N.L. Tibrewal, J.
1. In this petition under Article 226 of the Constitution of India, the petitioner is challenging the order terminating his service and the Validity of condition No. 16 contained in the appointment letter dated, October 15, 1984, which is stated by the respondent company (hereinafter to be referred to as the 'Management') to be the contract of employment.
The vital question for consideration in this petition, therefore, is --Whether condition No. 16 of the letter of appointment dated, October 15, 1984, empowering the management to terminate services of an employee without assigning any reason by mere giving one month's notice or pay in lieu of notice, is arbitrary, unreasonable and constitutionally invalid?
2. The necessary facts of the case for decision of the writ petition are in a narrow compass. The petitioner joined service of the respondent M/s. Jaipur Metals and Electricals Ltd. as Clerk in the year 1963, since then, except for a short break of few days, he continued in service till April 1995. After joining service in the year 1963, his resignation was accepted by the Management on October 5, 1984, but he was again taken in service on October 15, 1984 as a Public Relations Officer in the pay scale of Rs. 990- 1970/- which was later on revised to Rs. 1040/-2095/- vide Circular dated, May 28, 1987. Clauses 16 and 17 of the appointment letter dated, October 15, 1984 (Annex.R.3) which are relevant for decision of this writ petition read as under:
'16. Your services are terminable by giving one month's notice or pay in lieu of notice from either side.
17. You shall be liable to instant discharge or dismissal without any notice or without any payment on any account whatsoever if the termination of your services is necessitated:
(a) Due to your physical disability or continued ill health rendering you medically unfit for further service or to your being adjudged insolvent or your being convicted of an offence involving moral turpitude or your misappropriating assets and/or property of the Company.
(b) In the event of misconduct, or insubordination (breach of these conditions of service or discipline) or of the Company's rules and regulations from time to time or the commission of any other act whatsoever prejudicial to the Company's interest as to which the decision of the Company shall be final and binding.'
3. The petitioner was then promoted as Dy.Manager, Public Relations in the pay scale of Rs. 1500-2040/- vide order dated, October 1, 1987. As per the petitioner, his promotion as Dy.Manager was for his good performance, zeal and efficiency shown towards his work, the petitioner was further promoted as Manager (Transport and Public Relations) hi the grade of Rs. 1510-110-3060-120-3660-130-4310/ -w.e.f. April 1, 1990 vide order dated, March 31, 1990.This promotion was accorded on the basis of selection/recommendations made by three member Selection Committee constituted by the Chairman-cum-Managing Director of the Management.
4. At this juncture, the Chairman-cum-Managing Director stood changed and the new Chairman appointed a Review Committee to examine earlier promotions of the petitioner as Manager, (Transport & Public Relation) and of others. After getting report of the Review Committee, the petitioner was first transferred as Manager, Branch Office, Calcutta and when he did not agree to go there, his promotion as Manager-Transport and Public Relations, was recalled vide order dated, May 2, 1991. With the result, the petitioner was reverted to the post of Dy.Manager. The petitioner challenged the above orders before this Court in S.B. Civil Writ Petition No. 1393 of 1991, which was allowed by order dated December 2, 1992. On the basis of the said judgment, the management withdrew the order dated May 2, 1991. Thereafter, certain posts were upgraded by the Management and the petitioner came to be posted as Acting Divisional Manager (Transport) vide order dated May 15, 1994. While the petitioner was working on this post, all of a sudden, his services were terminated with immediate effect vide impugned order dated, April 17, 1995 (Annex.9). The order terminating petitioner's service reads as under: -
Ref. No. P&A;/MD/389 April 17, 1995
ShriH.K.Goel,
Division Manager (R&T;)
Card No.477
We regret to inform you that your services are no longer required and therefore, your services stand terminated with immediate effect.
The cheque No. 775326 dated, April 17, 1995 for Rs. 7,329.00 is enclosed here-with towards one month's salary in terras of clause No. 16 of your letter of appointment No. MD/DM (P&T;)/616 dated October 15, 1984.
You may collect your other dues, if any,af-ter furnishing 'No Dues Certificate' as per the procedure of the Company.
FOR JAIPUR METALS & ELECTRICALS LTD.
Sd/-
(R.K.Agrawal)
Chairman & Mg.Director'
5. Shri Ajay Rastogi, learned counsel for the petitioner, strongly contended that the order terminating service of the petitioner is wholly arbitrary, illegal and is in clear violation of the principles of natural justice. Learned counsel contended that three decades service career of the petitioner which had been through-out exemplary and unblemished was put to an end in a most unceremonial manner without even assigning any reason. Mr. Rastogi further contended that the petitioner was given promotion by the Management from time to time on the basis of his satisfactory and good performance and behaviour but his permanent employment came to be terminated without any charge or inquiry which is the minimum requirement in the matter of employment. Shri Rastogi also contended that condition No. 16 of the appointment letter dated, October 15, 1984, which has been made basis for terminating petitioner's service, is arbitrary, unreasonable, one sided, unfair and unconstitutional and it could not be resorted to by the Management for terminating his service. According to Mr. Rastogi, a contract of employment stands on a different footing from other contracts and condition No. 16, which gives unfettered and naked 'hire and fire' powers to the Management for terminating services of a permanent employee even without assigning any reason or holding any enquiry, is bad in law being unfair, unreasonable and unconscionable and that it violates Article 14 of the Constitution as well as Section 23 of the Contract Act.
6. On the other hand, Shri C.N. Sharma, learned counsel for the Management, with his usual eloquence, tried to justify the action of the Management and he assertively made two fold contentions. The first contention relates to the maintainability of the writ petition under Article 226 of the Constitution on the ground that the respondent Company is neither a State nor its Agency or instrumentality. The second contention relates to the merits of the case for which learned counsel contended that the contract of employment was entered into between the parties and they were bound by all the conditions of the contract including condition No. 16. Mr. Sharma contended that parties are the best Judge of their own interest and if they freely and voluntarily enter into a contract, the terms of the contract are enforceable against each other. Mr.Sharma, therefore, contended that condition No. 16 empowered the management to terminate services of the petitioner by giving one month's notice of pay in lieu thereof and as such, action of the Management is wholly justified.
7. I have given my careful and deep consideration to the rival contentions of the learned counsel for the parties. However, the preliminary objection raised by the learned counsel for the Management about maintainability of writ petition under Article 226 of the Constitution need not detain us any longer. A Division Bench of this Court in Ishaq Mohmmod v. Jaipur Metals and Electricals Ltd., 1988 (1)RLR 157 has authoritatively decided that the respondent Company is a State within the meaning of the expression 'State' under Article 12 of the Constitution and as such, it is amenable to writ jurisdiction. After making a critical survey of various decisions of the Apex Court of the country and of this Court, the Division Bench has laid down as under :
'27. It is in this back-ground , now we are required to examine the position of the respondent company and make a search to find out the centre of gravity for discovering as to where does the central control abide for arriving at a definite conclusion. We would be required to 'lift the veil' and to crack the shell to see who is behind it; whose voice and hands are there, whether it is the extended arm of the Government or alter ego i.e. its second self. The following are someof the circumstances, which are of consid erable importance:
(1) The Company is managed by the Directors nominated by the Government or financial institutions etc. which are the agencies or instrumentalities of the Government. In 1977-78 out of seven Directors 5 were the nominees of the Government or Financial Corporations. In 1981-82 there was one Director of the Kamani Group and rest were the nominees of the Government or the financial institutions. The same position continued upto 1984-85. In 1985-86, all the Directors were either nominees of the Government or its agent, or instruments, excepting two Directors who were the nominees of Employees Cooperative Society. Thus, the composition of the Board of Directors affords indication that it is State agency or instrumentality.
(2) The Company is financed by the various financial institutions, which are the agency or instrumentalities of the Government. The amount of loan has been guaranteed by the State Government. The guarantee fee is however charged by the Government. In the preamble of the Jaipur Metals and Electricals Ltd. (Acquisition of shares)Ordinance, 1986 it is stated:- 'The Government of Rajasthan and or public financial institutions had also invested considerable funds in the share capital of the Company.' The Government and its agencies and/ or instrumentalities had about 50% shares as per chart given above. It may thus, be said that the financial resources of the State afe the chief funding source of the Company.
(3) Plenary control of the respondent Company resides in State Government, as Chairman and Managing Directors are of the Government. In the 42nd Annual Report it has been described that:- 'To save the Company in the interest of the employees in particular and the public in general the State Government and the public financial institutions agreed to shoulder the responsibility of management of JMEL and accordingly the management got transferred to the State Government/ Public Financial Institution's nominees in 1977'. This plenary control is also evident from the terms of the Agreement dated August 12, 1977.
(4) The employee employer relations are not governed by the labour laws because the Company is a 'Relief Undertaking' and is governed by the bye-laws of the Board of Directors of the Company which is nothing but a committee constituted by the Government or its functionaries. The Company is to comply with all such directions as may be issued by the Government as per Agreement dated August 12, 1977. The Company cannot dispose of immovable property without the previous approval of the Government. In view of the object and reasons of the Rajasthan Relief Undertakings (Special Provision) Act, 1961, the Company is discharging public duties as in declaring the Company as a relief undertaking there was public interest behind it. The intention of the legislation was to prevent unemployment or to provide relief against unemployment. In view of the Company being a relief-undertaking the unemployment under the Company partakes quality of public employment. It is, thus, clear that the functional character of the Company is governmental in essence. It may be stated that through the agency of respondent company the State is implementing socio-economic progress.
(5) From a perusal of the Jaipur Metals and Electricals Ltd. (Acquisition of shares)0rdi-nance, 1986, it is undeniable that the respondent company is an instrumentality of the State comprehended in the expression 'other authority' in Article 12 as the State control is 'sufficiently deep and pervasive' to support an inference that the respondent Company is an agency or instrumentality of the Government. Even prior to the promulgation of the said Ordinance the Government in June, 1977 took over the management of the company as per admission of the Company made in 42nd Annual Report and declared it a Relief Undertaking to provide relief against unemployment. Since June, 1977, it is being managed by high powered board consisting of mostly the senior officers of the Government.
(6) It is also on record and further proved by the preamble, objects and reasons of the Jaipur Metals and Electricals (Acquisition of Shares) Ordinance, 1986 that the Company is engaged in the manufacture and production of house service electricity meters and other metal products, which are vital to the needs of general public.
(7) The Company is a relief undertaking and is governed by the provisions of the Factories Act, Municipalities Act and is subject to extensive environment regulations, is also a circumstance which should be taken into consideration in view of the proposition of law laid down in M.C. Mehta's case. Non-applicability of the industrial laws i.e. Industrial Disputes Act and Industrial Employment (Standing Orders) Act etc. to the Company thereby taking away the rights of the employees under the said enactments to challenge their illegal, unjust and unfair discharge and/or dismissal is another circumstance, which should be taken into consideration, to determine if the Company is 'an authority' under Article 12.
(8) There is clear admission of the Company in the above referred brochures and 42nd Annual Report that the management of the Company passed on.to the hands of the State Government in the Bar year 1977 assisted by the Financial Institutions, which afford an indication of unusual degree of control to(?) that the Company is an agency or instrumentality of the Government. In Phool Chand v. State of Rajasthan 1986 (1) SLR 222 as Division Bench of this Court had the occasion to consider whether the Central Co-operative Bank Limited, Bharatpur is an authority of the State within the purview of Article 12 and on the basis of the facts and circumstances, it was discovered that the Co-operative bank was under the control of the Government and its financial resources were also controlled and contributed by the Government. It was held that the Bank is an authority under Article 12. Similarly, in the instant case, the circumstances show brooding presence of the State behind the respondent Company.'
'28. In view of the above circumstances and applying the constellation of criteria collected by us from the various authorities of the Supreme Court, we are of the opinion that chemistry of the respondent Company answers the test of 'State'. We, therefore, hold that M/s Jaipur Metals and Electricals Ltd. is an instrumentality or agency of Government and thus, an authority and therefore 'State' within the enlarged meaning of the expression in Article 12 of the Constitution.'
8. The contention of Shri. C.N. Sharma. learned counsel for the Management, cannot be accepted that this Court is not bound by the aforesaid Bench decision of this Court, as in a subsequent matter the Apex Court of the country in Special Leave Petition against the respondent Company kept this question open for its decision as to whether respondent Company is amenable to writ jurisdiction and falls within the definition of 'State' in the meaning of Article 12 of the Constitution or not. Another contention of Shri Sharma that in view of subsequent decisions of the Supreme Court on An. 12 of the Constitution this question requires reconsideration cannot be accepted. While sitting in a Single Bench I am bound by the judgment of the Division Bench and in the facts circumstances of the case I do not find that this matter requires reconsideration. Consequently, the preliminary objection raised on behalf of the respondent Compnay is hereby rejected.
9. Now adverting to the principal and crucial question, at the out-set, it may be stated that the contentions made by Shri Rastogi, learned Counsel for the petitioner have great force and deserve to be accepted. Reasons for this are given as under.
10. In earlier part of the judgment, I have extracted condition No. 16 of the letter of appointment dated, October 15, 1984 and the letterterminating petitioner's service. A bare perusal of the termination order dated, April 17, 1995 would show that the petitioner's services have been terminated without any charge or assigning any reason. The petitioner has worked with the respondent company for more than three decades and the material on record shows that his performance throughout has been satisfactory and unblemished. He was given promotions from time to time on the basis of his good performance and conduct. The Management has also not come with a plea that petitioner's work was unsatisfactory or he was removed for any misconduct or inefficiency. The plea of the respondent is a simple one that petitioner's services have been terminated in exercise of powers conferred by condition No. 16 of the contract of employment, which empowered the Management to terminate his service without assigning any reason. Condition No. 16 confers unfettered and unguided power to the Management to terminate services of any employee, even of a permanent employee, without assigning any reason by mere giving one month's notice or pay in lieu thereof. It also totally excludes 'audi alterant partem' rule, which is implicit in every decision making function, whether judicial or quasi judicial or administrative as settled by various decisions of the Apex Court of the country including in Swadeshi Cotton Mills v. Union of India 1981 (1)SCC 664.
11. Article 14 of the Constitution guarantees to all persons equality before law and equal protection of the laws. Ours is a welfare State having the goal to secure social and economic justice which is also a mandate of our Constitution as expressed by the preamble and various other provisions enshrined in the Constitution including Article 14 and Directive Principles of the State Policy. Article 14 contains equality clause and this principle is that the Courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract entered into between the parties who are not equal in bargaining power. I am of the confirmed view that condition No. 16 which empowers the Management to terminate services of any employee without any previous notice or enquiry, is arbitrary, unreasonable and one-sided.
12. The power conferred by condition No. 16 is also discriminatory for it enables the Management to discriminate between employees and employee. It can pick up one employee and apply to him condition No. 16. There are no guide-lines whatsoever, to indicate in what circumstances the power given by condition No. 16 is to be exercised by the Management. No opportunity, whatsoever, of hearing at all to be afforded to a permanent employee! whose service is being terminated in exercise of this power. Hence, I have no hesitation in holding that it violates Article 14 of the Constitution. Even in cases, where the Management is required to dismiss the services of an employee on the ground of misconduct after holding a regular disciplinary enquiry, it is free to resort to condition No. 16 in order to avoid the hassle of an enquiry.
13. In West Bengal State Electricity Board and Ors. v. Desk Bandhu Ghosh (1985-I-LLJ-373) a similar question came for consideration of the Apex Court of the country. In that case, services of a permanent employee of the West Bengal State Electricity Board were terminated with immediate effect on payment of three months' salary in lieu of three months notice. The order was made under Regulation- 34 of the Board's Regulations which enabled the Board to terminate services of a permanent employee by serving three months' notice or on payment of salary for the corresponding period in lieu thereof. The action of the Electricity Board was challenged by the employee in a writ petition before the Calcutta High Court. The High Court came to the conclusion that Regulation 34 was arbitrary in nature and suffered from the vice of enabling discrimination. The High Court, therefore, struck down the first paragraph of Regulation-34 and as a consequence, quashed the order terminating service of the employee. On appeal by Special Leave Petition, the Supreme Court observed as under atp375:
'4. we are not impressed with submission of the learned counsel for the Board. On the face of it, the Regulation is totally arbitrary and confers on the Board a power which is capable of vicious discrimination. It is a naked 'hire and fire' the time of banishing which altogether from employer-employee relationship is fast approaching. Its only parallel is to be found in the Henry VIII blass so familiar to administrative lawyers.'
14. In Workmen of Hindustan Steel Ltd, and Anr. v. Hindustan Steel Ltd. and Ors. (1985-I-LLJ-267)(SC) the services of a workman were terminated by invoking powers under Standing Orders of the Hindustan Steel Ltd, which empowered the General Manager to remove or dismiss any workman from service without following the procedure laid down in Standing Order 31 if he was satisfied that it was expedient or against the interest of security to continue him under employment. Their Lordships observed as under at p270:
'A Standing Order which confers such arbitrary, uncanalised and drastic power to dismiss an employee by merely stating that it is inexpedient or against the interest of the security to continue to employ the workman is violative of the basic requirement of natural justice in as much as the General Manager can impose penalty of such a drastic nature as to affect the livelihood and put a stigma on the character of the workman without recording reasons why disciplinary inquiry is dispensed with and what was the misconduct alleged against the employee.'
15. In Central Inland Water Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguly and Anr. (1986-II-LLJ-171) the Apex Court of the country again had an occasion to consider a similar situation while testing the validity of Rule 9(1) of the Corporation's (Service, Discipline and Appeal) Rules, 1979, which provided that the service of permanent employee could be terminated on three months' notice on either side or payment of three months' pay plus D. A. to the employee or deduction of like amount from his salary as the case may be, in lieu of the notice. After an elaborate and lucid discussion on all the legal aspects their Lordship held that it was violative of Article 14 of the Constitution. Their Lordships observed as under at p 208 :
'Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussion on this part of the case is in consonance with right and reason, intended to secure social and economic justice, and conforms to the mandate of the great equality clause in Article 14. This principle is that the Courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type (sic). No Court can visualise the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is a result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract of form or rules may be.'
16. Their Lordships also held that such a condition is opposed to public policy and void under Section 23 of the Indian Contract Act. Their Lordships observed at p 209 :
'It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the Court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our Courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the Court can always be guided by that light and the principles underlying the Fundamental Rights and the Directive Principles enshrined in our Constitution.'
17. The Supreme Court was of the view that contracts, which contain terms which are so unfair and unreasonable that they shock conscience of the Court are opposed to public policy and required to be adjudged void. In the above case, their Lordships also rejected the plea that the parties were the best Judges of their own interest and if they freely and voluntarily enter into a contract, the only course of the court was to enforce it. Considering various English cases and the theory of 'inequality of bargaining power' as enunciated by Lord Denning in Lloyds Bank Ltd v. Bundy 1974 (3) All ER 757, it was held that the test of reasonableness or fairness of a clause in a contract will apply where there is inequality of bargaining power.
Their Lordships then held as under:
'As pointed out above, Rule 9(i) is both arbitrary and unreasonable and it also wholly ignores and sets aside the audi al-teram portent rule.'
18. With the above discussion, I hold that the aforesaid condition No. 16 of the letter of appointment is void and violates Article 14 of the Constitution and Section 23 of the Indian Contract Act.
Consequently, the termination order of the petitioner on the basis of this condition is also invalid and is hereby quashed. The petitioner shall be reinstated in service with full back wages and other consequential benefits. The petitioner shall also be entitled to costs of this writ petition which is quantified as Rs. 5,000/-.