Enforceability of Exclusive Jurisdiction Clauses in Private Employment Contracts

1. Introduction

The Supreme Court of India, in the case of Rakesh Kumar Verma v. HDFC Bank Ltd. (2025 INSC 473), has provided significant clarity on the validity and enforceability of exclusive jurisdiction clauses within private employment contracts. This judgment arose from two separate appeals concerning two employees—namely, Rakesh and Deepti—challenging the termination of their services by HDFC Bank. The disputes revolved around whether courts other than those specified in the employees’ terms of appointment had jurisdiction to entertain the employees’ suits.

The judgment drew upon well-established contract law principles and precedents relating to “exclusive jurisdiction clauses,” commonly used in commercial agreements. It highlighted the distinguishing feature that both Rakesh and Deepti were employed in the private sector under a service contract. Because the underlying principle of employment with private entities differs from public employment (where federal and constitutional protections often come into play), the Court examined whether service contracts can legitimately restrict the potential legal forum to a single, specified court.

The Court concluded that private employment contracts may indeed contain valid exclusive jurisdiction clauses, provided the chosen court already has jurisdiction and employees are not completely prevented from seeking redress.

2. Summary of the Judgment

The Supreme Court dealt with two appeals joined for hearing due to the substantial similarity of the legal issue. In Civil Appeal No. 2282/2025, Rakesh argued that the Sub-Judge’s court at Patna had jurisdiction over his termination dispute, despite an exclusive-jurisdiction clause vesting all legal disputes in the courts of Mumbai.

Conversely, in Civil Appeal No. 2286/2025, HDFC Bank challenged the order of the Delhi High Court which had affirmed the Rohini Civil Court’s jurisdiction to hear Deepti’s termination challenge—again disregarding the relevant exclusive-jurisdiction clause that pointed to Mumbai.

The Supreme Court ultimately held:

• The Patna High Court’s finding, that the Mumbai courts had exclusive jurisdiction for Rakesh’s dispute, was correct in substance but procedurally it erred in rejecting the plaint altogether (it should have been returned for filing before the competent Mumbai court).
• The Delhi High Court’s decision, which allowed Deepti to proceed in Delhi, was reversed; she too was instructed to file or move her suit in Mumbai, pursuant to the exclusive-jurisdiction clause.

The Court also confirmed that exclusive jurisdiction clauses do not violate Section 28 of the Indian Contract Act, 1872 (which prohibits absolute restraint on legal proceedings) if they do not deprive an employee entirely of the right to seek legal redress. Further, it emphasized that under Section 20 of the Code of Civil Procedure, 1908, the chosen court in Mumbai must already have jurisdiction. In the Court’s view, it did, given that the employment contracts were executed in and dispatched from Mumbai, and termination decisions were made there as well.

3. Analysis

A. Precedents Cited

The Supreme Court extensively relied on a consistent line of decisions that uphold “exclusive jurisdiction clauses” when two courts (or more) have valid overlapping jurisdiction:

• Hakam Singh v. Gammon (India) Ltd. (1971): Held that an agreement conferring jurisdiction upon one of multiple competent courts is valid and not contrary to public policy.
• ABC Laminart Pvt. Ltd. v. A.P. Agencies (1989): Affirmed that words such as “alone,” “only,” or “exclusive” in a jurisdiction clause strongly indicate ouster of all other courts; however, the courts given exclusive jurisdiction must themselves legally possess such competence.
• Swastik Gases Pvt. Ltd. v. Indian Oil Corporation Ltd. (2013): A three-judge Bench clarified that even if words like “alone” or “only” are not used, if the parties’ intent is that the jurisdiction is restricted to a particular forum, such a clause remains enforceable.

The judgment also pointedly declined to follow Vishal Gupta v. L & T Finance, a Delhi High Court ruling which had attempted to carve out an exception for employment agreements, asserting that unequal bargaining power (the “mighty lion” versus the “timid rabbit”) might invalidate such clauses. The Supreme Court declared this an untenable line of reasoning, reiterating that all contracts must be treated equally unless specific statutory or constitutional constraints dictate otherwise.

B. Legal Reasoning

The Court’s essential legal reasoning hinges upon three mandatory limbs for the validity of exclusive jurisdiction clauses:

1. Absence of Absolute Restraint: Section 28 of the Indian Contract Act invalidates only those agreements that completely deprive a party of the ability to enforce its rights before a legal forum. In this case, the employees are still free to raise their disputes in court—just not any court other than the one chosen.
2. Competent Forum: The contractual provision must bestow exclusive jurisdiction on a court that already has the statutory authority to hear the case. Under Section 20 of the Code of Civil Procedure, the Mumbai courts had a valid basis for jurisdiction because the employment relationship stemmed from decisions, communications, and administrative actions taken in Mumbai.
3. Explicit Ouster of Other Courts: The clauses here used the word “exclusive,” making it unmistakable that the parties intended to use only the Mumbai courts. The Court affirmed that, in the private sector, such a clause must be enforced where it does not violate any law or fundamental policy considerations.

With respect to the differences between public and private employment, the Court underscored that a government employee’s rights and obligations largely emanate from statutes and constitutional provisions. Hence, an exclusive jurisdiction clause would be alien in that setting. For employees in private enterprises, however, there exists a freely formed contract whose terms can clarify the preferred legal forum, subject only to the constraints mentioned above.

C. Impact

This verdict strongly reinforces the legal position that private employment contracts containing exclusive jurisdiction clauses are generally valid and enforceable. For employers, especially those operating nationwide, the judgment brings relief by reducing the risk of being summoned to courts across the country in disputes related to employees in multiple states.

For employees, the ruling underscores the importance of carefully evaluating exclusive jurisdiction clauses and understanding that such clauses may bind them to legal proceedings in distant or inconvenient locations. The Court noted that merely alleging unequal bargaining power is insufficient to invalidate an otherwise legally sound clause.

In practical terms, individuals currently employed or seeking employment in the private sector should scrutinize the “dispute resolution” or “jurisdiction” provisions in their employment offers or contracts. Meanwhile, employers must confirm that any exclusive jurisdiction clause points to a forum that is factually and legally connected to the dispute, instead of merely their own selection.

4. Complex Concepts Simplified

Several legal concepts in this decision benefit from a plain-language explanation:

• Exclusive Jurisdiction Clause: A provision in a contract specifying that only one particular court (among several possible ones) will decide any legal disputes under the contract.
• Section 28 of the Indian Contract Act: Disallows agreements that entirely remove a party’s right to go to court. It does, however, permit clauses that select one court out of multiple possible venues.
• Competent Jurisdiction (Section 20, CPC): A court must already have legal authority to hear the case before an exclusive jurisdiction clause can direct parties to that court. One cannot, by contract, create a power in a court where none exists.
• Returning the Plaint vs. Rejecting the Plaint: When a court finds a suit is filed before a court lacking jurisdiction, it may “return” the plaint to be refiled before the correct court, rather than completely “rejecting” it (which ends the case entirely). This distinction helped the Court correct the Patna High Court’s procedural oversight.

5. Conclusion

The Supreme Court’s ruling in Rakesh Kumar Verma v. HDFC Bank Ltd. clarifies, conclusively, the legitimacy of exclusive jurisdiction clauses in private employment agreements. It highlights the principle that although such clauses limit the range of possible legal venues, they do not run afoul of the law so long as they preserve an employee’s fundamental right to have his or her dispute heard in at least one valid court.

On a broader scale, this judgment offers guidance that applies across the spectrum of private contracts. Even where there is notable disparity in bargaining power between the contracting parties, the rule remains that validly formed contracts must be enforced unless they offend fundamental legislative or public policy constraints. Consequently, employers and employees alike are reminded that the final agreement’s terms, including a forum selection clause, carry substantial binding effect.

In sum, the Court’s decision fortifies the principle that there should not be different considerations applicable to private employment contracts compared to general commercial contracts, provided no statutory provision states otherwise. This new precedent offers a definitive roadmap for interpreting exclusive jurisdiction clauses, ensuring predictability and consistency in the law.