Making a case for constitutionalising contract law in India

Offering a new dimension to the debate on the horizontal application of fundamental rights, DIVYANSHU SHARMA argues that contractual provisions should be interpreted and applied after analysing the unequal bargaining position of the parties, with the aim of protecting the fundamental rights of the citizens. 

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MODERN legal philosophy developed the concept of a single supreme sovereign, which was responsible for protecting the fundamental rights of citizens. However, post-modern legal theorists raised some questions challenging this single sovereign illusion, by promoting a new concept of sovereignty based on the real exercise of power and control. This tussle between modern and post-modern thought led to the categorization of rights as vertical (only enforceable against the sovereign) and horizontal (equally binding on State and non-State entities).
In terms of the horizontal-vertical dichotomy of fundamental rights, the Indian Constitution stands at a unique position. While a majority of the rights have been made solely enforceable against the State (as per Article 12), some rights have been made equally applicable against non-State entities. These rights include the rights against discrimination, untouchability, and exploitation. Coupled with this have been cases of judicial activism in which the Supreme Court has been active in recognizing some crucial rights, requiring equal protection against State and non-State infringement. This was seen in the judgments providing for regulations against sexual harassment of women at the workplace, and statutory reservation of seats for children from economically weaker sections at private non-minority educational institutions.

However, the Indian legal system draws the line here. Beyond these Articles and a few more judgments, there is no further scope of horizontality of fundamental rights, as of now. While there is a bigger debate associated with this idea, of introducing a higher degree of horizontality than the prevalent level, here the author intends to bring to light a novel dimension of horizontality, that is, through private contracts.

Introducing a higher level of horizontality is a distant goal, as it requires deep thought on some pertinent questions raised by raised by lawyer Gautam Bhatia regarding the development of the appropriate legal apparatus and standard as a pre-requisite. However, enforcing fundamental rights through private contracts should be relatively easier, as we have in place a well-established legal system for enforcement of contractual rights, and an emerging wave of a new outlook for recognising constitutional law values in private contracts (which shall be discussed later here).
Also read: Deterring private discrimination, constitutionally

The dynamic Indian sovereign

The vertical conception of rights depends on the existence of a single supreme sovereign, who has the sole obligation of vertically protecting the fundamental rights of the people, as a part of the social contract. Considering this, the rationale for constitutionalizing contract law can be understood from the flaw in this idea of a single sovereign. This flaw can be understood from French philosopher Michel Foucault's doctrine of sovereignty and power. Foucault does not negate the existence of the Leviathan's sovereign but questions the assumption that this sovereign is a single entity. He argues that in a complex social setup, like India, there are numerous power structures existing in the society, interacting with one another, and exercising force over the citizens of the country. He uses examples of corporate violence, gender violence and racial violence to prove the existence of numerous sovereigns.
This image of the sovereign is strengthened by French philosopher Jacques Derrida's conception of power, which is not restricted to public agencies. Derrida argues that sovereign power is exercised by any individual who can direct the actions of many, through the threat of a casualty, without the use of any force from outside. Foucault's numerous sovereigns are not equally potent; they differ in the areas of their authority, the strength of their power, and the sphere of people over whom this authority is exercised. He further proposes that these numerous non-State sovereigns exist in subtle private relationships, informal in their structure, but exercising control over the lives of people.

This theory applies squarely in the Indian social context. Gautam Bhatia argues that sovereignty in India is dispersed, wherein a private employer exercises control over the employees through traditional caste-based policies. Even Dr B.R. Ambedkar believed that the Indian employee would be at the mercy of the employer, who would exercise strict control over the employee's life. Both these scholars account for the socio-economic reality of exploitative economic relations based on ancient discriminatory norms (like caste).
In the 21^st century, with the advent of social media, employers are using employment contracts to restrict the freedom of speech of the employees. While the main idea of such contracts is to prevent the company from any form of "bad press" emanating from an employee's personal views, the same contracts are slowly becoming a tool to suppress the voice of employees against employers, on a public platform.
Also read: Is justice accessible to a Dalit employee in private workplaces in India?
In the Indian economic setup, several instances have come to light wherein app-based moneylenders have resorted to the exploitative modus operandi of the rural mahajans. These app-based lenders unilaterally change the terms of the loan agreement, harass clients for repayment, and charge unreasonably exorbitant fines and service charges. Further, by specifically targeting the illiterate poor section of the society, they easily gain access to their personal information, and many-a-times misuse it. Similarly, some instances have come to light wherein multi-national corporations pay less than minimum wages to contract-based labourers, who neither come under the protection of labour laws nor are represented by the trade unions.
Apart from economic exploitative contracts, there have been numerous incidences wherein private residential areas have denied residence to people on the basis of religion or caste. In its 2005 judgment in the Zoroastrian Co-operative Housing Society Ltd. case, the Supreme Court observed that no one has a fundamental right to become a member of a cooperative society. Byelaws of a housing society form a contract only between the members of the housing society, and hence, cannot be challenged by someone who is not a member, as being violative of their fundamental rights. However, another way of looking at such discriminatory byelaws, which restrict membership on the basis of religion or caste, is that they restrict the freedom to contract of the unqualified group by relying on an unconstitutional metric. The Indian Constitution denounces the idea of segregating people and treating them differently because of their religion or caste, and aims to create a fraternal society based on equality and integrity. If such unconstitutional aims of segregation are pursued by misusing legal technicalities, then there is a clear subversion of constitutional values, which demands judicial intervention.
Also read: Is 'unity in diversity' a farce when it comes to housing in India?
All these instances point towards a hidden but potent socio-economic pattern of exploitation, working effectively behind the regime of vertical horizontal rights. While the State has virtually no involvement in such exploitative practices, private individuals and institutions have successfully repressed the rights of the people. The Indian Constitution is based on the ideas social justice and rule of law, which require everyone to act in a respectful manner to the rights of fellow citizens.

Despite these concretely enshrined values, there is a lot of the Constitutionally-envisioned social transformation yet to be achieved in the 74 years since independence, because of the absence of any legally enforceable obligation on citizens to respect the fundamental rights of other people. Seemingly blind to reality, the Indian legal system still believes that rights of the weaker sections can be protected through effective negotiation. However, the system overlooks the fact that negotiation requires some degree of equality, which is at present missing between different groups of people.

Indian legal position

The Indian judiciary has been a staunch proponent of the horizontal-vertical rights division. This is evident from the verdict of the Supreme Court in Assistant General Manager vs. Radhey Shyam Pandey (2020). In this judgment, it was opined that where the State is acting as an employer, it is bound to respect the fundamental rights of the employees under Articles 14, 15 and 16. The rationale of the Court was that when the State is acting as an employer, it is at a superior bargaining position against the employees. However, this superior bargaining position is also evident in those cases where private employers demand their employees to not share any personal view on a social media platform, on any specific matter or where employees are monitored by the employer in the office premises.

Time and again, the Supreme Court has taken the stance that a non-State entity is not bound to inviolably respect the fundamental rights of people. In other words, if people themselves agree to essentially exploitative terms, no challenge can be raised against them on the ground of violation of fundamental rights. This is evident from its decision in Air India vs. Nergesh Mirza (1981), where the Court gave precedence to the contract law requirements of acceptance over the fundamental right to equality. The Court held that since the airhostesses had duly agreed to the terms of employment, they cannot challenge the terms as violative of their fundamental rights.  Similarly, in Zoroastrian Co-operative Housing Society, the Supreme Court held that if the byelaws of a residential society give precedence to people of a particular religious faith, the same cannot be challenged on grounds of fundamental rights, as people are free to decide with whom they want to associate with through individual contracts.
Also read: Pervasive discrimination, segregated spaces and the chimerical right to housing
I propose that a sound and rational way to protect the fundamental rights of citizens against exploitative private contracts would be by changing the understanding and perspective towards the existing legal provisions relating to private contracts. In my view, Section 23 of the Indian Contract Act, which enables a person to challenge a contract on grounds of being "opposed to public policy", is the way through which Indian contract law could be constitutionalized. Judges must look at the broader picture behind a particular contract, wherein while enforcing the contractual rights of people, courts are mindful of the larger need to protect the inviolable fundamental rights of the people. In the Supreme Court's judgment in C.E.S.C. Ltd. v. Subash Chandra Bose (1991), Justice K. Ramaswamy opined that section 23 of the Contract Act should be interpreted in light of the fundamental rights. Contractual clauses should be interpreted considering Parts III and IV of the Constitution to ensure the effectiveness of fundamental rights. Sadly, this view did receive much attention in subsequent jurisprudence.
If the terms of a contract appear to be so restrictive that they violate the fundamental rights of the people, Courts should desist from enforcing such terms merely because the parties have complied with the legal requirements of a valid agreement. If the terms appear to be exploitative, Courts need to add one more level of scrutiny wherein they must assess the relative position of the parties. If the parties appear to be unequally placed, wherein one is conspicuously being exploited by another through such contracts, courts ought to protect the interests of the weaker party by delegitimising such biased and exploitative terms. Courts cannot and should not be oblivious to the prevailing realities wherein employees are restrained from expressing their personal views in a non-professional space, where private housing societies are denying residence solely on grounds of religion or caste, and where poor and semi-literate workers enter into work agreements without fully understanding their terms and conditions.
Also read: Making Gender Equality At Work A Justiciable Right For Women In The Private Sector

This way of introducing fundamental rights' values in private contract law is an efficient remedy, as it merely requires a change in the outlook towards section 23 of the Contract Act and the fundamental rights, and some acceptance of the existing social inequalities by judicial officers. This change does not require an overhaul in the existing legal framework, as the same laws and the same judges can carry out this vision of fundamental rights and protect the interests of the weaker sections of the society.
(Divyanshu Sharma is a third year B.A., LL.B. (Hons.) student at the National Law University, Delhi. The views expressed are personal.)