ORDER
C.M. Nayar, J.
1. This Letters Patent Appeal is directed against the judgment dated 5th August, 1993 passed by Jaspal Singh, J., in C.W.P. No. 1509/79. The facts as enumerated in the judgment read as below :-
'On May 3, 1973 the petitioner was appointed as Materials Manager by the Maharashtra State Textile Corporation (hereinafter called MSTC) which was a Government of Maharashtra Undertaking. Initially, the petitioner was put on probation for a period of six months and on successful completion of the same he was confirmed in service w.e.f. December 6, 1973. On September 2, 1974 his salary was raised from Rs. 2,500/- to Rs. 2625/- per month. The raise was on account of his performance evaluation and in appreciation of the same.
Following the Sick Textiles Undertakings (Nationalisation) Act, 1974 (hereinafter called Act) the management of 21 of the 25 sick textile mills was transferred from the MSTC to the National Textile Corporation (hereinafter referred to as NTC) which is a Government of India Undertaking constituted under the Act. On March 21, 1975 the MSTC wrote to the petitioner that as on account of the said take-over of 21 sick textile mills by the NTC it would not require the services of all its employees, thereforee, transfer of some of the employees to the two Subsidiary Textile Corporation set up by the NTC namely Maharashtra North and Maharashtra South, had become necessary. He was supplied with the terms and conditions of service offered by the NTC and was asked to indicate his option. Those terms and conditions were as follows:
'(1) That the Corporation, will place you in the same designation in which you were with MSTC Ltd. on 21.9.1974.
(2) That this Corporation will protect your basic pay and DA as was drawn by you in MSTC Ltd.
(3) That this Corporation will protect the grade in which you were with the MSTC Ltd. on 21.9.1974.
(4) That CCA and HHA will be admissible to you as per station of posting and as per such rules of the Corporation as may be determined from time to time.
(5) That only the normal increments due after 21.9.1974, in the time scale in existence as on that date, will be protected by the Corporation.
(6) That the Corporation will not protect any accelerated or advance increments given to you by the MSTC Ltd. after 21.9.1974.
(7) That in case on account of the foregoing if your total emoluments are reduced you agree to abide by the same and not to take any steps, legal or otherwise, for the recovery of the difference.
(8) That the Corporation will assume liability for payment of your gratuity/pensionary benefit only if the pro rata amount in this respect is paid by the MSTC Ltd. to this Corporation for the period of Service rendered by you in MSTC Ltd.
(9) That the Corporation will grant you leave standing to your credit in MSTC Ltd. on average pay earned by you during your service with MSTC Ltd. only if the MSTC Ltd. makes payment of salary for the leave period accumulated in that Corporation. In the event of MSTC Ltd. not making contribution towards leave, you will not be entitled to that leave.
(10) That you will be eligible to the membership of contributory Provident fund to be operated by the Corporation as per such Rules in this behalf as may be framed by the Corporation from time to time.
(11) That in case of your promotion to a higher post in the Corporation you will be governed by the terms and conditions of service of the Corporation.
(12) Your services are liable to the transferred to any of the units of this Corporation or to any other subsidiary Corporations (on their units) of NTC Ltd.'
2. At this stage it may be relevant to refer to the appointment order which was issued in favor of respondent no. 1 by the Maharashtra State Textile Corporation on 3rd May, 1973. The same may be reproduced as below :-
'MAHARASHTRA STATE TEXTILE CORPORATION LTD.
M.S.T.C.
Registered Office:
Vashani Chambers,
47, New Marine Lines,
Bombay-20.
Telephones: 290553-290439
290508-290655
MSTC/ADM/APT/8422/73.
3rd May, 1973.
To,
Shri V.C. Jain,
B-75, Bellah Nagar,
KOTA.
Sub: Appointment as Materials Manager
Dear Sir,
We refer to our letter No MSTC/ADM/APT/2231/73 dated 24th April, 1973 and your acceptance letter of April 30, 1973 and are glad to inform you that you are appointed as Materials Manager on the establishment of this Corporation on the following terms and conditions:-
1. You will draw a consolidated salary of Rs. 2500/- p.m.
2. You will be eligible to get the benefits of Provident Fund and Medical facilities as per rules of the Corporation.
3. You will be on probation for a period of six months during which your services can be terminated without any notice.
4. Your services can be terminated with one month's notice on either side.
5. Your appointment will be governed under the rules and regulations applicable to the Officers of this Corporation.
6. Your appointment will be subject to your getting a fitness certificate from the Medical Officer of this Corporation.
Please let us know the date on which you would join your duties.
We welcome you to our organisation.
Yours faithfully,
(V.V. KULKARNI)
Administrative Officer.'
3. Respondent No. 1 as a consequence was confirmed and subsequently absorbed with the appellant National Textile Corporation (hereinafter referred to as NTC). The services were terminated on June 2, 1976 when he received a letter in this regard which reads as under :-
'Dear Sir,
This is to inform you that your services as Materials Manager are no longer required by the Corporation. Accordingly, your services as Materials Manager of the Corporation are hereby terminated with immediate effect (i.e. 2.6.1976 closing).
The Accounts Department of the Corporation has been instructed to pay all your dues.
Your faithfully,
For N.T.C. (S.M.) Ltd.
(V.A. Inamdar)
Secretary.'
Thereafter on 25th June 1976 respondent No. 1 addressed a letter to the Managing Director of NTC claiming that he had been performing his duties sincerely, honestly and efficiently and had never given any chance to his superiors of coming across any irregularity or mistake in his work. On the same day he addressed similar letter to Mr. Kelkar, the Chairman-cum-Managing Director, NTC (South Maharashtra) Ltd. and on April 23, 1977 he approached the Minister for Commerce, Government of India wherein he repeated the charge against the Chairman NTC (South Maharashtra) Ltd. The meetings between respondent No. 1 and Mr. Kelkar took place wherein it was asserted that the services of respondent No. 1 were terminated without assigning any reasons and without following the prescribed procedure for termination of services of any permanent employee by taking advantage of 'atmosphere of emergency' on which Mr. Kelkar suggested arbitration. Respondent No. 1, rejected that offer. Respondent No. 1 thereafter in October 1979 filed a writ petition in this Hon'ble Court challenging the legality of the order of termination and praying for his reinstatement along with all the benefits flowing from such orders. The learned Single Judge first dealt with the question as to whether NTC is an agency or an instrumentality of the State so that it can be characterised as an Authority within the meaning of Article 12 of the Constitution of India. The finding was recorded by the learned Judge that NTC was admittedly a State. the findings in this regard are, however, not challenged in this appeal, thereforee, it will not be necessary to deal with the same. The next question which arose for consideration was with regard to the position of contract of employment in view of the fact that respondent No. 1 completed the period of probation successfully and was also confirmed. The rule with regard to termination is contained in the National Textile Corporation (South Maharashtra) Limited Conduct, Discipline and Appeal Rules which are stated to be non-statutory in nature. The rule says that services of an employee 'appointed under a contract ; or agreement can be terminated 'in accordance with the terms of such contract or agreement'. However, it was noticed that the terms and conditions of the contract with respondent no. 1 contained no term with regard to termination. It is, however, pointed out that the initial contract by which respondent No. 1 was appointed contained a clause of termination with one month's notice on either side. The learned Single Judge discussed the law on the subject with particular reference to the judgment reported as Central Inland Water Transport Corporation Limited and another v. Brojo Nath Ganguly and another, : (1986)IILLJ171SC which was considered in the judgment of the Constitution Bench reported as Delhi Transport Corporation Vs . D.T.C. Mazdoor Congress & Ors., : (1991)ILLJ395SC . The following paragraphs in the judgment of the learned Single Judge may be referred as below in which plea with regard to power of the Court to strike down unfavourable term of a contract or employment is elaborately considered:-
'And in the year 1990 came yet another judgment confirming once again that this a hopeful, pregnant period. It is Delhi Transport Corporation Vs . DTC Majdoor Congress and Others, : (1991)ILLJ395SC . In that case it was submitted by the learned Solicitor General of India that the decision in the Central Inland Water Transport Corporations was incorrectly decided as in the ordinary law of contract termination of employment by reasonable notice on either side had never been regarded as unconscionable. The submission was not accepted, and what is of further importance is that even the minority judgment while noticing the development of law from time to time observed that 'arbitrariness and discrimination and acting whimsically must be avoided' (para 103) and that the authorities are 'expected to act fairly, objectively and independently'. It further proceeded to hold that 'reasons' for the action taken must be recorded (para 122), 'in order to ensure effective judicial review in a given case' (para 124) and further that what was in issue was 'demonstrably fair play and justice...in the exercise of the power...' (para 127).
Coming to the majority view it would appear that the Supreme Court fully endorsed its earlier view in Central Inland Transport Corporation Ltd. v. Brojo Nath Ganguly. Ray, J., after referring to that judgment observed as under :
'The Court has, thereforee, the jurisdiction and power to strike or set aside the unfavourable terms in a contract of employment which purports to give effect to unconscionable bargain violating Art. 14 of the Constitution.' (para 202)
Sharma, J., had this to say:
'I agree with the learned Chief Justice that the rights of the parties in the present cases cannot be governed by the general principle of master and servant, the management cannot have unrestricted and unqualified power of terminating the services of the employees. In the interest of efficiency of the public bodies, however, they, should have the authority to terminate the employment of undesirable, inefficient, corrupt, indolent and disobedient employees, but it must be exercised fairly, objectively and independently, and the occasion for the exercise must be delimited with precision and clarity. Further, there should be adequate reason for the use of such a power and a decision in this regard has to be taken in a manner which should show fairness, avoid arbitrariness and evoke credibility.' (para 220)
K. Ramaswamy, J., noticed that the main controversy centered around the question whether the employer, statutory corporation or instrumentality or other authority under Article 12 of the Constitution has unbridled power to terminate the services of its employees in terms of the contract of service (paragraphs 264 and 265 of the report). The Hon'ble Judge observed that vesting arbitrary power would be a feeding ground for nepotism and insolence; instead of observing the constitutional performance it would defeat the very object. 'That apart, the haunting fear of dismissal from service at the vagary of concerned officer would dry up all springs of idealism of the employee and in the process coarsens the conscience and degrades his spirits'. (para 277).
It was further observed:
'As a court of constitutional functionary exercising equity jurisdiction, this Court would relieve the weaker parties from unconstitutional contractual obligations, unjust, unfair, oppressive and unconscionable rules or conditions when the citizen is really unable to meet on equal terms with the State. It is to find whether the citizen, when entered into contracts or services, was in distress need or ompelling circumstances to enter into contract on dotted lines or whether the citizen was in a position of either to 'take it or leave it' and if it finds to be so, this Court would not shirk to avoid the contract by appropriate declaration. thereforee, though certainty is an important value in normal commercial contract law, it is not an absolute and immutable one but is subject to change in the changing social conditions.'
and that
'To prevent miscarriage of justice or to arrest a nursing grievance that arbitrary, whimsical or capricious action was taken behind the back of an employee without opportunity, the law must provide a fair, just and reasonable procedure as is exigible is a given circumstances as adumbrated in proviso to Art. 311(2) of the Constitution. If an individual action is taken as per the procedure on its own facts its legality may be tested. But it would be no justification to confer power with wide discretion on any authority without any procedure which would not meet the test of justness, fairness and reasonableness envisaged under Arts. 14 and 21 of the Constitution. In this context it is important to emphasis that the absence or arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based.'
and further:
'Therefore, I hold that conferment of power with wide discretion without any guidelines, without any just, fair or reasonable procedure is constitutionally anathema to Arts. 14, 16(1), 19(1)(g) and 21 of the Constitution. Doctrine of reading down cannot be extended to such a situation.'
4. In conclusion it was also stated that the Supreme Court accepted the ratio of the decision in Brojo Nath Ganguly's case as correctly laid down which did not require reconsideration. Lastly, it was noticed that since there was no term and condition in the contract of service with regard to termination or with regard to method by which his service could be terminated it was all the more incumbent upon the authorities to at least hold an enquiry and to not only record reasons for termination of services but also to communicate them too. The writ petition of respondent No. 1 as a consequences was allowed and it was held that the said respondent was entitled to all the benefits which would have accrued to him had he been in continuous service of the Corporation.
The learned Single Judge followed the law as laid down by the Constitution Bench in the case of Delhi Transport Corporation v. D.T.C. Mazdoor Congress & Ors., (supra) as well as in the earlier judgment in Brojo Nath Ganguly's case. thereforee, on re-appraisal and reconsideration of the matter in appeal we do not find that the conclusions so arrived at are in any case against the law as laid down by the Supreme Court. In this regard the judgment of B.C. Ray, J., in the case of Delhi Transport Corporation (supra) may also be cited to support the conclusions as rendered by the learned Single Judge. Paragraphs 202, 203, 206 and 207 of this judgment read as below :-
'202. The Court has, thereforee, the jurisdiction and power to strike or set aside the unfavourable terms in a contract of employment which purports to give effect to unconscionable bargain violating Art. 14 of the Constitution.
203. Thus on a conspectus of the catena of cases decided by this Court the only conclusion follows is that Regulation 9(b) which confers powers on the authority to terminate the services of a permanent and confirmed employee by issuing a notice terminating the services or by making payment in lieu of notice without assigning any reasons in the order and without giving any opportunity of hearing to the employee before passing the impugned order is wholly arbitrary, uncanalised and unrestricted violating principles of natural justice as well as Article 14 of the Constitution. It has also been held consistently by this Court that the Government carries on various trades and business activity through the instrumentality of the State such as Government Company or Public Corporations. Such Government Company or Public Corporation being State instrumentalities are State within the meaning of Article 12 of the Constitution and as such they are subject to the observance of fundamental rights embodied in Part III as well as to conform to the directive principles in Part IV of the Constitution. In other words the Service Regulations or Rules framed by them are to be tested by the touchstone of Article 14 of Constitution. Furthermore, the procedure prescribed by their Rules or Regulations must be reasonable, fair and just and not arbitrary, fanciful and unjust. Regulation 9(b), thereforee, confers unbridled, uncanalysed and arbitrary power on the authority to terminate the services of a permanent employee without recording any reasons and without conforming to the principles of natural justice. There is no guideline in the Regulations or in the Act, as to when or in which cases and circumstances this power of termination by giving notice or pay in lieu of notice can be exercised. It is now well settled that the audi alteram partem rule which in essence, enforces the equality clause in Article 14 of the Constitution is applicable not only to quasijudicial orders but to administrative orders affecting prejudicially the party-in-question unless the application of the rule has been expressly excluded by the Act or Regulation or Rule which is not the case here. Rules of natural justice do not supplant but supplement the Rules and Regulations. Moreover, the Rule of Law which permeates our Constitution demands that it has to be observed both substantially and procedurally. Considering from all aspects Regulation 9(b) is illegal and void as it is arbitrary, discriminatory and without any guidelines for exercise of the power. Rule of law posits that the power to be exercised in a manner which is just, fair and reasonable and not in an unreasonable, capricious or arbitrary manner leaving room for discrimination. Regulation 9(b) does not expressly exclude the application of the audi alterm partem rule and as such the order of termination of service of a permanent employee cannot be passed by simply issuing a month's notice under Regulation 9(b) or pay in lieu thereof without recording any reason in the order and without giving any hearing to the employee to controvert the allegation on the basis of which the purported order is made.
206. This has been referred to and relied upon in Central Inland Water Transport Corporation Ltd. & Anr. v. Brojo Nath Ganguly and Anr. ,(supra) and a similar Rule 9(i) was termed as 'Henry VIII clause' as it confers arbitrary and absolute power upon the Corporation to terminate the service of a permanent employee by simply issuing a notice or pay in lie thereof without recording any reason in the order and without giving any opportunity of hearing to the employee. Thus, the Rule 9(i) of the Services Discipline and Appeal Rules, 1979 was held void under Section 23 of the Indian Contract Act, 1872, as being opposed to public policy and is also ultra virus of Article 14 of the Constitution to the extent that it confers upon the Corporation the right to terminate the employment of a permanent employee by giving him three months' notice in writing or by paying him the equivalent of three months' basic pay and dearness allowance in lieu of such notice.
207. Regulation 9(b) of the impugned Regulation framed under the Delhi Transport Corporation Act which is in pari materia with the said Rule 9(i) is void under Section 23 of the Contract Act as being opposed to public policy and is also ultra virus of Article 14 of the Constitution.'
6. In view of the above settled position of law it is quite clear that there is no illegality or jurisdictional error in the judgment of the learned Single Judge which is upheld.
7. Lastly, the learned counsel for the appellants has stated that this Court does not possess any jurisdiction to deal with the matter as the contract of employment as well as the subsequent developments took place in Maharashtra and the reliance is placed on the Division Bench judgment of this Court reported as Indo Gulf Explosives Ltd. and another v. U.P. State Industrial Development Corporation and another, 1999 (50) DRJ. This plea is correctly dealt with by the learned Single Judge in the following paragraph of the judgment :-
'Lest I be accused of skirting the issues I may mention that Mr. Ganesh had also contended that this Court had no territorial jurisdiction in the matter since the employment was under NTC (South Maharashtra) Ltd. which has no office in Delhi. However, I feel the objection is devoid of force. Admittedly, the NTC has its registered office in Delhi. NTC (South Maharashtra) Ltd. is a Subsidiary Corporation of the NTC which the NTC had created b4y virtue of the power conferred by Section 6 of the Sick Textile Undertaking (Nationalisation) Act, 1974. As per the terms and conditions of service he could be transferred to any other Subsidiary Textile Corporation also. In any case, after the termination of his services the petitioner had been making representations to the NTC also and the NTC had been taking active part in the matter suggesting even arbitration. In this respect the meeting of the petitioner with the Managing Director of the NTC Mr. Singla assumes importance. It cannot, thus, be said that the NTC had no role to play. And once its role is taken note of this Court gets its territorial jurisdiction.'
8. The argument with regard to jurisdiction is, thereforee, without any basis and cannot be accepted and is, accordingly, rejected.
9. The Letters Patent Appeal is, accordingly, dismissed. There will be no order as to costs.
10. The Division Bench by Order dated 1st March, 1994 had directed that 50% of the amount accruing to respondent No. 1 be deposited with the Registrar. The learned counsel for the said respondent states that the amounts to which respondent No. 1 is entitled in pursuance to the judgment of the learned Single Judge including the 50% which has already been deposited in this Court has not yet been paid to the said respondent. Respondent No. 1 shall now be paid the entire amount in terms of the judgment subject to adjustment of any deductions such as income tax which can be mutually settled between the parties in accordance with law. The amount shall be disbursed within a period of one month from today.