A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies

Introduction

Can parties to a contract agree that disputes arising from the contract will be decided only by a particular court? If so, when will such a jurisdiction clause be legally valid?

The Supreme Court considered these questions in A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem, (1989) 2 SCC 163; AIR 1989 SC 1239. The judgment is a leading authority on exclusive jurisdiction clauses, Section 20 of the Code of Civil Procedure, 1908, Sections 23 and 28 of the Indian Contract Act, 1872, cause of action and contractual ouster of jurisdiction.

The Court held that parties cannot confer jurisdiction upon a court which otherwise has no jurisdiction. However, where two or more courts are legally competent to entertain a dispute, the parties may agree to submit their disputes to one of those courts.

Case Details

Case Name

A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem

Court

Supreme Court of India

Date of Judgment

13 March 1989

Citation

(1989) 2 SCC 163; AIR 1989 SC 1239

Bench

K.N. Saikia and G.L. Oza, JJ.

Subject Matter

Jurisdiction clause, Section 20 CPC, Sections 23 and 28 Contract Act, exclusive jurisdiction, cause of action and contractual agreements regarding jurisdiction.

Facts of the Case

The appellant, A.B.C. Laminart Pvt. Ltd., was a manufacturer and supplier of metallic yarn under the name Raplon Metallic Yarn.

The respondent, A.P. Agencies, Salem, was the purchaser of the goods.

The parties entered into a commercial transaction involving the sale and supply of metallic yarn.

A dispute subsequently arose between the parties regarding the payment of amounts due under the transaction.

The respondent instituted a suit before the Subordinate Judge at Salem seeking recovery of the amount claimed from the appellants.

Dispute Regarding Jurisdiction

The appellants objected to the jurisdiction of the Salem court.

They relied upon a clause in the agreement which provided that disputes arising from the sale would be subject to the jurisdiction of the courts at a specified place.

The appellants argued that the parties had agreed to confer exclusive jurisdiction on that particular court.

Therefore, according to the appellants, the Salem court should not entertain the suit.

Question Before the Court

The central question before the Supreme Court was:

Whether the parties could validly agree to confer exclusive jurisdiction on one of several courts which otherwise had jurisdiction over the dispute.

The Court also had to determine whether the jurisdiction clause in the agreement actually excluded the jurisdiction of the Salem court.

Relevant Legal Provisions

The case principally involved:

Section 20 CPC

Section 20 of the Code of Civil Procedure determines the territorial jurisdiction of civil courts in cases where the defendant resides or carries on business, or where the cause of action wholly or partly arises.

Section 23 Contract Act

Section 23 declares certain agreements to be unlawful where their object or consideration is opposed to public policy, among other grounds.

Section 28 Contract Act

Section 28 deals with agreements which restrict a party from enforcing contractual rights through ordinary legal proceedings.

Decision of the Supreme Court

The Supreme Court dismissed the appeal.

It held that the Salem court had jurisdiction because a part of the cause of action had arisen there.

The goods were delivered at Salem, creating a sufficient connecting factor for the Salem court to exercise jurisdiction.

The Court further held that the contractual clause did not clearly and unambiguously exclude the jurisdiction of the Salem court.

Therefore, the suit could continue before the Salem court.

Can Parties Exclude Jurisdiction?

The Supreme Court made an important distinction.

Parties cannot create jurisdiction in a court which does not possess jurisdiction under the law.

However, where two or more courts already have jurisdiction, the parties may agree that disputes will be decided by one of those courts.

Therefore:

No Jurisdiction Under Law → Agreement Cannot Create Jurisdiction

Two Competent Courts → Parties May Choose One

This is one of the most important principles from the case.

Absolute Ouster of Jurisdiction

The Court held that an agreement which absolutely excludes the jurisdiction of all competent courts would be contrary to public policy and therefore void.

A party cannot contractually take away the jurisdiction of every ordinary court which would otherwise be competent to decide the dispute.

Such an agreement would effectively prevent a party from seeking judicial remedies.

The Court therefore distinguished between an absolute exclusion of jurisdiction and an agreement choosing one among several competent courts.

Valid Exclusive Jurisdiction Clause

Where several courts have jurisdiction under the law, parties can agree that disputes will be brought before only one of those courts.

Such an agreement is generally valid because the parties are not creating jurisdiction.

They are merely choosing one of the courts which already possesses jurisdiction.

The Court relied upon the principle that parties may agree to submit contractual disputes to a particular competent jurisdiction.

Connecting Factor

A court must have a legally recognised connection with the dispute.

The Court referred to connecting factors such as:

• place where the contract was made;
• place where the contract was performed;
• place where goods were delivered;
• place where payment was required;
• place where the cause of action arose; and
• place where the defendant resides or carries on business.

If such a connecting factor gives a court jurisdiction under law, parties may select that court through a contractual jurisdiction clause.

Delivery of Goods at Salem

In the present case, delivery of the metallic yarn at Salem was an important connecting factor.

The delivery of goods at Salem meant that part of the cause of action had arisen there.

Consequently, the Salem court possessed jurisdiction under Section 20(c) CPC.

Interpretation of Jurisdiction Clauses

The Supreme Court explained that a jurisdiction clause must be interpreted carefully.

The court must determine whether the parties actually intended to exclude the jurisdiction of other competent courts.

Words such as:

• alone;
• only;
• exclusively; and
• exclusive jurisdiction

may indicate an intention to exclude other courts.

However, the absence of these words is not necessarily conclusive.

The entire clause and the surrounding circumstances must be examined.

Expressio Unius Est Exclusio Alterius

The Supreme Court also referred to the maxim expressio unius est exclusio alterius.

It means:

The express mention of one thing may imply the exclusion of another.

Therefore, even where words such as exclusive or alone are not expressly used, the wording and circumstances of a jurisdiction clause may indicate that the parties intended to select one particular court.

However, this principle must be applied cautiously and according to the circumstances of each case.

Clause Was Not Sufficiently Clear

The relevant clause stated that disputes arising from the sale would be subject to the jurisdiction of a particular court.

However, the Supreme Court found that the wording did not clearly and unambiguously exclude the jurisdiction of the Salem court.

The clause therefore could not be interpreted as completely taking away the jurisdiction which the Salem court otherwise possessed.

Section 28 of the Contract Act

The appellants argued that the jurisdiction clause was connected with Section 28 of the Contract Act.

The Supreme Court explained that Section 28 does not invalidate an agreement merely because parties agree to submit disputes to one particular competent court.

The invalidity arises where an agreement absolutely restricts a party from enforcing its rights through ordinary legal proceedings.

A valid choice between competent courts is different from an absolute prohibition on approaching courts.

Section 23 and Public Policy

The Court also considered the principle of public policy under Section 23.

An agreement which completely excludes the jurisdiction of courts would be contrary to public policy.

However, selecting one competent court from among several competent courts does not ordinarily offend public policy.

Therefore, a jurisdiction clause is not invalid merely because it restricts litigation to one competent forum.

Important Distinction

The case establishes an important distinction:

Ousting all competent courts → Void

Selecting one competent court → Valid

Conferring jurisdiction on an incompetent court → Invalid

This distinction is frequently tested in law examinations.

Cause of Action and Jurisdiction

The case is also important for understanding cause of action under Section 20(c) CPC.

Where even a part of the cause of action arises within the territorial jurisdiction of a court, that court may have jurisdiction to entertain the suit.

The parties can then agree to select that court as the forum for disputes arising from the contract.

Example

Suppose A and B enter into a contract.

The contract is signed in Mumbai, goods are manufactured in Pune, and delivery takes place in Chennai.

If the law gives jurisdiction to more than one of these courts because a part of the cause of action arose there, the parties may agree that disputes will be decided by the courts at Chennai.

However, they cannot give jurisdiction to a court which has no legal connection with the dispute.

Important Examination Question

Can parties confer jurisdiction on a court by contract?

No.

Parties cannot confer jurisdiction on a court which does not possess jurisdiction under the law.

They can only choose one among courts which already possess jurisdiction.

Important Examination Question

Can parties exclude the jurisdiction of other competent courts?

Yes.

Where two or more courts have jurisdiction, parties can ordinarily agree that disputes will be decided by one particular competent court.

Important Examination Question

What happens if a jurisdiction clause excludes all courts?

Such an agreement would be invalid because parties cannot completely take away the right to approach competent courts.

Important Examination Question

Are words like only or exclusively necessary?

No.

Such words provide strong evidence of exclusivity, but the court must examine the clause as a whole and determine the intention of the parties.

Relationship With Hakam Singh

A.B.C. Laminart follows the principle established in Hakam Singh v. Gammon India Ltd.

In Hakam Singh, the Supreme Court held that where two courts have jurisdiction under the CPC, parties can agree to submit their disputes to one of those courts.

However, parties cannot confer jurisdiction upon a court which has none under the law.

A.B.C. Laminart develops and explains this principle in greater detail.

Relationship With Swastik Gases

The principles in A.B.C. Laminart are also important when studying Swastik Gases P. Ltd. v. Indian Oil Corporation Ltd.

Swastik Gases clarified that an exclusive jurisdiction clause does not necessarily require the use of words such as only or alone.

The intention of the parties may be gathered from the language of the clause and the circumstances.

Ratio Decidendi

The ratio of A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies is that parties cannot confer jurisdiction on a court which does not possess jurisdiction under law. However, where more than one court is competent to entertain a dispute, the parties may agree to submit their disputes to one of those courts. Such an agreement is valid provided it does not absolutely oust the jurisdiction of all competent courts. The intention to exclude other courts must be established from the language of the jurisdiction clause and the surrounding circumstances.

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Legal Principles Established

1. Parties Cannot Create Jurisdiction

Contractual agreement cannot give jurisdiction to a court which has no jurisdiction under the CPC.

2. Choice Between Competent Courts Is Valid

Where several courts have jurisdiction, parties may select one of them.

3. Absolute Ouster Is Void

An agreement completely excluding access to competent courts is contrary to public policy.

4. Jurisdiction Clause Must Be Construed Properly

The court must examine the actual language and intention behind the clause.

5. Words of Exclusivity Are Relevant

Words such as only, alone and exclusive may demonstrate an intention to exclude other courts.

6. Such Words Are Not Always Essential

Even without express words of exclusivity, the clause may indicate an exclusive choice depending upon its wording and circumstances.

7. Connecting Factor Is Essential

The selected court must have jurisdiction independently under the law.

8. Section 20(c) CPC Is Important

A court may have jurisdiction where a part of the cause of action arises within its territorial limits.

Simple Illustration

A company in Delhi sells goods to a buyer in Chennai.

The contract is made in Delhi and the goods are delivered in Chennai.

Both Delhi and Chennai may have jurisdiction because there are connecting factors with both places.

If the contract provides that disputes shall be decided by the courts at Chennai, the clause can ordinarily be valid.

But if the contract states that disputes shall be decided by a court in a place having no connection with the transaction and no independent jurisdiction, the parties cannot create jurisdiction merely through their agreement.

Examination Formula

For A.B.C. Laminart, remember:

Court must have jurisdiction first

Then:

Parties can choose one competent court

But:

Parties cannot create jurisdiction

And:

Absolute ouster of jurisdiction is void

Key Takeaways

1. Parties cannot confer jurisdiction on a court which lacks jurisdiction under law.
2. Parties may select one among several courts having jurisdiction.
3. An absolute exclusion of all competent courts is void.
4. A jurisdiction clause must be interpreted according to its language and surrounding circumstances.
5. Words such as only, alone and exclusive may indicate exclusivity.
6. Such words are not indispensable in every case.
7. Section 20(c) CPC is relevant where part of the cause of action arises at a particular place.
8. Delivery of goods can constitute a connecting factor.
9. A valid jurisdiction clause does not violate public policy merely because it excludes other competent courts.
10. The case is a leading authority on contractual jurisdiction clauses.

Law Student and Judiciary Relevance

For examinations, remember:

Section 20 CPC → Jurisdiction

Cause of Action → Connecting Factor

Competent Courts → Parties May Choose One

No Jurisdiction → Contract Cannot Create It

Absolute Ouster → Void

The most important proposition is:

Parties cannot confer jurisdiction on a court which has none, but they can choose one competent court where more than one court has jurisdiction.

Conclusion

A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies is one of the leading Supreme Court judgments on contractual jurisdiction clauses.

The judgment balances two principles. First, parties cannot use a contract to completely prevent access to competent courts or confer jurisdiction upon an incompetent court. Second, commercial parties are free to select one court from among several courts which are otherwise competent to decide their dispute.

The validity of a jurisdiction clause therefore depends upon whether the selected court possesses jurisdiction independently under the law and whether the contractual language clearly demonstrates an intention to select that court.

The central lesson is:

A jurisdiction clause can select a competent court, but it cannot create jurisdiction where none exists.

For a law student, remember:

No Jurisdiction → Cannot Be Created by Agreement

Multiple Competent Courts → Parties May Choose One