Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly

In the Supreme Court of India
Name of the CaseCentral Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly & Anr.
Citation1986 AIR 1571, 1986 SCR (2) 278
Year of the Case1986
AppellantCentral Inland Water Transport Corporation Ltd. & Anr.
RespondentBrojo Nath Ganguly & Anr.
Bench/ JudgesJustice D.P. Madon (Judge) Justice A.P. Sen (Judge)
Acts InvolvedThe Constitution of India, 1950; the Indian Companies Act, 1956; the Indian Contract Act, 1872; Service, Discipline and Appeal Rules, 1979.
Important SectionsArticle 12, 14, 38 and 39 of the Constitution of India, 1950; Section 617 of the Indian Companies Act, 1956; Section 16, 19A and 23 of the Indian Contract Act, 1872; Rule 9(1) of The Central Inland Water Transport Corporation Limited-  Service, Discipline and Appeal Rules, 1979.

This case revolved around an employee of a company who was terminated on the allegation of negligence of Provident Fund. The writ petition filed by him was supported by the High Court. In response, the appeal filed by the Corporation against this decision was also dismissed by divisional bench of Supreme Court.

Introduction and Background:

The Central Inland Water Transport Corporation was a company owned by the Central Government and State Government of West Bengal and Assam. It was incorporated on February 22, 1967 as a Government company under Section 617[1] of the Companies Act. The corporation was totally under the authority and control of Central Government, but the shares were jointly owned both by the central and state government. Another company, called as Rivers Steam Navigation Company that carried out somewhat similar business comprising of maintenance and running of river service was dissolved because of order given by the High Court of Calcutta. As per the approved scheme of arrangement entered into by both the companies, the assets and liabilities of the dissolved company would be taken over by the government company, including its staff. However, the employment of staff was completely at the discretion of transferee Company and if any employee is left for recruitment, he/she will be paid all the left dues by transferor Company.  New rules were framed by the corporation called ‘The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules, 1979’ that applied to all the employees.

Facts

Brojo Nath Ganguly, who was transferred in the Central Inland Water Transport Corporation on the post of Deputy Chief Accounts Officer, was the first respondent in this case. He was later promoted to the post of General Manager and afterwards, to Manager in Finance Department. A confidential letter was sent to him accusing him negligence in maintenance of the Provident Funds. Letter directed him to reply on the matter within 24 hours. The same was done by the respondent but still, he was terminated from the services with immediate effect by issuing notice under clause (i) of Rule 9[2]. A writ petition was filed by Brojo Nath Ganguly in High Court under Article 226[3] of the Constitution challenging this termination as well as the constitutionality of Rule 9 (i). The decision ordering the stay of termination was passed in favour of respondent. An appeal was filed by the corporation against this decision.

Issues

The issues involved in the case were as follows:

  • Whether the said government company under Section 617 of the Companies Act[4] comes under the definition of ‘State’ as provided under Article 12 of the Constitution?
  • Whether Rule 9 (i) of The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules, 1979 is arbitrary and unconscionable?
  • Whether the power granted under Rule 9 (i) may be declared void as a contract violating Article 14[5] of the Indian constitution or not?

Rules

  1. The Constitution of India, 1950: Article 12, Article 14, Article 38 and Article 39.
  2. The Indian Companies Act, 1956: Section 617
  3. The Indian Contract Act, 1872: Section 16, Section 19A and Section 23
  4. The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules, 1979: Rule 9 (i).

Analysis

The arguments provided by the appellant were that any Government Company that is incorporated under the Companies Act has different basis as compared to statutory corporation established through statute. Therefore, no government company can dwell under the scope of Article 12[6] of the Constitution. Adding further, the corporation said that a statutory company is setup so as to create a monopoly in the State while a Government Company is not incorporated for the same that clarifies the difference of interest between both of them. Another point clarified was that the corporation didn’t have monopoly over the inland water transport, but it was just a trading company as per the objective clause of its Memorandum of Association. At last, assuming that a Government Company falls under the ambit of Article 12, it was said that a contract of employment, just like every other contract entered by two parties cannot be struck down under Article 14[7] solely on the ground of being arbitrary or unjust.

On the other hand, the respondents argued that the definition of State under Article 12 has a wide interpretation that includes Government Companies under its scope too. A  state is authorized to carry on any activity, including the trading activities, through any of its agencies that may be any Governmental Department, Statutory Corporation/ Authority or a Government Company. Just because a Government Company carries out trading business, it doesn’t mean that it is not under the scope of Article 12. At last, it was concluded that a Government Company is mandated to act fair, just and reasonable. Failing to do so in instant case, its action can be struck down on the ground of being arbitrary under Article 14 of the Constitution. In response to the contract of employment, it was contented that contracts of employment are different from other contracts. A term in a contract entered in by a private employer which is unreasonable doesn’t have place in the eyes of law and thus, such a term can be considered unconstitutional under Article 14 of the Constitution. 

Ratio Decidendi of the Case:

  • The court, dismissing the appeal, held that the term ‘state’ has various meanings depending on its interpretation. The existence of word ‘includes’ under Article 12 is prima facie (based on first impression) and extensive in contrast to the restrictive term ‘mean.’
  • The word ‘state’ therefore includes Government and Parliament of India, Government and Legislatures of the states which constitute the Union of India, all local and other authorities lying within the territorial borders of India or under the control of the Government of India.
  • The court referred the case of Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi[8], in which it was clarified that the state, being an abstract, acts through its instrumentalities. As per this, “for Article 12, the Court must necessarily lift the corporate veil in order to establish if the face of the agency or instrumentality is present behind that veil. If there exists an agency of the State which has presumed the garb of a Government Company, it thereby ceases to be an agency. This judgement was marked as a test to determine the subject matter.” In this case, it was concluded that the corporation falls under the defined concept.
  • It was validated that the corporation operated for government activities and functions that were necessary for public importance. Also, it was justified that it would be unreasonable to not consider the corporation as agency just because it didn’t possess monopoly of inland water transportation.
  • In response to next issue, it was perceived that the contention the contract made between the corporation and the employees was similar to other contracts entered in the course of its trading activities was unacceptable. The Court evaluated that the employees cannot be compared with the goods which are available for sale or which are bought and sold, and similarly a contract of employment cannot be equated with a transaction between businessmen.
  • Consequently, Rule 9 (i) of the Corporation’s Service, Discipline and Appeal Rules was declared void under Section 23 of the Indian Contract Act, 1872[9] and was considered ultra vires as per Article 14 of the Constitution to the extent that it lays on the Corporation the right to dismiss the employment of a permanent employee by giving three months prior notice or pay. These conditions were held unjust, unreasonable and opposed to public policy.
  • Also, the Hon’ble Court found Rule 9 (i)[10] to be discriminatory because it allows the Corporation to discriminate between the employee and the employer. It was considered against right and unacceptable because the parties entering into the contract have a great inequality of bargaining power. Such clause can affect the public at large and is harmful as it creates a sense of insecurity in the minds of those on whom the clause can be implemented.
  • The High Court, as per the Supreme Court, was unsuccessful to notice that Rule 9 (i) also included rights of a permanent employee to resign from the corporation. This was a necessary part of this clause as any employee cannot be deprived of his right to resign. The order passed by the High Court was therefore modified to the extent of restoring the statement given by it;

Conclusion

This case played a crucial role in the interpretation of term ‘state’ under Article 12. The filing of writ was totally justified. The corporation was also ordered to pay the expenses of appeal by the court. The decision provided was very appreciative and descriptive that helped in extending the concept of Article 12.

Frequently Asked Questions (FAQs)

  1. What were the facts of Central Inland Water Transport Corporation v. Brojo Nath Ganguly case?
  2. What were the contentions involved in the immediate case?
  3. What was the decision given by the Supreme Court of India?
  4. What was the Ratio Decidendi of the case?

References

  1. Indian Kanoon, (15th April 2010), Central Inland Water Transport Corporation Ltd. v. Brojo Nath Gnaguly, [online]

Available at: https://indiankanoon.org/doc/477313/#:~:text=Brojo%20Nath%20Ganguly%20the%20first%20respondent%20in%20Civil%20Appeal%20No.&text=Service%20rules%20were%20framed%20by,and%20Appeal%20Rules%2C%201979%22.

  • Ranjit Samantaray, (5th June 2009), Central Inland Water Transport Corporation Ltd. & Anr V. Brojo Nath Ganguly & Anr (8), [online]

Available at: https://india.lawi.asia/central-inland-water-transportcorporation-ltd-and-anr-v-brojo-nath-ganguly-and-anr-8/

  • Nishka Singh, (12th Jul 2020), Central Inland Water Transport Corporation Ltd. & Anr V. Brojo Nath Ganguly AIR 1986 SC 1571: Case Summary, [online]

Available at: https://lawsisto.com/legalnewsread/NjYxOA==/Central-Inland-Water-Transport-Corporation-Limited-V-Brojo-Nath-Ganguly-AIR-1986-SC-1571-Case-Summary


[1] Section 617 of the Indian Companies Act, 1956.

[2] Rule 9 (i) of The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules, 1979.

[3] Article 226 of the Constitution of India, 1950.

[4] Section 617 of the Indian Companies Act, 1956.

[5] Article 14 of the Constitution of India, 1950.

[6] Article 12 of the Constitution of India, 1950.

[7] Article 14 of the Constitution of India, 1950.

[8] Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, AIR 1975 SC 1331.

[9] Section 23 of the Indian Contract Act, 1872.

[10] Rule 9 (i) of the Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules,1979.

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