In an order dated August 29, 2023, the High Court of Punjab in Sajjan Kumar Duhan v. Shehnaaz Kaur @ Shehnaaz Gill (CR No.1855 of 2024), observed that the contract entered into between the singer Shehnaaz Gill and Simran Music Industries could not be considered valid or binding on Shehnaaz.
The Court noted that Shehnaaz had issued a notice to Simran Music Industries for rescinding the contract, to which Simran Music Industries did not respond, nor did they provide any notice to Shehnaaz for fulfilling her contractual obligations, thereby implying their acceptance of the cancellation of the contract. The Court also highlighted that the conditions of the contract were evidently unjust, with one party possessing significantly greater bargaining power and the other party in a markedly inferior position.
Background
Shehnaaz is a well known and respected actor, singer and model. Shehnaaz had been involved with Sajjan Kumar, the Proprietor of Simran Music Industries, also operating as ‘Single Track Studios‘ with the YouTube username ‘hawkrecords’ (“Defendants” – because they were defendants in the original Trial Court order). They entered into a memorandum of understanding reflecting certain terms between them later in 2019.
Shehnaaz filed a suit seeking a declaration that the contract dated September 25, 2019, executed between Shehnaaz and Defendants, was void and unenforceable. Shehnaaz also sought a permanent injunction to prevent the Defendants or their agents from claiming ownership, raising conflicts over works and performances authored or performed by Shehnaaz. They sought injunction against the Defendants defaming Shehnaaz, or contacting, or threatening third parties with legal action if they collaborated with Shehnaaz. Additionally, Shehnaaz sought damages for loss of reputation and also filed an application for a temporary injunction against the Defendants.
Facts
In 2019, Shehnaaz recorded a song titled ‘Vehem‘ for the Defendants without signing any contract, and without receiving any payment / consideration for the song. In the same year, Shehnaaz participated in the reality TV show ‘Big Boss Season 13’, which premiered on October 1, 2019. Two days before entering the Big Boss House, the Defendants persuaded Shehnaaz to sign a quick “Memorandum of Understanding” (MoU) (“contract”) under the pretense that it was related to the song ‘Vehem‘ and could be modified later.
After the show, Shehnaaz began receiving numerous offers. However, she discovered that the Defendants were emailing third parties, claiming that she was the exclusive artist of Simran Music Industries as per the contract and could not appear in any other music videos without the Defendant’s permission.
Shehnaaz sent a legal notice on May 9, 2020, detailing the Defendants’ illegal actions and requested them to cease correspondence with third parties and provide a copy of the contract. The Defendants responded on May 15, 2020, sharing the contract for the first time. Between September and November 2020, the Defendants emailed another music label company, ‘Desi Music Factory’, where Shehnaaz was working, and also sent a copy to Shehnaaz.
On December 25, 2020, Shehnaaz sent a detailed legal notice, asserting that the contract was void due to misrepresentation, lack of consideration, and unfair terms. She declared the contract rescinded and not binding in the emails. It was grossly unfair and unilateral, founded on inequality of bargaining power and shrewdly crafted in a way that all liabilities fall only on Shehnaaz while the defendants stood free from all kinds of liability. The contract was also void for want of consideration, certainty. It was a commercial contract extendable in perpetuity which amounted to an unfair Negative Covenant placing an unjust restraint on Shehnaaz’s right to freedom of trade and profession and was opposed to public policy.[i]
The Court here observed that since this legal notice, the Defendants had not communicated or raised any objections regarding the same for over two years. Shehnaaz continued to work on various projects without interference, including guest appearances on Big Boss, other reality shows, and starring in the Punjabi movie ‘Honsla Rakh‘.
After a long period of inactivity, on February 15, 2023, the Defendants, raised an ownership conflict over Shehnaaz’s latest music video ‘Ghani Syanni,’ produced by Desi Music Factory and released in December 2022. This led to YouTube temporarily suspending revenue for the producers, despite the video achieving 24 million views.
Arguments
The Defendants contested the suit and the application for a stay by Shehnaaz. They argued that the suit was a perfect example of exploitation and a self-serving approach by individuals nurtured in the music industry by veterans like the Defendants. They claimed to have been in the music industry for 25 years, aiding in transforming individuals into celebrities. The contract in question, signed by the parties and attested by two witnesses, was for legal and valid consideration and was not void.
They claimed Shehnaaz was paid Rs. 2,11,000/- for the song ‘Vehem,’ and the Defendants incurred various production, promotion, distribution, and release expenses. They also contended that Shehnaaz voluntarily signed the contract on September 25, 2019, and that the song’s release was delayed by Shehnaaz to create hype. The Defendants mentioned a mutual understanding to refrain from disputing a certain song due to the demise of Shehnaaz’s partner, Sidharth Shukla.
The Defendants argued that Shehnaaz did not dispute signing the contract, which was lawful and binding. Despite allegations of misrepresentation, Shehnaaz worked with the Defendants on ‘Vehem’ without filing any complaints. The Defendants’ emails were attempts to resolve issues through mediation, not litigation. They supported Shehnaaz early in her career, and she later reneged on the contract. The contract’s negative covenant bound both parties, and the Defendants had rights. They referenced the Delhi High Court case of Global Music Junction vs. Shatrughan Kumar Aka Khesari Lal Yadav.[ii]
Shehnaaz’s counsel argued the contract was void and unenforceable due to misrepresentation and lack of consideration, and it was rescinded by emails sent by Shehnaaz in December 2020. The Defendants’ lack of response confirmed the rescission. Shehnaaz completed numerous projects without the Defendants’ interference. They cited the Delhi High Court case Simran Music Company vs. Prit Brar and others[iii].
Decisions by Trial Court and Appellate Court
The Trial Court dismissed Shehnaaz’s application for a temporary injunction on May 17, 2023, stating that no conclusion could be drawn about the contract dated September 25, 2019, being a result of misrepresentation, without consideration, or against public policy. Shehnaaz was already working on different projects, therefore, no prima facie case is made out in favour of Shehnaaz and relief claimed in the application was not such which could not be compensated in terms of money.
The Appellate Court, on August 29, 2023, reversed the Trial Court’s decision, noting that the Trial Court overlooked the reputational damage Shehnaaz suffered due to the Defendants’ emails to third parties. These emails discouraged third parties from contracting with Shehnaaz, causing irreparable harm. The Defendants’ silence for two years after Shehnaaz’s December 2020 notice indicated the contract was rescinded. The significant lapse of the contract period meant the Defendants could not impede Shehnaaz’s work. Thus, the Appellate Court found a prima facie case for Shehnaaz and allowed the temporary injunction.
Analysis
The Court stated that a bare reading of the contract dated September 25, 2019, shows that it was effective for five years from September 25, 2019. It stipulated that Shehnaaz could not sing and record for any other company and was required to produce four official audios and videos for the Defendants each year. Additionally, Shehnaaz was prohibited from performing or signing for any other entity without the Defendants’ written permission.
The Court held that negative covenants operative during employment, binding the employee to serve the employer exclusively, are not considered restraints of trade under Section 27 of the Indian Contract Act, 1872.
Note: This is a well established principle, clarified way back in 1967 in Niranjan Shankar Golkari Vs. Century Spinning and Manufacturing Co. Ltd.,[iv] wherein it was held that negative covenants operative during the term of an agreement that the employee would not engage himself in a trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not a restraint of trade under Section 27 of the Contract Act, unless the contract is unconscionable or excessively harsh or unreasonable or one sided.
However, the Court emphasized that freedom of contract must be based on equality and bargaining power between the contracting parties. If one party has significantly less bargaining power, it is forced to accept unfair and unreasonable terms imposed by the stronger party.
The Court observed in this case that Shehnaaz sent a notice to Defendants in December 2020, rescinding the contract on grounds of misrepresentation and fraud. The Defendants did not reply to this notice, and Shehnaaz continued to work on different projects without interference from the Defendants, either directly or indirectly. The Defendants did not provide any explanation for their silence. They did not take any steps to restrain Shehnaaz from working elsewhere. This prima facie indicated their acquiescence to Shehnaaz’s rescission of the contract.
The Court observed that the Defendants’ company Simran Music Industries, due to its reputation in the music industry, held a superior position compared to Shehnaaz, who was an aspiring singer aiming to establish her career. Shehnaaz, in her pursuit to fulfil her dreams, had to accept the unfair terms mentioned in the contract.
Judgement
In this case, the Court found that the terms of the contract were unfair and resulted from one party having superior bargaining power while the other party had low bargaining power. Consequently, the contract could not be considered valid or binding on Shehnaaz.
The Defendants’ lack of interference for two years after Shehnaaz’s legal notice further supported this conclusion. The balance of convenience favoured Shehnaaz, and enforcing the contract would cause her irreparable loss and injury. The Court distinguished the case from Global Music Junction, noting that both parties had equal bargaining power in that case, which is not applicable to the present facts and circumstances.
Accordingly, the Court dismissed the revision petition due to lack of any merit.
Analysis
Any explicit usage of unfair terms in a contract is hit by Section 23 of the Indian Contract Act, 1872. Such terms which are patently unfair and unreasonable are held to be void and classified as opposed to public policy. As clarified in Pioneer Urban Land & Infrastructure Ltd. V. Govindan Raghavan[v], the Supreme Court bench of Justices U.U. Lalit and Indu Malhotra, while upholding the Order passed by the National Consumer Disputes Redressal Commission, said, a “term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line.”
What constitutes as unfair, is dependent upon facts and circumstances of each case. A landmark ruling is Central Inland Water Transport Corporation Limited and Others v. Brojo Nath Ganguly and Others[vi]. The question addressed by the Court pertained to the interpretation of clauses in employment contracts. However, the Court also laid down general principles applicable to other contractual matters. It was held as follows:
“This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them.”
An argument can be made that striking down the contract in this case was reasonable, considering the unequal bargaining powers of the parties at the time of entering into the contract. However, in my opinion, this would be true if the plaintiff were a struggling artist and the restriction was for an indefinite term of perpetuity (or where the term ends upon the delivery of an uncertain number of creative products / services). Here, the term was five years as noted by the Court, and the plaintiff held a significant bargaining position, evidenced by an invitation to a very popular show. But it is also true that, additional factors such as, misrepresentation, urgency, Defendants’ intention to sign an exclusive artist contract under a guise, without explaining all the consequences to the artist, significantly contribute to the unfairness of the transaction. Therefore, I think the decision was to a certain extent justified.
But when two parties, having equivalent bargaining positions, with full knowledge and consideration, enter into a contract, it should not be held void merely because the Court deemed any of its terms unfair, unless they are excessively unfair. It is well established that a negative covenant to work with other entities is a reasonable restriction during the term. Global Music Junction is a good example where the Court restricted an artist from monetising any songs with any third party entities other than the plaintiff, until and unless the plaintiff refused to accept delivery of such song.
Various orders have been passed where negative covenants were enforced, one example being Saga Music v. Roger David[vii]. There, both parties had full knowledge of the terms and circumstances surrounding the contract. The artist, popularly known as Bohemia, was restrained from engaging with any third party / entities, without the prior written approval of the record label, Saga Music. You can read a summary of this case on our blog, here.
However, it is pertinent to note that while negative covenants can be enforced, specific performance cannot. Where the contract is not being personally performed by an artist, it is not possible to get a specific performance order. This is restricted under Section 14(c) of the Specific Relief Act, 1963. In the case of Percept v. Zaheer Khan,[viii] it was held that in view of the personal nature of the service, a contract of agency/management between Percept and Zaheer Khan was incapable of specific performance and to enforce the performance thereof would be inequitable in law.
The judgement might raise many questions amongst the stakeholders in the entertainment industry, about the enforceability of their contracts. But it is important to note here that, the circumstances in this case are rare, and include misrepresentation, notice to rescind the contract by the artist, implied acceptance of such notice by the record label due to silence, and other circumstances, leading to a void contract.
End notes:
[i] Para 7, Shehnaaz Gill v. Sajjan Kumar Duhan, (CR No.1855 of 2024).
[ii] Global Music Injunction Pvt. Ltd. vs. Shatrughan Kumar Aka Khesari Lal Yadav, FAO (OS) (COMM) 7/2023 and CM Appls. 2067/2023 and 2070/2023.
[iii] Simran Music Company vs. Prit Brar, CS(0S) No. 561 of 2007.
[iv] Niranjan Shankar Golkari Vs. Century Spinning and Manufacturing Co. Ltd., (1967) 2 SCR 378.
[v] Pioneer Urban Land & Infrastructure Ltd. V. Govindan Raghavan, Civil Appeal No.12238 of 2018.
[vi] Central Inland Water Transport Corporation Limited and Others v. Brojo Nath Ganguly, (1986) 3 SCC 156.
[vii] Saga Music Private Limited v. Roger David, CS(COMM) 44/2024, I.A. 1128/2024, I.A. 1129/2024, I.A. 1130/2024 & I.A. 1131/2024.
[viii] Percept D’Markr (India) Pvt. Ltd v. Zaheer Khan, AIR 2006 SC 3426
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