Supreme Court Upholds Exclusive Jurisdiction Clauses in Employment Contracts

By Abhishek Jat, Advocate

In a landmark judgment delivered on April 8, 2025, the Supreme Court of India has provided clarity on the enforceability of exclusive jurisdiction clauses in employment contracts. The judgment, authored by Justice Dipankar Datta, resolves the conflict between different High Court rulings and establishes that exclusive jurisdiction clauses in employment agreements are legally binding and enforceable.

Background of the Cases

The Court considered two connected appeals involving HDFC Bank. In the first case, Rakesh Kumar Verma, appointed as an Executive in HDFC Bank's Transaction Banking Group in Patna, had his service terminated in 2016. Despite an exclusive jurisdiction clause in his appointment letter specifying Mumbai courts, Verma filed a suit in Patna challenging his termination.

In the second case, Deepti Bhatia, who worked at HDFC Bank's branch in Delhi, similarly challenged her termination in a Delhi court, disregarding an exclusive jurisdiction clause in her employment agreement that designated Mumbai courts for dispute resolution.

Key Legal Question

The primary question before the Supreme Court was whether civil suits could be instituted in courts in Patna and Delhi, respectively, when the employment agreements explicitly stated that courts in Mumbai would have exclusive jurisdiction to decide disputes between the parties.

The Court's Reasoning

The Supreme Court dismissed the argument that employment contracts should be treated differently due to the unequal bargaining power between employers and employees. The Court held that "a contract – be it commercial, insurance, sales, service, etc. – is after all a contract" and should be treated equally without bias or distinction based on the relative strength of the parties.

Justice Datta articulated three criteria for the validity of exclusive jurisdiction clauses:

1. Compliance with Section 28 of the Contract Act: The clause must not absolutely restrict any party from initiating legal proceedings but may relegate claims to specific courts.
2. Competent Jurisdiction: The court given exclusive jurisdiction must be competent to have such jurisdiction in the first place under the statutory regime.
3. Clear Conferment of Jurisdiction: The parties must either impliedly or explicitly confer jurisdiction on specific courts.

The Court determined that all three criteria were satisfied in both cases. It emphasized that the decisions to employ the appellants were taken in Mumbai, their appointment letters were issued from Mumbai, and their termination decisions were made and communicated from Mumbai, establishing that courts in Mumbai had proper jurisdiction.

Rejection of the "Unequal Bargaining Power" Argument

The Court specifically rejected the argument that employment contracts should be treated differently because of unequal bargaining power between employers and employees, colorfully described as "a mighty lion (employer) and a timid rabbit (employee)." The judgment noted that unequal bargaining power exists in many contractual relationships beyond employment, and making exceptions based on parties' status would violate principles of contractual equality.

Practical Implications and Directions

The Court directed that the plaints in both cases be returned to the respective plaintiffs for presentation before competent courts in Mumbai, with liberty to amend their plaints or file fresh suits.

Conclusion

This judgment resolves conflicting High Court decisions and establishes a clear precedent on exclusive jurisdiction clauses in employment contracts. By affirming that such clauses are valid and enforceable regardless of perceived power imbalances between parties, the Supreme Court has provided certainty for employers operating across multiple locations in India and emphasized the sanctity of contractual terms freely agreed upon by parties.

The Court's decision underscores that employment contracts, like other contracts, are binding agreements whose terms must be respected by all parties, reinforcing the principle that Indian contract law treats all contracts with equal respect regardless of the relative strengths and weaknesses of the contracting parties.