Governing Law and Jurisdiction in Cross-Border Contracts with Indian Parties

When one or more parties to a commercial contract are Indian, and the contract has a cross-border dimension, foreign counterparty, foreign performance, or international financing, the choice of governing law and the determination of jurisdiction are among the most practically significant drafting decisions. Getting these provisions wrong can mean litigating in the wrong forum, applying the wrong law, or discovering that a judgment cannot be enforced where the assets are held.

Yes. Indian law does not prohibit Indian parties from agreeing that a foreign law governs their contract. The foundational principle is party autonomy, the parties’ agreement as to the law that governs their relationship is respected by Indian courts in commercial matters.

The principal statutory constraint is Section 23 of the Indian Contract Act, 1872, which provides that a contract whose object or consideration is unlawful, or whose performance is against public policy, is void. A choice of foreign law does not itself violate public policy; but a contract designed to use a foreign governing law to circumvent mandatory Indian law (for instance, to evade FEMA obligations) would not be given effect.

In practice, Indian courts apply the private international law principle that the lex contractus, the law chosen by the parties to govern their contract, determines questions of formation, validity, interpretation, and performance of the contract.

How Foreign Law Is Applied in Indian Courts

When a contract is governed by foreign law, and a dispute comes before an Indian court, the foreign law must be pleaded and proved as a matter of fact. This is a fundamental difference from Indian law, which courts apply of their own motion.

Proof of foreign law typically requires: (a) expert evidence from a practitioner admitted to practise in the foreign jurisdiction; (b) production of the relevant statutory texts or case law; and (c) the expert’s opinion on how the foreign law applies to the facts of the case.

This procedural complexity is one practical reason why parties to domestic contracts, even those with sophisticated cross-border elements, often choose Indian law as the governing law, it simplifies litigation enormously. For genuinely international transactions, parties often choose English law (highly developed commercial law, well-established body of case law, predictable interpretation) and pair it with international arbitration seated in Singapore or London.

Exclusive Jurisdiction Clauses: Enforcement in Indian Courts

An exclusive jurisdiction clause designating a foreign court as the forum for disputes raises the question: will Indian courts give effect to it and stay Indian proceedings?

The Supreme Court addressed this directly in Hakam Singh v Gammon (India) Ltd (1971) 1 SCC 286, holding that courts should give effect to contractual jurisdiction clauses designating a specific court. Later cases extended this principle to exclusive jurisdiction clauses in favour of foreign courts. In Swastik Gases Pvt Ltd v Indian Oil Corporation Ltd (2013) 9 SCC 32, the Supreme Court held that an exclusive jurisdiction clause ousts the jurisdiction of other courts, and Indian courts will stay their proceedings in favour of the designated forum.

However, there are limits:

• An exclusive jurisdiction clause does not prevent Indian courts from granting urgent interim relief where assets or parties are in India
• Indian courts retain jurisdiction to wind up companies incorporated in India, regardless of jurisdiction clauses
• A judgment from the foreign court must be enforced in India under Section 44A of the Civil Procedure Code, 1908, which requires the foreign court to be a court in a “reciprocating territory” (currently the UK, certain other Commonwealth countries). A US court judgment, for instance, cannot be enforced in India under Section 44A and must instead be the subject of a fresh Indian court action

Arbitration as the Preferred Cross-Border Mechanism

For cross-border contracts involving Indian parties, arbitration with an international seat is strongly preferred over foreign court litigation for several reasons:

1. Enforcement: Arbitral awards made in countries that are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 are enforceable in India under Part II of the Arbitration and Conciliation Act, 1996. India has adopted the New York Convention; awards from 155+ countries can be enforced in Indian courts.
2. No reciprocating territory requirement: Unlike foreign court judgments, there is no restriction on the country whose arbitral award can be enforced, enforcement is available so long as the seat is in a New York Convention country.
3. Confidentiality: Arbitration proceedings are private; court proceedings are public.
4. Expertise: Parties can appoint arbitrators with technical or commercial expertise relevant to the dispute.

Popular seats for India-related arbitrations include Singapore (SIAC), London (LCIA), and increasingly the Mumbai Centre for International Arbitration (MCIA).

The FEMA Constraint

A governing law clause cannot override India’s foreign exchange management framework. The Foreign Exchange Management Act, 1999 (FEMA) and the regulations made thereunder govern cross-border money flows involving India. Regardless of the governing law of a contract:

• Remittances from India to foreign parties must comply with FEMA
• Foreign investment into Indian companies must comply with the FDI Policy and FEMA 20(R)
• Borrowings from foreign lenders by Indian companies must comply with the ECB Framework (RBI Master Direction on ECBs)

A contract cannot choose foreign law to avoid these obligations. Indian law characterises FEMA as a mandatory law of India, it applies regardless of what law the parties have chosen for their contract.

Data Protection: The DPDP Act Applies Regardless

The Digital Personal Data Protection Act, 2023 applies to the processing of digital personal data of persons in India, regardless of: (a) where the data processor is located; and (b) what law governs the underlying commercial contract. An Indian SaaS user contracting with a foreign SaaS provider under US or English law is still entitled to exercise rights under the DPDP Act in respect of their personal data processed by that provider.

This has significant implications for cross-border technology contracts: foreign providers contracting with Indian customers, or collecting data from Indian users, must comply with DPDP Act requirements regardless of their chosen governing law.

Drafting Best Practice

For a domestic commercial contract between Indian parties:

For a cross-border commercial contract involving an Indian party:

Key Takeaways

• Indian parties can choose foreign governing law for their commercial contracts; Indian courts apply that foreign law as a matter of fact, typically requiring expert evidence, which creates procedural complexity in litigation.
• Exclusive jurisdiction clauses in favour of foreign courts are enforceable by Indian courts, but foreign court judgments are only directly enforceable in India under Section 44A CPC if the foreign court is in a “reciprocating territory”, making arbitration the more practical choice for cross-border enforcement.
• Regardless of the governing law of any contract, FEMA and the Digital Personal Data Protection Act, 2023 apply to Indian parties and to the processing of data of persons in India, these are mandatory laws that a contractual choice of foreign law cannot circumvent.

This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.

META TITLE: Governing Law & Jurisdiction in Cross-Border Contracts India