M/S Swastik Gases Pvt. Ltd. v. Indian Oil Corporation Ltd
M/S Swastik Gases v. Indian Oil Corporation Limited is an important Supreme Court judgement which clarifies the Indian Judicial standpoint on exclusive jurisdiction clauses in commercial agreements. The judgement on this case was given by Justice R.M Lodha, Justice Madan Lokur (concurring) and Justice Kurian Joseph.
Facts and Procedural History
This case deals with the legality of an agreement which decides the court of jurisdiction of disputes arising between the parties. In this case, the respondent, i.e. Indian Oil Corporation Limited, deals in the storage and distribution of petroleum products and is also involved in manufacturing and marketing of other lubricating products. On the other hand, the appellant, i.e. Swastik Gases Pvt. Ltd deals with the storage and distribution of petroleum products only. On the 13/10/02, both the parties entered into an agreement where the appellant was appointed as the consignment agent for the respondent to market their goods in Jaipur. In 2003, a dispute arose between the parties as a result of which the appellant sent a notice to the company claiming a certain sum. If the respondent did not pay the amount, the appellant would pursue legal recourse. A notice was sent to the respondent informing him about the arbitration clause in the agreement being invoked and requesting him to appoint an arbitrator. The respondent failed to comply with the notice due to which the appellant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996, in the Rajasthan High Court.
For a better understanding of the case, clause 18 of the agreement is read as:
“The agreement shall be subject to jurisdiction of courts at Kolkata”
In court, both the parties took different stands with regard to the above clause. The respondent prayed for the filed application to be dismissed on the grounds of lack of territorial jurisdiction of the Rajasthan High Court. The court accepted the counsel’s prayer and dismissed the applic
ation and requested the appellant to file the same application in the Calcutta High Court. To this, the appellant appealed to the Hon’ble Supreme Court.
The main issue before the Hon’ble Supreme Court was whether Clause 18 of the agreement had exclusive jurisdiction or not?
Judgement and Analysis
The appellant relied on Section 20 of the CPC which says that any suit can be instituted in a court which has local jurisdiction over the place where the defendant resides or carries on business or personally works for gain or where the cause of action (wholly or partly) arose, at the time of commencement of the suit.
He said that part of the cause action arose in Jaipur as the agreement was signed there, the regional office of IOCL was in Jaipur, the agency functioned from Jaipur, meetings between the parties were held in Jaipur and the dispute also arose in Jaipur. Therefore, the contention of the appellant clearly falls under the above section which is why the High Court of Rajasthan is right to take jurisdiction over the matter.
The counsel for the appellant also argued that clause 18 does not specifically bar the High Court of Rajasthan to take jurisdiction over the matter. Moreover, he also contended that words like ‘alone’, ‘exclusive’, ‘only’ and ‘exclusive jurisdiction’ have not been used in the clause which is why it is not an exclusive jurisdiction clause.
The main questions before the court were:
Whether the above specified words are material in an exclusive jurisdiction clause?
Whether cause of action arose in Jaipur under Section 20?
Whether the clause ousted other courts from taking jurisdiction over the matter?
The counsel for the respondent simply argued that clause 18 of the consignment agreement clearly intended to exclude jurisdiction of all courts except Kolkata.
The court relied on one of the most important Judgements on exclusive jurisdiction, i.e. A.B.C Laminart v. A.P Agencies. In this case, the exclusion clause mentioned that all disputes would be taken up by the courts in Kaira. The opposite party instituted a suit in the court of Salem (contended that cause of action lied here). The question before the court was whether the jurisdiction lied in Kaira or Salem? The court held that the court in Salem had jurisdiction as the exclusive jurisdiction clause did not particularly exclude other courts to take jurisdiction over the matter. The famous Latin principle of ‘expressio unius est exclusion alterius’
, i.e. expression of one is the exclusion of other, was applied. In this case, this maxim did not apply. Moreover, this case was overruled by Swastik Gases
In the case of Hakkam Singh v. Gammon Ltd. there was a dispute and two courts had territorial jurisdiction to try the case, but the parties had mentioned in the agreement that the dispute shall be only tried by the Bombay Court whereas the appellant filed a case in the Varanasi court. The main question before the court was where did the jurisdiction of the matter lie? The court held that the Bombay court had jurisdiction as mentioned in the agreement.
Another important judgement is of Harshad Modi v. DLF Universal Ltd. In this case, the parties agreed to give Delhi High Court jurisdiction when a dispute arises. The suit filed was related to specific performance of the contract and possession of immovable property. The court held that the jurisdiction of the matter shall lie with the court where the property is situated. Therefore, the exclusive jurisdiction clause of the Delhi High Court was not considered in this case.
One of the judgements supporting the Swastik Gases case is Rajasthan State Electric Board v. Universal Petrol Chemicals. In this case, the parties had agreed that all disputes would fall under the jurisdiction of the Jaipur High Court, but the Calcutta High Court had territorial jurisdiction in this matter according to Code of Civil Procedure. The court held that due to the ouster clause of the agreement, only Jaipur courts will have the right to hear the matters arising between the two parties.
These are the main cases on exclusive jurisdiction, cited by Hon’ble Judges in this case. Justice Lodha and Justice Joseph gave a combined judgement which upheld the fact that the Kolkata courts have jurisdiction over this matter and words like ‘alone’, ‘only’, ‘exclusive’ or ‘exclusive jurisdiction’ are not necessarily required to be used in exclusive jurisdiction clauses. He further said that the maxim ‘expression unius est jurisdiction alterius’ comes into play. Justice Lodha also confirms that this clause is not hit by Section 23 of the Indian Contract Act nor is it violative of Section 28 of the Indian Contract Act. He dismisses the appeal and orders the appellant to obtain remedy in the Calcutta High Court.
Justice Lokur, who gave the concurring opinion, said that the exclusive jurisdiction clause in the agreement would be meaningless if it were not given in its natural and plain meaning. He divided his judgement into sets of decisions. The first set consisted of cases where the court held that the exclusive jurisdiction clause in an agreement will solely determine where the proceedings shall take place. The second set of decisions consisted of cases where the courts did not accept the jurisdiction of the court mentioned in the agreement and allowed other courts which had a cause of action.
Swastik Gases v. IOCL is a very well cited and informative judgement where the Hon’ble Supreme Court solves the confusion pertaining in the judiciary with regards to jurisdiction clauses in commercial agreements.
It is imperative to note that after this decision, exclusive jurisdiction clauses in commercial agreements serves as an exemption to Section 20 of the Code of Civil Procedure. Therefore, it can be concluded that if the defendant is residing at a particular place or carries out business at the particular place or personally works for gain in that particular place, it does not necessarily give the local courts the right to jurisdiction over the defendant’s disputes under Section 20 of the Code of Civil Procedure.
This case permanently clarifies the judiciary’s standpoint on exclusive jurisdiction clauses and overrules all previous judgements. The court also mentions that exclusive jurisdiction clauses are not violative of Section 23 of the Indian Contract Act, therefore, it is not forbidden by law or against public policy. Also, it is not against Section 28 of the Indian Contract Act.
This judgement also clarifies that words like- “alone”, “only”, “exclusive” or “exclusive jurisdiction”, if not mentioned in the jurisdiction clause of the agreement, does not make a material difference. The court also clarified that when an exclusive jurisdiction clause is mentioned, the Latin maxim: expressio unius est exclusion alterius comes into play.
I believe that this case would have not been filed in the first place if the words used in the exclusive jurisdiction clause were more explicit and clear. Even though the court said that words like: “alone”, “only”, “exclusive” or “exclusive jurisdiction” need not be used in these clauses, the clause would have been clearer had it been used and the appellant could have not argued the specificity of the clause. This is the only point where I disagree with the judgement. Had one of these words been used in the disputed clause, there would have been no litigation at all. Considering the progressive developments in the legal field, it is imperative for lawyers to draft more explicit and unambiguous clauses which clearly reflect the real intention of the parties. Furthermore, if we literally interpret the disputed clause, we can see that the contention of the appellant on the point of specificity is right. The clause does not explicitly exclude the fact that the High Court of Rajasthan does not have jurisdiction over this matter.
Overall, looking at the judgement in its entirety, we can reasonably conclude that this judgement was more than satisfactory. The Judges appointed in the case have very analytically and systematically laid down the reasons and case laws to support their respective arguments. It clarifies the whole confusion between exclusive jurisdiction clauses and territorial jurisdiction (Section 20). The bench in this case has very professionally analyzed and elaborated every aspect of the topic, making it a landmark judgement. CLICK HERE TO JOIN LAW COLUMN’S TELEGRAM AND WHATSAPP GROUPS
The Code of Civil Procedure 1908, s 20
A.B.C Laminart v. A.P Agencies  AIR 1239.
Hakkam Singh v. Gammon Ltd.  AIR 740.
Harshad Modi v. DLF Universal Ltd  7 SCC 791.
Rajasthan SEB v. Universal Petrol Chemicals  3 SCC 107.
Swastik Gases v. Indian Oil Corporation Limited  9 SCC 32.