Public Policy under Section 23

The answer to it is the bold judge and the new head. The competing view is that with a good rider public policy can be kept in control, and that a court must be able to develop new heads or the doctrine becomes a museum. Indian courts have taken the second view in substance, most visibly in developing the unconscionability head in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156.

The two propositions can be reconciled, and the reconciliation is the mark-earning part of the answer.

Public policy is not the judge's policy. It is a policy the court finds in the Constitution, in a statute, or in a settled judicial understanding of the public interest.

So a new head is legitimate where it is drawn from an identifiable source, and illegitimate where it rests only on the judge's opinion of what is desirable. The unconscionability head passes that test, because it was drawn from article 14 and from the same conception of unequal power that sections 16 and 27 already carry.

The case

The case. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156.

Facts. A service rule of a government company permitted termination of a permanent employee's service by three months' notice or pay in lieu, without inquiry and without any reason being assigned. Two employees whose services were terminated under it challenged the rule.

Held. The term was void as opposed to public policy under section 23. The court held that public policy is not immutable, that it must be judged in the light of changing times and the constitutional values of the day, and that a term imposed on a party whose bargaining power is so unequal that they have no meaningful choice but to accept is unconscionable and will not be enforced; the principle does not apply where the parties are of equal bargaining strength.

Three things that holding establishes, and they are what this chapter needs.

Public policy is not frozen at 1872. It is judged by the values of the time, and the Constitution supplies them.

A new head may be created, and unconscionability was.

And the head carries its own limit, the equal-bargaining-strength exception, which is what prevents it from becoming a general fairness jurisdiction.

Section 24, and the consequence of partial illegality

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 illustration is the clearest statement of the rule's severity: A promises to superintend for B a legal manufacture of indigo and an illegal traffic in other articles, for a salary of ten thousand rupees a year; the agreement is void, because the object of A's promise and the consideration for B's promise are in part unlawful. The lawful half does not survive.

Worked example

Q on public policy, and any question on section 23.

Place it as the fifth limb and note it is the only one worded as a judgment of the court.

Give the eight heads. A list is what makes this answer safe.

Give the unruly horse caution and the answer to it, then the reconciliation: public policy is not the judge's policy but one found in the Constitution, a statute or settled understanding.

Work Brojo Nath Ganguly for the three propositions.

Close on section 24's severity.

What it does NOT mean

It does not mean a court may refuse any bargain it dislikes. The head must be drawn from an identifiable source.

It does not mean the heads are closed. Unconscionability was added.

And it does not mean the offending term alone falls. Section 24 voids the agreement.

Quick revision

• Section 23, fifth limb: the Court regards it as immoral, or opposed to public policy, and the agreement is void. The only limb expressed as a judgment the court makes, the other four being objective conditions.
• The established heads: trading with an enemy; stifling a prosecution; maintenance and champerty, where Indian law differs from English law and a champertous agreement is not void merely as such, but is set aside where extortionate, unconscionable or for improper objects; interference with the course of justice; sale of public offices and honours; monopolies and unreasonable restraint of trade; interference with parental duty or the marital relation, including agreements for future separation; and restraint of personal liberty.
• The unruly horse: public policy is an unruly horse and once astride it you never know where it will carry you. The answer: with a good rider it can be kept in control, and a court must be able to develop new heads or the doctrine becomes a museum.
• The reconciliation: public policy is not the JUDGE'S policy but one found in the Constitution, in a statute, or in a settled judicial understanding. A new head is legitimate where drawn from an identifiable source and illegitimate where it rests on the judge's own view of the desirable. Unconscionability passes, having been drawn from article 14 and from the conception of unequal power sections 16 and 27 already carry.
• The case. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156. Three propositions: public policy is not frozen at 1872 and is judged by the values of the time; a new head may be created, and unconscionability was; and the head carries its own limit, the equal bargaining strength exception, which prevents it becoming a general fairness jurisdiction.
• Section 24: partial illegality voids the whole agreement. The illustration: superintending a legal indigo manufacture and an illegal traffic for one salary is void entire.

Test yourself

1. Where does public policy sit in section 23, and what are its heads? It is the fifth limb: the consideration or object of an agreement is unlawful where the Court regards it as immoral, or opposed to public policy, and every agreement of which the object or consideration is unlawful is void. Three features of the drafting matter. The words are the Court regards it as, so that unlike the other four limbs, which state objective conditions, this one is expressed as a judgment the court makes, which is why it is the judicial limb. Immorality and public policy are separate heads joined by or, though a court finding immorality usually states it as an aspect of policy. And the consequence is voidness rather than unenforceability, so no part of the agreement stands.

The established heads are eight: trading with an enemy; stifling a prosecution, since the administration of criminal justice is not the parties' to bargain over; maintenance and champerty, on which Indian law differs materially from English law, an agreement to finance litigation for a share of the proceeds not being void in India merely because it is champertous, and being set aside where it is extortionate, unconscionable or made for improper objects; interference with the course of justice; the sale of public offices and honours; agreements tending to create a monopoly or in unreasonable restraint of trade, which sections 27 and 28 now largely occupy; agreements interfering with parental duty or with the marital relation, including agreements for future separation; and agreements in restraint of personal liberty.

2. State the caution and the answer to it, and reconcile them. The caution is that public policy is an unruly horse, and that once astride it a judge never knows where it will carry him: a court that refuses enforcement on its own view of the public good has stepped out of adjudication and into legislation. The answer is that with a good rider the horse can be kept in control, and that a court must be able to develop new heads or the doctrine freezes into a museum of Victorian concerns.

The two are reconciled by observing that public policy is not the judge's policy. It is a policy the court finds in the Constitution, in a statute, or in a settled judicial understanding of the public interest. A new head is therefore legitimate where it is drawn from an identifiable source and illegitimate where it rests only on a judge's opinion of what is desirable. The unconscionability head passes that test, because it was drawn from article 14 and from the same conception of unequal bargaining power that sections 16 and 27 of this Act already carry, so the court was extending a policy the legal system had already adopted rather than inventing one.

3. Work the leading case and state its limits. In Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, a service rule of a government company permitted termination of a permanent employee's service by three months' notice or pay in lieu, without inquiry and without any reason being assigned, and two employees terminated under it challenged the rule.

Facts. A printed service condition allowing termination of a permanent employee without inquiry and without reasons, applied to two employees of a government company.

Held. The term was void as opposed to public policy within section 23. Public policy is not immutable but must be judged in the light of changing times and the constitutional values of the day; a term imposed upon a party whose bargaining power is so unequal that they have no meaningful choice but to accept it is unconscionable and will not be enforced; and the principle does not apply where the parties are of equal bargaining strength.

Three propositions follow, and they are what this chapter needs. Public policy is not frozen at 1872 and is judged by the values of the time, with the Constitution supplying them. A new head may be created, and unconscionability was. And the head carries its own limit in the equal-bargaining-strength exception, which is what stops it becoming a general jurisdiction to relieve against a hard bargain. Section 24 should be added on consequences: where any part of a single consideration for one or more objects, or any part of any one of several considerations for a single object, is unlawful, the whole agreement is void, as the illustration of a single salary for superintending both a lawful indigo manufacture and an unlawful traffic shows.