinforces the validity of exclusive jurisdiction clauses, even in employment contracts, provided statutory safeguards are met – marking a clear affirmation that equality before law trumps perceived power imbalances in contractual enforcement.

[1] https://www.livelaw.in/pdf_upload/rakesh-kumar-verma-vs-hdfc-bank-594986.pdf.

[2] Koegler v. Coringa Oil Co. Ltd., (1876) ILR 1 CAL 466.

[3] Continental Drug & Co. Ltd. v. Chemoids & Industries Ltd., AIR 1955 Cal 161.

[4] A.N. Ghose v. Reliance Insurance Co., 1933 0 Supreme (Rang) 18.

[5] Jawahar Lal Burman v. Union of India, AIR 1962 SC 378.

[6] https://digiscr.sci.gov.in/admin/judgement_file/judgement_pdf/1999/Supp.%20(2)/Part%20I/S_1999_192-198_1702014573.pdf.

[7] https://www.livelaw.in/pdf_upload/rakesh-kumar-verma-vs-hdfc-bank-594986.pdf.

[8] Vishal Gupta v. L&T Finance, 2009 SCC OnLine Del 2806.

[9] Hakam Singh v. Gammon (India) Ltd., (1971) 1 SCC 286.

[10] ABC Laminart v. A.P. Agencies, (1989) 2 SCC 163.

[11] Swastik Gases (P) Ltd. v. Indian Oil Corp., (2013) 9 SCC 32.

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