POINT OF LAW
Section 23, Indian Contract Act, 1872
This Section discusses about what considerations and objects are lawful and what is not. If we read the definition along with sub-clause 3, we get to know that consideration or object of an agreement is lawful unless the court regards it as immoral or opposed to public policy and in a case where the object or consideration becomes unlawful, the agreement is void.
FACTS OF THE CASE
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 worked in a company that was dissolved by the order of the court and they were inducted into the corporation of the plaintiff upon the latter’s terms and conditions. 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 down by the corporation which states the terms and conditions for termination of an 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 in nature. 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 came out to be against the petitioner once again. The bench of Justice D.P. Madon and Justice A.P. Sen stated rule 9(i) as void under Section 23 of The Indian Contract Act, 1872.
ISSUES OF LAW 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, 1872?
- Does the power conferred by the rule 9(i) may be declared void as a contract in violation of Article 14 of the Indian Constitution?
The court held that Central Inland Water Transport Corporation Limited is not only a government company that is defined under Section 617 of the Companies Act, 1956 but is also wholly owned by the three governments viz Central Government and the Governments of West Bengal and Assam jointly. A 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.
It is also to be noted that ‘state’ under Article 39 should adhere to 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.
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 pay and dearness allowance. A clause such as Rule 9(i) 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.
RATIO DECIDENDI OF THE JUDGEMENT
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 the bodies that function under the deep and pervasive control of the govt. It can be seen that all the three governments financed it entirely and was under the control and authorization of the Central Govt., and was managed by the Chairman and Board of Directors appointed by the Central Govt. and could be removed by it. These functions and operations carried out by the corporation are of vital national importance which no doubt proves that the corporation is a body of govt. under the public sector, 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 contradictory to 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.
Clause (i) of Rule 9 is opposed to public policy and it is void under Sec 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. There are no guidelines 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 observance with the public good and public interest declare such practice to be opposed to public policy.
Justice D.P. Madon (supreme court judge) dismissed the appeal and gave judgment against the defendants stating that rule 9(i) is invalid, arbitrary, unconscionable, and opposes public policy under Section 23 of the Indian Contract Act, 1872.
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