Central Inland Water Transport Corporation LTD. vs Brojo Nath Ganguly: Tarun Kanti Sengupta

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1986 Supreme(SC) 115

SUPREME COURT OF INDIA
A.P. SEN AND D.P. MADON, JJ.
Central Inland Water Transport Corporation Ltd. and another, Appellants
Versus
Brojo Nath Ganguly and another, Respondents.
Civil Appeals Nos. 4412 and 4413 of 1985
Decided on 6-4-1986.
AND
Central Inland Water Transport Corporation Ltd. and another, Appellants
Versus
Tarun Kanti Sengupta and another, Respondents.
Advocates appeared
Mr. Shanti Bhushan, Sr. Advocate with Mr. Subrata Ray and Mr. A. K. Sil, Advocates, for Appellants; Dr. Y. S. Chitale, Sr. Advocate with Mr. H. K. Puri, Mr. G. A. Shah, Mrs. Anil Katiyal, Mr. C. V. Subba Rao and Mr. R. N. Poddar, Advocates, for Respondents, Mr. Mridul Ray and Mr. K. Swami, Advocates, for Interveners.

Advocates:
A.K.Sil, ANIL KATIYAR, C.V.SUBBA RAO, K.SWAMY, MRIDULA RAY BHARDVAJ, O.A.SHAH, R.N.Poddar, SHANTI BHUSHAN, SUBRATA ROY CHOWDHURY, U.K.PURI, Y.S.Chitale

Headnote:INTERPRETATION OF EXPRESSION “THE STATE”—EXPRESSION IS USED IN CONCEPT OF STATE IN RELATION TO FUNDAMENTAL RIGHTS Guaranteed BY PART III AND DIRECTIVE PRINCIPLES OF STATE POLICY CONTAINED IN PART IV WHICH ARE DECLARED BY ARTICLE #& TO BE FUNDAMENTAL TO GOVERNANCE OF COUNTRY CENTRAL INLAND WATER TRANSPORT CORPORATION LTD. HELD TO BE “STATE” - IT IS NOT THAT ONLY WHERE ARTICLE 14 APPLIES THE RULES OF NATURAL JUSTICE COME INTO PLAY - GOVERNMENT COMPANY UNDER THIS SECTION IS “THE STATE” WITHIN THE MEANING OF ARTICLE 12 -
if there is an instrumentality or agency of the State which has assumed the garb of a Government Company as defined under this section, it does not follow that it thereby ceases to be an instrumentality or agency of the State. For the purpose of Article 12 one must necessarily see through the corporate veil to ascertain whether behind that veil is the face 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, as held in the case of Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, AIR 1986 SC 1571 : (1986) 3 SCC 156 : 60 Com. Cas. 797 : (1986) 2 Lab. L.J. 171. Relevant in this context are observations in the cases Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, AIR 1975 SC 1331 : (1975) 3 SCR 619 ; Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628 : (1979) 3 SCR 1014 ; Assay Hasia v. Child Mujib, AIR 1981 SC 487 : (1981) 2 SCR 79; Uttar Pradesh Ware Housing Corporation v. Vijay Narain, AIR 1980 SC 840 : (1980) 2 SCR 773.

Judgement Key Points

Based on the provided legal document, here are the key points regarding the case Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly:

Status of the Corporation as "The State" * The Central Inland Water Transport Corporation Limited (CIWTC) was held to be "the State" within the meaning of Article 12 of the Constitution, despite being a Government company incorporated under the Companies Act. (!) (!) (!) (!) * The Court clarified that a Government company does not cease to be an instrumentality or agency of the State merely because it has assumed the garb of a company. The corporate veil must be looked through to ascertain if the Government operates behind it carrying out governmental functions of vital public importance. (!) (!) (!) (!) * The Corporation is wholly owned by the Central Government and State Governments, financed entirely by them, and is under the complete control and management of the Central Government. (!) (!) (!) * The activities of the Corporation, such as maintaining river services, constructing and repairing vessels, and general engineering, are of vital national importance and constitute public functions. (!) (!) (!) * Previous precedents, including Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, Ramana Dayaram Shetty v. International Airport Authority of India, and Ajay Hasia v. Khalid Mujib Sehravardi, support the view that statutory corporations and instrumentalities of the State fall within the definition of "the State." (!) (!) (!) (!) (!) (!)

Validity of Rule 9(i) of the Service Rules * Clause (i) of Rule 9 of the Central Inland Water Transport Corporation Ltd. Service, Discipline and Appeal Rules, 1979 was held to be void as being opposed to public policy under Section 23 of the Indian Contract Act, 1872. (!) (!) (!) (!) (!) * The same clause was also held to be ultra vires Article 14 of the Constitution. (!) (!) (!) (!) * Rule 9(i) conferred an absolute, arbitrary, and unguided power upon the Corporation to terminate the service of a permanent employee by giving three months' notice or by paying the equivalent of three months' basic pay and dearness allowance in lieu of notice. (!) (!) (!) * The rule was described as a "naked 'hire and fire' rule" and analogous to a "Henry VIII clause," lacking any guidelines for the exercise of the power. (!) (!) (!) * The rule violated the principle of audi alteram partem (natural justice) as it did not require any opportunity of a hearing before termination. (!) (!) * The termination under this rule was arbitrary and discriminatory, allowing the Corporation to pick and choose which employees to terminate without assigning reasons, unlike other rules requiring misconduct inquiries. (!) * The Court noted that there is a gross disparity in bargaining power between the State employer and the employee, making such unconscionable terms invalid. (!) (!) (!) (!) * The Court overruled the contrary view taken in Manobar P. Kharkhar v. Raghuraj (the "Makalu case") regarding similar regulations in Air India International, agreeing with the reasoning in West Bengal State Electricity Board v. Desh Bandhu Ghosh. (!) (!) (!)

Consequences and Relief * The termination orders dated February 26, 1983, against Brojo Nath Ganguly and Tarun Kanti Sengupta were quashed. (!) (!) * The Corporation was directed to reinstate the respondents and pay them all arrears of salary. (!) (!) * The stay order on the High Court's reinstatement direction was vacated. (!)

JUDGMENT

MADON, J.:— These Appeals by Special Leave granted by this Court raise two questions of considerable importance to Government companies and their employees including their officers. These questions are :

1) Whether a Government, company as defined in S. 617 of the Companies Act, 1956, is "the State" within the meaning of Art. 12 of the Constitution?

2) Whether an unconscionable term in a contract of employment is void under S. 23 of the Indian Contract Act, 1872, as being opposed to public policy and, when such a term is contained in contract of employment entered into with a Government company, is also void as infringing Art. 14 of the Constitution in case a Government company is "the State" under Art. 12 of the Constitution?

2. 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. I 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 Government company as thus defined."

As all the shares of the Corporation are held by different Governments, namely, the Government of India and the Governments of West Bengal and Assam, the Corporation is not only a Government company as defined by the said S. 617 but is a company wholly owned by the Central Government and two State Governments.

3. Clause III(A) of the Memorandum of Association of the Corporation lists the main objects of the Corporation and clause III(B) of the Memorandum of Association lists the objects incidental or ancillary to the main objects. It is unnecessary to reproduce all these objects for according to the Petitions filed by the Corporation for obtaining Special Leave in these Appeals, it is currently engaged in carrying 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.

4. 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 S. 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 interest. Under the said Article, the Directors of the Corporation are bound to comply with and give immediate effect to such directions and instructions. Under Art. 51A, the President has the power to call for such returns, accounts and other information with respect to properties and activities of the Cor

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1986 Supreme(SC) 115

Cases Referred (31)