Interpreting law, through text and context

Suppose you join a company and they really like you. To show how much they like you, they make you sign a contract that states that you must stay with the company for a minimum period of three years, and that if you leave within three years, you will pay them a certain multiple of your monthly salary. Within three years, you get a better opportunity somewhere else and you leave, but you don’t want to pay the company for leaving. What can you do about it? Well, you go to court and argue that you should not be bound by this term in the contract. These were the facts, in brief, of the recent Supreme Court judgement in Vijaya Bank v Prashant Narnaware.

Any person conversant with the law will say that if you signed a contract and if the contact is quite clear about your situation, you must pay up. This is where things get interesting from a legal point of view. The first thing to note is that contractual relationships in India are governed by the Indian Contract Act, 1872. Why do we even have such an old enactment governing the bedrock of business relationships? The answer lies in the stability of the law which has withstood the dynamic nature of commerce and technology. I have always found it incredible that the laws relevant to large parts of our lives – crime, property, contracts – are all regulated by 19th century enactments. Some of these laws have been updated but the essential legal infrastructure is still from a time and place far different from ours. Some people think of this state of affairs as a colonial hangover. I like to think that legislation need not undergo constant tinkering; sometimes it is best if the judiciary is left to deal with the application of law to modern circumstances.

The Indian Contract Act has a provision, peculiar both for its brevity and its breadth. It says that all contracts that restrain a person from exercising a lawful profession, trade or business of any kind are void. If read in a literal fashion, any possible restriction on a person’s employment would be rendered otiose. Based on this provision, you might argue that the severance amount mentioned in the contract (lawyers call them liquidated damages) cannot be demanded by the company. But the Supreme Court upheld the contractual clause and stated that the employee was bound to pay the severance amount. How is this possible, when the Act states otherwise? Here we arrive at another feature of the law beloved of both legal scholars and legal practitioners: the law is not always what it means on the face of it.

A moment’s reflection will tell you that the law cannot always be interpreted literally, because that would lead to absurd results. The legal philosopher Lon Fuller used to give an example of a law that used to make it a misdemeanour for a person to sleep at the railway station. Does this mean that a man snoring gently on a platform bench should be booked under this law? Of course not, for the law is meant to be applied with some regard to the purpose of the legislation. Similarly, the courts have interpreted the law on restraint of profession, trade, or business as outlawing only certain kinds of unreasonable restraints. Once you interpret the law in this manner, the focus shifts entirely to what is meant by reasonable.

The Supreme Court made a distinction between restrictions during the employment of a person and restrictions after the termination of employment. Suppose the contract had stated that the employee could not work with a competitor of the company after he left his employment. This would be a restriction after the termination of the employee’s contract and would be unreasonable. But it is reasonable to say that the employee should pay his employee a certain amount if he leaves during the term of his employment. Employers that go through a complicated and time-consuming recruitment process should be allowed to place some restrictions on their employees during their employment. You may disagree with the Court’s version of reasonableness in employment contracts but you will surely agree with its overall approach to the interpretation of legislation.

If any legislation is always interpreted literally, the practical application of the law becomes difficult. Now, you might ask – when should one interpret the law literally and when purposively? These are perennial questions of statutory interpretation that are not merely of academic interest but are of immense significance in the daily lives of our courtrooms. Judges grapple with the meaning of the law even if it appears, as we have seen just now, that the meaning of the law is crystal clear.