Contractual Terms v. Statutory Mandates - Contractual terms, such as an arbitration clause, cannot override statutory mandates - If a statute designates a specific forum for adjudication, parties cannot, by mutual agreement, confer jurisdiction on an alternate forum - therefore, a clause providing for private arbitration is void ab initio in the context of a works contract governed by...
Contractual Terms v. Statutory Mandates - Contractual terms, such as an arbitration clause, cannot override statutory mandates - If a statute designates a specific forum for adjudication, parties cannot, by mutual agreement, confer jurisdiction on an alternate forum - therefore, a clause providing for private arbitration is void ab initio in the context of a works contract governed by the 1983 Act – Held, 1983 Act overrides the 1996 Act in this context. [Para 12.2] Umri Pooph Pratappur (Upp) Tollways Pvt. Ltd. v. M.P. Road Development Corporation, 2025 LiveLaw (SC) 752 : 2025 INSC 907 : AIR 2025 SC (Civil) 2114
Sections 23 & 28 - Enforceability of clauses barring claims for damages - Estoppel by Conduct - Limitation of Liability Clauses - Scope of interference under Section 37 - Appellant and Respondent entered into an agreement for construction of Road Over Bridges (ROBs). Disputes arose regarding delays, and the Appellant claimed damages despite a clause barring such claims. The Arbitral Tribunal rejected all claims based on this clause. The High Court, in Section 34 and 37 proceedings, upheld the Arbitral Tribunal's decision. Whether a clause prohibiting payment of damages for delays caused by the employer is enforceable; whether the Appellant is estopped from challenging such a clause due to its conduct; and the scope of interference under Section 37 of the Arbitration Act. Held, Clause 49.5 of the General Conditions of Contract (GCC), which explicitly barred claims for damages due to delays caused by the employer, was valid and enforceable. The Appellant, having repeatedly invoked clause 49.5 for extensions of time and providing undertakings not to claim damages, was estopped by conduct from challenging its validity. The scope of interference under Section 37 of the Arbitration Act is limited and akin to that under Section 34, restricting the court to grounds of patent illegality or denial of natural justice. The contention regarding the validity of clause 49.5 under Sections 23 and 28 of the Contract Act, raised for the first time in the Supreme Court, was not entertained. The appeal was dismissed. C&C Constructions Ltd. vs. IRCON International Ltd., 2025 LiveLaw (SC) 148 : 2025 INSC 138 : (2025) 4 SCC 234
Section 27 - Employment Bond - Restraint of Trade - Public Sector Undertakings - Exclusivity Clauses - Liquidated Damages - Validity of Minimum Service Tenure Clauses - Reasonableness in Public Sector Context - Distinction from Post-Employment Restraints - Exclusivity provisions in employment contracts requiring a minimum service period, enforceable through liquidated damages for premature resignation, do not constitute a restraint of trade under Section 27 of the Indian Contract Act, 1872. Such clauses operate during the subsistence of the employment contract and do not restrict post-termination employment opportunities. In the era of economic liberalization, public sector undertakings (PSUs) like banks must adopt measures to retain skilled personnel and minimize attrition to enhance efficiency and compete with private entities. A ₹2 lakh penalty for early exit is neither unconscionable, unfair, nor contrary to public policy, particularly where it offsets the costs of mandatory competitive recruitment under Articles 14 and 16 of the Constitution. Unlike post-termination non-compete clauses, which are void under Section 27, intra-employment restrictions aimed at perpetuating the contract for a fixed term are permissible if reasonable and in furtherance of legitimate organizational interests. Vijaya Bank v. Prashant B. Narnaware, 2025 LiveLaw (SC) 565 : 2025 INSC 691
Section 27 - The appellant, a public sector bank, issued a recruitment notification for the post of Senior Manager (Cost Accountant) requiring selected candidates to execute an indemnity bond of ₹2 lakhs, forfeitable upon resignation within three years of service. The respondent, appointed under this condition, resigned prematurely to join another bank (IDBI Bank), tendered the penalty under protest, and challenged the clause before the Karnataka High Court as violative of Section 27. The High Court quashed the clause, terming it a restraint of trade. Aggrieved, the bank appealed to the Supreme Court. Allowing the appeal and setting aside the High Court order, the Court held that Clause 11(k) of the employment contract imposed a restriction on the employee's option to resign within three years, enforceable via liquidated damages, to promote retention and managerial efficiency in a competitive market. This was not a restraint on future trade but a tool to sustain the employment relationship, thus outside the ambit of Section 27. PSUs, bound by constitutional mandates for fair recruitment, face significant administrative burdens from untimely resignations, including open advertisements and competitive processes. The ₹2 lakh penalty, modest relative to the respondent's salary as a Scale-III officer, reasonably mitigates such costs without being oppressive. Rejecting arguments of unconscionability in standard-form contracts, the Court emphasized that such provisions are a legitimate response to post-liberalization challenges, ensuring skilled staff retention without violating public policy. Appeal allowed; respondent directed to refund ₹2 lakhs to the bank with interest. No costs. Vijaya Bank v. Prashant B. Narnaware, 2025 LiveLaw (SC) 565 : 2025 INSC 691
Section 28 - Agreements in restraint of legal proceeding void – Held, Section 28 does not bar exclusive jurisdiction clauses in contracts. Exclusive jurisdiction clauses in employment contracts, which confers exclusive jurisdiction on the courts of a particular location to decides disputes relating to the contract, are not barred by Section 28 of the Act. Section 28 declares void any agreement that restricts a party from enforcing their rights under a contract through legal proceedings, or limits the time within which they can do so, except in cases of arbitration agreements. However, 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. (Relied: Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd (2013) 9 SCC 32; Para 29 - 31) Rakesh Kumar Verma v. HDFC Bank Ltd, 2025 LiveLaw (SC) 407 : 2025 INSC 473
Section 28 - Agreements in restraint of legal proceeding void – Employee contended that in a situation of unequal bargaining power between the worker and the bank, the exclusive jurisdiction clause cannot be given effect to. Held, clauses of a valid contract must be given effect to, regardless of the status of the parties. 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. 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. 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. (Overruled: Vishal Gupta v. L & T Finance, 2009 SCC OnLine Delhi 2806; Para 24 - 26) Rakesh Kumar Verma v. HDFC Bank Ltd, 2025 LiveLaw (SC) 407 : 2025 INSC 473
Section 39 - Development Agreement - Termination and Forfeiture - Delay in Performance - Held, Chandigarh Administration's 16.5-month delay in providing encumbrance-free land for Multimedia-cum-Film City project was unreasonable, causing commercial consequences due to time-sensitive nature of the project. Supreme Court upholds arbitral award in favor of appellant-Company, directing refund of Rs.47.75 crores forfeited bid amount with 8% p.a. interest and Rs.46,20,715 for expenses incurred. High Court's reversal of award set aside; compensation of Rs.47.75 lakhs disallowed. (Para 29 & 30) Parsvnath Film City Ltd. v. Chandigarh Administration, 2025 LiveLaw (SC) 422 : 2025 INSC 464
Sections 56, 65, 73 – Held, Regulators cannot rewrite PPA under guise of equity - Sanctity of contract must prevail - PPA is a commercial arrangement with allocated risks and specific remedies - Parties rights and obligations must be governed by the explicit terms of contract - A delay in commissioning a 220kV evacuation system by a state instrumentality, even if beyond the developer's control does not constitute a Force Majeure event under the PPA's terms - Invoking the force majeure cluse requires a notice within 7 days of the event, which is a condition precedent - Omission to issue the required notice is fatal and cannot be remedied by relying on an inapplicable provision - A distribution licensee is entitled to encash the performance security if the developer fails to achieve the commercial operation date within the stipulated period, if no formal extension has been obtained or valid force majeure claim has been made - Right to invoke the guarantee is a specific contractual remedy that must be exercised in accordance with the contract's framework. [Paras 37-42] Chamundeshwari Electricity Supply Company Ltd. (CESC) v. Saisudhir Energy (Chitradurga) Pvt. Ltd., 2025 LiveLaw (SC) 840 : 2025 INSC 1034
Section 74 — Forfeiture of earnest money — Real estate booking cancellation — Builder forfeited 20% of basic sale price (BSP) as earnest money under Apartment Buyer Agreement upon purchasers' cancellation — NCDRC limited forfeiture to 10% BSP and directed refund of excess with 6% interest — Builder's appeal to Supreme Court — Held, Forfeiture of reasonable earnest money as security for performance permissible and outside purview of S. 74 as it does not amount to penalty. However, 20% BSP forfeiture excessive, arbitrary, and punitive, qualifying as penalty under S. 74. Reduction to 10% BSP justified as just, fair, and non-penal amount. NCDRC's order on forfeiture upheld; interest on refund deleted as unjustified in facts and circumstances. Appeal partly allowed. [Relied on: Maula Bux v. Union of India, (1969) 2 SCC 554; Satish Batra v. Sudhir Rawal, (2013) 1 SCC 345; Paras 18, 33, 36 37] Godrej Projects Development Ltd. v. Anil Karlekar, 2025 LiveLaw (SC) 150 : 2025 INSC 143 : (2025) 4 SCC 259
Section 74 - Inapplicability to Court -Supervised Sales - Doctrine of Approbate and Reprobate - Conduct of Litigant - A forfeiture condition stipulated by the NCLT while granting an extension of time in a liquidation proceeding cannot be equated with a forfeiture clause in a private contract - a defaulting purchaser cannot invoke Section 74 of the Indian Contract Act to seek a refund on the grounds that the stakeholders suffered no actual loss - A party cannot "approbate and reprobate" by acting upon an order (e.g., making partial payments after an extension is granted) and subsequently assailing the conditions of that same order - Appeal dismissed. [Relied on: Kridhan Infrastructure Private Limited vs. Venkatesan Sankaranarayan and others, (2021) 6 SCC 94; Paras 12-19] Shri Karshni Alloys v. Ramakrishnan Sadasivan, 2025 LiveLaw (SC) 1195 : 2025 INSC 1411