An Assessment Of Foreign Companies’ Right To Exclude The Jurisdiction Of Indian Courts For Disputes Against Indian Individuals And Entities

Update: 2023-12-01 06:10 GMT
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In an increasingly globalized world, Indian consumers have become used to benefitting from products and services offered by foreign companies. In fact, some of these have become an unavoidable part of the modern way of living. Be it using Amazon to find practically anything that you want to buy, or using YouTube to stream and share content, the services offered by these companies...

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In an increasingly globalized world, Indian consumers have become used to benefitting from products and services offered by foreign companies. In fact, some of these have become an unavoidable part of the modern way of living. Be it using Amazon to find practically anything that you want to buy, or using YouTube to stream and share content, the services offered by these companies are increasingly gaining an important place in our lives. While agreeing to use the services offered by these companies, all can also admit to being guilty of brushing past their terms of service which pop-up when we sign up to use the services offered by them. In doing so, what we do is not pay any heed to the cleverly drafted clauses in these terms.

One such clause that forms a part of all of these terms of service, and the one that is arguably the most fundamental, is the dispute resolution clause. This clause is aimed at determining the mode of resolving a dispute, if one should come up over the course of the use of a service offered by these companies. A significant number of these terms state that all disputes must exclusively be submitted to foreign courts, and in most cases, these are the courts of the foreign company’s home country. For instance, the terms of service of X (formerly known as Twitter) state that “all disputes related to these Terms or the Services will be brought solely in the federal or state courts located in San Francisco County, California, United States, and you consent to personal jurisdiction and waive any objection as to inconvenient forum.” A similar exclusion can also be found in Apple’s advertising terms , which states that “laws of the state of California, excluding its conflicts of law rules, govern these terms of service and your use of the services.” Understandably, these clauses are aimed at dissuading users from initiating litigation in countries like India. In subsequent paragraphs, we discuss the validity of these clauses in India using the opinions rendered by the Supreme Court.

Indian Courts have, time and again, clarified that parties to a contract are permitted to enforce clauses that grant exclusive jurisdiction to a foreign forum in cases where at least one party to the contract is not Indian. For instance, the Supreme Court, in Modi Entertainment stated that the Court is normally required to give effect to the intention of parties in such cases.[1] The Delhi High Court, in no uncertain terms, clarified that where one party is not subject to the law of India, parties are permitted to vest jurisdiction outside the country.[2] More recently, the Delhi High Court, yet again, reiterated this principle in the context of an arbitration agreement, and noted that parties’ choice of a foreign seat of arbitration was enforceable and since they consciously made that choice while concluding an arbitration agreement, they could enforce it by excluding the jurisdiction of other courts.[3] However, each of these judgments were passed in the context of clauses that were a part of actively negotiated commercial contracts between parties, and not part of standard form contracts. Standard form contracts, such as a contract detailing general terms and conditions, clearly provide the party accepting them extremely limited or no ability to modify and negotiate the clauses provided therein. An individual user, therefore, is not permitted to negotiate these clauses to balance them out. In such cases, the general rule of enforcing such clauses should not apply. Given this context, we analyze the enforceability of these clauses against individual users from two perspectives.

  1. Exceptions to party autonomy in choice of jurisdiction

In Modi Entertainment, while the Supreme Court noted that Court’s must generally give effect to the intent of parties, it stated that this rule would be inapplicable if “strong reasons” supported derogating from it. It then went on to identify specific factors that the enforceability of such clauses would depend on:

i. In what country the evidence on the issues of fact is situated, or more readily available;

ii. Relative convenience and expense of trial as between Indian and foreign courts;

iii. Whether the law of the foreign court applies and, if so, whether it differs from Indian law in any material respects;

iv. With what country either party is connected, and how closely;

v. Whether defendants genuinely desire trial in the foreign country, or are they only seeking procedural advantages;

vi. Whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would: (i) be deprived of security for that claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in India; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.

An assessment of the above-identified factors in the case of individual Indian users who have accepted such clauses as a part of standard form contracts with foreign companies would favor a finding that a suit can be instituted in India for multiple reasons. First, it is clear that convenience demands that suits be instituted in India as foreign companies clearly have an established presence in India and users would be far more inconvenienced, if not prejudiced, if they are forced to institute and fight expensive litigation abroad. Second, the facts and evidence involved would likely have a greater nexus with India. Finally, it is clear that defendants (i.e., the foreign companies here) seek to enforce such a clause only to obtain procedural advantages and defeat the claim.

  1. Lack of consensus ad-idem

In Modi Entertainment, the Supreme Court has held that Courts can refuse enforcement of clauses that exclude jurisdiction of courts where a party is able to show that it did not agree to such a clause.[4] Indian courts have dealt with the above mentioned principles only in the context of agreements that are negotiated between parties, and not in relation to standard form contracts (where parties have the scope to argue that they did not agree to contractual clauses and such clauses were forced upon them). Courts are less likely to enforce such clauses where a party proves that it had far lesser bargaining power as compared to the party whose standard terms apply. In fact, the Delhi High Court, in Pantaloon Retail, went on to clarify that even in contracts of international trade that are actively negotiated, Courts can set aside the forum governing laws if it is proven that the parties could not have agreed upon the said forum to get the dispute in question adjudicated by the said forum.[5]

Since a case that requires the interpretation of such forum governing clauses has not come up before the Courts in India (presumably because upon initiation of litigation, foreign companies have chosen to forego their objections on the basis of such clause), there is no Indian precedent that directly applies the legal principles highlighted above to such contracts. However, in the age where consumer protection is gaining paramount importance, Indian consumers’ right to enforce Indian laws and their rights as consumers against such foreign companies must not be ignored. The legal community, in this spirit, must come together and spread awareness through public discourse and extensive legal writing on this subject to truly empower consumers to learn about their rights as well as their right to enforce their rights in India. This is the only way to ensure that foreign companies acknowledge their responsibility and liability towards Indian consumers and not see them as a mere market for growth and expansion.

Vishesh Sharma & Ramayni Sood, Practicing Advocates in the Supreme Court and Delhi High Court. Views are personal.

[1]Modi Entertainment & Ors. v. W.S.G Cricket, (2003) 4 SCC 341; British India Steam Navigation Co. v. Shanmughavilas Cashew Industries, (1990) 3 SCC 481; Man Roland Druckimachinen Ag v. Multicolour Offset Ltd. (2004) 7 SCC 447.

[2] Delhi High Court’s opinion in BHEL v. Electricity Generation Incorporation, 2017 SCC OnLine Del 11256.

[3] Gujarat JHM Hotels Ltd. v. Rajasthali Resorts & Studios, Judgment dated 17 January 2023 in OMP (ENF.) (COMM.) No. 227 of 2022.

[4] Modi Entertainment & Ors. v. W.S.G Cricket, (2003) 4 SCC 341; National Thermal Power Corporation v. Singer Company, (1992) 3 SCC 551.

[5] Pantaloon Retail (India) Ltd. v. Amer Sports Malaysia Sdn Bhd, FAO(OS) 224/2012.


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