Sabyasachi Mukharji, C.J.(dissenting)

1. These civil appeals, special leave petitions and civil miscellaneous petitions deal with the question of constitutional validity of the right of the employer to terminate the services of permanent employees without holding any inquiry in certain circumstances of reasonable notice or pay in lieu of notice. The facts involved in these matters are diverse but the central question involved in all these is one, i.e. whether the clauses permitting the employers or the authorities concerned to terminate the employment of the employees by giving reasonable notice or pay in lieu of notice but without holding any inquiry, are constitutionally valid and, if not, what would be the consequences of termination by virtue of such clauses or powers, land further whether such powers and clauses could be so read with such conditions which would make such powers constitutionally and legally valid ? In order to appreciate the question the factual matrix of these cases so far as these are relevant for the determination of the aforesaid questions, will have to be borne in mind in the light of the actual legal provisions involved in the respective cases

2. It will, therefore, be proper and appropriate to deal with the relevant facts in Civil Appeal No. 2876 of 1986 first. The appellant herein - the Delhi Transport Corporation, is a statutory body formed and established under Section 3 of the Delhi Road Transport Act, 1950 (hereinafter called 'the Act') read with Delhi Road Transport (Amendment) Act, 1971. The appellant carries out the objects of vital public utility, according to the appellant, i.e. transport of passengers in the Union territory of Delhi and other areas. Respondent 2, Sri Ishwar Singh was appointed as conductor therein on probation for a period of 1 year in 1970. The probation period was extended thereafter for a further period of one year and thereafter he was regularised in service of the appellant. Similarly, respondent 3 - Sri Ram Phal was appointed as Assistant Traffic Incharge and after the probation period he was regularised in service. Respondent 4 - Sri Vir Bhan was appointed as driver and after completing the probation period he was also regularised in service. It is stated that respondents 2 to 4 became, according to the appellant, inefficient in their work and started inciting other staff members not to perform their duties. They were served with termination notices on June 4, 1985 under Regulation 9(b) of the Delhi Road Transport Authority (Conditions of Appointment and Service) Regulations, 1952. On June 11, 1985 respondents 2 to 4 and their Union being respondent 1 - DTC Mazdoor Congress, filed Writ Petition No. 1422 of 1985 in Delhi High Court, challenging the constitutional validity of Regulation 9(b). On May 11, 1986 the Division Bench of the High Court of Delhi allowed the said writ petition and struck down Regulation 9(b) of the said Regulations, and directed the appellant to pay back respondents' wages and benefits within 3 months from the date of the said judgment. This is an appeal, therefrom, by special leave. The question, therefore, is, was the High Court justified in the view it took ? It may be mentioned that Regulations 9(a) and (b) were framed in exercise of the powers conferred under Section 53 of the said Act, which enables the formulation of Regulations. Regulation 9 of the said Regulations, which is material for the present controversy, reads as follows

"9. Termination of service. - (a) Except as otherwise specified in the appointment orders, the services of an employee of the authority may be terminated without any notice or pay in lieu of notice

(i) During the period of probation and without assigning any reason thereof

(ii) For misconduct

(iii) On the completion of specific period of appointment

(iv) In the case of employees engaged on contract for a specific period, on the expiration of such period in accordance with the terms of appointment

(b) Where the termination is made due to reduction of establishment or in circumstances other than those mentioned at (a) above, one month notice or pay in lieu thereof will be given to all categories of employees

(c) Where a regular/temporary employee wishes to resign from his post under the authority he shall give three/one month's notice in writing or pay in lieu thereof to the Authority provided that in special cases, the General Manager may relax, at his discretion, the conditions regarding the period of notice of resignation or pay in lieu thereof." *

3. The said regulation, as set out hereinbefore, deals with termination of services. Four contingencies are contemplated vide clause (a) of Regulation 9, whereupon the services of employees may be terminated without any notice or pay in lieu thereof except as otherwise provided in the appointment order. Apart from these four contingencies where termination is made due to reduction of establishment or in circumstances other than those mentioned in clause (a) above, one month's notice or pay in lieu thereof is required to be given to all categories of employees. Therefore, except in the said four cases, if there is reduction of establishment or there is any termination uncovered by these four contingencies referred to in clause (a) the same shall be by giving one month's notice or pay in lieu thereof to all categories of employees. Clause (c) postulates when a regular or temporary employee wishes to resign from his post under the authority then in such a situation one month's notice in writing or pay in lieu thereof to the authority may be provided

4. The High Court in the judgment under appeal noted that since the filing of this petition the notices issued by DTC to its various employees have been withdrawn and all these persons have been reinstated, therefore, the court was not concerned with the validity of clause (a) of Regulation 9 but respondents 2 to 4 against whom action had been taken by the appellant by the appellant by issuing notices of termination under Regulation 9(b) had not been reinstated and the court considered the validity of Regulation 9(b). It was held by the court that the said provision gave absolute, unbridled and arbitrary powers to the management to terminate the services of any permanent or temporary employee. It was contended that such power was violative of Article 14 of the Constitution

5. In support of this contention, reliance had been placed, on which the High Court also relied upon, on the decision of this Court in Workmen v. Hindustan Steel Ltd. 1984 Supp(SCC) 554 : 1985 SCC(L&S) 260 : 1985 (2) SCR 428] In that case, Standing Order 31 of M/s. Hindustan Steel Ltd., a public sector undertaking, had prescribed for a detailed procedure for dealing with cases of misconduct; and for imposing major penalty, the employer had to draw up a charge-sheet and give an opportunity to the delinquent workman to make his representation within 7 days. If the allegations were controverted, an inquiry had to be held by an officer to be nominated by the management and in such an enquiry reasonable opportunity of explaining and defending the alleged misconduct had to be given to the workman. Suspension of the delinquent workman pending enquiry was also permitted. At the end of the enquiry, if the charges were proved, and it was provisionally decided to impose any major penalty, the delinquent workman had to be afforded a further reasonable opportunity to represent why the penalty should not be imposed on him. Standing Order 32 provided for a special procedure in case a workman was convicted for a criminal offence in a court of law or where the General Manager was satisfied for reasons to be recorded in writing that it was inexpedient or against the interests of security to continue to employ the workman viz. the workman could be removed or dismissed from service without following the procedure laid down in Standing Order 31. There the appellant was an Assistant in the respondent's undertaking, who was removed from service on the ground that it was no longer expedient to employ him. The management dispensed with the departmental enquiry, after looking into the secret report of one of their officers that the appellant therein had misbehaved with the wife of an employee and that a complaint in respect thereof had been lodged with the police. In the reference to the Industrial Tribunal, the Tribunal held that as the employer dispensed with disciplinary enquiry in exercise of the power conferred by Standing Order 32, it could not be said that the dismissal was unjustified, and that if there were allegations of misconduct, the employer was quite competent to pass an order of removal from service without holding any enquiry in view of the provisions contained in Standing Order 32, and rejected the reference. There was an appeal to this Court. This Court held that the reasons for dispensing with the enquiry do not spell out what was the nature of the misconduct alleged to have been committed by the appellant and what prompted the General Manager to dispense with the enquiry. As there was no justification for dispensing with the enquiry, imposition of penalty of dismissal without the disciplinary enquiry as contemplated by Standing Order 31 was illegal and invalid. It was directed that the respondent should recall and cancel the order dated August 24, 1970 removing the appellant from service, and reinstate him and on the same day the appellant was directed to tender resignation of his post which should be accepted by the respondent. The respondent should pay as and by way of back wages and future wages, a sum of Rs. 1.5 lakhs to the appellant within 2 months which should be spread over from year to year commencing from the date of removal from service. It was reiterated that where an order casts a stigma or affected livelihood, before making the order, principles of natural justice of a reasonable opportunity to present one's case and controvert the adverse evidence must have full play. Even under the Constitution which permits dispensing with the inquiry under Article 311(2) a safeguard is introduced that the concerned authority must specify reasons for its decision why it was not reasonably practicable to hold the inquiry. Standing Order 32 nowhere obligates the General Manager to record reasons for dispensing with the inquiry as prescribed by Standing Order 31. On the contrary, it was held that the language of Standing Order 32 enjoins a duty upon the General Manager to record reasons for his satisfaction why it was inexpedient or against the interest of the security of the State to continue to employ the workman. Reasons for dispensing with the enquiry and reasons for not continuing to employ the workman, stand wholly apart from each other. This Court finally observed that it was time for the public sector undertaking to recast Standing Order, and to bring it in tune with the philosophy of the Constitution failing which the vires of the said Standing Order would have to be examined in an appropriate proceeding

6. Reliance is also placed before this Hon'ble Court on the decision of this Court in the case of West Bengal State Electricity Board v. Desh Bandhu Ghosh [ 1985 (3) SCC 116 : 1985 SCC(L&S) 607] where this Court was concerned with Regulations 33 and 34 of the West Bengal State Electricity Board. The said Regulations 33(1) and 34 were as follows

"33. (1) Unless otherwise specified in the appointment order in any particular case, the services of a permanent employee of the Board may be terminated without notice -

(i) on his attaining the age of retirement or by reason of a declaration by the competent medical authority that he is unfit for further service; or

(ii) as a result of disciplinary action;

(iii) if he remains absent from duty, on leave or otherwise, for a continuous period exceeding 2 years

34. In case of a permanent employee, his services may be terminated by serving three months' notice or on payment of salary for the corresponding period in lieu thereof." *

7. The High Court had come to the conclusion in that case 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 the services of the first respondent therein. It was contended before this Court on appeal that Regulation 34 did not offend Article 14 of the Constitution, that Sections 18-A and 19 of the Electricity Supply Act laid down sufficient guidelines for the exercise of the power under Regulation 34 and in any case the power to terminate the services of any permanent employee was vested in high ranking officials who might be expected to exercise the same in a reasonable way. This Court was unable to accept that argument. This Court was of the view that the regulation was totally arbitrary and conferred on the Board a power which was capable of vicious discrimination. This Court was of the view that it was naked 'hire and fire' rule, the time for banishing which, according to this Court in the said decision, altogether from employer-employee relationship was fast approaching. It is only parallel, this Court was of the view, to the Henry VIII clause [Ed. : According to the Oxford Companion to Law, Henry VIII clause is a clause, so named in disrespectful commemoration of Henry VIII's tendency to absolutism, occasionally found in legislation conferring delegated legislative power, giving the delegate power to amend the delegating Act or, usually, any other Act, in order to bring the enabling Act into full operation, or otherwise by Order to remove any difficulty.] so familiar to administrative lawyers

8. Reference was made to the decision of this Court in Moti Ram Deka v. General Manager, North East Frontier Railways [ 1964 (5) SCR 683 : 1964 AIR(SC) 600 : 1964 (2) LLJ 467] where Rules 148(3) and 149(3) of the Indian Railway Establishment Code had been challenged on the ground that these Rules were contrary to Article 311(2) of the Constitution. The challenge was upheld though no opinion was expressed on the question whether the rule offended Article 14 of the Constitution or not. Since then Article 14 has been interpreted in several decisions of this Court and conferment and exercise of arbitrary power on and by the State or its instrumentalities have been frowned upon and struck down by this Court as offending Article 14 of the Constitution

9. Indeed, it was noted by this Court that in S.S. Muley v. J.R.D. Tata [ 1979 (2) SLR 438 : 1980 Lab IC 11 (Bom HC)], Justice Sawant, then of Bombay High Court had considered at great length Regulation 48(a) of the Air India Employees' Service Regulations which conferred similar power on the Corporation as Regulation 34 confers on the Board in the present case. The learned Judge therein (Sawant, J.) had struck down that regulation. Reliance had also been placed on another decision of the Bombay High Court in the case of Manohar P. Kharkhar v. Raghuraj [ 1981 (2) LLJ 459 : 1983 Lab IC 350 (Bom HC)]. But this Court found it difficult to accept the reasoning therein. In that view of the matter the appeal was dismissed

10. Reference in this connection may also be made to the decision of this Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly [ 1986 (3) SCC 156 : 1986 SCC(L&S) 429]. There the appellant-Corporation was a government company incorporated under the Companies Act. The majority shares of the Corporation were held by the States of West Bengal and Assam. Article 51 of the Articles of Association of the Corporation conferred upon the President of India power to issue directions/instructions regarding affairs and conduct of the business of the Corporation or of the Directors thereof as also regarding exercise and performance of its functions pertaining to national security and public interest. Article 51-A of the said articles entitled the President to call for returns, accounts etc. of the Corporation. Articles 14, 15, 16, 17 and 37 conferred on the President power to appoint and remove Chairman and the Board of Directors of the Corporation. Articles 41 and 42 were regarding the President's control over the working of the Corporation. Article 47 provided for appointment of the auditors of the Corporation to be made by the Central Government on the advice of the Comptroller and Auditor-General of India and the nature of control to be exercised by the Comptroller and Auditor-General in the matter of audit and accounts. Since another company namely the Rivers Steam Navigation Co. Ltd. was carrying on the same business as the Corporation was doing, a Scheme of Arrangement was entered into between the Corporation and that Company for dissolution of the latter and taking over of its business and liabilities by the former. The Scheme, inter alia, stipulated that the Corporation shall take as many of the existing staff or labour as were possible and that those who could not be taken over shall be paid by the transferor company all moneys due to them under the law and all legitimate and legal compensations payable to them either under Industrial Disputes Act or otherwise legally admissible and that such moneys shall be provided by the Government of India to the transferor Company who would pay these dues. The Calcutta High Court approved the Scheme. Each of the respondents therein were in the service of the said company. Their services were taken over by the Corporation after the High Court's sanction to the Scheme of Arrangement. While the respondent Ganguly therein was appointed as the Deputy Chief Accounts Officer and was later promoted as Manager (Finance), the respondent Sengupta was appointed as Chief Engineer (River Services) and was later promoted as General Manager (River Services). Their appointment letters were in stereotype forms under which the Corporation could without any previous notice terminate their services, if the Corporation was satisfied that the employee was unfit medically or if he was guilty of any insubordination, intemperance or other misconduct, or of any breach of any rules pertaining to this service or conduct or non-performance of his duties. The letters of appointment further stipulated that they would have been subject to the rules and regulations of Corporation. Rule 9(i) of the Corporation's Service, Discipline and Appeal Rules of 1979 had provided that the services of permanent employee could be terminated on three month's pay plus DA to the employee or on deduction of a like amount from his salary as the case might be, in lieu of the notice. By confidential letter the respondent Ganguly was asked to reply within 24 hours to the allegations of negligence made against him. After having his representation and detailed reply, a notice under Rule 9(i) was served on him terminating his services with immediate effect by paying three months' pay. Similarly a charge-sheet was issued to the respondent Sengupta intimating that a disciplinary inquiry was proposed against him under the Rules and calling upon him to file his written statement of defence. Sengupta denied the charges made against him and asked for inspection of documents and copies of statements of witnesses mentioned in the said charge-sheet. But a notice was served on him under Rule 9(i) terminating his services with immediate effect by paying three months' salary. Both Ganguly and Sengupta filed writ petitions before High Court. A Division Bench of that court allowed the same. The Corporation filed appeals before this Court. The main questions for determination therein were (i) whether the appellant-Corporation was an instrumentality of the State so as to be covered by Articles 12 and 36 of the Constitution and (ii) whether an unconscionable term in a contract of employment entered into with the Corporation was void under Section 23 of the Contract Act and violative of Article 14 of the Constitution and as such whether Rule 19(i) which formed part of the contract of employment between the Corporation and its employees to whom the said Rules applied, was void ? This Court confirmed the judgment of the High Court with modification in the declaration made and dismissed the Corporation's appeal to this Court. This Court held that the appellant was State within the meaning of Article 12 of the Constitution. This Court further held that an unconscionable bargain or contract is one which is irreconcilable with what is right or reasonable or the terms of which are so unfair and unreasonable that they shock the conscience of the Court. This Court was of the view that the doctrine of distributive justice is another jurisprudential concept which has affected the law of contracts. According to that doctrine, distributive fairness and justice in the possession of wealth and property could be achieved not only by taxation but also by regulatory control of private and contractual transactions even though this might involve some sacrifice of individual liberty. This Court referred to Articles 38 and 39 of the Constitution so far as the test of reasonableness was concerned. The test of reasonableness or fairness of a clause in a contract where there was inequality of bargaining power is another theory recognised in the sphere of law of contracts. It was reiterated in that decision that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or a clause in the contract. Reference was made to the observations of Lord Diplock in A. Schroeder Music Publishing Co. Ltd. v. Macauley (formerly Instone) [ 1974 (1) WLR 1308 : 1974 (1) ALLER 171(CA)] and that test was

"Whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promise and commensurate with the benefits secured to the promisor under the contract ? For the purpose of this test all the provisions of the contract must be taken into consideration." *

11. Justice Madon of this Court in the said decision found that this was in consonance with right and reason, intended to secure social and economic justice and conformed to the mandate of the equality clause in Article 14 of the Constitution. It was further recognised that there might be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances. The above principle would apply, this Court reiterated, where the inequality of bargaining power is the result of the disparity in the economic strength of the contracting parties or where the inequality is the result of circumstances, whether of the creation of the parties or not or where the weaker party is in a position in which he could obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them or where a man had no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable clause in that contract or form or rules might be. This Court, however, reiterated that this principle would not apply where the bargaining power of the contracting parties is equal or almost equal. This principle would not apply where both parties are businessman and the contract is a commercial transaction. The contracts of this type to which the principle formulated above applied were not contracts which were tainted with illegality but were contracts which contained terms which were so unfair and unreasonable that they shock the conscience of the court. In the vast majority of cases such contracts are entered into by the weaker party under pressure of circumstances, generally economic, which results in inequality of bargaining power. Such contracts will not fall within the four corners of the definition of "undue influence" given in Section 16(1) of the Contract Act, even though at times they are between parties one of whom holds a real or apparent authority over the other. Contracts in prescribed or standard forms or which embody a set of rules as part of the contract are entered into by the party with superior bargaining power with large number of persons or a group of persons, if they are unconscionable, unfair and unreasonable, are injurious to the public interest, should be adjudged void according to Justice Madon, under Section 23 of the Contract Act on the ground of being opposed to public policy. Public policy, it was reiterated, is not the policy of any particular government. It connotes some matter which concerns the public good and the public interest. The principles governing public policy must be and are capable on proper occasion, of expansion or modification. 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. In any case which is not covered by authority, courts should be guided by the Preamble to the Constitution and the principles underlying the Fundamental Rights and the Directive Principles. Rule 9(i) can aptly be called 'the Henry VIII clause' this Court opined therein. It confers an absolute, arbitrary and unguided power upon the Corporation to exercise that power. This Court was concerned with the 'Central Inland Water Transport Corporation Ltd. Service Discipline and Appeal Rules' framed by the Corporation. The relevant provisions of the said Rule 9 relating to permanent employees therein were as follows

"9. Termination of employment for Acts other than misdemeanour. - (i) The employment of a permanent employee shall be subject to termination on three months' notice on either side. The notice shall be in writing on either side. The Company may pay the equivalent of three months basic pay and dearness allowance, if any, in lieu of notice or may deduct a like amount when the employee has failed to give due notice

(ii) The services of a permanent employee can be terminated on the grounds of 'services no longer required in the interest of the Company' without assigning any reason. A permanent employee whose services are terminated under this clause shall be paid 15 days' basic pay and dearness allowance for each completed year of continuous service in the Company as compensation. In addition he will be entitled to encashment of leave to his credit." *

12. This Court found that Rule 9(i) can be called 'the Henry VIII clause'. It confers an absolute, arbitrary and unguided power upon the Corporation. It does not even say who on behalf of the Corporation was to exercise that power. While the Rules provided for four different modes in which the services of a permanent employee could be terminated earlier than his attaining the age of superannuation, namely, Rules 9(i), 9(ii), 36 (iv)(b) read with 38 and 37, Rule 9(i) is the only rule which does not state in what circumstances the power conferred by that rule is to be exercised. Thus even where the Corporation could proceed under a regular disciplinary inquiry, it is free to resort instead to Rule 9(i) in order to avoid the trouble of an inquiry. No opportunity of a hearing was at all intended to be afforded to the permanent employee whose service was being terminated in the exercise of that power. It violated audi alteram partem rule of natural justice also which was implicit in Article 14 of the Constitution. It is not covered by any of the situations which would justify the total exclusion of the audi alteram partem rule. The view that the Board of Directors would not exercise this power arbitrarily or capriciously as it consisted of responsible and highly placed persons ignored, it was held, the fact that however highly placed a person might be, he must necessarily possess human frailties and "power tends to corrupt, and absolute power corrupts absolutely". It was, however, held that Rule 9(i) was also discriminatory for the Corporation was given power to discriminate between employee and employee. It was stated that it could back up one employee and apply to him Rule 9(i). It could pick up another employee and apply to him Rule 9(ii). It was further reiterated that the Corporation was a large organisation. The said Rules formed part of the contract of employment between the Corporation and its employees who were not workmen. These employees had no powerful Union to support them. They had no voice in the framing of the said Rules. They had no choice but to accept the said Rules as part of their contract of employment. There was gross disparity between the Corporation and its employees, whether they be workmen or officers. The Corporation could afford to dispense with the services of an officer and will find many others to take his place but an officer cannot afford to lose his job because it he does so, there are not many jobs waiting for him. It was, therefore, held that Clause 9(i) of the said regulation was against right and reason and it was wholly unconscionable. It had been entered into between parties between whom there was gross inequality of bargaining power. Rule 9(i) was a term of the contract between the Corporation and all its officers, it was noted. It affected a large number of persons and it squarely fell within the principle stated earlier. The government and its agencies and instrumentalities constitute the largest employer in the country. A clause such as Rule 9(i) in a contract of employment, it was noted affecting large sections of the public was harmful and injurious to the public interest for it tended to create a sense of insecurity in the minds of those to whom it applied and consequently against public good. Such a clause, therefore, was opposed to public policy and as such it is void under Section 23 of the Contract Act, it was held. It was further held that it was not possible to accept the contention that this was a contract entered into by the Corporation like any other contract entered into by it in the course of its trading activities and the court, therefore, ought not to interfere with it. The employees could not be equated with goods which could be bought and sold, nor could a contract of employment be equated with a mercantile transaction between two businessmen much less when the contract of employment was between a powerful employer and a weak employee. Although it was reiterated that the aforesaid Rule 9(i) was supported by mutuality inasmuch as it conferred an equal right upon both the parties but considering the unequal position of the Corporation and its employees, there was no real mutuality, this Court opined. It was reiterated that the Corporation being covered by Article 12, its actions must also be in accordance with the Directive Principles prescribed by Part IV of the Constitution. Reference may be made to paragraph 39 of the aforesaid decision where this Court noted that in the working of the Constitution, it was found that some of the provisions of the Constitution were not adequate for the needs of the country or for ushering in a welfare State and the constituent body empowered in that behalf amended the Constitution several times. By the very first amendment made in the Constitution, namely, by the Constitution (First Amendment) Act, 1951 clause (6) of Article 19 was amended with retrospective effect. Under this amendment, sub-clause (g) of Article 19(1) which guarantees to all citizens the right to carry on occupation, trade or business, was not to prevent the State from making any law relating to the carrying on by the State, or by a Corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial of citizens or otherwise. This amendment also validated the operation of all existing laws insofar as these had made similar provisions. Article 298 of the Constitution, as originally enacted, provided that the executive power of the Union and of each State was to extend, subject to any law made by the appropriate legislature, to the grant, sale, disposition or mortgage of any property held for the purposes of the Union or of such State as the case may be, and to the purchase or acquisition of property for those purposes respectively, and to the making of contracts; and it further provided that all property acquired for the purposes of the Union or of State was to vest in the Union or in such State, as the case might be. This Court referred to the decision of this Court in Sukhdev Singh v. Bhagatram Sardar Singh Reghuvanshi [ 1975 (1) SCC 421 : 1975 SCC(L&S) 101 : 1975 (3) SCR 619] "the governing power wherever located must be subject to the fundamental constitutional limitations"

13. The High Court in the judgment under appeal was unable to accept the plea of alternative remedy and allowed the writ petition and declared Regulation 9(b) of the Regulations to be illegal and ultra vires and as a consequence thereof the orders terminating the services of respondents 1 to 4 were quashed and these respondents were deemed to be in the service of DTC and back wages and all other benefits by way of annual increments were directed to be paid

14. Learned Solicitor General of India contended before us that in the facts and the circumstances of this case, there was sufficient guideline in Regulation 9(b) and the power of termination, properly read, would not be arbitrary or violative of Article 14 of the Constitution. It may be mentioned that under the general law of contract of employment, which was commonly known as the 'law of master and servant', which is now termed as law of employer and employee, whether the contract of service is for a fixed period or not, if it contained a provision for its termination by notice, it could be so terminated. If there was no provision for giving notice and the contract was not for a fixed period, the law implied an obligation to give a reasonable notice. Where no notice in the first case or no reasonable notice in the second case was given and the contract was wrongfully terminated, such wrongful termination would give rise to a claim for damages. In this connection, reference may be made to the observations of this Court in the five Judge bench decision in Union of India v. Tulsiram Patel [ 1985 (3) SCC 398, 424-25 : 1985 SCC(L&S) 672 : 1985 (S2) SCR 131, 166]. This is also the position at common law. See Chitty on Contract, 26th edn. vol. II, p. 808 or 25th edn. vol. II, p. 712, paragraph 3490. In this connection, reliance may also be placed on paragraphs 607 and 608 of volume 16, 4th edn. of Halsbury's Laws of England

15. Under the Industrial Law, subject to the relevant statutory provision, the services of an employee could be terminated by reasonable notice. In such a case it was always open to the Industrial Tribunal to examine whether the power of termination by reasonable notice was exercised bona fide or mala fide. If, however, the Industrial Court was satisfied that the order of discharge was punitive, that it was mala fide, or that it amounted to victimisation or unfair labour practice, the Industrial Court was competent to set aside the order and in proper cases, direct the reinstatement of the employee. Reference may also be made to the observations of this Court in Tata Oil Mills Co. Ltd. v. Workmen [ 1964 (2) SCR 125, 130 : 1966 AIR(SC) 1672 : 1966 (2) LLJ 602]. If, however, the exercise of such power was challenged on the ground of being colourable or mala fide or on account of victimisation or unfair labour practice, the employer must disclose to the court the ground of his impugned action, so that the same may be tested judicially. See the observations of this Court in L. Michael v. Johnston Pumps India Ltd. [ 1975 (1) SCC 574, 582 : 1975 SCC(L&S) 169 : 1975 (3) SCR 489, 198]

16. The relationship between a statutory corporation and its employees is normally governed by the relevant rules, regulations and standing orders. A statutory corporation is "State" within the meaning of Article 12 of the Constitution and its action is subject to judicial review in certain cases and certain circumstances. In the facts and circumstances of these cases, we have proceeded on that basis and we are of the opinion that it is the correct basis. The exercise of such power under regulations similar to the one impugned which has been upheld in various types of cases are instructive in their variety. It may be mentioned that the exercise of power under the very same Regulation 9(b) was upheld by the court in a matter, wherein in an action by the employee of DTC, this Court in Delhi Transport Undertaking v. Balbir Saran Goel [ 1970 (1) SCC 515, 520 : 1970 (3) SCR 757, 764] held that even if the employers of the respondent thought that he was a cantankerous man and it was not desirable to retain him in service it was open to them to terminate his services in terms of Regulation 9(b) and it was not necessary to dismiss by way of punishment for misconduct

17. Reliance was placed on this decision by the High Court in the judgment under appeal. The High Court in our opinion rightly pointed out, however, that the decision was on a different basis and could not be availed of in deciding the controversy involved in the present determination. In Air India Corporation, Bombay v. V.A. Rebellow [ 1972 (1) SCC 814 : 1972 (3) SCR 606 : 1972 AIR(SC) 1343] this Court dealing with the power of the Air India to terminate the services of a person who was alleged to have misbehaved with air hostesses, observed on page 616 of the report (SCC p. 822, para 10) that the anxiety of the legislature to effectively achieve the object of duly protecting the workmen against victimisation of unfair labour practice consistently with the preservation of the employer's bona fide right to maintain discipline and efficiency in the industry for securing the maximum production in peaceful, harmonious atmosphere is obvious from the overall scheme of these sections. This Court on page 620 of the report (SCC p. 825, para 16) observed that the record merely disclosed that the appellant had suspicion about the complainant's suitability for the job in which he was employed and this led to loss of confidence in him with the result that his services were terminated under Regulation 48. Loss of confidence in such circumstances could not be considered to be mala fide, it was held. Similarly in Municipal Corporation of Greater Bombay v. P.S. Malvenkar [ 1978 (3) SCC 78, 84 (para 7) : 1978 SCC(L&S) 430 : 1978 (3) SCR 1000, 1006] where it was alleged that the services of an employee of Bombay Municipal Corporation were unsatisfactory, this Court held that the powers of dismissal after an inquiry and the powers of termination simpliciter are two distinct and independent powers and as far as possible neither should be construed so as to emasculate the other or to render it ineffective. One is the power to punish an employee for misconduct while the other is the power to terminate simpliciter the service of an employee without any other adverse consequence

18. It may be mentioned that the case of civil servants is, however, governed by their special constitutional position which accords them status; the legal relationship (between the government and its servants) is something entirely different, something in the nature of status. It is much more than a purely contractual relationship voluntarily entered into between the parties. The duties of states (sic State) are fixed by the law and in the enforcement of these duties society has an interest. In the language of jurisprudence status is a condition of membership of a group of which powers and duties are exclusively determined by law and not by agreement between the parties concerned. See the observations of this Court in Roshan Lal Tandon v. Union of India [ 1968 (1) SCR 185, 195 D-E : 1967 AIR(SC) 1889 : 1968 (1) LLJ 576]. But even then the services of a temporary civil servant (although entitled to the protection of Article 311 of the Constitution) is subject to termination by notice. But beside the above, the government may find it necessary to terminate the services of a temporary servant if it is not satisfied with his conduct or his suitability for the job and/or his work. See the observations of this Court in Champaklal Chimanlal Shah v. Union of India [ 1964 (5) SCR 190, 204 : 1964 AIR(SC) 1854 : 1964 (1) LLJ 752]. The services of a temporary government servant, further, may be terminated on one month's notice whenever the government thinks it necessary or expedient to do so for administrative reasons. It is impossible, this Court observed, to define beforehand all the circumstances in which the discretion can be exercised. The direction was necessarily left to the government. See observations of this Court in Ram Gopal Chaturvedi v. State of M.P. [ 1969 (2) SCC 240, 243 (para 5) : 1970 (1) SCR 472, 475]

19. The aforesaid position of a government servant has been analysed in depth by the decision of this Court in Union of India v. Tulsiram Patel [ 1985 (3) SCC 398 : 1985 SCC(L&S) 672 : 1985 (S2) SCR 131], where it was reiterated that the doctrine of pleasure is not a relic of the feudal ages or based upon any special prerogative of the Crown but is based on public interest and for the public good because it is as much in public interest and for public good that government servants who are inefficient, dishonest or corrupt or have become a security risk should not continue in service and that the protection afforded to them by the Acts and the Rules made under Article 309 and by Article 311 of the Constitution be not abused by them to the detriment of the public interest and public good. It was reiterated on page 191 of the report (SCC p. 443, para 44) that if a situation as envisaged in one of the three clauses of the second proviso to clause (2) of Article 311 arises and the relevant clause is properly applied and the disciplinary inquiry dispensed with, the concerned government servant cannot be heard to complain that he is deprived of his livelihood. This Court reiterated that the livelihood of an individual is a matter of great concern to him and his family but his livelihood is a matter of his private interest where such livelihood is provided by the public exchequer and the taking away of such livelihood is in the public interest and for the public good, and the former must yield to the latter. Public policy, it was reiterated, requires, public interest needs and public good demands that there should be such a doctrine. It was further reiterated that the rules of natural justice are not immutable but flexible. These rules can be adopted and modified by statutes and statutory rules and also by the constitution of the Tribunal which has to decide a particular matter and the rules by which such Tribunal is governed. Not only can the principles of natural justice be modified but in exceptional cases they can even be excluded. See the observations of this Court at page 237-G of the aforesaid report (SCC p. 479, para 101). Reference was also made to the observations of this Court at pages 214-215 of the aforesaid report (SCC pp. 461-62). Thus, the Constitution Bench laid down that even where a government servant enjoys constitutional status there can be exclusion of inquiry in the cases prescribed for termination of employment

20. It must, however, be borne in mind that in some recent cases this Court has taken the view that a regulation providing for the termination of the service of an employee of the public corporation by notice only or pay in lieu thereof is invalid under Article 14 of the Constitution. We have referred to the decisions of the Workmen of Hindustan Steel case 1984 Supp(SCC) 554 : 1985 SCC(L&S) 260 : 1985 (2) SCR 428], West Bengal State Electricity Board case [ 1985 (3) SCC 116 : 1985 SCC(L&S) 607] and Central Inland Water Transport Corporation case [ 1986 (3) SCC 156 : 1986 SCC(L&S) 429]. Mr. Ashok Desai, learned Solicitor General of India submitted that the decisions in the West Bengal State Electricity Board cases [ 1985 (3) SCC 116 : 1985 SCC(L&S) 607] and Central Inland Water Transport Corporation case [ 1986 (3) SCC 156 : 1986 SCC(L&S) 429] were incorrectly decided and the decision proceeded on the theory of unconscionable bargains and that termination by notice is against public policy. He, however, drew our attention to Gherulal Parakh v. Mahadeodas Maiya 1959 (S2) SCR 406, 440 : 1959 AIR(SC) 781] where it was held that though theoretically it may be permissible to evolve a new head under exceptional circumstances in a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads of avoidance of such clauses in these days. Furthermore, as stated above, learned Solicitor General submitted that in the ordinary law of contract termination of employment by reasonable notice on either side has never been regarded as unconscionable. Therefore, the learned Solicitor General submitted that this part of the above judgments was erroneous and should be overruled

21. It must, however, be noted that in a later judgment of this Court, which followed this line of reasoning, it was recognised that a public corporation requires protection from employees who are inefficient or those who lacked probity or even made faulty policy decisions. Reference was made to the decision of this Court in O.P. Bhandari v. ITDC [ 1986 (4) SCC 337 : 1986 SCC(L&S) 769 : 1986 (1) ATC 541] where this Court held that so far as some of the higher placed employees are concerned (described as 'gold collar' employees) public sector undertakings may be exposed to irreversible damage on account of faulty policy decisions or on account of lack of efficiency or probity of such employees and its very existence might be endangered beyond recall. A public corporation may not be able to cut the dead wood and get rid of a managerial cadre employee in case he is considered to be wanting in performance or integrity. Reference may be made to page 343 paragraph 5 of the report. [ 1986 (4) SCC 337 : 1986 SCC(L&S) 769 : 1986 (1) ATC 541] It may be mentioned that in Moti Ram Deka case [ 1964 (5) SCR 683 : 1964 AIR(SC) 600 : 1964 (2) LLJ 467] at page 707 of the said report, a similar rule was considered by seven learned Judges in the context of government servants in the railway. The majority judgment did not express opinion on the question of the railway rule being bad on the ground of unguided and uncanalised power. In this judgment, Mr. Justice Das Gupta held that the rule gave no guidance and was, therefore, violative of Article 14 (see page 769 of the report). On this point Mr. Justice Shah, as the learned Chief Justice then was, in his judgment observed at pages 799-800 of the aforesaid report

"In considering the validity of an order of determination of employment under Rule 148, an assumption that the power may be exercised mala fide and on that ground discrimination may be practised is wholly out of place. Because of the absence of specific directions in Rule 148 governing the exercise of authority conferred thereby, the power to terminate employment cannot be regarded as an arbitrary power exercisable at the sweet will of the authority, when having regard to the nature of the employment and the service to be rendered, the importance of the efficient functioning of the rail transport in the scheme of our public economy, and the status of the authority invested with the exercise of the power, it may reasonably be assumed that the exercise of the power would appropriately be exercised for the protection of public interest on grounds of administrative convenience. Power to exercise discretion is not necessarily to be assumed to be a power to discriminate unlawfully, and possibility of abuse of power will not invalidate the conferment of power. Conferment of power has necessarily to be coupled with the duty to exercise it bona fide and for effectuating the purpose and policy underlying the rules which provide for the exercise of the power. If in the scheme of the rule, a clear policy relating to the circumstances in which the power is to be exercised is discernible, the conferment of power must be regarded as made in furtherance of the scheme, and is not open to attack as infringing the equality clause. It may be remembered that the rules relating to termination of employment of temporary servants and those on probation, and even those relating to compulsory retirement generally do not lay down any specific directions governing the exercise of the powers conferred thereby. The reason is obvious : the appointing authority must in all these cases be left with discretion to determine employment having regard to the exigencies of the service, suitability of the employee for absorption or continuance in the cadre, and the larger interests of the public being served by retaining the public servant concerned in service." *

22. Learned Solicitor General submitted that the question is whether it is the very existence of power which is bad or the exercise is bad in any specific case. It was submitted that the court would be entitled to obtain guidance from the preamble, the policy and t

he purpose of the Act and the power conferred under it and to see that the power is exercised only for that purpose. It was submitted that even if a statute makes no clarification court would ascertain if the statute laid down any principle or policy. In such a case, the statute will be upheld although a given exercise may be struck down in particular cases. See the observations of this Court in Ram Krishna Dalmia v. Justice S.R. Tendolkar 1959 SCR 279, 299 : 1958 AIR(SC) 538]. The guidance in the statute for the exercise of discretion may be found from the preamble read in the light of surrounding circumstances or even from the policy or the purpose of the enactment or generally from the object sought to be achieved. See the observations of this Court in Jyoti Pershad v. Administrator for the Union Territory of Delhi [ 1962 (2) SCR 125, 139 : 1961 AIR(SC) 1602]. Even a term like 'public interest' can be sufficient guidance in the matter of retirement of a government employee. See the observations of this Court in Union of India v. Col. J.N. Sinha [ 1970 (2) SCC 458, 461] and such a provision can be read into a statute even when it is not otherwise expressly there. Learned Solicitor General drew our attention to the observations of this Court in N.C. Dalwadi v. State of Gujarat [ 1987 (3) SCC 611 : 1987 SCC(L&S) 299 : 1987 (4) ATC 261]. It is well settled and the learned Solicitor General made a point of it that the court will sustain the presumption of constitutionality by considering matters of common knowledge and to assume every state of facts which can be conceived and can even read down the section, it was submitted, if it becomes necessary to uphold the validity of the provision. Reliance was placed on the decision of this Court in CST v. Radhakrishan [ 1979 (2) SCC 249, 257 : 1979 SCC(Tax) 108] 23. In the case of Olga Tellis v. Bombay Municipal Corporation [ 1985 (3) SCC 545, 581 : 1985 (S2) SCR 51, 89] this Court has held that considering the scheme of the Act, a section which enabled the Commissioner to remove encroachment without notice must be read to mean that notice would be given unless circumstances are such that it is not reasonably practicable to give it. This Court further held that the discretion is to be exercised in a reasonable manner so as to comply with the constitutional mandate that the procedure accompanying the performance of a public act must be fair and reasonable. We must lean in favour of that interpretation because it helps to sustain the validity of the law 24. Learned Solicitor General submitted that the appeal involved herein the power of Delhi Transport Corporation (a statutory corporation) regarding termination of service simpliciter under Regulation 9(b). These regulations were framed as mentioned under Section 53 of the Delhi Road Transport Authority Act, 1950. The said Act was replaced by the Delhi Municipal Corporation Act, 1957 but the regulations have been saved and even though in 1971 a new Corporation, viz. the Delhi Transport Corporation (the appellant), was constituted under the Road Transport Corporation Act, 1950, the regulations have been continued 25. The guidelines for the exercise of such power, according to the Solicitor General, could be found in the statutory provisions of the 1950 Act under which the regulations have been framed, the preamble; Sections 19 and 20 (equivalent to Sections 18 and 19 of the Road Transport Corporation Act, 1950); Section 53 (equivalent to Section 45 of the Road Transport Corporation Act, 1950); the context of Regulation 9(b) read with 9(a) and 15. Even for the exercise of this power, reasons could be recorded although they need not be communicated. This will ensure according to the Solicitor General, a check on the arbitrary exercise of power and effective judicial review in a given case. The present regulations are parallel to, but not identical with, the exceptions carved out under Article 311(2) proviso. It was submitted that even the power of termination simpliciter under Regulation 9(b) can only be exercised in circumstances other than those in Regulation 9(a), i.e. not where the foundation of the order is 'misconduct'. The exercise of such power can only be for purposes germane and relevant to the statute. It was submitted by the learned Solicitor General that these would include several cases which have been held by courts to give rise to termination simpliciter including where the employee shows such incompetence or unsuitability as to make his continuance in employment detrimental in the interest of the Corporation, where the continuance of the employee is a grave security risk making his continuance detrimental in the interest of the Corporation, if there is a justifiable lack of confidence which makes it necessary in the interest of the Corporation to immediately terminate the services. These are illustrative and not exhaustive 26. It was submitted by the learned Solicitor General that the above guidelines of recording reasons and confining action under Regulation 9(b) for purposes germane and relevant to the statute would prevent arbitrary action by the Corporation while enabling it to run its services efficiently and in public interest. Thus, there is no vice of arbitrariness in the regulation. The judgment of the High Court, therefore, cannot and should not be upheld according to the learned Solicitor General 27. In Civil Appeal No. 2876 of 1986, the learned Attorney General urged that the settled.