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1997 Supreme(All) 213
HIGH COURT OF ALLAHABAD
B.M.Lal
RAM BISHWASH
Versus
DISTRICT OFFICER
Decided On : 06 March 1997
C. M. W. P. No. 5484 of 1996
S.P.SINGH,
An employee of a State instrumentality is disqualified from entering into any business contract during the course of his employment without prior sanction from the Corporation, and any such contract is void ab initio.
Headnote:
CONTRACT - DISQUALIFICATION - EMPLOYEE OF STATE INSTRUMENTALITY - ENGAGING IN BUSINESS DURING EMPLOYMENT - CONTRACT VOID - PUBLIC POLICY - ACCOUNTABILITY TO LAW.
Fact of the Case:
An employee of the U.P. State Mineral Development Corporation (the Corporation), respondent No. 3, applied for and was granted a mining permit during his employment. The petitioner challenged the grant of the permit on the ground that respondent No. 3 was legally incapable of entering into any business contract during the course of his employment.
Finding of the Court:
The court held that the contract between the Corporation and respondent No. 3 was void ab initio as it was in violation of Rule 89 of the U.P. State Mineral Development Corporation Ltd. Employee Service Rules, 1978 (the Rules), which prohibited employees of the Corporation from engaging in any trade or business during their employment without prior sanction from the Corporation.
Issues: Whether an employee of the Corporation is capable of entering into any business contract during the course of his employment in the Corporation?
Ratio Decidendi: The court reasoned that Rule 89 of the Rules expressly disqualified respondent No. 3 from entering into the contract in question, and that this disqualification rendered the contract unenforceable by law under Section 11 of the Indian Contract Act. The court further held that the contract was also void as it was in violation of public policy, as it would allow employees of the State or its instrumentalities to flout the law with impunity.
Final Decision: The court quashed the mining permit granted to respondent No. 3.
This is a reference made by Honble Chief Justice under Chapter VIII, Rule 3 of the Rules of the Court in view of the difference of opinion on the reasonings and conclusions in the Division Bench comprising Honble Mr. Justice P. Basu and Honble Mr. Justice M. C. Agarwal in the aforesaid writ peti tion.
2. The short facts leading to this ref erence are as under:
(a) In pursuance of a Public Notice dated 16-1-1995 issued under Chapter VI of U. P. Minor Minerals (Concession) Rules, 1963, petitioner Ram Bishwash and others including respondent No. 3 applied for grant of mining permits in respect of sand/morum. They offered their bids. The bid of respondent No. 3 was found highest as such it was accepted and a mining permit was granted to him. It is this grant of permit in the name of respondent No. 3 that has been challenged by means of this petition on the ground that the respondent No. 3 being an employee of U. P. State Mineral Development Corporation (for short the corporation; was legally incapable of entering into any business contract during the course of his employment.
(b) The writ petition was listed before the aforesaid Division Bench of this Court. Having heard learned Counsel for the parties and having given thoughtful considerations to the facts and circumstances of the case one Honble Member of the Division Bench arrived at the opinion that the permit in question deserves to be quashed and the other Honble member opined that there is no cause to quash the permit in question. Both the Honble Judges recorded their respective opinion separately.
(c) Thus, under the order of Honble the Chief Justice of High Court of Judicature at Allahabad referred to above, aforesaid writ peti tion was listed before this Bench.
3. Heard learned Counsel for the par ties, perused the record and opinions recorded by respective Honble Judges forming the Division Bench. The root question involved in this petition is as to whether an employee of the Corporation is capable of entering into any business contract during the course of his employ ment in the Corporation?
4. Learned Counsel for the petitioner contended that the respondent No. 3 being an employee of the Corporation is dis qualified during the course of this employ ment for entering into any business con tract by virtue of Rule 89 of U. P. State Mineral Development Corporation Ltd. Employee Service Rules, 1978 (for short the Rules) which expressly prohibits the employee of the Corporation from engag ing directly or indirectly in any trade or business or under taking any employment and as such the contract in question is clearly hit by Section 11 of the Indian Con tract Act.
5. Learned Counsel further con tended that the Court regards the business contracts entered into by the employees during the course of their employment as immoral and opposed to public policy and, therefore, the contract in question is void ab initio under Section 23 of the Indian Contracts Act.
6. Learned Counsel for the respon dent No. 3 contended that the contract in question may be in violation of Rule 89 of the Rules and for violation of Rule 89, the respondent No. 3 may be held able for departmental action but it would not render the contract its-elf null and void.
7. Learned Counsel further con tended that Rule 89 of the Rules having no force of law cannot render the contract illegal or opposed to public policy.
8. In the instant case the position admitted to the parties is that the respon dent No. 3 is an employee of the Corpora tion and he entered into the contract in question during the course of his employ ment. The Corporation is a U. P. Govern ment undertaking and thus is an in strumentality of the State. The Corpora tion has framed its Rules for regulation the service conditions and conduct of its employees. Relevant Rule 89 Reads as under:
"no employee shall, except with the pre vious sanction of the Corporation, engage directly or indirectly in any trade or business or undertake any emplo
