TMI Blog1986 (4) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... being void the whole of that clause. The order passed by the Calcutta High Court is modified by substituting for the declaration given by it a declaration that clause (i)of rule 9 of the "Service, Discipline and Appeal Rules, 1979" of the Central Inland Water Transport Corporation Limited is void under section 23 of the Indian Contract Act, 1872, as being opposed to public policy and is also ultra vires article 14 of the Constitution to the extent that it confers upon the Corporation the right to terminate employment of a permanent employee by giving him three months’ notice in writing or by paying him the equivalent of three months; basic pay and dearness allowance in lieu of such notice. - 4412 AND 4413 OF 1985 - - - Dated:- 6-4-1986 - A. P. SEN AND D. P. MADON, JJ Shanti Bhushan, Subrata Ray and A.K. Sil for the Appellant. Y.S. Chitale, H.K. Puri, G.A. Shah, Mrs. Anil Katiyal, C.V. Subba Rao and R.N. Podiar for the Respondent. Mridul Ray and K.Swami for the Intervener. JUDGMENT Madon, J. These appeals by Special Leave granted by this Court raise two questions of considerable importance to Government companies and their employees i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the following activities, namely, ( i )maintaining and running river service with ancillary function of maintenance and operation of river-site jetty and terminal; ( ii )constructing vessels of various sizes and descriptions; ( iii )repairing vessels of various sizes and descriptions; and ( iv )undertaking general engineering activities. Article 4 of the articles of association of the Corporation provides that the Corporation is a private company within the meaning of clause ( iii ) of sub-section (1) of section 3 of the Companies Act and that no invitation is to be issued to the public to subscribe for any shares in, or debentures or debenture stock of, the Corporation. Article 51 of the articles of association confers upon the President of India the power to issue from time to time such directions or instructions as he may consider necessary in regard to the affairs or the conduct of the business of the Corporation or of the Directors thereof. The said article also confers upon the President the power to issue such directions or instructions to the Corporation as to the exercise and performance of its functions in matters involving national security or public inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. Under article 47, the auditor or auditors of the Corporation are to be appointed or re-appointed by the Central Government on the advice of the Comptroller and Auditor-General of India. The said article also confers power upon the Comptroller and Auditor-General of India to direct the manner in which the accounts of the Corporation are to be audited and to give the auditors instructions in regard to any matter relating to the performance of their functions. Under the said article, he has also the power to conduct a supplementary or test audit of the accounts of the Corporation by such person or persons as he may authorise in that behalf and for the purposes of such audit to require such information or additional information to be furnished to such person or persons on such matters by such person or persons as the Comptroller and Auditor-General may, by general or special order, direct. Under clause (V) of the Memorandum of Association, the authorised share capital was rupees four crores. It was raised to rupees ten crores by a special resolution passed at the annual general meeting of the Corporation held on December 30, 1972, and further raised to rupees twenty crores by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 1967, as a Deputy Chief Accounts Officer. The first respondent in Civil Appeal No. 4413 of 1985, Tarun Kanti Sengupta, was also working in the said company and his services were also taken over by the Corporation and he was appointed on 8th September, 1967, as chief engineer on the ship " River Ganga". It is unnecessary to refer at this stage to the terms and conditions of the letters of appointment issued to these two respondents as they have been subsequently superseded by service rules framed by the Corporation except to state that under the said letters of appointment the age of superannuation was fifty-five years unless the Corporation agreed to retain them beyond this period. The said letters of appointment also provided that these respondents would be subject to the service rules and regulations including the conduct rules. Service rules were framed by the Corporation for the first time in 1970 and were replaced by new rules in 1979. We are concerned in these appeals with the "Central Inland Water Transport Corporation Ltd. Service, Discipline and Appeal Rules" of 1979 framed by the Corporation. These rules will hereinafter be referred to in short as "the said Rules". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduct. Without prejudice to the general meaning of the term 'misconduct' the company shall have the right to terminate the services of any employee at any time without any notice if the employee is found guilty of any insubordination, intemperance or other misconduct or of any breach of any rules pertaining to service or conduct or non-performance of his duties." Rule 38 prescribes the procedure for imposing a major penalty and sets out in detail how a disciplinary inquiry is to be held. Rule 38 provides for action to be taken by the disciplinary authority on the report made by the inquiring authority. Rule 40 prescribes the procedure to be followed for imposing minor penalties. Rule 43 provides for a special procedure to be followed in certain cases. This special procedure consists of dispensing with a disciplinary inquiry altogether. The said rule 43 provides as follows: "43. Special procedure in certain cases. Notwithstanding anything contained in rules 38, 39 or 40, the disciplinary authority may impose any of the penalties specified in rule 36 in any of the following circumstances: ( i )The employee has been convicted on a criminal charge, or on the strength of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he issued a charge-sheet against Sengupta intimating to him that a disciplinary inquiry was proposed to be held against him under the said rules and calling upon him to file his written statement of defence. By his letter dated 10th February, 1983, addressed to the chairman-cum-managing director, Sengupta denied the charges made against him and asked for inspection of documents and copies of statements of witnesses mentioned in the said charge-sheet. By a letter dated 26th February, 1983, signed by the chairman-cum-managing director, notice was given to Sengupta under clause ( i ) of rule 9 of the said rule, terminating his service with the Corporation with immediate effect. Along with the said letter a cheque for three months' basic pay and dear-ness allowance in lieu of notice was enclosed. Both Ganguly and Sengupta filed writ petitions in the Calcutta High Court under article 226 of the Constitution challenging the termination of their service as also the validity of the said rule 9( i ). In both these writ petitions rule nisi was issued and an ex parte ad interim order staying the operation of the said notice of termination was passed by a learned single Judge of the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these appeals, joined in the contentions raised by the Corporation. The arguments advanced on behalf of the contesting respondents in broad outlines were as follows : (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 authorised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the units or sub-divisions having separate governments are variously called "States" as in India, U.S.A. and Australia, "provinces" as in Canada, "cantons" as in Switzerland, or designated by other names. Our Constitution is federal in structure. Clause (1) of article 1 of the Constitution provides that "India, that is Bharat, shall be a Union of States" and clause (2) of that article provides that "The States and the territories thereof shall be as specified in the First Schedule". The word "States" used in article 1 thus refers to the federating units, India itself being a State consisting of these units. The term "States" is defined variously in some of the other articles of the Constitution as the context of the particular part of the Constitution in which it is used requires. Part VI of the Constitution is headed "The States" and provides for the form of the three organs of a State, namely, the Executive, the Legislature and the Judiciary. Article 152, which is the opening article in Part VI of the Constitution, provides as follows : "152. Definition. In this Part, unless the context otherwise requires, the expression ' State ' does not include the State of Jammu and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 12 forms part of Part III of the Constitution which deals with fundamental rights and provides as follows : "12. Definition. In this Part, unless the context otherwise requires, 'the State' includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India." (Emphasis supplied) The same definition applies to the expression "the State" when used in Part IV of the Constitution which provides for the Directive Principles of State Policy, for the opening article of Part IV, namely, article 36, provides : "36. Definition. In this Part, unless the context otherwise requires, 'the State' has the same meaning as in Part III." The expression "local authority" is defined in clause (31) of section 3 of the General Clauses Act, as follows: "(31) ' Local authority ' shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund." Thus, the expression "the State" when use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses Act define the term "State". The deliberate use of the expression "the State" in article 12 as also in article 36 would have normally shown that this expression was used to denote the State in its ordinary and constitutional sense of an independent or sovereign State and the inclusive clause in article 12 would have extended this meaning to include within its scope whatever has been expressly set out in article 12. The definition of the expression "the State" in article 12 is, however, for the purposes of Parts III and IV of the Constitution. The contents of these two parts clearly show that the expression "the State" in article 12 as also in article 36 is not confined to its ordinary and constitutional sense as extended by the inclusive portion of article 12 but is used in the concept of the State in relation to the fundamental rights guaranteed by Part III of the Constitution and the Directive Principles of State Policy contained in Part IV of the Constitution which principles are declared by article 37 to be fundamental to the governance of the country and enjoins upon the State to apply in making laws. What then does the expression "the State" in the context of Parts II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action, Endless invention, endless experiment." The law exists to serve the needs of the society which is governed by it. If the law is to play its allotted role of serving the needs of the society, it must reflect the ideas and ideologies of that society. It must keep time with the heartbeats of the society and with the needs and aspirations of the people. As the society changes, the law cannot remain immutable. The early nineteenth century essayist and wit, Sydney Smith, said, "When I hear any man talk of an unalterable law, I am convinced that he is an unalterable fool." The law must, therefore, in a changing society march in tune with the changed ideas and ideologies. Legislatures are, however, not best fitted for the role of adapting the law to the necessities of the time, for the legislative process is too slow and the Legislatures often divided by politics, slowed down by periodic elections and overburdened with myriad other legislative activities. A constitutional document is even less suited to this task, for the philosophy and the ideologies underlying it must of necessity be expressed in broad and general terms and the process of amending a Constitution is too cumber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Constitution was enacted and the purposes for which Parts III and IV were inserted in our Constitution. The bombs which had rained down upon the cities of Europe, Africa and Asia and the Islands in the Pacific had changed, and changed dramatically, not only the political but also the sociological, ideological and economic map of the world. A world reeling from the horrors of the Second World War and seeking to recover from the trauma caused by its atrocities sought to band all nations into one Family of Man and for this purpose set up the United Nations Organization in order to save succeeding generations from the scourge of war which had twice in this century brought untold sorrow to mankind and in order to reaffirm faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of man and woman and of nations large or small, and thus to give concrete shape to the dream of philosophers and poets that the war-drums would throb no longer and the battle-banners would be furled in the Parliament of Man and the Federation of the World. But much had gone before. There was the signing of the Inter-Allied Declaration of 12th June, 1941, at St. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sovereign Independent India, its constituent parts and organs of government, are derived from the people; and 5. Wherein shall be guaranteed and secured to all the people of India justice, social, economic and political: equality of status, of opportunity, and before the law ; freedom of thought, expression, belief, faith, worship, vocation, association, and action, subject to law and public morality; and 6. Wherein adequate safeguards shall be provided for minorities' backward and tribal areas, and depressed and other backward classes; and 7. Whereby shall be maintained the integrity of the territory of the Republic and its sovereign rights on land, sea, and air according to justice and the law of civilised nations ; and 8. This ancient land attains its rightful and honoured place in the world and makes its full and willing contribution to the promotion of world peace and the welfare of mankind". In its strict legal sense the written Constitution of a country is a document which defines the regular form or system of its government, containing the rules that directly or indirectly affect the distribution or exercise of the sovereign power of the State and it is thus m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot, Rayal, d' Alembert and others, and of the concrete expression given to it in the various Declarations of Rights of the American Colonies (particularly Virginia) and in the American Declaration of Independence. They were aware that in 1789, during the early years of the French Revolution, the French National Assembly had in "The Declaration of the Rights of Man and of the Citizen" proclaimed those rights in lofty words and that Revolutionary France had translated them into practice with bloody deeds. They were aware of the treaties entered into between various States in the nineteenth century providing protection for religious and other minorities. They were aware that these rights had at last found universal recognition in the Universal Declaration of Human Rights. They were aware that the first ten amendments to the Constitution of the United States of America contained certain rights akin to Human Rights. They knew that the Constitution of Eire contained a chapter headed "fundamental rights" and another headed "Directive Principles of State Policy". They were aware that the Constitution of Japan also contained a chapter headed "Rights and Duties of the People". They were awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the world. It also provides a constitutional mode of enforcing them. Amongst these rights is the one contained in article 14 which provides: "14. Equality before law. The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India." Part IV of the Constitution prescribes the Directive Principles of State Policy. These Directive Principles have not received the same constitutional mandate for their enforcement as the Fundamental Rights have done. In the context of the Welfare State which is the goal of our Constitution, articles 37 and 38(1) are important. They are as follows! "37. Application of the principles contained in this Part. The provisions contained in this Part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws." "38. State to secure a social order for the promotion of welfare of the people. (1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch State, as the case may be, and to the purchase or acquisition of property for those purposes respectively, and to the making of contracts; and it further provided that all property acquired for the purposes of the Union or of a State was to vest in the Union or in such State, as the case may be. Article 298 was substituted by the Constitution (Seventh Amendment) Act, 1956. As substituted, it provides as follows: "298. Power to carry on trade, etc. The executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose : Provided that ( a )the said executive power of the Union shall, in so far as such trade or business or such purpose is not one with respect to which Parliament may make laws, be subject in each State to legislation by the State; and ( b )the said executive power of each State shall, in so far as such trade or business or such purpose is not one with respect to which the State Legislature may make laws, be subject to legislation by Parliament." Article 298, as so substituted, therefore, expands the executive power of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under a cloud. In Great Britain, the late Lord Hewart had written of 'the new despotism', and Dr. C. K. Allen of 'bureaucracy triumphant'. In France, the Confederation Generate du Travail (CGT) had stated in its programme in 1920 that ' we do not wish to increase the functions of the State itself nor strengthen a system which would subject the basic industry to a civil service regime, with all its lack of responsibility and its basic defects, a process which would subject the forces of production to a fiscal monopoly... ' This distrust of government by civil service, justified or not, was a powerful factor in the development of a policy of public administration through separate corporations which would operate largely according to business principles and be separately accountable. In the common law countries, where the Government still enjoys considerable immunities and privileges in the fields of legal responsibility, taxation, or the binding force of statutes, other considerations played their part. It seemed necessary to create bodies which, if they were to compete on fair terms in the economic field, had to be separated and distinct from the Government as regards immunities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution. Under the proviso to that article, in any matter with respect to which the Legislature of a State and Parliament have power to make laws, that is, the matters enumerated in the Concurrent List List (III) in the Seventh Schedule to the Constitution, the executive power of the State is to be subject to, and limited by, the executive power expressly conferred by the Constitution or by any law made by Parliament upon the Union or authorities thereof. Under article 154(1), the executive power of the State is vested in the Governor and is to be exercised by him either directly or through officers subordinate to him in accordance with the Constitution. The corresponding provisions as regards the executive power of the Union of India are contained in article 73 and article 53(1). Repelling the above contention, Mukherjee, C.J., who spoke for the Constitution Bench of the Court, observed (at page 230): "A modern State is certainly expected to engage in all activities necessary for the promotion of the social and economic welfare of the community." The following passage (at pages 235-36) from the judgment of the Court in that case with respect to the meaning of the expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejusdem generis should not be applied, because, for the application of that rule, there must be distinct genus or category running through the bodies previously named ; and the bodies specially named in article 12 being the Executive Government of the Union and the States, the Legislatures of the Union and the States and local authorities, there is no common genus running through these named bodies, nor could these bodies be placed in one single category on any rational basis. Praga Tools Corporation v. C. A. Imanual, [1969] 36 FJR 191, was acase heavily relied upon by the appellants. Praga Tools Corporation was a company incorporated under the Indian Companies Act, 1913, and, therefore, a company within the meaning of the Companies Act, 1956. At the material time, the Union of India held fifty-six per cent. of the shares of the company and the Government of Andhra Pradesh held thirty-two per cent. of its shares, the balance of twelve per cent. shares being held by private individuals. As being the largest shareholder, the Union of India had the power to nominate the company's directors. The company had entered into two settlements with its workmen's union. These settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amental rights was at all raised in that case. The only question which fell for determination was whether a writ of mandamus can issue to compel the performance of the earlier settlements or to restrain the enforcement of the impugned subsequent agreement and the dispute, therefore, was one which fell within the scope of the Industrial Disputes Act, 1947 (Act No. 14 of 1947). In State of Bihar v. Union of India, [1970] 2 SCR 522, the State of Bihar filed nine suits under article 131 in connection with the delayed delivery of iron and steel materials for the construction work of the Gandak project. In all these suits the first defendant was the Union of India while the second defendant in six of these suits was the Hindustan Steel Ltd. and in the remaining three, the Indian Iron and Steel Company Ltd. This Court held that the specification of the parties in article 131 was not of an extensive kind and excluded the idea of a private citizen, a firm or a corporation figuring as a disputant either alone or even along with a State or with the Government of India in the category of a party to the dispute under article 131. The Court further held that the enlarged definition of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not an authority within the meaning of article 12 and, therefore, certain letters written by it to the petitioner with respect to his remuneration could not be challenged as being discriminatory and violative of article 14. The contention raised in that case was that the rules governing the said Council showed that it was really an agent of the Government. This Court rejected the said contention in these words (at page 213): "...This contention is unsound. The society does not have a statutory character like the Oil and Natural Gas Commission, or the Life Insurance Corporation or Industrial Finance Corporation. It is a society incorporated in accordance with the provisions of the Societies Registration Act. The fact that the Prime Minister is the President or that the Government appoints nominees to the Governing Body or that the Government may terminate the membership will not establish anything more than the fact that the Government takes special care that the promotion, guidance and co-operation of scientific and industrial research, the institution and financing of specific research, establishment or development and assistance to special institutions or departments of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing public functions are by virtue of the nature of the function performed government agencies.....Activities which are too fundamental to the society are by definition too important not to be considered government function. This demands the delineation of a theory which requires government to provide all persons with all fundamentals of life and the determinations of aspects which are fundamental. The State today has an affirmative duty of seeing that all essentials of life are made available to all persons. The task of the State today is to make possible the achievement of a good life both by removing obstacles in the path of such achievements and in assisting individual in realising his ideal of self-perfection. Assuming that indispensable functions are government functions, the problem remains of defining the line between fundamentals and non-fundamentals. The analogy of the doctrine of 'business affected with a public interest' immediately comes to mind........." After referring to the relevant provisions of the Acts under which the above statutory bodies were established, Mathew J., continued (at pages 250-251): "...The fact that these corporations have independent person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of India [1979] 3 SCR 1014. In that case the Court observed (at p. 1032), "Today the Government, as a welfare State, is the regulator and dispenser of special services and provider of a large number of benefits, including jobs, contracts, licences, quotas, mineral rights, etc .". The question in that case was whether the International Airport Authority, constituted under the International Airports Authority Act, 1971, came within the meaning of the expression "The State" in article 12. Under the said Act, the authority was a body corporate having perpetual succession and a common seal and was to consist of a Chairman and certain other members appointed by the Central Government. The Central Government had the power to terminate the appointment of or remove any member from the Board. Although the authority had no share capital of its own, capital needed by it for carrying out its functions was to be provided only by the Central Government. While considering the question whether such a body corporate was included within the expression "the State", this Court said (at page 1036): " A corporation may be created in one of two ways. It may be either established by statute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer to the question whether a corporation is governmental instrumentality or agency. Moreover even amongst these factors which we have described, no one single factor will yield a satisfactory answer to the question and the Court will have to consider the cumulative effect of these various factors and arrive at its decision on the basis of a particularised inquiry into the facts and circumstances of each case." In the course of its judgment, the Court distinguished the case of Praga Tools Corporation, [1969] 36 FJR 191, as also the decision in S. L. Agarwal v. Hindustan Steel Ltd., [1970] 3 SCR 363, in very much the same manner as we have done. So far as the case of Sabhajit Tewary v. Union of India, [1975] 47 FJR 211, is concerned, the Court said as follows (at p. 1051): "Lastly, we must refer to the decision in Sabhajit Tewari v. Union of India, [1975] 47 FJR 211, where the question was whether the Council of Scientific and Industrial Research was an ' authority ' within the meaning of article 12. The Court no doubt took the view on the basis of facts relevant to the constitution and functioning of the Council that it was not an 'authority', but we do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of effective business management, but behind the formal ownership which is cast in the corporate mould, the reality is very much the deeply pervasive presence of the Government. It is really the Government which acts through the instrumentality or agency of the corporation and the juristic veil of corporate personality worn for the purpose of convenience of management and administration cannot be allowed to obliterate the true nature of the reality behind which is the Government. Now it is obvious that if a corporation is an instrumentality or agency of the Government, it must be subject to the same limitations in the field of constitutional law as the Government itself, though in the eye of the law it would be a distinct and independent legal entity. If the Government acting through its officers is subject to certain constitutional limitations, it must follow a fortiori that the Government acting through the instrumentality or agency of a corporation should equally be subject to the same limitations." (Emphasis supplied.) After referring to various authorities, the Court summarized the relevant tests which are to be gathered from the International Airport Authority of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t individuality for certain purposes and in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under our constitutional scheme, we should not scan the real character of that entity; and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth controlled by the State and in effect an incarnation of the State, constitutional lawyers must not blink at these facts and frustrate the enforcement of fundamental rights despite the inclusive definition of article 12 that any authority controlled by the Government of India is itself State. Law has many dimensions and fundamental facts must govern the applicability of fundamental rights in a given situation." (Emphasis supplied.) At the first blush it may appear that the case of S. S. Dhanoa v. Municipal Corporation, Delhi, [1981] 3 SCC 431, runs counter to the trend set in the authorities cited above, but, on a closer scrutiny it turns out not to be so. The facts in that case were that the Co-operative Store Limited, which was a society registered under the Bombay Co-operative Societies Act, 1925, had established and was managing Supe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r remunerated by fees or commission for the performance of any public duty by the Government; ( b ) in the service or pay of a local authority, a corporation established by or under a Central, Provincial or State Act or a Government company as defined in section 617 of the Companies Act, 1956." The Court pointed out that clause Twelfth did not use the words "body corporate" and, therefore, the question was whether the expression "corporation" contained therein taken in collocation of the words "established by or under a Central or Provincial or State Act" would bring within its sweep a co-operative society. The Court said (at page 437 of [1981] 3 SCC): "In our opinion, the expression ' corporation ' must, in the context, mean a corporation created by the Legislature and not a body or society brought into existence by an act of a group of individuals. A cooperative society is, therefore, not a corporation established by or under an Act of the Central or State Legislature." The Court then proceeded to point out that a corporation is an artificial being created by law, having a legal entity entirely separate and distinct from the individuals who compose it, with the capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso wholly financed by the Union of India. In B. S. Minhas v. Indian Statistical Institute, [1983] 4 SCC 582, this Court, following Ajay Hasia's case, [1981] 2 SCR 79, held that the said society was an "authority" within the meaning of article 12 and hence a writ petition under article 32 filed against it was competent and maintainable. In Manmohan Singh Jaitla v. Union Territory of Chandigarh, [1984] Supp. SCC 540, this Court once again following Ajay Hasia's case [1981] 2 SCR 79, held that an aided school which received a Government grant of ninety-five per cent, was an "authority" within the meaning of article 12 and, therefore, amenable to the writ jurisdiction both of this Court and the High Court. In Workmen of Hindustan Steel Ltd. v. Hindustan Steel Ltd., [1984] 66 FJR 376, the Court held that the Hindustan Steel Ltd. was a public sector undertaking and, therefore, was "other authority,' within the meaning of that expression in article 12. In P.K. Ramachandra Iyer v. Union of India, [1984] 2 SCR 1,41, once again following Ajay Hasia's case, [1981] 2 SCR 79, the Court held that the Indian Council of Agricultural Research which was a society registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of commodities provided the points of origin and destination are both located on the water front; that it is one of the most energy efficient modes of transport and has considerable potential in limited areas which have a network of waterways. This Plan further emphasises that in the North-Eastern Region where other transport infrastructure is severely lacking and more expensive, inland water transport has an additional importance as an instrument of development. The said Plan goes on to state : "In the Central sector, an outlay of Rs. 45 crores has been made for IWT. The most important programme relates to the investment proposal of Central Inland Water Transport Corporation (CIWTC)". The annual plan, 1984-85, of the Government of India Planning Commission states as follows in paragraph 10.33 : "Inland Water Transport. Against the approved outlay of Rs. 12 crores in 1983-84, the revised expenditure in the Central sector is estimated at Rs. 10.40 crores. Bulk of the allocation was for the scheme of Central Inland Water Transport Corporation (CIWTC) for acquisition of vessels, development of Rajabagan Dockyard, creation of infrastructural facilities, etc ." The annual repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desh. It undertakes movement of oil from Haldia to Budge-Budge/Paharpur for the Indian Oil Corporation. It also undertakes lighterage, stevedoring operations, ship building, ship repairing and other engineering services. To meet cash losses over riverine and engineering operations, construction of vessels and for purchase of machinery/equipment, etc ., budget estimates 1985-86 provide Rs. 13.50 crores for loan and Rs. 15.41 crores for equity investment in the Corporation." Last year, Parliament passed the Inland Waterways Authority of India Act, 1985. This Act received the assent of the President on December 30, 1985. Under this Act, an authority called the Inland Waterways Authority of India is to be constituted and it is to be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power, subject to the provisions of the said Act, to acquire, hold and dispose of property, both movable and immovable, and to contract and to sue and be sued by the said name. It is to consist of a chairman, a vice-chairman and other persons not exceeding five. The chairman, vice-chairman and the other persons are to be appointed by the Central Government. The te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government company as defined by section 617 of the Companies Act as pointed out in Gurugobinda Basu v. Sankari Prasad Ghosal, [1964] 4 SCR 311, 315. The case of the Workmen of Hindustan Steel Ltd., [1985] 66 FJR 376, related to a question whether a disciplinary inquiry was validly dispensed with under Standing Order No. 32 of the Hindustan Steel Limited. Under that Standing Order, where a workman had been convicted for a criminal offence in a court of law or where the general manager was satisfied, for reasons to be recorded in writing, that it was inexpedient or against the interest of security to continue to employ the workman, the workman may be removed or dismissed from service without following the procedure for holding a disciplinary inquiry laid down in Standing Order No. 31. The order of removal from service of the concerned workman did not set out any reason for the satisfaction arrived at by the disciplinary authority but merely stated that such authority was satisfied that it was no longer expedient to employ the particular workman any further and the order then proceeded to remove him from the service of the company. In these circumstances, this Court held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... damage caused by such escape if he had not been negligent. Similarly, but for Donoghue v. Stevenson, [1932] AC 562, manufacturers would have been immune from liability to the ultimate consumers and users of their products. What is the position before us ? Is it only one case decided on a concession and another based upon an assumption that a Government company is "the State" under article 12 ? That is the position in fact but not in substance. As we have seen, authorities constituted under, and corporations established by, statutes have been held to be instrumentalities and agencies of the Government in a long catena of decisions of this Court. The observations in several of these decisions, which have been emphasised by us in the passages extracted from the judgments in those cases, are general in their nature and take in their sweep all instrumentalities and agencies of the State, whatever be the form which such instrumentality or agency may have assumed. Particularly, relevant in this connection are the observations of Mathew J. in Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi [1975] 47 FJR 214, of Bhagwati J., in International Airport Authority's case [1979] 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legally admissible, by the said company, and the Government of India was to provide to the said company the amount of such compensation. Under the letters of appointment issued to these respondents, the age of superannuation was fifty-five. Thereafter, service rules were framed by the Corporation in 1970 which were replaced in 1979 by new rules, namely, the said Rules. The said Rules did not apply to employees covered by the Industrial Employment (Standing Orders) Act, 1946, that is, to workmen, or to those in respect of whom the board of directors had issued separate orders. At all relevant times, these respondents were employed mainly in a managerial capacity. No separate orders were issued by the board of directors in their case. These respondents were, therefore, admittedly governed by the said Rules. Under Rule 10 of the said Rules, they were to retire from the service of the Corporation on completion of the age of fifty-eight years though in exceptional cases and in the interest of the Corporation an extension might have been granted to them with the prior approval of the chairman-cum-managing director and the board of directors of the Corporation. The said Rules, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be imposed except after holding an inquiry in accordance with the provisions of rule 38 and until after the inquiring authority, where it is not itself the disciplinary authority, has forwarded to the disciplinary authority the records of the inquiry together with its report, and the disciplinary authority has taken its decision as provided in rule 39. Rule 40 prescribes the procedure to be followed in imposing minor penalties. Under rule 43, notwithstanding anything contained in rule 38, 39 or 40 the disciplinary authority may dispense with the disciplinary inquiry in the three cases set out in rule 43 and impose upon an employee either a major or minor penalty. We have reproduced rule 43 earlier. Rule 45 provides for an appeal against an order imposing any of the penalties specified in rule 36. Under rule 37, the Corporation has the right to terminate the service of any employee at any time without any notice if the employee is found guilty of any insubordination, intemperance or other misconduct or of any breach of any rules pertaining to service or conduct or non-performance of his duties. The said Rules do not require that any disciplinary inquiry should be held before term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion before us is of the validity of clause ( i ) of rule 9, we will refrain from expressing any opinion with respect to the validity of clause ( ii ) of rule 9 or rule 37 or rule 40 but will confine ourselves only to rule 9( i ). The said Rules constitute a part of the contract of employment between the Corporation and its employees to whom the said Rules apply, and they thus form a part of the contract of employment between the Corporation and each of the two contesting respondents. The validity of rule 9( i ) would, therefore, first fall to be tested by the principles of the law of contracts. Under section 19 of the Indian Contract Act, when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. It is not the case of either of the contesting respondents that there was any coercion brought to bear upon him or that any fraud or misrepresentation had been practised upon him. Under section 19A, when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused and the court may set as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision under the law of contracts before any court in India nor has any case on all fours of a court in any other country been pointed out to us. The word "unconscionable" is denned in the Shorter Oxford English Dictionary, Third Edition, Volume II, page 2288, when used with reference to actions etc ., as "showing no regard for conscience ; irreconcilable with what is right or reasonable". An unconscionable bargain would, therefore, be one which is irreconcilable with what is right or reasonable. Although certain types of contracts were illegal or void, as the case may be at common law, for instance, those contrary to public policy or to commit a legal wrong such as a crime or a tort, the general rule was of freedom of contract. This rule was given full play in the nineteenth century on the ground that the parties were the best judges of their own interests, and if they freely and voluntarily entered into a contract, the only function of the court was to enforce it. It was considered immaterial that one party was economically in a stronger bargaining position than the other; and if such a party introduced qualifications and exceptions to his liability in clauses which are toda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of an employee's contract of employment may be determined by agreement between his trade union and his employer, or by a statutory scheme of employment. Such transactions are nevertheless contracts notwithstanding that freedom of contract is to a great extent lacking. Where freedom of contract is absent, the disadvantages to consumers or members of the public have to some extent been offset by administrative procedures for consultation, and by legislation. Many statutes introduce terms into contracts which the parties are forbidden to exclude, or declare that certain provisions in a contract shall be void. And the courts have developed a number of devices for refusing to implement exemption clauses imposed by the economically stronger party on the weaker, although they have not recognised is themselves any general power (except by statute) to declare broadly that an exemption clause will not be enforced unless it is reasonable. Again, more recently, certain of the judges appear to have recognised the possibility of relief from contractual obligations on the ground of ' inequality of bargaining power'." What the French call "contracts d'adhesion", the American call "adhesio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning power, together with terms unreasonably favourable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms." (Emphasis supplied) There is a statute in the United States called the Universal Commercial Code which is applicable to contracts relating to sales of goods. Though this statute is inapplicable to contracts not involving sales of goods, it has proved very influential in, what are called in the United States, "non-sales" cases. It has many times been used either by analogy or because it was felt to embody a general accepted social attitude of fairness going beyond its statutory application to sales of goods. In the reporter's note to the said section 208, it is stated at page 112: " It is to be emphasized that a contract of adhesion is not unconscionable per se, and that all unconscionable contracts are not contracts of adhesion. None the less, the more standardised the agreement and the less a party may bargain meaningfully, the more susceptible the contract or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the possibility of an unconscionable bargain which could be brought about by economic duress even between parties who may not in economic terms be situate differently (see for instance, Occidental Worldwide Investment Corporation v. Skibs A/S Avanti, [1976] 1 Lloyd's Rep. 293, North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd., [1979] QB 705, Pao On v. Lau Yiu Long, [1980] AC 614 and Universe Tankships Inc. of Monrovia v. International Transport Workers Federation, [1981] ICR 129, reversed in [1982] 2 WLR 803 (HL) and the commentary on these cases in Chitty on Contracts, Twenty-fifth Edition, Volume I, paragraph 486). Another jurisprudential concept of comparatively modern origin which has affected the law of contracts is the theory of "distributive justice". According to this doctrine, distributive fairness and justice in the possession of wealth and property can be achieved not only by taxation but also by regulatory control of private and contractual transactions even though this might involve some sacrifice of individual liberty. In Lingappa Pochanna Appelwar v. State of Maharashtra, [1985] 1 SCC 479, this Court, while upholding the constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e citizens, men and women equally, have the right to an adequate means of livelihood and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and that there should be equal pay for equal work for both men and women, it is the doctrine of distributive justice which is speaking through these words of the Constitution. Yet another theory which has made its emergence in recent years in the sphere of the law of contracts is the test of reasonableness or fairness of a clause in a contract where there is inequality of bargaining power. Lord Denning, M. R., appears to have been the propounder, and perhaps the originator at least in England, of this theory. In Gillespie Brothers Co. Ltd. v. Roy Bowles Transport Ltd. [1973] 1 QB 400, where the question was whether an indemnity clause in a contract, on its true construction, relieved the indemnifier from liability arising to the indemnified from his own negligence, Lord Denning said (at pages 415-416): "The time may come when this process of ' construing' the contract can be pursued no further. The words are too clear to permit of it. Are the courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other. When I use the word 'undue' I do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage may be moved solely by his own self-interest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being 'dominated' or 'overcome' by the other. One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the straits in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice. But the absence of it may be fatal. With these explanations, I hope this principle will be found to reconcile the cases" (emphasis supplied) Though the House of Lords does not yet appear to have unanimously accepted this theory, the observations of Lord Diplock in A. Schroeder Music Publishing Co. Ltd. v. Macaulay (Formerly Instone), [1974] 1 WLR1308 are a clear pointer towards this direction. In that case, a song writer had entered into an agreement with a music publis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e song writer promises that were unfairly onerous to him. Your Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer's talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course. It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th-century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez-faire the courts in the 19th-century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally, as they had formerly done to any contract considered to be usurious; but the policy survived in its applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction with others providing similar goods or services, enables him to say: ' If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it'. To be in a position to adopt this attitude towards a party desirous of entering into a contract to obtain goods or services provides a classic instance of superior bargaining power. " (emphasis supplied.) The observations of Lord Denning, M.R., in Levison v. Patent Steam Carpet Cleaning Co. Ltd., [1978] 1 QB 69 (CA), are also useful and require to be quoted. These observations are as follows (at page 79) : "In such circumstances as here the Law Commission in 1975 recommended that a term which exempts the stronger party from his ordinary common law liability should not be given effect except when it is reasonable : see The Law Commission and the Scottish Law Commission Report, Exemption Clauses, Second Report (1975) (August 5, 1975), Law Commission No. 69 (H.C. 605), pp. 62, 174; and there is a bill now before Parliament which gives effect to the test of reasonableness. This is a gratifying piece of law reform.' but I do not think we need wait for that bill to be passed int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament's intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions." (emphasis supplied) Lord Diplock said (at pages 850-51): "Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court's view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear." (emphasis supplied) Lord Scarman, while agreeing with Lord Wilberforce, described (at page 853) the action ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice and conforms to the mandate of the great equality clause in article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations 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 stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forms or which embody a set of rules as part of the contract are entered into by the party with superior bargaining power with a large number of persons who have far less bargaining power or no bargaining power at all. Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair and unreasonable, are injurious to the public interest. To say that such a contract is only voidable would be to compel each person with whom the party with superior bargaining power had contracted to go to court to have the contract adjudged voidable. This would only result in multiplicity of litigation which no court should encourage and would also not be in the public interest. Such a contract or such a clause in a contract ought, therefore, to be adjudged void. While the law of contracts in England is mostly judge-made, the law of contracts in India is enacted in a statute, namely, the Indian Contract Act, 1872. In order that such a contract should be void, it must fall under one of the relevant sections of the Indian Contract Act. The only relevant provision in the Indian Contract Act which can apply is section 23 when it states that "The con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unruly horse can be kept in control. It can jump over obstacles". Had the timorous always held the field, not only the doctrine of public policy but even the common law or the principles of equity would never have evolved. Sir William Holdsworth, in his " History of English Law", volume III, page 55, has said : "In fact, a body of law like the common law which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them" It is thus clear that the principles governing public policy must be and are capable, on a proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to public policy and require to be adjudged void. We will now test the validity of rule 9( i ) by applying to it the principle formulated above. Each of the contesting respondents was in the service of the Rivers Steam Navigation Co. Ltd. and, on the said scheme of arrangement being sanctioned by the Calcutta High Court, he was offered employment in the Corporation which he had accepted. Even had these respondents not liked to work for the Corporation, they had not much of a choice because all that they would have got was "all legitimate and legal compensation payable to them either under the Industrial Disputes Act or otherwise legally admissible". These respondents were not covered by the Industrial Disputes Act for they were not workmen but were officers of the said company. It is, therefore, difficult to visualize what compensation they would have been entitled to get unless their contract of employment with their previous employers contained any provision in that behalf. So far as the original terms of employment with the Corporation are concerned, they are contained in the letters of appointment issued to the contesting respondents. These letters of appointment are in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... framed by the West Bengal State Electricity Board was described by this court in West Bengal State Electricity Board v. Desk Bandhu Ghosh [1985] 66 FJR 471, (at page 473) as: "...a naked'hire and fire'rule, the time for banishing which altogether from employer-employee relationship is fast approaching. Its only parallel is to be found in the Henry VIII clause so familiar to administrative lawyers." As all lawyers may not be familiar with administrative law, we may as well explain that "the Henry VIII clause" is a provision occasionally found in legislation conferring delegated legislative power, giving the delegate the power to amend the delegating Act in order to bring that Act into full operation or otherwise by order to remove any difficulty, and at times giving power to modify the provisions of other Acts also. The Committee on Ministers' Powers in its report submitted in 1932 (Cmd. 4060) pointed out that such a provision had been nicknamed "the Henry VIII clause" because "that king is regarded popularly as the impersonation of executive autocracy". The Committee's Report (at page 61) criticised these clauses as a temptation to slipshod work in the preparation of bills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Thus, even where the Corporation could proceed under rule 36 and dismiss an employee on the ground of misconduct after holding a regular disciplinary inquiry, it is free to resort instead to rule 9( i ) in order to avoid the hassle of an inquiry. Rule 9( i ) thus confers an absolute, arbitrary and unguided power upon the Corporation. It violates one of the two great rules of natural justice the audi alter am partem rule. It is not only in cases to which article 14 applies that the rules of natural justice come into play. As pointed out in Union of India v. Tulsiram Patel, [1985] 3 SCC 398, (at page 463), "The principles of natural justice are not the creation of article 14. Article 14 is not their begetter but their constitutional guardian" That case has traced in some detail the origin and development of the concept of principles of natural justice and of the audi alterant parlem rule (at pages 463-480). They apply in diverse situations and not only to cases of State action. As pointed out by O. Chinnappa Reddy, J., in Swadeshi Cotton Mills v. Union of India, [1981] 58 FJR 190 at p. 238, they are implicit in every decision-making function, whether judicial or qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n parties between whom there is gross in equality of bargaining power. Rule 9( i ) is a term of the contract between the Corporation and all its officers. It affects a large number of persons and it squarely falls within the principle formulated by us above. Several statutory authorities have a clause similar to rule 9( i ) in their contracts of employment. As appears from the decided cases, the West Bengal State Electricity Board and Air India International have it. Several Government companies apart from the Corporation (which is the first appellant before us) must be having it. There are 970 Government companies with paid-up capital of Rs. 16,414.9 crores as stated in the written arguments submitted on behalf of the Union of India. The Government and its agencies and instrumentalities constitute the largest employer in the country. A clause such as rule 9( i ) in a contract of employment affecting large sections of the public is harmful and injurious to the public interest for it tends to create a sense of insecurity in the minds of those to whom it applies and consequently it is against the public good. Such a clause, therefore, is opposed to public policy and being opposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 12 of the Constitution is subject to the constitutional limitations, and its actions are State actions and must be judged in the light of the fundamental rights guaranteed by Part III of the Constitution (see for instance, Sukhdev Sihgh v. Bhagatram Sardar Singh Raghuvanshi, [1975] 47 FJR 214 (SC), International Airport Authority's case, [1979] 3 SCR 1014 and Ajay Hasia's case, [1981] 2 SCR 79. The actions of an instrumentality or agency of the State must, therefore, be in conformity with article 14 of the Constitution. The progression of the judicial concept of article 14 from a prohibition against discriminatory class legislation to an invalidating factor for any discriminatory or arbitrary State action has been traced in Tulsiratn Patel's case [1985] 3 SCC 398 (at pages 473-476). The principles of natural justice have now come to be recognized as being a part of the constitutional guarantee contained in article 14. In Tulsiram Patel's case [1985] 3 SCC 398, this Court said (at page 476): "The principles of natural justice have thus come to be recognized as being a part of the guarantee contained in article 14 because of the new and dynamic interpretation given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligations of the parties inter se. The Court then added (at page 255): "No question arises of violation of article 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract." We fail to see what relevance that decision has to the case before us. Employees of a large organization form a separate and distinct class and we are unable to equate a contract of employment in a stereotype form entered into by "the State" with each of such employees with the "lease" executed in Radhakrishna Agarwal's case, [1977] 3 SCR 249. Further, the contract or the lease between the parties in that case was a legally valid contract. In that case, what the appellants were doing was to complain of a breach of contract committed by the State of Bihar acting through its officers. The contesting respondents are not complaining of any breach of contract but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conclusion was that there was no guidance given anywhere in the impugned regulation for the exercise of the powers conferred by it, that it placed untrammelled power in the hands of the authorities, that it was an arbitrary power which was conferred and it did not make any difference that it was to be exercised by high ranking officials. In the Makalu's case, [1981] 2 Lab LJ 459, a contrary view was taken by a Division Bench of the Bombay High Court. The Division Bench rightly held that the employees of a statutory Corporation did not enjoy the protection conferred by article 311(2). It, however, further held that the phrase "without assigning any reason" used in the said regulation 48 only meant a disclosure of the reasons to the employee concerned. After going into the facts which had been pleaded by Air India International to justify the termination of the service of the petitioners in that case, the Division Bench held that the impugned orders were justified. It further held that regulation 48 was not a one-sided regulation since under regulation 48 the employee was also permitted to resign without assigning any reason by giving the notice prescribed therein. The Division B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of public policy evolved, and tested by the principle which we have formulated, the said regulation 48( a ) could never have been sustained. In West Bengal State Electricity Board's case [1985] 66 FJR 471, a three-Judge Bench of this Court said as follows (at page 473) : "The learned counsel for the appellant relied upon Manohar P. Kharkhar v. Raghuraj, [1981] 2 Lab LJ 459, to contend that regulation 48 of the Air India Employees' Service Regulations was valid. It is difficult to agree with the reasoning of the Delhi High Court that because of the complexities of modern administration and the unpredictable exigencies arising in the course of such administration it is necessary for an employer to be vested with such powers as those under regulation 48. We prefer the reasoning of Sawant, J., of the Bombay High Court and that of the Calcutta High Court in the judgment under appeal to the reasoning of the Delhi High Court." The mention of the Delhi High Court in the above passage is a slip of the pen, for it was the Bombay High Court which decided the case. We are in respectful agreement with what has been stated in the above passage. Makalu's case, [1981] 2 LLJ 459, was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an employee would however, normally require to be accepted by the employer in order to be effective. It can be that in certain circumstances an employer would be justified in refusing to accept the employee s resignation as, for instance, when an employee wants to leave in the meddle of a work which is urgent or important and for the completion of which his presence and participation are necessary. An employer can also refuse to accept the resignation when there is a disciplinary inquiry pending against the employee/ in such a case, to permit an employee to resign would be to allow him to go away from the service and escape the consequence of adverse finding against him in such an inquiry. There can also be other grounds on which an employer would be justified in not accepting the resignation of an employee. The corporation ought to make suitable provisions in that behalf in the said Rules. Therefore, while the judgment of the High Court requires to be confirmed, the declaration given by it requires to be suitably modified. In the result, both these appeals fail and are dismissed but the order passed by the Calcutta High Court is modified by substituting for the declaration gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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