In the era of globalization, the growing interdependence of world economies, cultures, and technologies have brought about an increase in the trade of goods and services, investments, people, and information.

Most business transactions involve intense negotiations, followed by the execution of a contract wherein, the respective parties agree to abide by certain terms and conditions for the successful completion of the said business transaction. However, failure to consider the relevant statutory provisions in contracts can result in unwarranted litigation.

Recently, General Motors India Private Limited had to bear the brunt of compensating its employees to the tune of 50% of their monthly salary, on account of terminating them as per their employment agreement which were not in consonance with the provision of the Industrial Disputes Act 19471.

Statute Law vis-à-vis Contract Law

Statute Law is a body of law derived from statutes rather than from constitutions or judicial decisions. It is the sovereign will of the legislature which binds everyone and the parties who are coming under it unless the provision is made subject to the contract of law or the law is declared as unconstitutional by a competent Court.

Examples of statue law are: Industrial Disputes Act 1947; Insolvency & Bankruptcy Code 2016; Arbitration and Conciliation Act 1996; Foreign Exchange Regulation Act 1973; Registration Act 1908 etc. Contract Law, on the other hand, is a private law which applies and governs the relationship of individuals who are party to the said contract. A contract involves an offer from a party and upon acceptance of such offer from the other party, the parties are then bound to be governed by the agreed set of specific terms and conditions. Simply put, statute law is applicable to each and every individual who is a subject of the state and contract law is applicable only between the parties to a contract.

The above principle whilst being very basic has resurfaced as the subject matter of several recent disputes. Courts have time and again held that statutory provisions will override any contract/agreement between parties and a private contract cannot override a statute. In fact, such a proposition is contrary to the basic norms of jurisprudence.

Insolvency & Bankruptcy Code 2016

Recently, Hon'ble National Company Law Appellate Tribunal (NCLAT) in Anil Kumar Malhotra Vs. M/s Mahindra & Mahindra Financial Services Ltd.,2 held that Section 60 read with Section 238 of the Insolvency & Bankruptcy Code 2016, has an overriding effect and that the Adjudicating Authority in relation to Insolvency Resolution shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons is located. The contention put forth by the Appellant was that as per Clause 24.12 of the Facility Agreement, the courts of Mumbai shall have exclusive jurisdiction to deal with any matter arising out of the Facility Agreement. However, the Hon'ble NCLAT rejected the contention put forth by the Appellant and held that statute law shall take precedence over the contract law between the parties as the registered office of the corporate debtor was located in New Delhi and that the National Company Law Tribunal of New Delhi would have jurisdiction.

Arbitration & Conciliation Act 1996

The Hon'ble Bombay High Court in D.P. Construction v. Vishvaraj Environment (P) Ltd.,3 has held, that notice under Section 21 of Arbitration and Conciliation Act 1996, invoking the arbitration clause, preceding the reference of disputes to arbitration, is mandatory. In the said case, the Applicant had issued a legal notice to the non-applicant raising claims and demanding specific amount but did not refer to the arbitration clause in their agreement. The Hon'ble Bombay High Court dismissed the application under Section 11(6) of the Arbitration and Conciliation Act 1996, as a notice invoking arbitration under Section 21 of Arbitration and Conciliation Act 1996 isa pre-requisite for filing such application.

Foreign Exchange Regulation Act 1973

The Hon'ble Supreme Court in Asha John Divianathan v. Vikram Malhotra4, has held, that if a person, who is not a citizen of India, is intending to dispose of such property located in India byway of a registered and duly stamped sale deed, mortgage deed, lease deed, settlement deed and/or gift deed in India without obtaining prior permission from RBI under Section 31 of Foreign Exchange Regulation Act 1973, such transfer shall be rendered unenforceable in law.

The Registration Act 1908

The Hon'ble Punjab and Haryana High Court in Phool Singh &Anr. Vs. Amit Kumar &Ors.5, held that an unregistered document, in contravention to the provisions of the Registration Act 1908, cannot be accepted before a court of law.


The aforementioned judicial trend demonstrates that courts in India have given precedence to statute law and have struck down all those contracts/agreements which were contrary to statute law. This has also been in line with the 86-year-old judicial precedent of the privy council6which states that, "If a statute requires a thing to be done in a particular manner, it should be done in that manner alone or not at all."

With the Courts operating under heightened pressure due to the increased back log of cases owing to the pandemic and with businesses resuming normalcy, it is important that business transactions and contracts/agreements are entered into recognizing the overriding power of statutory provisions. This may result in not only reducing grounds of negotiations but shall also prevent unwarranted litigation and reduce the burden on our Courts.



2. Company Appeal (AT) (Insolvency) No. 415 of 2022

3. 2022 SCC OnLine Bom 1410

4. 2021 SCC OnLine SC 147

5. Civil Revision No. 2022 of 2022 (O&M)

6. Nazir Ahmad Vs. King-Emperor AIR 1936 PC 253 (2); 1936 Cri LJ 897

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