TaxTMI 
TaxTMI 
1986 (4) TMI 271
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....o with a Government company, is also void as infringing article 14 of the Constitution incase a Government company is "the State" under article 12 of the Constitution ? Although the record of these Appeals is voluminous, the salient facts lie within a narrow compass. The first appellant in both these appeals, namely, the Central Inland Water Transport Corporation Limited (hereinafter referred to in short as "the Corporation"), was incorporated on February 22, 1967. The majority of the shares of the Corporation were at all times and still are held by the Union of India which is the second respondent in these appeals, and the remaining shares were and are held by the State of West Bengal and the State of Assam. Section 617 of the Companies Act, 1956 (Act No. 1 of 1956), provides as follows : "617. Definition of 'Government company'.-For the purposes of this Act Government company means any company in which not less than fifty-one per cent. of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary of a Gove....
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.... and instructions issued from time to time by the President under article 51, the business of the Corporation is to be managed by the Board of Directors. Under article 14(a), subject to the provisions of section 252 of the Companies Act, the President is to determine in writing from time to time the number of Directors of the Corporation which, however, is not to be less than two or more than twelve and under article 14(b), at every annual general meeting of the Corporation, every Director appointed by the President is to retire but is eligible for re-appointment. Under article 15(a), the President has the power at any time and from time to time to appoint any person as an additional Director. Under article 16, the President has the power to remove any Director appointed by him from office at any time in his absolute discretion. Under article 17, the vacancy in the office of a Director appointed by the President caused by retirement, removal, resignation, death or otherwise, is to be filled by the President by fresh appointment. Article 18 provides that the Directors are not required to hold any share qualification. Under article 37, the President may from time to time appoint one ....
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....the Central Government. A company called the "Rivers Steam Navigation Company Limited" was carrying on very much the same business including the maintenance and running of river service as the Corporation is doing. A scheme of arrangement was entered into between the said company and the Corporation. The Calcutta High Court by its order dated May 5, 1967, approved the said scheme of arrangement and ordered the closure of the said company and further directed that upon payment to all the creditors of the said company, the said company would stand dissolved without winding up by an order to be obtained from the High Court and accordingly, upon payment to all the creditors, the said company was ordered to be dissolved. The said scheme of arrangement provided that the assets and certain liabilities of the said company would be taken over by the Corporation. The said scheme of arrangement as approved by the High Court also provided as follows : "(a)That the new company shall take as many of the existing staff or labour as possible and as can be reasonably taken over by the said transferee-company subject to any valid objection to any individual employee or employees. (b)That as....
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....han misdemeanour. The relevant provisions of the said rule 9 relating to permanent employees are as follows: "9. Termination of employment for acts other than misdemeanour.-(i) The employment of a permanent employee shall be subject to termination on three months' notice on either side. The notice shall be in writing on either side. The company may pay the equivalent of three months' basic pay and dearness allowance, if any, in lieu of notice or may deduct a like amount when the employee has failed to give due notice. (ii) The services of a permanent employee can be terminated on the grounds of 'services no longer required in the interest of the company' without assigning any reason. A permanent employee whose services are terminated under this clause shall be paid 15 days' basic pay and dearness allowance for each completed year of continuous service in the company as compensation. In addition he will be entitled to encashment of leave to his credit." Under rule 10, an employee is to retire on completion of the age of fifty-eight years though in exceptional cases and in the interest of the Corporation, an extension may be granted with the prior approval of the Chair-man-c....
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....r an appeal against an order imposing penalty to the appropriate authority specified in the Schedule to the said rules and rule 45-A provides for a review. We are concerned in these appeals with the validity of clause (i) of rule 9 only. So far as Ganguly, the first respondent in Civil Appeal No. 4412 of 1985, is concerned, he was promoted to the post of manager (finance) in October, 1980, and also acted as general manager (finance) from November 1981 to March, 1982. On 16th February, 1983, a confidential letter was sent to him by the general manager (finance), who is the third appellant in Civil Appeal No. 4412 of 1985, to reply within twenty-four hours to the allegation of negligence in the maintenance of Provident Funds Accounts. Ganguly made a representation as also gave a detailed reply to the said show cause notice. Thereafter, by a letter dated 26th February, 1983, signed by the chairman-cum-managing director of the Corporation, a notice under clause (i) of rule 9 of the said rules was given to Ganguli terminating his service with the Corporation with immediate effect. Along with the said letter a cheque for three months' basic pay and dearness allowance was enclosed. ....
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....peals and writ petitions were thereupon heard together and by a common judgment delivered on August 9, 1985, the Division Bench held that the Corporation was a State within the meaning of article 12 of the Constitution and that the said rule 9(i) was ultra vires article 14 of the Constitution. Consequently, the Division Bench struck down the said rule 9(i) as being void. It also quashed the impugned orders of termination dated 26th February 1983. It is against the said judgment and orders of the Calcutta High Court that the present appeals by special leave have been filed. The contentions raised on behalf of the Corporation at the hearing of these appeals may be thus summarized : (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 th....
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.... to it by this Court. The said Association supported the stand taken by the contesting respondents. We will now examine the correctness of the rival submissions advanced at the Bar. The word "State" has different meanings depending upon the context in which it is used. In the sense of being a polity, it is defined in the Shorter Oxford English Dictionary, Third Edition, Volume II, page 2005, as "a body of people occupying a defined territory and organized under a sovereign government". The same dictionary defines the expression "the State" as "the body politic as organized for supreme civil rule and government; the political organization which is the basis of civil government ; hence, the supreme civil power and government vested in a country or nation". According to Black's Law Dictionary, Fifth Edition, page 1262, "In its largest sense, a 'State' is a body politic or a society of men". According to Black, the term "State" may refer "either to the body politic of a nation (e.g., United States) or to an individual governmental unit of such nation (e.g., California)". In modern international practice, whether a community is deemed a State or not depends upon the general recogn....
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.... by that Constituent Assembly on November 17, 1965. Article 152 also, therefore, uses the expression "State" as meaning the federating units which constitute the Union of India. Part XIV of the Constitution deals with services under the Union and the States. Article 308 provides as follows: "308. Interpretation.-In this Part, unless the context otherwise requires, the expression ' State ' does not include the State of Jammu and Kashmir." This definition read with the other provisions of Part XIV shows that the word "State" applies to the federating units (other than the State of Jammu and Kashmir for the reason mentioned above) which together constitute the Union of India because in the other articles of Part XIV wherever the Union of India is referred to, it is described as "the Union". Article 366 of the Constitution defines certain expressions used in the Constitution of India. That article, however, does not contain any definition of the term "State". Under article 367(1), unless the context otherwise requires, the General Clauses Act, 1897 (Act No. X of 1897), subject to any adaptations and modifications that may be made therein by the President of India under article 37....
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....in the territory of India, (6)all local authorities under the control of the Government of India, (7)all other authorities within the territory of India, and (8)all other authorities under the control of the Government of India. There are three aspects of article 12 which require to be particularly noticed. These aspects are : (i)the definition given in article 12 is not an explanatory and restrictive definition but an extensive definition, (ii)it is the definition of the expression "the State" and not of the term "State" or "States", and (iii)it is inserted in the Constitution for the purposes of Parts III and IV thereof. As pointed out in Craies on Statute Law, Seventh Edition, page 213, where an interpretation clause defines a word to mean a particular thing, the definition is explanatory and prima facie restrictive ; and whenever an interpretation clause defines a term to include something, the definition is extensive. While an explanatory and restrictive definition confines the meaning of the word defined to what is stated in the interpretation clause, so that wherever the word defined is used in the particular statute in which that interpretation clause o....
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...., ever discontent, ever seeking something new, ever dissatisfied with what he has. This inherent trait in the nature of man is reflected in the society in which he lives for a society is a conglomerate of men who live in it. Just as man by nature is dissatisfied, so is society. Just as man seeks something new, ever hoping that a change will bring about something better, so does society. Old values, old ideologies and old systems are thus replaced by new ideologies, a new set of values and a new system ; they in their turn to be replaced by different ideologies, different values and a different system. The ideas that seem revolutionary become outmoded with the passage of time and the heresies of today become the dogmas of tomorrow. What proves to be adequate and suited to the needs of a society at a given time and in particular circumstances turns out to be wholly unsuited and inadequate in different times and under different circumstances. The story of mankind is punctuated by progress and retrogression. Empires have risen and crashed into the dust of history. Civilizations have flourished, reached their peak and passed away. In the year 1625, Carew, C.J., while delivering the o....
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....he whole gamut of them though we may preface an examination of these authorities with the observation that they only serve to show how the concepts of this Court have changed both with respect to article 12 and article 14 to keep pace with changing ideas and altered circumstances. Before embarking upon this task we would, however, like to quote the following passage (which has become a classic) from the opening paragraph of Justice Oliver Wendell Holmes' "The Common Law" which contains the lectures delivered by him while teaching law at Harvard and which book was published in 1881 just one year before he was appointed an Associate Justice of the Massachusetts Supreme Judicial Court; "It is something to show that the consistency of a system requires a particular result, but it is not all. The life of the law has not been logic : it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a ....
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....nference in October, 1943, and at the Teheran Conference on 1st December, 1943 ; there was the Dumbarton Oaks Conference held in Washington, D. C, in August and September, 1944 ; there was the Yalta Conference in February, 1945; all these culminating in the adoption on 25th June, 1945, of the Charter of the United Nations in the Opera House of San Francisco and the affixing of signatures thereon the next day in the auditorium of the Veterans' Memorial Hall. Thereafter, in pursuance of article 68 of the Charter of the United States, the Economic and Social Council set up the Human Rights Commission in 1946. This Commission began its work in January, 1947, under the chairmanship of Mrs. Eleanore Roosevelt, the the widow of President Franklin D. Roosevelt. The Universal Declaration of Human Rights prepared by the Commission was adopted by the General Assembly on 10th December, 1948, at its session held in the Palais de Chaillot in Paris. Of the fifty-eight nations represented at that session, none voted against it, two were absent, and eight abstained from voting. It was thus in an atmosphere surcharged with human suffering and yet a firm resolve not to succumb to it that the Const....
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....the law of the Constitution", Tenth Edition, page 23; and Jowitt's Dictionary of English Law, Second Edition, Volume I, page 430). The framers of our Constitution did not, however, want to frame for the Sovereign Democratic Republic which was to emerge from their labours a Constitution in the strict legal sense. They were aware that there were other Constitutions which had given expression to certain ideals as the goal towards which the country should strive and which had defined the principles considered fundamental to the governance of the country. They were aware of the events that had culminated in the Charter of the United Nations. They were aware that the Universal Declaration of Human Rights had been adopted by the General Assembly of the United Nations, for India was a signatory to it. They were aware that the Universal Declaration of Human Rights contained certain basic and fundamental rights appertaining to all men. They were aware that these rights were born of the philosophical speculations of the Greek and Roman Stoics and nurtured by the jurists of ancient Rome. They were aware that these rights had found expression in a limited form in the accords entered into bet....
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.... health, social security, control and maintenance of natural resources and natural assets, transport and communication services and operation of certain industries considered basic to the economy and growth of the nation. They were also aware that section 8 of article 1 of the Constitution of the United States of America contained "a welfare clause" empowering the federal government to enact laws for the overall general welfare of the people. They were aware that countries such as the United States, the United Kingdom and Germany had passed social welfare legislation. The framers of our Constitution were men of vision and ideals, and many of them had suffered in the cause of freedom. They wanted an idealistic and philosophic base upon which to raise the administrative superstructure of the Constitution. They, therefore, headed our Constitution with a preamble which declared India's goal and inserted Parts III and IV in the Constitution. The preamble to the Constitution, as amended by the Constitution (Forty-second Amendment) Act, 1976, proudly proclaims: "WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REP....
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....securing the right to work. The difference between Part III and Part IV is that while Part III prohibits the State from doing certain things (namely, from infringing any of the fundamental rights), Part IV enjoins upon the State to do certain things. This duty, however, is not enforceable in law but none the less the Court cannot ignore what has been enjoined upon the State by Part IV, and though the Court may not be able actively to enforce the Directive Principles of State Policy by compelling the State to apply them in the governance of the country or in the making of laws, the Court can, if the State commits a breach of its duty by acting contrary to these directive principles, prevent it from doing so. In the working of the Constitution it was found that some of the provisions of the Constitution were not adequate for the needs of the country or for ushering in a Welfare State and the constituent body empowered in that behalf amended the Constitution several times. By the very first amendment made in the Constitution, namely, by the Constitution (First Amendment) Act, 1951, clause (6) of article 19 was amended with retrospective effect. Under this amendment, sub-clause (....
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....or business activity, for, the executive power of the Union and of the States, whether in the field of trade or business or in any other field, is always subject to constitutional limitations and particularly the provisions relating to fundamental rights in Part III of the Constitution and is exercis-able in accordance with and for the furtherance of the directive principles of State policy prescribed by Part IV of the Constitution. The State is an abstract entity and it can, therefore, only act through its agencies or instrumentalities, whether such agency or instrumentality be human or juristic. The trading and business activities of the State constitute "public enterprise". The structural forms in which the Government operates in the field of public enterprise are many and varied. These may consist of Government departments, statutary bodies, statutory corporations, Government companies, etc. In this context, we can do no better than cite the following passage from "Government Enterprise-A comparative study" by W. Friedmann and J.F. Garner, at page 507 : "The variety of forms in which the various States have, at different times, proceeded to establish public enterprises is....
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....shi, [1975] 47 FJR 214 (at page 244), "The governing power wherever located must be subject to the fundamental constitutional limitations". The privileges and immunities of these bodies, therefore, are subject to fundamental rights and exercisable in accordance with and in furtherance of the directive principles of State policy. It is in the context of what has been stated above that we will now review the authorities cited at the Bar. When we consider these authorities, we will see how as constitutional thinking developed and the conceptual horizon widened new vistas, till then shrouded in the mist of conventional legal phraseology and traditional orthodoxy, opened out to the eye of judicial interpretation, and many different facets of several articles of the Constitution, including articles 12 and 14, hitherto unperceived, became visible. There, however, still remain vistas yet to be opened up, veils beyond which we today cannot see to be lifted, and doors to which we still have found no key to be unlocked. In Rai Sahib Ram Jawaya Kapur v. State of Punjab, [1955] 2 SCR 225, the State of Punjab, which used to select books published by private publishers for prescribing them ....
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....dity but the functions of the different parts or branches of the Government have been sufficiently differentiated and consequently it can very well be said that our Constitution does not contemplate assumption, by one organ or part of the State, of functions that essentially belong to another. The executive indeed can exercise the powers of the departmental or subordinate legislation when such powers are delegated to it by the Legislature. It can also, when so empowered, exercise judicial functions in a limited way. The executive Government, however, can never go against the provisions of the Constitution or of any law. This is clear from the provisions of article 154 of the Constitution but, as we have already stated, it does not follow from this that in order to enable the executive to function there must be a law already in existence and that the powers of the executive are limited merely to the carrying out of these laws." (emphasis supplied) In Rajasthan State Electricity Board, Jaipur v. Mohan Lal, AIR 1967 SC 1857, a Constitution Bench of this Court by a majority held that the Electricity Board of Rajasthan constituted under the Electricity (Supply) Act, 1948 (Act No. 54 ....
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....bsequent agreement. A learned single Judge of the High Court dismissed the petition on merits. In appeal, a Division Bench of that High Court held that the company being one registered under the Companies Act and not having any statutory duty or function to perform was not one against which a writ for mandamus or any other writ could lie. The Division Bench, however, held that though the writ petition was not maintainable the High Court could grant a declaration in favour of the petitioners that the impugned agreement was illegal and void and granted the said declaration. In appeal by the company, a two-Judge Bench of this Court held that the company being a non-statutory body and one incorporated under the Companies Act there was neither a statutory nor a public duty imposed on it by a statute in respect of which enforcement could be sought by means of a mandamus. So far as declaration given by the Division Bench of the High Court was concerned the Court held (at page 198): "...In our view once the writ petition was held to be misconceived on the ground that it could not lie against a company which was neither a statutory company nor one having public duties or responsibilities....
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....led against it under article 131 and not whether either of these companies fell within the scope of the definition of the expression "the State" in article 12. Another authority relied upon by the appellants was S. L. Agarwal v. Hindustan Steel Ltd., [1970] 3 SCR 363. The facts of that case and the contentions raised thereunder show that this authority is equally irrelevant. In that case, an employee of the Hindustan Steel Ltd., whose services were terminated, filed a petition under article 226 claiming that such termination was wrongful as it was really by way of punishment as the provisions of article 311(2) of the Constitution had not been complied with. This Court held that the protection of clause (2) of article 311 was available only to the categories of persons mentioned in that clause and that though the appellant held a civil post as opposed to a military post, it was not a civil post under the Union or a State and, therefore, he could not claim the protection of article 311(2). The contention which was raised on behalf of the appellant was that as Hindusthan Steel Ltd. was entirely financed by the Government and its management was directly the responsibility of the Gov....
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....is case, namely, (i) whether statutory corporations are comprehended within the expression "the State" as defined in article 12, and (ii) whether the regulations framed by a statutory corporation in exercise of the power conferred by the statute creating the corporation have the force of law. The majority of a Constitution Bench of this Court answered both these questions in the affirmative. The statutory corporations before the Court in that case were the Oil and Natural Gas Commission established under the Oil and Natural Gas Commission Act, 1956, the Life Insurance Corporation established under the Life Insurance Corporation Act, 1956, and the Industrial Finance Corporation established under the Industrial Finance Corporation Act, 1948. Ray C.J., speaking for himself, and Chandrachud and Gupta JJ., pointed out (at page 228) that "the State undertakes commercial functions in combination with Governmental functions in a welfare State." The majority held that "the State" as defined in article 12 comprehends bodies created for the purpose of promoting economic interests of the people and the circumstance that statutory bodies are required to carry on some activities of the nature of....
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....e departments would be ' State actions '. Why then should actions of these corporations be not State actions?......... The ultimate question which is relevant for our purpose is whether such a corporation is an agency or instrumentality of the government for carrying on a business for the benefit of the public. In other words, the question is, for whose benefit was the corporation carrying on the business ? When it is seen from the provisions of that Act that on liquidation of the Corporation, its assets should be divided among the shareholders, namely, the Central and State Governments and others, if any, the implication is clear that the benefit of the accumulated income would go to the Central and State Governments. Nobody will deny that an agent has a legal personality different from that of the principal. The fact that the agent is subject to the direction of the principal does not mean that he has no legal personality of his own. Likewise, merely because a corporation has legal personality of its own, it does not follow that the corporation cannot be an agent or instrumentality of the State, if it is subject to control of government in all important matters of policy. No d....
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.... subject only to a provision, oftentimes made, that it shall be bound by any directions that may be issued from time to time by Government in respect of policy matters. So also a corporation incorporated under law is managed by a board of directors or committee of management in accordance with the provisions of the statute under which it is incorporated. When does such a corporation become an instrumentality or agency of Government." (Emphasis supplied) After considering various factors and case law on the subject, the Court thus summed up the position (at p. 1041) : "It will thus be seen that there are several factors which may have to be considered in determining whether a corporation is an agency or instrumentality of Government. We have referred to some of these factors and they may be summarised as under : Whether there is any financial assistance given by the State, and if so what is the magnitude of such assistance, whether there is any other form of assistance given by the State, and if so, whether it is of the usual kind or it is extraordinary, whether there is any control of the management and policies of the corporation by the State and what is the nature and ex....
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....n agency of the Government and was, therefore, not an 'authority'." In Uttar Pradesh Warehousing Corporation v. Vijay Narain Vajpayee, [1980] 57 FJR 1, an employee of the corporation successfully challenged his dismissal from service. The appellant corporation was established under the Agricultural Produce (Development and Warehousing) Corporation Act, 1956, and was deemed to be a Warehousing Corporation for a State under the Warehousing Corporation Act, 1962. In his concurring judgment, Chinnappa Reddy, J., said (at page 10): "I find it very hard indeed to discover any distinction, on principle between a person directly under the employment of the Government and a person under the employment of an agency or instrumentality of the Government or a Corporation set up under a statute or incorporated but wholly owned by the Government. It is self evident and trite to say that the function of the State has long since ceased to be confined to the preservation of the public peace, the exaction of taxes and the defence of its frontiers. It is now the function of the State to secure ' social, economic and political justice ', to preserve ' liberty of thought, expression, belief, faith....
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....'It may also be a relevant factor.whether the corporation enjoys monopoly status which is State conferred or State protected.' (4)'Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.' (5)'If the functions of the corporation are of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government'." The right, title and interest of the Burmah Shell Oil Storage and Distributing Company of India Limited in relation to its undertakings in India were transferred to and vested in the Central Government under section 3 of the Burmah Shell (Acquisition of Undertakings in India) Act, 1976. Thereafter, under section 7 of the said Act, the right, title, interest and liabilities of the said company which had become vested in the Central Government, instead of continuing so to vest in it, were directed to be vested in a Government company, as defined by section 617 of the Companies Act, 1956, namely, Bharat Petroleum. In Som Prakash Rekhi v. Union of India, [1980] 57 FJR 370, this Court held that Bharat P....
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....lishing and managing Super Bazars and it also held more than ninety-seven per cent of the shares of the said society. The appellant who was a member of the Indian Administrative Service was sent on deputation as the General Manager of the Super Bazar at Connaught Place. He, along with other officials of the Super Bazar, was prosecuted under the Prevention of Food Adulteration Act, 1954. He raised a preliminary objection before the Metropolitan Magistrate, Delhi, before whom he was summoned to appear that no cognizance of the alleged offence could be taken by him for want of sanction under section 197 of the Code of Criminal Procedure, 1973. On his contention being rejected, he appealed to this Court. Under the said section 197, when any person who is or was nter alia a public servant not removable from his office save by or with the sanction of the Government is accused of any offence alleged to have been committed by him while acting or purporting to act in the discharge of his official duty, no court is to take cognizance of such offence except with the previous sanction in the case of a person who is employed or, as the case may be, was at the time of commission of the alleged o....
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....ation of the Court in that case with respect to companies were not intended by it to apply to Government companies as defined in section 617 of the Companies Act, 1956, for by the express terms of sub-clause (6) of Clause Twelfth of section 21 of the Indian Penal Code every person in the service or pay of a Government company as defined in section 617 of the Companies Act, 1956, is a public servant. The second part of the question which the Court was called upon to decide in that case was whether the appellant can be said to be a person who was employed in connection with the affairs of the Union. The Court held that the Super Bazar was not an instrumentality of the State and, therefore, it could not be said that the appellant was employed in connection with the affairs of the Union within the meaning of the section 197 of the Code of Criminal Procedure. This observation was again made with reference to the argument that the appellant was employed in connection with the affairs of the Union. He undoubtedly was not employed in connection with the affairs of the Union just as a "person employed in a corporation is not and cannot be said to be holding a civil post under the Union or a....
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....he said Council an instrumentality of the State. In A. L. Kalra v. Project and Equipment Corporation of India Ltd., [1984] 3 SCR 316 at 319, 325, the said corporation was held to be an instrumentality of the Central Government and hence falling within article 12. The Project and Equipment Corporation of India Ltd. was a wholly owned subsidiary company of the State Trading Corporation but was separated in 1976 and, thereafter, functioned as a Government of India undertaking. The finding that it was an instrumentality of the Central Government was, however, based upon concession made by the said corporation. In West Bengal State Electricity Board v. Desk Bandhu Ghosh, [1985] 66 FJR 471, the West Bengal State Electricity Board was held to be an instrumentality of the State. As pointed out earlier, the Corporation, which is the first appellant in these appeals, is not only a Government company as defined in section 617 of the Companies Act, 1956, but is wholly owned by three Governments jointly. It is financed entirely by these three Governments and is completely under the control of the Central Government, and is managed by the chairman and board of directors appointed by the....
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....been set up at Gauhati and arrangements are under way to set up the other at Varanasi. The Ministry has also under its control a public sector undertaking, namely, the Central Inland Water Transport Corporation, which is the only major company in inland water transport in the country.(emphasis supplied)." As shown by the Statement of Objects and Reasons to the Legislative Bill, which when enacted became the National Waterway (Allahabad-Haldia Stretch of the Ganga-Bhagirathi-Hooghly River) Act, 1982 (Act No. 49 of 1982), published in the Gazette of India, Extraordinary, Part II, section 2, dated May 6, 1982, at page 15, the Central Government had set up various committees in view of the advantages in the mode of inland water transport such as its low cost of transport, energy efficiency, generation of employment among weaker sections of the community and less pollution. These committees had recommended that the Central Government should declare certain waterways as national waterways and assume responsibility for their development. A beginning in respect of this matter was thus made by the enactment of the said Act No. 49 of 1982. Under the said Act, the said stretch was declared....
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....ce. There can thus be no doubt that the Corporation is a Government undertaking in the public sector. The Corporation itself has considered that it is a Government of India undertaking. The complete heading of the said Rules is "Central Inland Water Transport Corporation Limited (A Government of India Undertaking) Service, Discipline and Appeal Rules, 1979". In the face of so much evidence, it is ridiculous to describe the Corporation as a trading company as the appellants have attempted to do. What has been set out above is more than sufficient to show that the activities of the Corporation are of great importance to public interest, concern and welfare, and are activities of the nature carried on by a modern State and particularly a modern welfare State. It was, however, submitted on behalf of the appellants that even though the cases, out of those referred to above, upon which the appellants had relied upon were either distinguishable or inapplicable for determining the question whether a Government company, was "the State" or not, the case of A. L. Kalra v. Project and Equipment Corporation of India Ltd., [1984] 3 SCR 316, relied upon by the respondents, was based upon....
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....he general manager is unsustainable." The only reason given by the Court for holding that Hindustan Steel Limited was "other authority" and, therefore, "the State" under article 12 was the fact that it was a public sector undertaking. In the entire judgment, there is no other discussion on this point except what is stated in the passage quoted above. Thus, to the extent that there is no authority of this Court in which the question, namely, whether a Government company is "the State" within the meaning of article 12 has been discussed and decided, the above submission is correct. Does this, therefore, make any difference ? There is a basic fallacy vitiating the above submission. That fallacy lies in the assumption which that submission makes that merely because a point has not fallen for decision by the Court, it should, therefore, not be decided at any time. Were this assumption true, the law would have remained static and would have never advanced. The whole process of judicial interpretation lies in extending or applying by analogy the ratio deddendi of an earlier case to a subsequent case which differs from it in certain essentials, so as to make the principle laid down i....
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....is the appellant in these two appeals before us, squarely falls within these observations and it also satisfies the various tests which have been laid down. Merely because it has so far not the monopoly of inland water transportation is not sufficient to divest it of its character of an instrumentality or agency of the State. It is nothing but the Government operating behind a corporate veil, carrying out a governmental activity and governmental functions of vital public importance. There can thus be no doubt that the Corporation is "the State" within the meaning of article 12 of the Constitution. We now turn to the second question which falls for determination in these appeals, namely, whether an unconscionable term in a contract of employment entered into with the Corporation, which is "the State" within the meaning of the expression in article 12, is void as being viola-tive of article 14. What is challenged under this head is clause (i) of rule 9 of the said Rules. This challenge levelled by the respondent in each of these two appeals succeeded in the High Court. The first point which falls for consideration on this part of the case is whether rule 9(i) is unconscionable.....
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.... meaning "an employee whose services have been confirmed in writing according to the Recruitment and Promotion Rules". Under rule 9(i), which has been extracted above, the employment of a permanent employee is to be subject to termination on three months' notice in writing on either side. If the Corporation gives such a notice of termination, it may pay to the employee the equivalent of three months' basic pay and dearness allowance, if any, in lieu of notice, and where a permanent employee terminates the employment without giving due notice, the Corporation may deduct a like amount from the amount due or payable to the employee. Under rule 11, an employee who wishes to leave the service of the Corporation by resigning therefrom is to give to the Corporation the same notice as the Corporation is required to give to him under rule 9, that is, a three months' notice in writing. Under rule 9(ii), the services of a permanent employee can be terminated on the ground of "services no longer required in the interest of the company" (that is, the Corporation). In such a case, a permanent employee, whose service is terminated under this clause, is to be paid fifteen days' basic pay and dearn....
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....egations made against them, the services of each of them were terminated by the said letter dated 26th February, 1983, under rule 9(i). The action was not taken either under rule 36 or rule 37 nor was either of them dismissed after applying to his case rule 43 and dispensing with the disciplinary inquiry. It was submitted on behalf of the appellants that there was nothing unconscionable about rule 9(i), that rule 9(i) was not a nudum ftactum for it was supported by mutuality inasmuch as it conferred an equal right upon both parties to terminate the contract of employment, that the grounds which render an agreement void and unenforceable are set out in the Indian Contract Act, 1872 (Act No. IX of 1872), that unconscionability was not mentioned in the Indian Contract Act as one of the grounds which invalidates an agreement, that the power conferred by rule 9(i) was necessary for the proper functioning of the administration of the Corporation, that in the case of the respondents this power was exercised by the chair-man-cum-managing director of the Corporation, and that a person holding the highest office in the Corporation was not likely to abuse the power conferred by rule 9(i). ....
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...."(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another- (a)where he holds a real or apparent authority over the other..." We need not trouble ourselves with the other sections of the Indian Contract Act except sections 23 and 24. Section 23 states that the consideration or object of an agreement is lawful unless, inter alia, the Court regards it as opposed to public policy. This section further provides that every agreement of which the object or consideration is unlawful is void. Under section 24, if any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object is unlawful, the agreement is void. The agreement is, however, not always void in its entirety for it is well settled that if several distinct promises are made for one and the same lawful consideration, and one or more of them be such as the law will not enforce, that will not of itself prevent the rest from being enforceable. The general rule was stated by Willes, J., in Pickering v. Ilfracombe Ry. Co., [1868] LR 3 CP 235 at page 250 a....
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....red with harsh or unconscionable contracts entered into with poor and ignorant persons who had not received independent advice (See Chitty on Contracts, Twenty-fifth Edition, Volume I, paragraphs 4 and 516). Legislation has also interfered in many cases to prevent one party to a contract from taking undue or unfair advantage of the other. Instances of this type of legislation are usury laws, debt relief laws and laws regulating the hours of work and conditions of service of workmen and their unfair discharge from service, and control orders directing a party to sell a particular essential commodity to another. In this connection, it is useful to note what Chitty has to say about the old ideas of freedom of contract in modern times. The relevant passages are to be found in Chitty on Contracts, Twenty-fifth Edition, Volume I, in paragraph 4, and are as follows: "These ideas have to a large extent lost their appeal today. ' Freedom of contract,' it has been said, ' is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the economic interests of the community at large.' Freedom of c....
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....n Law is stated in "Reinstatement of the Law-Second" as adopted and promulgated by the American Law Institute, Volume II, which deals with the law of contracts, in section 208 at page 107, as follows : "208. Unconscionable contract or term.-If a contract or term thereof is unconscionable at the time the contract is made, a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result." In the comments given under that section it is stated at page 107 : "Like the obligation of good faith and fair dealing (section 205), the policy ugainst unconscionable contracts or terms applies to a wide variety of types of conduct. The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud and other invalidating causes; the policy also overlaps with rules which render particular bargains or terms unenforceable on grounds of public p....
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....s. Subsequently, the movement towards economic individualism in the nineteenth century hardened the exercise of these powers by emphasizing the freedom of the parties to make their own contract. While the principle of pacta sunt servanda held dominance, the consensual theory still recognized exceptions where one party was overborne by a fiduciary, or entered a contract under duress or as the result of fraud. However, these exceptions were limited and had to be strictly proved. It is suggested that the judicial and legislative trend during the last 30 years in both civil and common law jurisdictions has almost brought the wheel full circle. Both courts and parliaments have provided greater protection for weaker parties from harsh contracts. In several jurisdictions this included a general power to grant relief from unconscionable contracts, thereby providing a launching point from which the courts have the opportunity to develop a modern doctrine of unconscionability. American decisions on article 2.302 of the UCC have already gone some distance into this new arena...." The expression "laesio enormis" used in the above passage refers to "laesio ultra dimidium vel enormis" whic....
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.... an instrument of distributive justice to achieve a fair division of wealth among the members of society based upon the principle: ' From each according to his capacity, to each according to his needs'. Distributive justice comprehends more than achieving lessening of inequalities by differential taxation, giving debt relief or distribution of property owned by one to many who have none by imposing ceiling on holdings, both agricultural and urban, or by direct regulation of contractual transactions by forbidding certain transactions and, perhaps, by requiring others. It also means that those who have been deprived of their properties by unconscionable bargains should be restored their property. All such laws may take the form of forced redistribution of wealth as a means of achieving a fair division of material resources among the members of society or there may be legislative control of unfair agreements. (Emphasis supplied.)" When our Constitution states that it is being enacted in order to give to all the citizens of India "Justice, social, economic and political", when clause (1) of article 38 of the Constitution directs the State to strive to promote the welfare of the peop....
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....e indemnity clause did not cover the negligence of the indemnified. It was in Lloyds Bank Ltd. v. Bundy [1974] 3 All ER 757, that Lord Denning first clearly enunciated his theory of "inequality of bargaining power", He began his discussion on this part of the case by stating (at page 763): "There are cases in our books in which the courts will set aside a contract, or a transfer of property, when the parties have not met on equal terms, when the one is so strong in bargaining power and the other so weak that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall. Hitherto those exceptional cases have been treated each as a separate category in itself. But I think the time has come when we should seek to find a principle to unite them. I put on one side contracts or transactions which are voidable for fraud or misrepresentation or mistake. All those are governed by settled principles. I go only to those where there has been inequality of bargaining power, such as to merit the intervention of the court." (emphasis supplied) He then referred to various categories of cases and ultimately deduced therefrom a general pr....
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....had the right to assign the agreement, the song writer agreed not to assign his rights without the publisher's prior written consent. The song writer brought an action claiming, inter alia, a declaration that the agreement was contrary to public policy and void. Plowman J., who heard the action granted the declaration which was sought and the Court of Appeal affirmed his judgment. An appeal filed by the publisher against the judgment of the Court of Appeal was dismissed by the House of Lords. The Law Lords held that the said agreement was void as it was in restraint of trade and thus contrary to public policy. In his speech, Lord Diplock, however, outlined the theory of reasonableness or fairness of a bargain. The following observations of his on this part of the case require to be reproduced in extenso (at pages 1315-1316) : "My Lords, the contract under consideration in this appeal is one whereby the respondent accepted restrictions upon the way in which he would exploit his earning power as a song writer for the next ten years. Because this can be classified as a contract in restraint of trade the restrictions that the respondent accepted fell within one of those limited cate....
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....t, whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract. For the purpose of this test all the provisions of the contract must be taken into consideration." (emphasis supplied) Lord Diplock then proceeded to point out that there are two kinds of standard forms of contracts. The first is of contracts which contain standard clauses which (at p. 1316) "have been settled over the years by negotiation by representatives of the commercial interests involved and have been widely adopted because experience has shown that they facilitate the conduct of trade". He then proceeded to state, (at p. 1316) "If fairness or reasonableness were relevant to their enforceability the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable". Referring to the other kind of standard form of contracts Lord Diplock said (at page 1316): "The same presumption, however, does not apply to the other kind of standard form of contract. This is of comparatively modern or....
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....so does not apply to contracts entered into before the date on which it came into force, namely, February 1, 1978 ; but subject to this it applies to liability for any loss or damage which is suffered on or after that date. It strikes at classes excluding or restricting liability in certain classes of contracts and torts and introduces in respect of clauses of this type the test of reasonableness and prescribes the guidelines for determining the reasonableness. The detailed provisions of this statute do not concern us but they are worth a study. In Photo Production Ltd. v. Securicor Transport Ltd., [1980] AC 827, a case before the Unfair Contract Terms Act, 1977, was enacted, the House of Lords upheld an exemption clause in a contract on the defendants' printed form containing standard conditions. The decision appears to proceed on the ground that the parties were businessmen and did not possess unequal bargaining power. The House of Lords did not in that case reject the test of reasonableness or fairness of a clause in a contract where the parties are not equal in bargaining position. On the contrary, the speeches of Lord Wilberforce, Lord Diplock and Lord Scarman would seem to....
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....nces not within their control or as a result of situations not of their creation. Other legal systems also permit judicial review of a contractual transaction entered into in similar circumstances. For example, section 138(2) of the German Civil Code provides that a transaction is void "when a person" exploits "the distressed situation, inexperience, lack of judgmental ability, or grave weakness of will of another to obtain the grant or promise of pecuniary advantages...which are obviously disproportionate to the performance given in return." The position, according to the French law, is very much the same. Should then our courts not advance with the time ? Should they still continue to cling to outmoded concepts and outworn ideologies ? Should we not adjust our thinking caps to match the fashion of the day ? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of nineteenth-century theories ? Should the strong be permitted to push the weak to the wall ? Should they be allowed to ride roughshod over the weak ? Should the courts sit back and watch supinely while the strong trample under foot the rights of the weak ? We have a Constitution for o....
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....sproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances. It is not as if our civil courts have no power under the existing law. Under section 31(1) of the Specific Relief Act, 1963 (Act No. 47 of 1963), any person against whom an instrument is void or voidable, and who has reasonable apprehension that such instrument, if left outstanding, may cause him serious injury, may sue to have it adjudged void or voidable, and the court may, in its discretion, so adjudge it and order it to be delivered up and cancelled. Is a contract of the type mentioned above to be adjudged voidable or void? If it was induced by undue influence, then under section 19A of the Indian Contract Act, it would be voidable. It is, however, rarely that contracts of the types to which the principle formulated by us above applies are induced by undue influence as denned by section 16(1) of the Indian Contract Act, even though at times they are between parties one of whom holds a real or apparent authority over the other. In the vast majority of cases, however, such contracts are entered into by t....
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....e place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of thought-"the narrow view" school and "the broad view" school. According to the former, courts cannot create new heads of public policy whereas the latter countenances judicial law-making in this area. The adherents of "the narrow view" school would not invalidate a contract on the ground of public policy unless that particular ground had been well-established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Mines Limited, [1902] AC 484, 500, "Public policy is always an unsafe and treacherous ground for legal decision". That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson v. Mellish, [1824] 2 Bing. 229, 252 ; SC 130 ER 294, 303 and [1824-34] All ER Reprint 258, 26....
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....illegal or immoral. In Kedar Nath Motani v. Prahlad Rai, [1960] 1 SCR 861, reversing the High Court and restoring the decree passed by the trial court declaring the appellants' title to the lands in suit and directing the respondents who were the appellants' benamidars to restore possession, this Court, after discussing the English and Indian law on the subject, said (at page 873): "The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon the illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by mis-stating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the pl....
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....g the conduct rules". Undoubtedly, the contesting respondents accepted appointment with the Corporation upon these terms. They had, however, no real choice before them. Had they not accepted the appointments, they would have at the highest received some compensation which would have been probably meagre and would certainly have exposed themselves to the hazard of finding another job. It was argued before us on behalf of the contesting respondents that the term that these respondents would be subject to the service rules and regulations including the conduct rules, since it came under the heading "other conditions" which followed the clauses which related to the termination of service, referred only to service rules and regulations other than those providing for termination of services and, therefore, rule 9(i) did not apply to them. It is unnecessary to decide this question in the view which we are inclined to take with respect to the validity of rule 9(i). The said rules as also the earlier rules of 1970 were accepted by the contesting respondents without demur. Here again they had no real choice before them. They had risen higher in the hierarchy of the Corporation. If they....
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.... 9( i). 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. No opportunity whatever of a hearing is at all to be afforded to the permanent employee whose service is being terminated in the exercise of this power. It was urged that the board of directors would not exercise this power arbitrarily or capriciously as it consists of responsible and highly placed persons. This submission ignores the fact that, however highly placed a person may be, he must necessarily possess human frailties. It also overlooks the well-known saying of Lord Acton, which has now almost become a maxim, in the Appendix to his "Historical Essays and Studies", that "Power tends to corrupt, and absolute power corrupts absolutely" As we have pointed out earlier, the said rules provide for four different modes in which the services of a permanent employee can be terminated earlier than his attaining the age of superannuation, namely, rule 9(i) , rule 9(ii), sub-clause (iv ) of clause (b) of rule 36 read with rule 38 and rule 37. Under rule 9(ii) the termination of service is to be on the ground of "Services no longer req....
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....yee it can apply rule 37. All this the Corporation can do when the same circumstances exist as would justify the Corporation in holding under rule 38 a regular disciplinary inquiry into the alleged misconduct of the employee. Both the contesting respondents had, in fact, been asked to submit their explanation to the charges made against them. Sengupta had been informed that a disciplinary inquiry was proposed to be held in his case. The charges made against both the respondents were such that a disciplinary inquiry could easily have been held. It was, however, not held but instead resort was had to rule 9(i). The Corporation is a large organization. It has offices in various parts of West Bengal, Bihar and Assam, as shown by the said rules, and possibly in other States also. The said rules form part of the contract of employment between the Corporation and its employees who are not workmen. These employees had no powerful workmen's union to support them. They had no voice in the framing of the said rules. They had no choice but to accept the said rules as part of their contract of employment. There is gross disparity between the Corporation and its employees, whether they be wor....
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....as the employer could terminate the employee's service by giving him three months' notice or by paying him three months' basic pay and dearness allowance in lieu thereof, the employee could leave the service by giving three months' notice and when he failed to give such notice, the Corporation could deduct an equivalent amount from whatever may be payable to him. It is true that there is mutuality in clause 9(i)-the same mutuality as in a contract between the lion and the lamb that both will be free to roam about in the jungle end each will be at liberty to devour the other. When one considers the unequal position of the Corporation and its employees, the argument of mutuality becomes laughable. The contesting respondents could, therefore, have filed a civil suit for a declaration that the termination of their service was contrary to law on the ground that the said rule 9(i) was void. In such a suit, however, they would have got a declaration and possibly damages for wrongful termination of service but the civil court could not have ordered reinstatement as it would have amounted to granting specific performance of a contract of personal service. As the Corporation is "the State....
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.... a matter." As pointed out above, rule 9(i) is both arbitrary and unreasonable and it also wholly ignores and sets aside the audi alterant partent rule. It, therefore, violates article 14 of the Constitution. On behalf of the appellants, reliance was placed upon the case of Radhakrishna Agarwal v. State of Bihar, [1977] 3 SCR 249. The facts in that case were that a contract, called a "lease", to collect and exploit sal seeds from a forest area was entered into between the State of Bihar and the appellants in that case. Under one of the clauses of the said contract, the rate of royalty could be revised at the expiry of every three years in consultation with the lessee and was to be binding on the lessee. The State unilaterally revised the rate of royalty payable by the appellants and, thereafter, cancelled the lease. The Patna High Court dismissed the writ petition filed by the appellants and the appellants' appeal to this Court was also dismissed. In that case, it was held that when a State acts purely in its executive capacity, it is bound by the obligations which dealings of the State with individual citizens import into every transaction entered into in exercise of its con....
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.... certain cables which were damaged in an aircraft named "Makalu" belonging to Air India International. The decision in Muley's case, [1980] Lab IC 11 was relied upon by the respondents while the decision in Makalu's case, [1981] 2 Lab LJ 459, was relied upon by the appellants. Both the cases related to regulation 48 of the Air India Employees' Service Regulations framed by Air India International. Air India International is a Corporation established under the Air Corporations Act, 1953 (Act No. 27 of 1953), and it is indisputably "the State" within the meaning of article 12 of the Constitution. Under clause (a) of the said regulation 48, the services of a permanent employee can be terminated "without assigning any reason" by giving him thirty days' notice in writing or pay in lieu of notice. In both these cases, the services of the concerned employees were terminated under regulation 48(a). The said regulations also provided for dismissal of an employee who was found guilty of misconduct in a disciplinary inquiry held according to the procedure prescribed in the said regulations. In Muley's case, [1980] Lab IC 11, a learned single Judge of the Bombay High Court, Sawant J., held the....
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....r an employer to be vested with powers such as those conferred by regulation 48. The Division Bench took great pains to discern in some of the sections of the Air Corporations Act, guidelines for the exercise of the power conferred by regulation 48. According to the Division Bench, the choice of Air India International to proceed under regulation 48 would have to be dictated for the purpose of the needs and exigencies of its administration and if that power was exercised arbitrarily, the court would strike down the action taken under regulation 48. We were invited by learned counsel for the appellants to peruse the judgment in that case and we did so with increasing astonishment. Though the said judgment bears the date September 18, 1981, we were unable to make out whether it was a judgment given in the year 1981 or in the year 1881 or even earlier. We find ourselves wholly unable to agree with the view taken by the Division Bench. Apart from the factual aspects of the case, as to which we say nothing, we find every single conclusion reached by the Division Bench and the reasons given in support thereof to be wholly erroneous. The Division Bench overlooked that it was not dealin....
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....he limits of its economic capacity and development, to "make effective provision for securing the right to work ". An adequate means of livelihood cannot be secured to the citizens by taking away without any reason the means of livelihood. The mode of making "effective provision for securing the right to work" cannot be by giving employment to a person and then without any reason throwing him out of employment. The action of an instrumentality or agency of the State, if it frames a service rule such as clause (i) of rule 9 or a rule analogous thereto would, therefore, not only be violative of article 14 but would also be contrary to the Directive Principles of State Policy contained in clause (a) of article 39 and in article 41. The Calcutta High Court was, therefore, right in quashing the impugned orders dated 26th February, 1983, terminating the services of the contesting respondents and directing the Corporation to reinstate them and to pay them all arrears of salary. The High Court was, however, not right in declaring clause (i) of rule 9 in its entirety as ultra vires article 14 of the Constitution and in striking down as being void the whole of that clause. What the Calcut....