Report No. 199

Section 28 saves two types of contracts under the exceptions:

(1) It does not render void a contract by which two or more persons agree that any dispute which may arise between them shall be referred to arbitration and that only the amount awarded in the arbitration shall be recoverable.

(2) It does not also render void a contract to refer to arbitration questions that have already arisen.

Section 28 will come into play when the restriction imposed upon the right to sue is 'absolute' in the sense that the parties are wholly precluded from pursuing their legal remedies in the ordinary tribunals. A partial restriction will be valid as observed by Supreme Court in Hakam Singh v. Gammon (India) Ltd. (AIR 1971 SC 740). In this case a clause in the agreement between the parties provided that "the court of law in the city of Bombay alone shall have jurisdiction to adjudicate thereupon." The plaintiff filed a suit at Varanasi, but the same was dismissed in view of the abovestated agreement. The court held that agreement was not opposed to public policy and it did not contravene section 28, and therefore, the suit filed at Varanasi was rightly dismissed.

Under section 28 of Indian Contract Act, 1872, the citizen has the right to have his legal position determined by the ordinary tribunals, except, in the case of contracts to refer to arbitration disputes which may arise or which have already arisen. Section 28 affirms the common law and its provisions appear to embody a general rule recognized in the English courts which prohibits all agreement purporting to oust jurisdiction of the courts. Section 28 was amended by Indian Contract (Amendment) Act, 1996 which came into effect in 1997. The amendment gave effect to the suggestions made in the 97th Report of the Law Commission of India on "Section 28, Indian Contract Act, 1872: Perspective Clauses in Contract" (1984).

The Supreme Court laid down as follows:

"It is not open to the parties by agreement to confer jurisdiction on a court which it does not possess under the Code. But where two courts or more have this Code of Civil Procedure jurisdiction to try a suit or proceeding, an agreement between the parties that the dispute between them shall be tried in one of such courts is not contrary to public policy. Such agreement does not contravene section 28 of the Contract Act."