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Synopsis

The Supreme Court has said that a contract – be it commercial, insurance, sales, service, etc – is, after all, a contract and it is a legally binding agreement, regardless of the parties involved or their inter se strengths. 

"To make a distinction for employment contracts on the specious ground that a mighty lion and a timid rabbit are the contracting parties would violate the principle of equality, in the sense that rights and liabilities would not be dependent on the parties’ status, power or influence. Contracts should be treated equally, without bias or distinction," a bench of Justices Dipankar Datta and Manmohan said.

The fact that one party is more powerful or influential (the mighty lion) and the other more vulnerable (the timid rabbit) does not justify making exceptions or distinctions in the application of contractual principles, the bench added.

Court examined a pure question of law, whether the civil suits could have been instituted in courts in Patna and Delhi by Rakesh and Deepti, two employees who were terminated by HDFC Bank Ltd, in view of the specific clause in the appointment letter/employment agreement that the courts in Mumbai would have exclusive jurisdiction to decide disputes by and between the contracting parties.

It pointed out that the issue as to how an exclusive jurisdiction clause has to be read and understood is, thus, no longer res-integra. 

The bench said a bare perusal of the previous decisions leads to the conclusion that for an exclusive jurisdiction clause to be valid, it should be (a) in consonance with Section 28 of the Contract Act, i.e., it should not absolutely restrict any party from initiating legal proceedings pertaining to the contract, (b) the court that has been given exclusive jurisdiction must be competent to have such jurisdiction in the first place, i.e., a court not having jurisdiction as per the statutory regime cannot be bestowed jurisdiction by means of a contract and, finally, (c) the parties must either impliedly or explicitly confer jurisdiction on a specific set of courts. These three limbs/criteria have to be mandatorily fulfilled.

On behalf of the aggrieved employees, it was contended that in an unequal battle between the mighty lion (employer) and the timid rabbit (employee), where the dice was heavily loaded from the inception against the employee, no further embargo ought to be placed in his/her pursuit for justice by pinning him/her down to the courts in the city (Mumbai) mentioned in the appointment letter/employment agreement.      

The court noted there is a gulf of difference between a public service and a service contract with a private employer. The origin of government service is contractual. There is an offer and acceptance in every case. But once appointed to his post or office, the government servant acquires a status and his rights and obligations are no longer determined by the consent of both the parties, but by the statute or statutory rules as framed. 

In other words, the bench pointed out, the legal position of a government servant is more one of status than that of contract. A government servant may not be tied down by his employer to a court at a particular place, should a dispute arise for adjudication by a law court. Articles 14, 16 and 21 could stand in the way.

On the other hand, the bench pointed out, service in the private sector is governed by the terms of the employment contract entered into by and between the parties inter-se. 

Like any other contract, even in an employment contract, a concluded contract presupposes the existence of at least two parties with mutual rights and obligations, it said.

Once a concluded contract comes into existence, it is axiomatic that such rights and obligations of the parties are governed by the terms and conditions thereof. Since there is a prior meeting of minds of the contracting parties, their intentions have to be gathered from the contract (appointment letter/employment agreement, here) and looking at the same, it can safely be inferred that the contracting parties were ad idem on the terms of the appointment letter/employment agreement which specified courts in Mumbai exclusively as the situs of dispute resolution, the bench said.

"Nowadays, the private sector employs individuals pan-India for providing services to reach people in the last mile. Therefore, it may not be possible for all employers in the private sector to contest suits at far-off places from the registered office. This seems to be the overwhelming reason why exclusion clauses are inserted," the bench added.    

The court held that Rakesh and Deepti having accepted the terms and conditions of the appointment letter/employment agreement and acted upon its terms by joining their respective posts, they could not have possibly avoided the contract on a second thought that a term contained therein may not be beneficial for them at a subsequent stage.  

As long as an employment contract does not offend the provisions of any applicable legislation, such as the Contract Act or the CPC, ordinarily, there should be no reason to interfere. It cannot but be gainsaid that the scope of interference, in such matters, is quite narrow, the bench said.

The court also rejected a contention on behalf of Rakesh and Deepti that the previous decisions would not be applicable in the case of a service contract.

The bench also emphasised that unequal bargaining power is not unique to contracts of personal service. In many areas, such as business, commerce, or real estate, contracts may involve parties with dissimilar levels of strength, resources or negotiating power, court pointed out. 

Court cited instances where big builders sub-contract a part of the development work entrusted to them to sub-contractors. Such contracts too involve the mighty lion and, though not a timid rabbit, but a weak lamb. Based on the status of the parties, the latter cannot escape from the consequences if the former seeks to enforce a condition in the contract which the latter perceives is oppressive or the latter, refusing to perform any of its obligations considering it as onerous faces a law suit for breach of contract, court observed.

"Law treats all contracts with equal respect and unless a contract is proved to suffer from any of the vitiating factors, the terms and conditions have to be enforced regardless of the relative strengths and weakness of the parties," the bench said.

The court said it was unable to approve the law laid down in Vishal Gupta Vs L & T Finance (2009) while declining to grant relief to HDFC Bank in exercise of revisional jurisdiction.

It also pointed out Section 28 of the Contract Act does not bar exclusive jurisdiction clauses. What has been barred is the absolute restriction of any party from approaching a legal forum. The right to legal adjudication cannot be taken away from any party through contract but can be relegated to a set of ourts for the ease of the parties.

In the present dispute, the clause does not take away the right of the employee to pursue a legal claim but only restricts the employee to pursue those claims before the courts in Mumbai alone, court highlighted.

Secondly, the court must already have jurisdiction to entertain such a legal claim. This limb pertains to the fact that a contract cannot confer jurisdiction on a court that did not have such a jurisdiction in the first place. The explanation to Section 20 of the CPC is essential to decide this issue, the bench said.

"In the instant case, considering that the decision to employ Rakesh and Deepti were taken in Mumbai, the appointment letter in favour of Rakesh was issued from Mumbai, the employment agreement was dispatched from Mumbai, the decision to terminate the services of Rakesh and Deepti were taken in Mumbai and the letters of termination were dispatched from Mumbai, we are convinced that the courts in Mumbai do have jurisdiction," the bench said.

Lastly, the clause in the contract has clearly and explicitly barred the jurisdiction of all other courts by using the word “exclusive”, the bench pointed out.

The court finally held that the HDFC Bank was, thus, justified in its claim that the suits ought to have been instituted in an appropriate court in Mumbai.

The court left the employees to avail their respective remedies, saying merits of the disputes had not been examined by it.

Case Title: Rakesh Kumar Verma Vs HDFC Bank Ltd