Author: Komal Bhati, 2nd year student at ICFAI Law School Hyderabad.
Citation: 1986 SCR (2) 278
Date of Judgement: 6th April 1986
Bench: Mandon, D.P.
Original Copy: View
Issues in question:
- Whether the corporation stands in accordance with the definition of “state” under Article 12 of the Constitution of India?
- Whether Rule 9(i) of the corporation’s service rules and regulations is unconscionable?
Background of the case:
- The Central Inland Water Transport Corporation Ltd was incorporated on 22nd February 1967. The ownership of the company was held by the Government of India, the State of Assam, and West Bengal. In the meaning of section 617 of the Companies Act, the company stood as a government company and was controlled and managed solely by the Central Government.
- Another company named Rivers Steam Navigation Company Ltd which ran quite a similar business was ordered by the Calcutta High Court to be dissolved upon paying all the creditors. The Central Inland Water Transport Corporation Ltd. and Rivers Steam Navigation Company Ltd entered into an agreement approved by the High Court through which the corporation took over the assets and liabilities of the dissolved company. The corporation took over the services of Brojo Nath Ganguly (respondent) an employee of the company, appointing him as a Deputy Chief Accounts Officer on 8th September 1967.
- On 16th February 1983, the respondent received a confidential letter, alleging negligence in the maintenance of the Provident Fund Account and was asked to reply within 24hrs. To which the respondent gave a detailed reply. On 26th February 1983, the respondent received another letter, terminating his services under clause (i) of Rule 9 along with the salary of three months. Rule 9 of the said set of rules referred to the termination of employees for acts other than minor wrongdoings.
- The respondent then filed a writ petition under Article 226. Through which he questioned his termination and the constitutionality of Rule 9(i).
- The decision came in the respondent’s favour and a stay order was passed on his termination. The corporation aggrieved with the decision then filed an appeal.
- The appellant argued that the company is a government company and does not stand in accordance with the definition of “state” under Article 12. A government company differs from a statutory corporation since a government company is established under the Companies Act whereas the latter is established through statute.
- To which the respondents argued that the definition of “state” under Article 12 is elaborate enough to cover a government company under it. And the state can run any activity, be it through a government company or a statutory corporation or any other department. Hence, a government company cannot be left out of the definition of “state”. Adhering to the point made, a government company should act fairly and upon failing to do so its orders can be quashed under Article 14.
- It was held by the court that the company is a government body as it carries out the activity of national importance and is owned by the central government as well as the government of two other states and is controlled and managed by the central government.
- The court held rule 9(i) of the corporation as unconscionable as the corporation’s power to terminate the services of an employee with a three-month notice or three-month pay was unfair and contradicted with Section 23 of the Indian Contract Act,1872 and Article 14 of the Indian Constitution. Hence, the appeal was dismissed.
- It has been often observed in the contracts between an employer and an employee, that the employee is subjected to unfair or disadvantageous terms by the employee. The employees often do not have any choice while assenting to such terms, putting them in a weaker spot. In the present case, since the corporation took over the dissolved company, the employees who had been working for the company did not have any option other than accepting the terms laid down in Rule 9 or being unemployed.
- The word unconscionable denotes the unfairness in a contract that puts one party in a weaker spot or is oppressed by the other party. Here the appellant terminated the services of the respondent without ordering an official investigation to hear the side of the respondent. Hence, the court’s decision came not just in the favour of the respondent but also in the favour of public interest.