In Supreme Court of India
1986 AIR 1571, 1986 SCR (2) 278
Central Inland Water Transport Corporation Ltd. & Anr. Etc.
Brojo Nath Ganguly & Anr
Date of Judgement
6 April, 1986
The Central Inland Water Transport Corporation which was incorporated on February 22, 1967 was a company owned by the Government of India and the State Governments of West Bengal and Assam. It was a Government company inside the meaning of section 617 of the Companies Act, 1956. A company named “Rivers Steam Navigation Company Limited” which was booming very much in the same business comprising the maintenance and running of river service as the corporation is undertaking was ordered to be wound up by an order dated May 5, 1967 delivered by the Calcutta High Court and upon payment to all the creditors it dissolved. By a scheme of Arrangement approved by the High Court and entered into between the said dissolved company and the corporation the assets and liabilities of the said company was taken over by the corporation. Brojo Nath Ganguly the first respondent in Civil Appeal was at the date when the said scheme of arrangement became operative, working in the said company and his services were taken over by the Corporation and he was selected on September 8, 1967 as a Deputy Chief Accounts Officer. On February 16, 1983 a confidential letter was sent to him by the General Manager (Finance) to reply in 24 hours to the accusation of negligence in the maintenance of Provident Fund Accounts. Ganguly gave a detailed reply to the show cause notice. Thereafter by a letter dated February 26, 1983 signed by the Chairman-cum-Managing Director of the Corporation, a notice under clause (i) of Rule 9 or the Service Rules was given to Ganguly terminating his services with the Corporation with instant effect.
Arguments presented by the Appellants
1. A government company stands on a wholly different footing from a statutory corporation for while a statutory corporation is established by a statute, a Government company is incorporated like any other company by obtaining a certificate of incorporation under the Companies Act and, therefore, a Government company cannot come within the scope of the term “The State” as defined in Article 12 of the Constitution.
2. A statutory corporation is usually established in order to create a monopoly in the State in respect of a particular activity. A Government company is, however, not established for this purpose;
3. The Corporation does not have the monopoly of inland water transport but is only a trading company as is shown by the objects clause in its Memorandum of Association; and
4. Assuming a Government company is “the State” within the meaning of Article 12, a contract of employment entered into by it is like any other contract entered into between two parties and a term in that contract cannot be struck down under Article 14 of the Constitution on the ground that it is arbitrary or unreasonable or unconscionable or one-sided or unfair.
Arguments presented by the Respondents
1. The definition of the expression “the State” given in Article 12 is wide enough to include within its scope and reach a Government company.
2. A State is entitled to carry on any activity, even a trading activity, through any of its instrumentalities or agencies, whether such instrumentality or agency be one of the departments of the Government, a statutory corporation, a statutory authority or a Government company incorporated under the Companies Act.
3. Merely because a Government company carries on a trading activity or is authorized to carry on a trading activity does not mean that it is excluded from the definition of the expression “the State” contained in Article 12.
4. A Government company being “the State” within the meaning of Article 12 is bound to act fairly and reasonably and if it does not do so its action can be struck down under Article 14 as being arbitrary.
5. A contract of employment stands on a different footing from other contracts. A term in a contract of employment entered into by a private employer which is unfair, unreasonable and unconscionable is bad in law. Such a term in a contract of employment entered into by the State is, therefore, also bad in law and can be struck down under Article 14.
1. The Court Held that, the word “State” has different meanings depending upon the context in which it is used. The expression “The State” when used in Parts III & IV of the Constitution is not confined to only the federating States or the Union of India or even to both. By the express terms of Article 12, the expression “the State” includes :
(i) the Government of India;
(ii) Parliament of India;
(iii) the Government of each of the States which constitute the Union of India;
(iv) the Legislature of each of the States which constitute the Union of India;
(v) all local authorities within the territory of India;
(vi) all local authorities under the control of the Government of India;
(vii) all other authorities within the territory of India; and
(viii) all other authorities under the control of the Government of India.
The Central Inland Water Transport Corporation is not only a Government company as defined in section 617 of the Companies Act 1956, but is wholly owned by the three Governments – Central Government and the Governments of West Bengal and Assam jointly. All the three Governments finance it entirely and is under the control and authorization of the Central Government, and is managed by the Chairman and Board of Directors appointed by the Central Government and can be removed by it. The functions and operations carried by the Corporation are of vital national importance. There can be no doubt that the corporation is a Government body in the public sector.
2. The word “unconscionable” is used with reference to actions as “showing no regard for conscience; contradictory with what is right or reasonable”. An unconscionable bargain would, therefore, be one which is contradictory with what is right or reasonable. If a contract is unconscionable at the time the contract is made, the Court may decline to enforce the contract. An unconscionable bargain could be taken about by economic pressure even between parties who might not in economic terms be placed differently.
3. Article 14 of the Constitution guarantees to all people’s equality before the law and the equal protection of the laws. This imponorm is that the Courts will not enforce and will not strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract entered into between parties who are not same in bargaining power. This principle will apply where the inequality of bargaining power is the outcome of the great difference in the economic power of the contracting parties. It will apply to circumstances 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 major party or go without them. This principle will not apply when the bargaining power of the contracting parties is the same or almost the same. In present world of giant establishments with their gigantic infrastructural organizations and with the State through its instrumentalities and assistances entering into almost every branch of industry and towards safeguarding that the citizens men and women equally, have the right to an acceptable means of livelihood and that the operation of the economic system does not result in the absorption of wealth and motives of production to the common loss and that there should equal pay for equal work for both men and women.
4. Rule 9(i) of the Central Inland Water Transport Corporation Ltd. Service, Discipline and Appeal Rules, 1979 granted upon the corporation the power to terminate the service of a permanent employee by providing him three months’ notice in writing or to pay him the same of three months’ basic v pay and dearness allowance. A clause such as Rule 9(1) in a contract of employment disturbing large sections of the public is harmful to the public interest for it tends to create a sense of self-doubt in the minds of those to whom it applies and subsequently it is against the public good.
Such a clause, which apply be described as “the Henry VIII clause”, is opposed to public policy and it is void under section 23 of the Indian Contract Act. It confers absolute and arbitrary power upon the corporation. It does not state who on behalf of the Corporation is to use that power. There are no guidelines whatever laid down to indicate in what circumstances the power given by rule 9(i) is to be exercised by the Corporation. If there is no bean of public policy which shelters a case, then the court must in consonance with public morality and in observance with public good and public interest declared such practice to be opposed to public policy. Even where the corporation could proceed under Rule 36 and discharge an employee on the ground of misconduct after stocking a regular disciplinary inquiry, it is free to resort instead to Rule 9(i) in pursuance to avoid the bother of an inquiry.
5. Thereafter, As a result the Appeal failed and were dismissed but the order passed by the Calcutta High Court was modified by substituting for the affirmation given by it a declaration that clause (i) of Rule 9 of the “Service, Discipline & Appeal Rules – 1979” of the Central Inland Water Transport Corporation Limited is invalid under section 23 of the Indian Contract Act, 1872, was being opposed to public policy and was ultra vires to Article 14 of the Constitution.
The Appellant, namely, the Central Inland Water Transport Corporation Limited, was ordered to pay to the Respondent the costs of the respective Appeals.
Hence, the Appeal was dismissed.
Edited by Chiranjeeb Prateek Mohanty
Approved & Published – Sakshi Raje