AGREEMENTS RESTRICTING CHOICE OF FORUM

IN RELATION TO
AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS

INTRODUCTION

The legal arena has made provisions to declare void, the agreements in restraint of legal
proceedings in the light of Sec.28 of the Indian Contract Act, 1872. According to this section,
agreements which restrict the parties from approaching the various tribunals for the enforcement
of their rights and agreements which limit the time within which the parties may enforce their
rights are void. However, there are several dimensions on how to construe the clause “agreements
in restraint of legal proceeding”. The clause in literal sense means ‘the jurisdiction of the Courts
cannot be ousted by an agreement of the parties’ however, agreements which have partial restraint
on legal proceedings are valid, that is , when two or more courts have jurisdiction to try a suit and
the agreement between the parties stipulates the parties to file a suit in a particular forum or forums,
thereby ousting the jurisdiction of the other courts to try the suit, then such ousting is not contrary
to public policy and does not contravene the provisions under Section 28 of the Indian Contract
Act as this does not totally deprive the party of any legal remedy. It is also required that such a
clause ousting the jurisdiction of a court or courts must have be explicitly mentioned in the
agreement between the parties. However, the parties by their agreement cannot confer jurisdiction
on a court which does not possess it. In the recent day, where infinite number of contracts are made
every day, such provisions are of great significance and atmost need to the parties of the contract.
AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS

Section 28 of the Indian Contract Act deals with agreements in restraint of legal proceedings. It
renders such contracts void so as to say that the jurisdiction of the Courts cannot be ousted by an
agreement of the parties. The principle contained in the provisions of this section is an exception
to the rule of the maxim ‘modus et conventio vincunt legem’, i.e. the form of agreement and the
convention of parties overrule the law. Under this section, every agreement by which any party
thereto is restricted absolutely from enforcing his rights under or in respect of any contact, by the
usual legal proceedings in the ordinary tribunals1, or which limits the time within which a party
may enforce his right is rendered void2. However, this section exempts agreements where a part is
not absolutely restricted from enforcing all his rights under or in respect of the contract by the
usual legal proceedings, but is only restricted from enforcing any such rights as are not given to
him by the arbitrator in the shape of money compensation is not forbidden or made void by this
section3. An agreement to refer any dispute arising out of a contract to the arbitration to a body of
persons is covered under the above exception4. Another exception could be agreements by which
parties agree to refer to arbitration any question between them that has already arisen, or which
affects any provision of the law in force for the time being as to reference to arbitration5.

1
New Asiatic Insurance Co. Ltd. V. Bihar State Co-Operative Bank Ltd., AIR 1966 Pat. 69
2
National Insurance Co. Ltd. v. Sujir Ganesh Nayak & Co., AIR 1997 SC 2049
3
Koegler v. Coringa Oil Co., ILR 1 Cal 4 ; Cooverji v. Bhimji, ILR 6 Bom 528 ; National Insurance Co. v. Calcutta Dock
Labour Board, AIR 1977 Cal 492 ; Rajasthan Handcrafts Emporium v. Pan American World Airways, AIR 1984 Del396
4
Ganges Manufacturing Co. v. Indra Chand , ILR 33 Cal 1169; Tilakram v. Kodumal, 30 Bom LR 546; Ganga v. Ram
AIR 1932 Lah 459
5
Gopinath Daulat Dalvi v. State Of Maharastra, 2995(1) Mh. L.J. 438
Respondent was agent of appellant for sale of certain fertilizers in Kakinada. Respondent entered into
agency agreement with appellant and deposited certain amount as agency deposit. Agency agreement
provided that all disputes arising in relation to agreement shall be referred in Madras Court. Respondent
brought suit in Court of District Munsif, Kakinada for recovering agency deposit. Suit could be filed only
in Court of Madras as suit arising out of agency agreement. Appeal allowed. [Lloyds Commercial
Corporation vs . Veeravilli Satyanarayana and Satti Rami Reddi Registered Firm , Kakinada
MANU/AP/0142/1966 = AIR1966AP256(AP)]