Governing Law vs Jurisdiction: Why NRIs Often Confuse the Two

In cross-border commercial contracts involving NRIs, two clauses appear routinely but are frequently misunderstood: governing law and jurisdiction. Although they often sit next to each other in an agreement, they serve very different legal purposes. Confusing the two is one of the most common reasons for prolonged litigation, wasted costs, and unexpected court proceedings.

Understanding this distinction is critical to appreciating how disputes unfold once disagreements arise.

What Is Governing Law?

The governing law clause determines which country’s substantive law will apply to interpret the contract. It answers questions such as:

• How the contract is legally interpreted

• Whether a contract is valid or void

• How breach is assessed

• What remedies are available

For example, if a contract states that it is “governed by Indian law,” then Indian contract principles will be applied to determine rights and liabilities—even if parties live abroad.

Importantly, governing law controls what law applies, not where a case will be heard.

What Is Jurisdiction?

A jurisdiction clause specifies which court or courts have the authority to hear disputes arising from the contract. It deals with procedural authority rather than substantive rules.

Jurisdiction answers questions such as:

• Which country’s courts can entertain the dispute

• Whether proceedings must be filed in India or abroad

• Whether courts have exclusive or concurrent authority

A jurisdiction clause may grant authority to one court or allow multiple courts to hear disputes, depending on how it is drafted.

Why Confusion Commonly Arises

Many NRIs assume that if a contract is governed by foreign law, disputes cannot be brought before Indian courts. This assumption is incorrect. Governing law and jurisdiction operate independently.

A contract may:

• Be governed by Indian law but litigated abroad

• Be governed by foreign law but litigated in India

• Be governed by one law and arbitrated in another country

This separation often surprises parties who believed that choosing a foreign governing law automatically excluded Indian courts.

Real-World Consequences of Confusion

Confusion between governing law and jurisdiction frequently leads to:

• Objections at preliminary stages of litigation

• Delays due to jurisdictional challenges

• Parallel proceedings in multiple countries

• Increased legal costs and procedural complexity

Courts must first resolve where the dispute should be heard before addressing what law applies. This preliminary battle alone can consume years.

Exclusive vs Non-Exclusive Jurisdiction Clauses

Jurisdiction clauses can be:

• Exclusive, restricting disputes to one specific court

• Non-exclusive, allowing proceedings in more than one competent court

NRIs often overlook this distinction. A poorly drafted non-exclusive clause may permit litigation both in India and abroad, even when parties believed they had chosen a single forum.

Indian courts closely examine the wording to determine whether jurisdiction was truly intended to be exclusive.

Can Jurisdiction Be Implied Without a Clause?

Yes. Even in the absence of an express jurisdiction clause, courts can assume jurisdiction based on:

• Place of contract execution

• Location of performance

• Situs of assets

• Where cause of action arose

This is why contracts without clear clauses often create uncertainty, especially when transactions span multiple countries.

Governing Law Cannot Create Jurisdiction

A crucial legal principle is that governing law cannot confer jurisdiction. Parties cannot give authority to a court that otherwise lacks territorial connection merely by agreement. Courts must independently possess jurisdiction under procedural law.

This is a key reason why some jurisdiction clauses are held unenforceable despite being contractually agreed.

Conclusion

Governing law and jurisdiction serve distinct and independent roles in cross-border commercial contracts. Governing law determines which legal principles apply, while jurisdiction determines which court decides the dispute. NRIs frequently conflate the two, leading to avoidable litigation delays and forum disputes. Clear understanding of this distinction is essential to appreciating how international commercial disputes are legally assessed.