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

Author: Rishi Tibrewal, Damodaram Sanjivayya National Law University

Court – Supreme Court of India

Case Number – 4412 and 4413 of 1985

Appellant – Central Inland Water Transport Corporation Limited and Ors.

Respondent – Brojo Nath Ganguly and Ors.

Citation – 1986 AIR 1571, 1986 SCR (2) 278

Bench/Judges – Justice D.P. Madon , Justice A.P. Sen

Decided on – 06.04.1986

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. In accordance with Section 617 of the Companies Act, it was incorporated as a government company on 22 February 1967. The corporation was wholly under the central government’s power and control, but both the central and state governments owned the shares. Another corporation, named Rivers Steam Navigation Company, was terminated by an order obtained by the Calcutta High Court that carried out similar business with the maintenance and operation of river services.

The assets and liabilities of the dissolved firm would be transferred to the Government firm, including its workforce, under the approved scheme of arrangement concluded by both firms. However, the recruitment of the staff was entirely at the discretion of the transferee company and the transferor company shall pay the remaining dues if any employee fails to be recruited. The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Regulations, 1979 was created containing new rules for all employees. These new rules applied to all employees.

Facts:

Brojo Nath Ganguly, who had been transferred to Deputy Chief Accountant’s position at the Central Inland Water Transport Corporation, was the first respondent in this case. He was then elevated to general manager and then to finance department manager. He received a confidential letter accusing him of neglect in maintaining the Provident Funds. He was asked to reply to this matter within 24 hours. The respondent did the same, but he was immediately terminated by issuing a notice pursuant to clause (i) of Rule 9. In accordance with Article 226 of the constitution, Brojo Nath Ganguly submitted a written request challenging the validity of his termination as well as the constitutionality of clause (i) of Rule 9 in the High Court. The judgement was passed in favour of the respondent, ordering a stay on the termination. An appeal against this ruling was filed by the company.

Issues:

• Whether a Government company as defined in Section 617 of the Companies Act, 1956 comes under the definition of ‘State’ as provided under Article 12 of the Constitution?
• Whether clause (i) of Rule 9 of The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules, 1979 is arbitrary and unconscionable?
• Whether the power granted under clause (i) of Rule 9 of The Central Inland Water Transport Corporation Limited- Service, Discipline and Appeal Rules, 1979 is violative of Article 14 and unconstitutional or not?

Arguments:

The appellant’s contention was that any government company incorporated under the Company Act has a different basis than any statutory corporation established through a statute. Therefore, no government company can be defined under the framework of Article 12 of the Constitution. Adding further, the corporation argued that a statutory company is established so as to ensure a monopoly in the State but a Government Company is not established for such a reason. This illustrates the distinction of operations between both of them. Another issue addressed was that, as per the objective section of its Memorandum of Association, the Company had no monopoly on inland water transport. Finally, it was argued that if a government company is covered by Article 12, the contract of work can not be struck down under Article 14 solely because it is arbitrary or unfair, and it should be treated like any contract entered into by two parties.

On the contrary, the respondents argued that a broad interpretation of the term of a state as referred to in Article 12 also applies to governmental companies. A state has the authority to operate through any of its agencies, through any Government Department, State Corporation or Government Company, any activity including commercial ventures. It does not mean that a government company does not fall within the scope of Article 12 just because it performs business. Finally, it was argued that a company of government must operate in a just, fair and reasonable manner. If it fails to act in such a manner, its conduct may, as provided for in Article 14 of the Constitution, be repealed because it is arbitrary. In response to the employment contract, it was argued that employment contracts are distinct from other contracts. An unreasonable term inserted by the private employer can not be held as fair in the eyes of law. In accordance with Article 14 of the Constitution, such a term may be ruled unconstitutional.

Judgment:

While rejecting the appeal, the Supreme Court held that depending on its interpretation, the term ‘state’ had varied connotations. Therefore, the word ‘state’ covers the Government and Parliament of India, Government and Legislatures of States that comprise the Union of India and any local and other authority inside Indian borders or under the control of the Government of India. In addition to being a government company specified under Section 617 of the Company Act of 1956, the Court found that Central Inland Water Transport Corporation Limited is fully owned by the three governments that are the central government and the governments of West Bengal and Assam jointly. The functions and operations of the company are of crucial national importance. There is no dispute that the company is a public sector government entity.

The Court relied upon the judgment of Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, clarifying that the State operates by its instrumentalities, being an abstract body. Accordingly, “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 instance, the company was found to fall under the defined notion.

In answer to the second issue, the dispute between the company and the employees was seen as distinct from the other contracts entered into throughout the course of their commercial activity. The Court assessed that it is unable to compare employees with commodities offered for sale or which are bought and sold, nor is a contract of employment equivalent to a transaction involving enterprises.

Therefore, in accordance with Article 23 of the Indian Contract Act 1872, Rule 9 (i) of the Rules of Service, Discipline and Appeal was deemed void and declared ultra-vires pursuant to Article 14 of the Constitution. The conditions were unfair, arbitrary and contrary to public policy.

Conclusion:

In interpreting the word “state” as laid down in Article 12, this decision had an important influence. The submission of the writ was completely justified. The company was also forced to pay the court’s appeal cost.