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Foreign Jurisdiction
Clauses in Commercial
Contracts: An Indian
Perspective
By Guest / December 28, 2020 / 13 Min read / 2 comments

[Sneha Kalia is a 5th 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.

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Looking at the Indian milieu, litigation before the Indian courts has typically

been a challenging experience for foreign commercial parties due to the
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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

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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 
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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

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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
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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

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quandary created by the pronouncement of anti-suit and anti-anti-suit


injunctions further complicates the issue, as an exclusive jurisdiction clause
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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

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Government and notified in the official gazette from time to time. Presently,

the reciprocating territories include the United Kingdom, Aden, Fiji,
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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

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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
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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

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damages have been held to be unenforceable in India.

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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

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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
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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

Civil Procedure Contract Law

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