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Central Inland Water Transport Corporation Limited V Brojo Nath Ganguly AIR 1986 SC 1571 : Case Summary
Facts:
The corporation was incorporated by the union government, it was under complete control of the central government as all shares were owned by them. Respondent work in a company that was dissolved by the court's order and they were then inducted into plaintiff Corporation upon the latter's Terms and Condition. He was appointed as Deputy Chief Accounts Officer of the corporation and was promoted as Deputy Financial Adviser and Chief Accounts Officer. Respondent was terminated without any notice under rule 9(i) laid by the corporation which states the terms and conditions for termination of employee’s services on three months’ notice or salary. Respondent filed a suit in Calcutta High Court on the grounds that rule 9(i) is arbitrary and unconscionable. The decision of the court was in favor of the respondent. Plaintiff filed a special leave petition in the Supreme court of India, and the decision by the court was against the petitioner. The court stated rule 9(i) void under section 23 of The Indian Contract Act, 1872.
ISSUES INVOLVED:
- Does the corporation come under the definition of state under Article 12 of the Indian Constitution?
- Whether 9(i) is unconscionable under Section 23 of the Indian Contract Act, 187.
- Does the power conferred by rule 9(i) may be declared void as a contract in violation of Article 14 of the Indian constitution.
JUDGEMENT:
- The court held that Central Inland Water Transport Corporation Limited is not only a government company defined under section 617 of the Companies Act, 1956 but is wholly owned by the three governments viz central government and the governments of West Bengal and Assam jointly.
- The bargain made was based on unconscionable terms as it was contradictory to what is right or reasonable and seems to have taken place under the undue or unfair advantage of others.
- And that state under Article 39 should adhere towards the policy of securing its citizens and providing equal pay for equal work for both men and women equally reducing the concentration of wealth and means of production to the common detriment[1].
- Rule 9(i) of the Central Inland Water Transport Corporation Ltd.[2] 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[3]. 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[4].
REASONING:
- The Expression “The State” used in Part III or IV of The Indian Constitution does not only include the Union of India but also includes – bodies that function under the deep and pervasive control of the govt (decision making and control lie with the govt). Bodies which are substantially funded by the Govt as seen that all the three governments financed it entirely and were under the control and authorization of the Central Government, and was managed by the Chairman and Board of Directors appointed by the Central Government and could be removed by it. These functions and operations carried by the Corporation are of vital national importance which no doubt proves that corporation is a body of Govt under the public Sector Thus defined as State under Article 12 of the constitution of India.
- Since the word unconscionable means unreasonable or wrong. An unconscionable bargain would, therefore, be one which is contradictory to what is right or reasonable[5]. 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.
- Clause (i) of Rule 9 is opposed to public policy and it is void under section 23 of the Indian Contract Act as it confers absolute and arbitrary power upon the corporation. It does not state who on behalf of the Corporation is to use that power[6]. 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[7]. If there is no bean of public policy which shelters a case, then the court must in consonance with public morality and observance with the public good and public interest declared such practice to be opposed to public policy[8].
CONCLUSION:
Justice D.P. Madon (supreme court judge) dismissed the appeal and gave judgment against the defendants stating that rule 9(i) is invalid, arbitrary, and unconscionable and opposes public policy under Section 23 of Indian Contract Act, 1872.
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