IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. CWP (T) No. 781/2008. Reserved on: 23.4.2010. Decided on:15.6. 2010 ______________________________________________ Rakesh Chand and others. …Petitioners. Versus State of Himachal Pradesh and others. …Respondents. ________________________________________________________ Coram: Hon’ble Mr. Justice Rajiv Sharma, Judge. Whether approved for reporting?1 Yes. For the petitioners : Mrs. Ranjana Parmar, Advocate. For the respondents : Mr. R.K. Sharma, Sr. Addl. Advocate General. _____________________________________________________ Rajiv Sharma, Judge. Material facts necessary for the adjudication of this petition are that the petitioners were appointed as Junior Basic Trained Teachers (hereinafter referred to as ‘JBT teachers’ for brevity sake) on contract basis in the years 1997 and 1998. A bare perusal of appointment letters issued in favour of the petitioners and the agreement entered into between them and the State reveals that the petitioners were placed in the pay scale of Rs. 1200-2100. A revision of pay scale took place 1 Whether reporters of the local papers may be allowed to see the judgment? Yes. 2 with effect from 1.1.1996 as per Annexure A-3 dated 20.1.1998. Pay scale of Rs. 1200-2100 was revised to Rs. 4550-7200. However, the petitioners were not granted the pay scale of Rs. 4550-7200 and they were paid the pay scale of Rs. 1200-2100. State Government took a decision on the basis of various judgments of the Hon’ble Supreme Court/ High Courts on 8.10.1996 (Annexure A-4) to pay full wages at the minimum of the scale including the allowance to the teachers appointed on contractual basis. This letter was issued by the Director of Education and was made applicable qua Trained Graduate Teachers/Lecturers (School Cadre). Case of the petitioners, in a nutshell, is that they have been discharging the same duties, which are being discharged by the regularly appointed JBT teachers and are entitled to minimum pay scale of Rs. 4550-7200 from the date of their initial appointments. Precise case of the respondent-State is that petitioners have entered into agreement with the State Government and on that basis they are only entitled to pay scale of 1200-2100 and other allowances, as admissible on this pay scale. Respondent-State has denied the averments contained in the petition that the petitioners are discharging the same duties, which are being discharged by the regularly appointed JBT teachers. Mrs. Ranjana Parmar has strenuously argued that her clients are entitled to pay scale of Rs. 4550-7200 on the 3 principle of “equal pay for equal work”. She then contended that there is no difference in the educational qualification of the petitioners and the duties/functions discharged by her clients vis-a-vis regularly appointed JBT teachers. Mr. R.K. Sharma, learned Senior Additional Advocate General has supported the decision of the State Government by arguing that once the petitioners have entered into agreement with the State Government, their pay is to be fixed in the pay scale mentioned in the agreement. I have heard the learned counsel for the parties and have perused the pleadings carefully. Petitioners have been appointed as JBT teachers on contract basis. It is not in dispute that petitioners fulfill the eligibility criteria prescribed for filling up the posts on regular basis. They have been working as JBT teachers. They are discharging exactly the same and similar duties, which are being discharged by the regularly appointed JBT teachers. Their qualifications and nature of duties/functions are exactly the same. However, in the matter of salary they are being given the pay scale of Rs. 1200-2100 instead of pay scale of Rs. 4550-7200, which was paid to regularly appointed JBT teachers with effect from 1.1.1996. The pay scale of Rs. 4550-7200 has been released to regularly appointed JBT teachers with effect from 1.1.1996 on the basis of notification dated 20.1.1998. 4 Mrs. Ranjana Parmar has drawn the attention of the Court to letter dated 8.10.1996 (Annexure A-4). The State Government has decided that appointments of teaching staff in the schools against short term/leave vacancies shall be on contractual basis and it has been decided to pay full wages at the minimum of the scale including the allowances to the teachers appointed on contractual basis. The notification has been issued by the Director of Education. The Court is of the considered view that the State could not make any distinction in the grant of minimum pay scale to JBT teachers appointed on contractual basis once a conscious decision has been taken to grant the minimum pay scale to Trained Graduate Teachers/Lecturers (School Cadre). The decision of the State not to grant pay scale of Rs. 4550-7200 to the petitioners and similarly situate JBT teachers appointed on contractual basis is unreasonable and arbitrary. Respondent-State is a welfare State. It could not take advantage of superior bargain power by forcing the petitioners and similarly situate teachers to agree to get pay scale of Rs. 1200-2100 though they were entitled to pay scale of Rs. 4550- 7200. The agreements, which the petitioners, have entered into with the respondent-State were unconstitutional, thus violative of Articles 14 and 16 of the Constitution of India. State cannot oblivious to the “distributive justice”. The non- release of pay scale of Rs. 4550-7220 to the petitioners 5 definitely has lowered their morale. State must always realize the teachers should be paid reasonable salary in order to attract best talent to impart quality education to the children that too at the lowest level. The Apex Court in Central Inland Water Transport Corporation Limited and another versus Brojo Nath Ganguly and another, (1986) 3 SCC 156 have held that concepts which are unconscionable, arbitrary and opposed to public policy are void. Their Lordships have further held that such like agreements would be violative of Articles 14, 16, 38, 39 and 49 of the Constitution of India. Their Lordships have further held that 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. Their Lordships have held as under: “71. It was submitted on behalf of the Appellants that there was nothing unconscionable about Rule 9(1). that Rule 9(i) was not a nudum pactum for it was supported by mutuality inasmuch as it conferred an equal right upon both parties to terminate the contract of employment, that the grounds which render an agreement void and unenforceable are set out in the Indian Contract Act, 1872 (Act No. IX of 1872), that unconscionability was not mentioned in the Indian Contract Act as one of the grounds which invalidates an agreement, that the power conferred by Rule 9(i) was necessary for the proper functioning of the administration of the Corporation, that in the case of the Respondents this power was exercised by the Chairman-cum-Managing Director of the Corporation, 6 and that a person holding the highest office in the Corporation was not likely to abuse the power conferred by Rule 9(i). 72. The submissions of the contesting Respondents, on the other hand, were that the parties did not stand on an equal footing and did not enjoy the same bargaining power, that the contract contained in the service rules was one imposed upon these Respondents, that the power conferred by rule 9(i) was arbitrary and uncanalized as it did not set out any guidelines for the exercise of that power and that even assuming it may not be void as a contract; in any event it offended Art. 14 as it conferred an absolute and arbitrary power upon the Corporation. 73. As the question before us is of the validity of clause (i) of Rule 9, we will refrain from expressing any opinion with respect to the validity of clause (ii) of Rule 9 or Rule 37 or 40 but will confine ourselves only to Rule 9(i). 74. The said Rules constitute a part of the contract of employment between the. Corporation and its employees to whom the said Rules apply, and they thus form a part of the contract of employment between the Corporation and each of the two contesting Respondents. The validity of Rule 9(i) would, therefore, first fall to be tested by the principles of the law of contracts. 75. Under S. 19 of the Contract Act, when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. It is not the case of either of the contesting Respondents that there was any coercion brought to bear upon him or that any fraud or misrepresentation had been practised upon him. Under section 19A, when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused and the Court may set aside any such contract either absolutely or if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just. Sub-sec. (1) of S. 16 defines "Undue influence" as follows : 7 "16. 'Undue influence' defined. – (1) A contract is said to be induced by 'undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other." The material provisions of sub-see. (2) of S. 16 are as follows : "(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another – (a) where he holds a real or apparent authority over the other ..........We need not trouble ourselves with the other sections of the Contract Act except Ss. 23 and 24. Section 23 states that the consideration or object of an agreement is lawful unless inter alia the Court regards it as opposed to public policy. This section further provides that every agreement of which the object or consideration is unlawful is void. Under S. 24, if any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object is unlawful, the agreement is void. The agreement is, however, not always void in its entirety for it is well settled that if several distinct promises are made for one and the same lawful consideration, and one or more of them be such as the law will not enforce, that will not of itself prevent the rest from being enforceable. The general rule was stated by Willes, J., in Pickering v. Ilfracombe Ry. Co. (1868) 3 CP 235 (at page 250) as follows: "The general rule is that, where you cannot sever the illegal from the legal part of a covenant, the contract is altogether void; but where you can sever them, whether the illegality be created by statute or by the common law, you may reject the bad part and retain the good". 76. Under which head would an unconscionable bargain fall? If it falls under the head of undue influence, it would be voidable but if it falls under the head of being opposed to public policy, it would be void. No case of the type before us appears to have fallen for decision under the law of contracts before any court in India nor has any case on 8 all fours of a Court in any other country been pointed out to us. The word "unconscionable" is defined in the Shorter Oxford English Dictionary, Third Edition, Volume II, page 2288, when used with reference to actions. etc. as "showing no regard for conscience; irreconcilable with what is right or reasonable". An unconscionable bargain would, therefore, be one which is irreconcilable with what is right or reasonable. 77. Although certain types of contracts were illegal or void, as the case may be, at Common Law, for instance, those contrary to public policy or to commit a legal wrong such as a crime or a tort, the general rule was of freedom of contract. This rule was given full play in the nineteenth century on the ground that the parties were the best judges of their own interests, and if they freely and voluntarily entered into a contract, the only function of the Court was to enforce it. It was considered immaterial that one party was economically in a stronger bargaining position than the other; and if such a party introduced qualifications and exceptions to his liability in clauses which are today known as "exemption clauses" and the other party accepted them, then full effect would be given to what the parties agreed. Equity, however, interfered in many cases of harsh or unconscionable bargains, such as, in the law relating to penalties, forfeitures and mortgages. It also interfered to set aside harsh or unconscionable contracts for salvage services rendered to a vessel in distress, or unconscionable contracts with expectant heirs in which a person, usually a money-lender. gave ready cash to the heir in return for the property which he expects to inherit and thus to get such property at a gross undervalue. It also interfered with harsh or unconscionable contracts entered into with poor and ignorant persons who had not received independent advice (See Chitty on Contracts, Twenty-fifth Edition, Volume I, paragraphs 4 and 516). 78. Legislation has also interfered in many cases to prevent one party to a contract from taking undue or unfair advantage of the other. Instances of this type of legislation are usury laws, debt relief laws and laws regulating the hours of work and conditions of service of workmen and their unfair 9 discharge from service, and control orders directing a party to sell a particular essential commodity to another. 79. In this connection. it is useful to note what Chitty has to say about the old ideas of freedom of contract in modern times. The relevant passages are to be found in Chitty on Contracts, Twenty-fifth Edition, Volume I, in paragraph 4, and are as follows : "These ideas have to a large extent lost their appeal today. 'Freedom of contract,' it has been said, 'is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the economic interests of the community at large.' Freedom of contract is of little value when one party has no alternative between accepting a set of terms proposed by the other or doing without the goods or services offered. Many contracts entered into by public utility undertakings and others take the form of a set of terms fixed in advance by one party and not open to discussion by the, other. These are called contracts adhesion' by French lawyers. Traders frequently contract, not on individually negotiated terms, but on those contained in a standard form of contract settled by a trade association. And the terms of an employee's contract of employment may be determined by agreement between his trade union and his employer, or by a statutory scheme of employment. Such transactions are nevertheless contracts notwithstanding that freedom of contract is to a great extent lacking. Where freedom of contract is absent, the disadvantages to consumers or members of the public have to some extent been offset by administrative procedures for consultation, and by legislation. Many statutes introduce terms into contracts which the parties are forbidden to exclude, or declare that certain provisions in a contract shall be void. And the Courts have developed a number of devices for refusing to implement exemption clauses imposed by the economically stronger party on the weaker, although they have not recognised in themselves any general power (except by statute) to declare broadly that an exemption clause will not be enforced unless it is reasonable. Again, 10 more recently, certain of the judges appear to have recognised the possibility of relief from contractual obligations on the ground of 'inequality of bargaining power." What the French call "contracts dadhesion", the American call "adhesion contracts" or "contracts of adhesion". An "adhesion contract" is defined in Black's Law Dictionary, Fifth Edition, at page 38 as follows: 'Adhesion contract'. Standardized contract form offered to consumers of goods and services on essentially 'take it or leave it' basis without affording consumer realistic opportunity to bargain and under such conditions that consumer cannot obtain desired product' or services except by acquiescing in form contract. Distinctive feature of adhesion contract, is that weaker party has no realistic choice as to its terms. Not every such contract is unconscionable." 81. The position under the American Law is stated in "Reinstatement of the Law Second" as adopted and promulgated by the American Law Institute, Volume II which deals with the law of contracts, in section 208 at page 107, as follows: "§ 208. Unconscionable Contract or Term If a contract or term thereof is unconscionable at the time the contract is made a Court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result." In the-Comments given under that section it is stated at page 107: "Like the obligation of good faith and fair dealing (§205), the policy against unconscionable contracts or terms applies to a wide variety of types of conduct. The determination that a contract or term is or is not unconscionable is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud and other invalidating causes; the policy also overlaps with rules which render 11 particular bargains or terms unenforceable on grounds of public policy. Policing against unconscionable contracts or terms has sometimes been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract'. Uniform Commercial Code § 2-302 Comment 1 ........ A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party. But gross inequality of bargaining power, together with terms unreasonably favourable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms." (Emphasis supplied) There is a statute in the United States called the Universal Commercial Code which is applicable to contracts relating to sales of goods. Though this statute is inapplicable to contracts not involving sales of goods, it has proved very influential in, what are called in the United States, "non-sales" cases. It has many times been used either by analogy or because it was felt to embody a general accepted social attitude of fairness going beyond its statutory application to sales of goods. In the Reporter's Note to the said section 208, it is stated at page 112: "It is to be emphasized that a contract of adhesion is not unconscionable per se, and that all unconscionable contracts, are not contracts of adhesion. Nonetheless, the more standardized the agreement and the less a party may bargain meaningfully, the more susceptible the contract or a term will be to a claim of unconscionability." (Emphasis supplied) The position has been thus summed up by John R. Peden in "The Law of Unjust Contracts" published by Butterworths in 1982, at pages 28-29: "..........Unconscionability represents the end of a cycle commencing with the Aristotelian concept of justice and the 12 Roman law laesio enormis, which in turn formed the basis for the medieval church's concept of a just price and condemnation of usury. These philosophies permeated the exercise, during the seventeenth and eighteenth centuries, of the Chancery Court's discretionary powers under which it upset all kinds of unfair transactions. Subsequently the movement towards economic individualism in the nineteenth century hardened the exercise of these powers by emphasizing the freedom of the parties to make their own contract. While the principle of pacta sunt servanda held dominance, the consensual theory still recognized exceptions where one party was overborne by a fiduciary, or entered a contract under duress or as the result of fraud. However, these exceptions were limited and had to be strictly proved. It is suggested that the judicial and legislative trend during the last 30 years in both civil and common law jurisdictions has almost brought the wheel full circle. Both courts and Parliaments have provided greater protection for weaker parties from harsh contracts. In several jurisdictions this included a general power to grant relief from unconscionable contracts, thereby providing a launching point from which the courts have the opportunity to develop a modern doctrine of unconscionability. American decisions on article 2.302 of the UCC have already gone some distance into this new arena................... The expression "laesio enormis" used in the above passage refers to "laesio ultra dimidium vel enormis" which in Roman law meant the injury sustained by one of the parties to an onerous contract when he had been overreached by the other to the extent of more than one-half of the value of the subject matter, as for example, when a vendor had not received half the value of property sold, or the purchaser had paid more than double value. The maxim "Pacta sunt servanda" referred to in the above passage means "contracts are to be kept". 81. It would appear from certain recent English cases that the Courts in that country have also begun to recognize the possibility of an unconscionable bargain which could be 13 brought about by economic duress even between parties who may not in economic terms be situate differently (See, for instance, Occidental Worldwide Investment Corpn. V. Skibs A/S Avanti (1976), 1 Lloyd's Rep. 293, North Ocean Shipping Co. Lid. v. Hyundai Construction Co. Ltd. (1979) QB 705, Pao On v. Lau Yin Long (1980) AC 614 and Universe Tankships of Monrovia v. International Transport Workers Federation (1981) ICR 129, reversed in (1982) 2 WLR 803, and the commentary on these cases in Chitty on Contracts, Twenty- fifth Edition, Volume 1, paragraph 486). 82. Another jurisprudential concept of comparatively modern origin which has affected the law of contracts is the theory of distributive justice". According to this doctrine, distributive fairness and justice" in the possession of wealth and property can 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. In Lingappa Pochanna Appelwar v. State of Maharashtra, (1985) 1 SCC 479 : (AIR 1985 SC 389), this Court, while upholding the constitutionality of the Maharashtra Restoration of Lands to Scheduled Tribes Act 1974, said (at page 493) (of SCC) : (at p. 398 of AIR) : "The present legislation is a typical illustration of the concept of distributive justice, as modern jurisprudents know it. Legislators, Judges and administrators are now familiar with the concept of distributive justice. Our Constitution permits and even directs the State to administer what may be termed distributive justice'. The concept of distributive justice in the sphere of law-making connotes, inter alia, the removal of economic inequalities and rectifying the injustice resulting from dealings or transactions between unequals in society. Law should be used as an instrument of distributive justice to achieve a fair division of wealth among the members of society based upon the principle: 'From each according to his capacity, to each according to his needs'. Distributive justice comprehends more than achieving lessening of inequalities by differential taxation, giving debt relief or distribution of property owned by one to many who have none by imposing ceiling on holdings, both agricultural 14 and urban, or