Business Legislation Project

Name Soumyadeep Roy

Sec EFT 4
Roll No 44
MBA 1St Year 1st Sem (Batch July
2015-17)

Case Name :- Central Inland Water Transport

Corporation VS Brojonath Ganguly

LEGISLATION :- Indian Contract Act, 1872

FACTS :- Plaintiffs worked in a company which was
dissolved by Courts order and they were then inducted into
defendant Corporation upon latters T&C. After years of
serving Corporation, plaintiffs were arbitrarily kicked out of
the Corporation by virtue of Rule 9(i) of said T&C which
provided for termination of employees services on three
months notice on either side upon which three months salary
to be paid by Corporation. Plaintiffs requested Court to quash
Rule 9(i) on grounds of unconscionability.

ISSUE :- Whether an unconscionable term can be held

to be void/ voidable under Indian Contract Act (ICA)?

HELD :- When the bargain is harsh or unconscionable,

equity, grounded upon distributive justice curtails
the freedom of contract so as to protect the interests of party
who entered into such bargain under distress. Freedom of
contract is of little value when parties dont stand on equal
footing; party with weaker bargaining power enjoys no
realistic opportunity to bargain and party has no alternative
between accepting a set of terms proposed by other or doing
without the goods or services offered. These agreements are
called as Adhesion Contracts, however not every such
contract is unconscionable: only when there is gross
inequality of bargaining powercompounded with

terms unreasonably favourable to stronger party can the

indication that weaker party had no meaningful choice except
to consent to the unfair and unreasonable terms, hold
ground.
Therefore Courts will strike down any unfair or unreasonable
clause/ agreement entered into by parties when there is gross
inequality in their bargaining power, and the victimized
party had no meaningful choice butto give his assent to the
contract, however unreasonable, unfair and
unconscionable a clause in that contract may be.
These adhesion/ standardized contracts are entered into by
parties enjoying much superior bargaining power with a
large no. of people, hence, affect people at large and if
unconscionable, unfair and unreasonable are injurious to
public interest. These bargains therefore must be void on
account of being opposed to public policy (S.23). Further, if
they were to be merely voidable on account of undue influence
(for in many cases, superior party has real or apparent
authority over other party and hence, uses that position to
obtain unfair advantage over another as according to S.16) it
would compel each victimized party to go to Court to get the
contract adjudged as voidable which would lead to
multiplicity of litigations.
In present case, plaintiffs had much less bargaining power as
compared to that of Corporation, for they did not have any
meaningful choice while assenting to the terms and conditions
of their appointment in the Corporation. If they would have
refused to accept the said rule, it would have led to their
termination from service and exposed them to consequent

anxiety, harassment and uncertainty of finding alternative

employment.
Rule 9(i) was unreasonable and unfair to the extent of being
unconscionable for it gave arbitrary and absolute power to the
Corporation to dismiss its employees without providing any
guidelines to that effect. The rule was also violation of
principle of natural justice-audi alteram partem-for it neither
provided for any inquiry to take place nor did it provide for
any opportunity to accused employee to be heard.
Therefore it was unconscionable and opposed to public policy
for it adversely affected the rights and interests of the
employees and created a sense of insecurity and subservience
to unfair and unreasonable terms of corporation. Hence, it was
void according to S.23 of ICA.

DECISION :- The unconscionable term can be held

void under the circumstances because it imparted absolute
power to the corporation to terminate its employees without
any prior notice & with absolutely no power for the
employees to gainsay the communique as that would have led
to an instant termination on the basis of non-conformation.