The Transformative Constitution
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At the outset, the Court clarified, ‘the Fourteenth Amendment erects no shield against merely private conduct, however discriminatory or wrongful’.12 Consequently, it refused to invalidate the covenant. Nonetheless, here it was the Court, one wing of the State, that was being asked to enforce the terms of the exclusionary covenant.13 As the Court observed, because ‘the owners of the properties were willing sellers; and contracts of sale were accordingly consummated … it [was] clear that but for the active intervention of the state courts, supported by the full panoply of state power, petitioners would have been free to occupy the properties in question without restraint’.14 Consequently, this was a clear case of state action, and the Court was able to find that judicial enforcement of the exclusionary covenant would violate the constitutional requirement of equal protection of laws. The covenant was held to be unenforceable.
Shelley has been criticized by commentators on the grounds that it invalidated mere State acquiescence in a voluntary, private system.15 Laurence Tribe, however, provides an alternative, narrower reading. He argues that Shelley can be distinguished from ordinary cases of State acquiescence, such as the judicial enforcement of facially neutral trespass laws to allow a bigoted homeowner from excluding only blacks from his property. In Shelley, on the other hand, the exclusionary covenant created an exception to the general property law principle requiring that there can be no general constraints upon a person’s right to transfer or alienate her property. And this exception was founded in racial discrimination.16 Consequently, Shelley was not a case of the State facilitating permissible private discriminatory conduct but an instance of active State discrimination. This distinction, as we shall subsequently see, is crucial in assessing the Indian position on restrictive covenanting.
B. Contractual Solutions
In Re Drummond Wren, a 1945 Canadian case, a restrictive covenant prohibited land from being sold to ‘Jews or persons of objectionable nationality’.17 It was argued before the Ontario High Court that this exclusionary covenant was void as it was in violation of public policy, a common law exception to the freedom of contract. On a survey of international law as well as domestic, anti-racist legislation, Justice Mackay held that ‘nothing could be more calculated to create or deepen divisions between existing religious and ethnic groups … than the sanction of a method of land transfer which would permit the segregation and confinement of particular groups to particular business or residential areas’.18 Thus, the crucial point was that the exclusion of certain groups from geographical areas would, in a stratified society, invariably mean their exclusion from economic and social life. Ghettoization could not but lead to discrimination and deepening inequality, both of which were contrary to public policy. And because contracts that violate ‘public policy’ cannot be sustained, Justice Mackay held the covenant void. He also held it void on more familiar common law grounds—for restraining the freedom of alienation19 as well as being impermissibly vague and uncertain.20
It was this last, more conservative argument, that was picked up by the Canadian Supreme Court six years later in Noble v. Alley.21 At issue was an exclusionary covenant restricting the sale of land to ‘any person of the Jewish, Hebrew, Semitic, Negro or colored race or blood’. The majority held the covenant void. Three judges specifically held it void for uncertainty, holding that ‘it is impossible to set such limits to the lines of race or blood as would enable a court to say in all cases whether a proposed purchaser is or is not within the ban’.22
C. Constitutional Public Policy
Lastly, consider the 2010 South African case of The Curators v. University of Kwa-Zulu Natal.23At issue was a will creating a charitable trust, which was to be administered solely for the benefit of white women seeking a tertiary education. The will was defended on the grounds that the freedom of testation—as an aspect of the freedom of property—was a fundamental right guaranteed by the South African Constitution. Both the High Court and the Supreme Court of Appeal rejected this argument and invalidated the offending provision. In its decision, the Supreme Court of Appeal referred to the equality provisions in the South African Constitution,24 and the Preamble of the 2000 Promotion of Equality Act, which called for ‘the eradication of social and economic inequalities, especially those that are systemic in nature, which were generated in our history by colonialism, apartheid, and patriarchy.’25 That Act specifically prohibited racial discrimination in educational institutions, leading the Court to observe that the principle of equality obtained even in person-to-person relations.
In a language reminiscent of German constitutional doctrine, the Court then held, ‘public policy “is now rooted in our Constitution and the fundamental values it enshrines, thus establishing an objective normative value system”’.26 In other words, a constitution not only lists out a set of rights and corresponding State obligations, but also expresses an objective order of values (e.g., dignity, equality, etc.). These values are not to be invoked only against State action, but also have a ‘radiating effect’, serving as background interpretive principles for adjudicating private law disputes.27
The South African Supreme Court of Appeal directly linked public policy with the objective order of values embodied within the constitution, observing that ‘in considering questions of public policy … the Court must find guidance in “the founding constitutional values of human dignity, the achievement of equality, and the advancement of human rights and freedoms, non-racialism and non-sexism”’.28 These public-policy concerns, grounded in constitutional values, overrode the freedom of testation, and did not unjustifiably deprive the individual of his property.
To sum up, exclusionary covenants are private contractual acts; nonetheless, for reasons explained above, there are strong interests in preventing them when they are used to discriminate against historically marginalized and subordinated groups. Because of the respect for private contracts, and a general hesitation to apply fundamental rights horizontally against individuals, Courts in various jurisdictions have not directly held them constitutionally invalid, but have searched for other remedies. These include judicial non-enforcement, weak contractual remedies such as vagueness, and stronger contractual remedies such as voidness for public policy, where public policy may be drawn from constitutional values. Thus, the constitution is not invoked to directly invalidate private contractual acts, but is invoked indirectly to interpret private law in a manner that achieves the same result.
II. Zoroastrian Cooperative and Its Discontents
The remedies discussed above have their parallels in the Indian Constitution. Our Fundamental Rights chapter, as we discussed in the Prologue, is, for the most part, only applicable against the State. But akin to Shelley (and going far beyond), the Supreme Court has found State action to be implicated in the State’s failure to protect the rights to equality and personal liberty by passing meaningful legislation to deal with sexual harassment in private workplaces.29 Akin to Canada, it has expanded equity-based public policy exceptions to the law of contract.30 And akin to South Africa and Germany, it has interpreted and modified common law to bring it in consonance with constitutional values.31 Consequently, when dealing with horizontal discrimination and restrictive covenants, Indian constitutional jurisprudence would allow the Court to place itself on any of the points of the spectrum discussed above.
With this in mind, consider Zoroastrian Cooperative v. District Registrar,32 a 2005 two-judge decision of the Supreme Court. The facts of this case closely resemble Shelley v. Kraemer. The Zoroastrian Cooperative Housing Society was a registered society with its own by-laws under its parent legislation, the Bombay Cooperative Societies Act. According to the by-laws, only Parsis (adherents of Zoroastrianism) could become members of the society. Since housing shares could be transferred only to members, effectively only Parsis could buy plots under the aegis of the cooperative society. Nonetheless, Respondent No. 2 (a member) entered into negotiations with Respondent No. 3, a (non-Parsi) builders’ association, to sel
l them its property. After a series of decisions in the tribunals, a High Court single bench and a High Court division bench—all essentially holding that the by-laws were invalid as a restriction on alienation of property (an argument used, as we have seen, by the Canadian courts)—the matter came before the Supreme Court. The decisions of the lower courts reflect Tribe’s understanding of Shelley: this was not merely State facilitation of a private arrangement, but an active departure from the general principle against restrictions on alienability in favour of constitutionally impermissible, religion-based discrimination. As we shall see, unfortunately, this distinction was lost on the Court.
The cooperative society argued that their private covenant was authorized by the by-laws, which in turn were authorized by the parent statute. The Constitution had no role to play in adjudicating upon such private conduct. In fact, the society actually invoked the Constitution to support its conduct. It argued that under Article 19(1)(c), which guarantees to all citizens the freedom of association, Parsis’ right to association could not be infringed by imposing upon them members they did not wish to accept. It also relied upon Article 29, which guaranteed minorities the right to preserve their own culture. On the other hand, the respondents raised a familiar argument: this kind of restrictive covenant was invalid because it violated public policy, as drawn from various constitutional provisions (in particular, Article 15 and other non-discrimination clauses).
The Court embarked upon an elaborate history of cooperative society legislation in India. It found that, ‘running right through these enactments [is the] the concept of restricted membership’.33 The reason for this, the Court held, was that as far as a housing society is concerned, ‘there should be a bond of common habits and common usage among the members … in India, this bond was most frequently found in a community or caste or groups like cultivators of a village.’34
This reasoning is problematic, because one of the whole purposes of the Constitution, as reflected in Article 15(1)’s non-discrimination clause, was to ensure that the invidious modes of identification such as caste were to be made legally irrelevant as far as possible. The error was then compounded when the Court examined the public policy argument and, unlike the decisions of other jurisdictions, rejected by noting that ‘the concept of public policy in the context of the Cooperative Societies Act has to be looked for under the four corners of that Act’.35
This is unconvincing. Following established principles of common law, the Indian Contract Act, under Section 23, has a public policy exception36 that can be invoked to invalidate contracts. Courts have utilized this to hold void, for example, marriage brokerage contracts37 and letting of a property for sex work,38 neither of which are found within the ‘four corners’ of the Contract Act. Indeed, as the Court had held in Delhi Transport Corporation v. DTC Mazdoor Congress,39 the whole point of a public policy clause is to serve as an exception to the enforcement of statutory rules. To look for public policy within the statute whose provisions are impugned is viciously circular. Matters, admittedly, would have been different if there had been an express statutory provision, designed to carve out an exception to the operation of public policy. The Cooperative Societies Act, however, did no such thing. Consequently, the Court was incorrect to equate statutory policy (the policy embodied in the statute) with public policy (grounds for invalidating contracts).
The Court then responded to the constitutional challenge on the grounds of non-discrimination, holding that the society’s by-laws were in the nature of the articles of association a company; that is, not like a statute, but only ‘binding between the persons affected by them’.40 In other words, rejecting the radiation approach of indirect horizontality, followed in Germany and South Africa, and in its own cases on defamation law, the Court held that a private, contractual agreement is not subject to general fundamental rights scrutiny, but only under the parent legislation (if it was a contract, it would be the Indian Contract Act; here, it would be the relevant Cooperative Societies Act). The Court went on to make the contract analogy even clearer, by holding that the Fundamental Rights chapter did not, in any way, interfere with citizens’ rights to enter into contracts. Responding to the contention that the Constitution’s guarantee of non-discrimination should be held to prohibit certain kinds of contracts which directly discriminated on proscribed grounds, the Court’s answer was somewhat elusive:
Running through the Cooperative Societies Act is the theory of area of operation. That means that membership could be denied to a citizen of this country who is located outside the area of operation of a society.41
This in its own right makes perfect sense, since limiting membership by area does not discriminate on any prohibited head, and is also, not coincidentally, perfectly in consonance with the point of housing societies. That logic, however, says nothing about restrictive covenanting based on constitutionally prohibited grounds such as sex or religion. This also explains why the Court’s numerous examples of other cooperative societies—of agricultural workers, labourers, and even vegetarians42—are irrelevant, because there again there is no discrimination on the basis of a prohibited category.
On these grounds, the Court refused to find the agreement void. But then, it went even further, holding that:
It is also not open to the authorities under the Act to relieve [the contractual party] of his obligations in the guise of entering a finding that discrimination on the basis of the religion or sex is taboo under the Constitution in the context of Part III thereof.43
In this, the Court went even beyond the weak Shelley v. Kraemer doctrine in not just refusing to invalidate the agreement, but even requiring State enforcement of it. This is surely incorrect. Even if it is argued that the Court is not the ‘State’ for the purposes of Part III, statutory authorities tasked with implementing the Cooperative Societies Act most definitely are. Keeping in mind Tribe’s critique of Shelley, it is at least arguable that in requiring the State to directly enforce a covenant that discriminates on the basis of a prohibited Article 15 category, the Court effectively compelled it to perform an unconstitutional action.
Yet, consider the Court’s ancillary invocation of Article 19(1)(c), which guarantees the freedom of association, as an independent constitutional reason to support the society’s claim. As we have seen above, part of the Court’s public policy arguments appears to turn upon the unconstitutionality of requiring persons to ‘associate’ with others that they do not want to associate with. According to the Court, this would have been the outcome had the exclusionary covenant been left unenforced.
However, there is a problem with this argument. The statutory right to contract—which is what the by-laws of the Cooperative Societies Act authorized—is not the same as the constitutional freedom of association. This is self-evident, because the Indian Contract Act places numerous restrictions upon the freedom to contract that go beyond the permissible limits upon the constitutional freedom to associate under Article 19(4).44 More importantly, a quick glance at the Constituent Assembly Debates reveals, unsurprisingly, that the freedom of association was considered to be an essential aspect of personal civil liberty, akin to the freedom of speech and the freedom of movement, with contractual rights mentioned nowhere.45 Historically, the freedom of association has been about protecting the rights of labour unions, religious minorities, and other disadvantaged or persecuted groups to organize and defend their rights or their ways of life, as the case may be.46 The important Indian cases have also understood the freedom of association to be about such purposes.47
This confusion went to the heart of the Court’s judgement, when it observed:
An aspirant to membership in a co-operative society is at arms [sic] length with the other members of the society with whom he enters into the compact or in which he joins, having expressed his willingness to subscribe to the aims and objects of that society. In the context of Section 23 of the Contract Act, something more than possible or plausible argument based on the constituti
onal scheme is necessary to nullify an agreement voluntarily entered into by a person.48
The reasoning is flawed because, as far as the Court speaks about arm’s-length transactions and holds membership in a cooperative society akin to a contract, Article 19(1)(c)’s constitutional freedom of association is not in play. But once the Article 19(1)(c) argument fails, we fall back upon the original, flawed statutory-policy-equates-public-policy argument. We are therefore faced with the following situation: to the extent that Zoroastrian Cooperative is based on principles of contract law, the two major bases for the decision, viz., public policy and freedom of association, are incorrect. The case, therefore, can be saved only by arguing that it is not, after all, about contract law. Therefore, it is not precedent for the unconstitutionality of unenforceability of exclusionary/restrictive covenants generally, but about something else that elevates it to the level of the constitutional principle of the freedom of association. What might that be?
I believe that the strongest argument in favour of the covenant is grounded in Article 29 of the Constitution, which the Court incidentally alluded to at the very end of its judgement, when it observed:
… it is open to [a] community to try to preserve its culture and way of life and in that process, to work for the advancement of members of that community by enabling them to acquire membership in a society and allotment of lands or buildings.49
Article 29 of the Constitution guarantees the rights of ‘any section of citizens … having a distinct language, script or culture of its own … to conserve [it]’. This provision, I would argue, helps us to grasp the only possible justification for Zoroastrian Cooperative. While explaining the purpose of the provision during the Constituent Assembly Debates, Ambedkar clarified that it was meant for the protection of communities that were minorities in the ‘linguistic and cultural sense’.50 Ambedkar’s specific concern was to ensure that groups of people who migrated between provinces could ‘keep their connections … [but] if this protection was not given to them … and [if] the local Legislature were to deny them the opportunity of conserving their culture, it would be very difficult for [them] to go back to their province and to get themselves assimilated to the original population to which they belonged’.51