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1987 Supreme(Cal) 326
High Court Of Calcutta
SUSANTA CHATTERJI
OM.PROKASH PARIWAL - Appellant
Versus
UNION OF INDIA - Respondent
Civil Order No. 16338 (W) of 1985
Decided On : 09/16/1987
A clause in a contract that allows one party to terminate the contract without notice or cause and without providing the other party with an opportunity to explain against the proposed termination is unreasonable and bad in law.
Headnote:
CONTRACT - TERMINATION - UNREASONABLE CLAUSE - ARBITRATION CLAUSE - PUBLIC PURPOSE - EQUALITY BEFORE LAW - PROTECTION AGAINST MALA FIDE AND UNFAIR ACTS - FOOD CORPORATION OF INDIA (FCI) - STORING AGENCY AGREEMENT - CLAUSE 37 - JUDICIAL REVIEW - UNFAIR AND UNREASONABLE CONTRACT - STRIKE DOWN - PRINCIPLE OF EQUALITY AND FAIRNESS.
Fact of the Case:
The petitioner, a storing agent for the Food Corporation of India (FCI), challenged the termination of their agency by FCI, alleging that Clause 37 of the agreement, which allowed FCI to terminate the agency without notice or cause, was arbitrary, unilateral, and violative of Article 14 of the Constitution of India.
Finding of the Court:
The court held that Clause 37 of the agreement was unreasonable and bad in law as it did not provide the storing agent with an opportunity to explain against the proposed termination and the court could not examine whether there was a public purpose for the termination.
Issues: 1. Whether Clause 37 of the agreement, which allowed FCI to terminate the agency without notice or cause, was arbitrary, unilateral, and violative of Article 14 of the Constitution of India. 2. Whether the termination of the agency was for a public purpose.
Ratio Decidendi: 1. The court relied on the Supreme Court decision in Central Inland Water Transport Corporation Limited and Anr. vs. Brojonath Ganguly and Ors. (1986), which held that courts will not enforce and will strike down an unfair and unreasonable contract or clause entered into between parties who are not equal in bargaining power. 2. The court held that the clause of termination in the storing agency contract was unreasonable as it did not provide the agent with an opportunity to explain against the proposed termination and the court could not examine whether there was a public purpose for the termination.
Final Decision: The court allowed the writ petition, set aside the impugned order of termination, and directed the petitioners to resume the business of storing agency as per the agreement. However, the court clarified that this order would not prevent FCI from initiating a proper proceeding by giving an opportunity to the petitioner to show cause and to take appropriate steps for determination of the agreement, if there are other justiciable grounds according to law.
( 1 ) THIS writ petition has been filed for issuance of a writ of Mandamus commanding the respondents not to give any effect or further effect to the impugned order of termination, dated 23-6-86 being annexure 'l' to the present writ petition received by the petitioners on 25-6-86 purporting to terminate the storing agency of the petitioners. It is stated that the petitioner No. 1 is a partnership firm and engaged in carrying on business as storing agent of Food Corporation of India. It is further stated that the Food Corporation of India (hereinafter referred to as the F. C. I.) appointed the petitioner No. 1 as a storing agent at Mogra, District-Hooghly on October 28, 1968 and an agreement was duly executed by and between them on 28-8-1968. After the appointment as storing agent by the F. C. I. at Mogra, the petitioners appointed employees, labourers and took effective steps to discharge duties and functions as storing agents to the satisfaction of the authorities concerned. It is alleged that various clauses, terms and conditions were incorporated under the said agreement in favour of the F. C. I. and to the prejudice of the petitioners. Since the petitioners were in a weaker position, they could not raise any objection at the time of entering into the said agreement and as per the averments made by the petitioners several terms and clauses are mostly arbitrary and unilateral in nature having no scope of either raising any objection or to make any bargain thereof. It is asserted that most of the clauses in the agreement dated 28-10-68 are unreasonable, unconscionable, unfair and injurious to public performance and public interest. A purported step has been taken by the respondents to terminate the storing agency of the petitioners by invoking Clause 37 of the said agreement and purported to give the petitioners two months notice to the effect that the agreement will be terminated by 25th August, 1986. Being aggrieved the present writ petition has been filed on the ground that the Clause 87 in the agreement, dated 28-10-68 is arbitrary, unilateral, without jurisdiction and violative of Article 14 of the Constitution of India. The said purported order of termination has been challenged alleging that the foundation of the purported order of termination is mala fide and the respondents cannot issue the purported order of termination by invoking Clause 37 of the agreement which, in fact, is arbitrary, unfair, unreasonable and opposed to the public policy. Such a step is contrary to the provisions and guarantees enshrined in Chapter III of the Constitution of India and in particular Article 14 of the Constitution of India. The F. C. I. authority having taken the advantage of a superior position in view of Article 12 of the Constitution of India, cannot and could not enter into any agreement with the citizens and cannot bind the citizens under arbitrary, unilateral, unfair, unreasonable, and unconscionable clauses which offends the constitutional protections conferred upon the citizens under Chapter III of the Constitution of India rendering the purported order of termination to be struck down in limine. The purported order of termination being violative of the principles of natural justice and procedural justice as no opportunity was afforded to the petitioners of being heard before such steps were taken the same is violative of the principles under Articles 14 and 16 of the Constitution of India. The authority has not terminated the storing agency in the proper manner and the acts done and/or caused to have been done are not bona fide and the same are violative of the principles of natural justice.
( 2 ) THE writ petition was entertained and an interim order was made to this extent that the impugned order of termination will be subject to the result of the application. It was made clear that the termination, if made in the meantime will also abide by the result of the writ application.
( 3 ) THE writ pe
