New Delhi: The Supreme Court has said a contract – be it commercial, insurance, sales, service, etc. – is after all a contract, and 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.
A bench of justices Dipankar Datta and Manmohan said service in the private sector is governed by the terms of the employment contract entered into by and between the parties inter-se.
The bench, in judgment, delivered on April 8, said 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.
The bench 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.
The bench said 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 from 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”, it said.
The apex court’s judgment came in a matter regarding two employees of HDFC Bank, Rakesh Kumar Verma and Deepti Bhatia, who sought to invoke jurisdiction of courts in Patna and Delhi respectively against their termination from the bank. Their employment contract made a specific clause that all such disputes would fall within the exclusive jurisdiction of the Mumbai court.
The bench said 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, 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.
Justice Datta, who authored the judgment on behalf of the bench, said: “A contract – be it commercial, insurance, sales, service, etc. – is after all a contract. 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”, said Justice Datta.
The bench 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 emphasised that unequal bargaining power is not unique to contracts of personal service, and in many areas, such as business, commerce, or real estate, contracts may involve parties with dissimilar levels of strength, resources or negotiating power. "As and by way of illustration, we can cite instances where big builders subcontract 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", said the bench.
Justice Datta said 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, refuses to perform any of its obligations considering it as onerous, faces a lawsuit for breach of contract.
The bench said the 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 weaknesses of the parties.
The bank employees’ had argued that in an unequal battle between the mighty lion (employer) and the timid rabbit (employee), where the dice are heavily loaded from the inception against the employee, no further embargo ought to be placed on 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 apex court concluded that HDFC Bank is justified in its claim that the suits ought to have been instituted in an appropriate court in Mumbai.
