1. INTRODUCTION
On 5 September 2023, a Division Bench of the High Court of Delhi (High Court) in a landmark judgment in Global Music Junction Private Limited vs. Shatrughan Kumar AKA Khesari Lal Yadav and Ors.1, while granting an injunction for enforcement of a negative covenant in an agreement, held that the specific performance of a contract is a general rule rather than an exception in view of the Specific Relief (Amendment) Act, 2018.
2. BACKGROUND
Global Music Junction Private Limited (Global Music) entered into a production agreement (Original Agreement) with one Mr. Khesari Lal Yadav (Artist), a singer, for a term of five (5) years, for the creation and production of two hundred (200) songs for a total consideration of INR 5,00,00,000/- (Indian Rupees Five Crore Only). Under the Original Agreement, all intellectual property rights for the content/songs produced by the Artist were to be vested with Global Music, making it the owner of all the songs/content created by the Artist during the term of the Original Agreement. The Original Agreement also mandated that the Artist would exclusively work with Global Music to create any kind of content during the term of the Original Agreement. Pertinently, the Original Agreement categorically stipulated that the Artist shall not terminate the same for any reason whatsoever during the term of the Original Agreement. Thereafter, on account of certain disputes having arisen between the parties, an addendum dated 7 February 2022 (Addendum) was executed by the parties to amend certain terms of the Original Agreement. Under the Addendum, the exclusivity obligations of the Original Agreement were amended to the extent that the Artist was allowed to monetize his content with third parties, subject to the right of first refusal being given to Global Music and the ownership and intellectual property rights of such content continuing to vest with Global Music. The Original Agreement and the Addendum are hereinafter collectively referred to as "the Agreements".
Thereafter, upon learning that the Artist had engaged with third parties to monetize the content created by him during the term of the Original Agreement without the knowledge and consent of Global Music, it approached the High Court in a commercial suit2, alleging infringement of their ownership and intellectual property rights. On 14 October 2022, a Single Judge of the High Court passed an interim order (Interim Order) restraining such third-party platforms from monetizing the content created by the Artist under the Original Agreement. By way of the aforesaid order, the Artist was also restrained from creating any third-party rights in contravention of the Agreements.
Subsequently, the Interim Order was vacated by the Single Judge vide order dated 6 January 2023 (Impugned Order) as the High Court observed that the Agreements were a contract of service, dependent on the personal qualifications of the Artist, and thus could not be enforced in terms of Section 14(c) of the Specific Relief Act, 1963 (the Act). Additionally, the Single Judge was also of the opinion that since the Agreements were for mutual gain and could be terminated by the Artist by providing a reasonable notice, the same was determinable in nature and thus, could not be enforced in terms of Section 14(d) of the Act. The Single Judge, while observing that the commercial suit was actually a suit for specific performance filed under the garb of a suit for the enforcement of a negative covenant, held that the right of first refusal of Global Music under the Agreements was in contravention of Section 27 of the Indian Contract Act, 1872 (Contract Act) as Global Music was attempting to enforce a negative covenant (i.e. restrain the Artist from monetizing the content created by him during the terms of Agreements with third parties) beyond the term of the Agreements and restraining the Artist's right to profess his trade.
Aggrieved by the Impugned Order, Global Music filed an appeal challenging the same before a Division Bench of the High Court.
3. ANALYSIS AND DECISION OF THE HIGH COURT
The Division Bench began by analyzing the paradigm shift in the enforcement and performance of contracts in light of the Specific Relief (Amendment) Act, 2018 (Amendment). While comparatively analyzing the provisions of the Act and the changes brought about by the Amendment, it observed that the Amendment changed the nature of the law on specific performance of contracts from an equitable and discretionary remedy to a statutory remedy, thus making the same a general rule rather than an exception. The Division Bench also took note of the Statement of Objects and Reasons of the Amendment and observed that the primary intent of the Amendment was to introduce a greater certainty in the enforcement of contracts and improve India's ranking in the international rankings of World Bank's "Ease of Doing Business" and "Enforcement of Contracts" index. The Court specifically observed that the Amendment had deleted the erstwhile Section 14(a) of the Act, which stated that the contracts providing for compensation of damages in case of non-performance would not be specifically enforced. The rationale behind this Amendment was to discourage parties from opting for non-performance, based on the idea that it is more viable to breach the contract rather than perform it due to the cost of damages being less than the cost of the performance of the contract.
While applying the above analysis to the facts of this case, the Division Bench observed that the Agreements stipulated that the Artist did not have the right to terminate the same for any reason whatsoever during the term of the Agreements and thus, the Agreements were not determinable in terms of Section 14(d) of the Act. Furthermore, as there had been a legislative shift towards the stronger enforcement of contracts, the High Court held that previous judgments, such as Infinity Optimal Solutions Pvt. Ltd. (IOS) vs. Vijender Singh & Ors.3, which had held that agreements which did not contain a specific termination clause could be terminated by providing a reasonable notice could no longer be considered to be good law.
The Court also distinguished between relief of specific performance of a contract and an injunction to perform a negative covenant and observed that since Global Music was only attempting to enforce a negative covenant of the Agreements and not challenging the termination of the same, Section 14 of Act would not be applicable in the present case. The Court, while observing and analyzing the judgments in Niranjan Shankar Golikari Vs. Century Spinning and Manufacturing Co. Ltd.4, Gujarat Bottling Co. Ltd. & Ors. V. Coca Cola Co. & Ors.5 and Percept D' Mark (India) (P) Ltd. V. Zaheer Khan & Anr.6, held that negative covenants in a contract for personal service have been uniformly and regularly enforced by courts in the past.
While considering the objection of the Artist that the relief claimed by Global Music is barred by Section 27 of the Contract Act, the Court observed that Section 27 would only apply for the period post the term of the Agreements and not after the unilateral termination of the Agreements by the Artist. The Court held that if it did not enforce a negative covenant merely due to the unilateral termination of a contract, it would render Section 42 of the Act, which allows the courts to enforce a negative covenant without compelling specific performance of the contract, nugatory. The Court also concurred with Global Music's contention that damages for breach of the Agreements by the Artist could not be calculated as Global Music could not determine the definite amount of revenue that could have been generated from the content of the Artist, more so in light of the Addendum which provided that in case of a breach, damages may not be an adequate remedy for Global Music. In view of the above observations, the Court set aside the Impugned Order and injuncted the Artist from engaging with any third parties for monetising any new songs till the term of the Agreements expired, subject to the right of first refusal of Global Music.
4. INDUSLAW VIEW
This landmark judgment delivered by the Division Bench of the High Court furthers the paradigm shift in the legislative intent brought about by the Amendment, which encourages the performance of contracts rather than parties breaching the terms of the same and opting to compensate the injured party through damages. Such a shift will instill trust and confidence in parties entering into agreements, especially commercial ones. Though this is yet to be tested before the Supreme Court, it will be interesting to watch whether this shift in the legislative intent trickles down to the lower judiciary, where the bulk of the contractual disputes are being adjudicated upon.
Having said this, this judgment does not appear to have considered the plight of a party which, while having willingly negotiated a contract which does not grant it a right to terminate, may still be compelled to terminate on account of non-performance by the other party. Thus, this judgment may unwittingly aid an unscrupulous party which, while itself breaching the terms of a contract, may still be able to compel the other to comply with the same.
Footnotes
1 2023 SCC OnLine Del 5479.
2 CS (COMM) No. 715 of 2022.
3 2009 SCC OnLine Del 3575.
4 (1967) 2 SCR 378.
5 (1995) 5 SCC 545.
6 (2006) 4 SCC 227.
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