writ petition challenging retrospective amendment to payment of gratuity act, 1972
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
ORIGINAL JURISDICTION
WRIT PETITION NO /2011 (EDN. RES)
Between:
Karnataka Unaided Schools Management’s AssociationA Registered Society Represented by its PresidentG.S.SharmaAge 85 yearsNo.9, V.V.RoadV.V.PuramBangalore 560 004
Petitioner
AND
1. Union of IndiaRepresented by its SecretaryMinistry of Labour And EmploymentShram Shakti BhawanNew Delhi 110 001
[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009]
2. Assistant Labour Commissioner(CENTRAL)Shram Sadan, 3rd Cross3rd Main, 2nd Phase,Yeshwanthpur Industrial SuburbTumkur Road,Bangalore 560 022
[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009
3. State of KarnatakaRepresented by its Principal SecretaryDepartment of LabourKarmika BhavanBannerughatta Road
Respondents
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Bangalore 560 029
[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009
MEMORANDUM OF WRIT PETITION FILED UNDER ARTICLE
226 OF THE CONSTITUTION OF INDIA
The Petitioner hereinabove most respectfully submits:
1. The instant petition is filed under Article 226 of the
Constitution of India for the purpose of invoking the Writ
jurisdiction of this Hon’ble Court.
2. The Petitioner, Karnataka Unaided Schools Management’s
Association (KUSMA for short) is organized as a ‘Society’
whose members are comprised only of educational
institutions in the State of Karnataka. This ‘Society’ is
registered under the State Law in force for the Registration
of ‘Societies’ and has been continually registered at all
relevant times – S.No.438/83-84 dated 08-Mar-1984. A
copy of the said Society’s ‘Certificate of Registration’ dated
08-Mar-1984 is produced herewith and marked as
Annexure A. (followed by a retype of the same).
Membership of this ‘Society’ is open only to those
educational institutions which are privately organized and
which do not receive aid1 or assistance of any kind from the
Government, State or Central. Membership to KUSMA is
strictly enforced and the current membership of KUSMA
stands slightly above One Thousand Three Hundred
educational institutions. The Founder and President of
1 Section 2(18) of the Karnataka Education Act, 1983 defines ‘Grant’ as“means any sum of money paid as aid out of the State funds to any educational institution”.
11
KUSMA, Sri G.S.Sharma, aged 85 years, is authorised and
competent to initiate and conduct this legal proceeding.
3. The Petitioner may be served through its counsel, Sri
K.V.Dhananjay, Advocate, No.296, Kamakshipalya, Magadi
Main Road, Bangalore 560 079.
4. Respondent No.1, the Union of India is entrusted with the
execution and administration of the Payment of Gratuity
Act, 1972, a labour welfare legislation devised by the
Hon’ble Parliament of India.
5. Respondent No.2, the Assistant Labour Commissioner
(Central) is the controlling authority, in terms of Section 3 of
the Payment of Gratuity Act, 1972, that is vested with the
statutory responsibility for the administration of the said
Act, for the State of Karnataka. (vide Notification No.
S.O.430 issued by Respondent 1, dated 04-Mar-1989).
6. Respondent No.3, the State of Karnataka is represented by
the appropriate department that is entrusted with the
obligation to coordinate with central agencies in the matter
of implementation of the Payment of Gratuity Act, 1972 in
the State of Karnataka.
7. The present petition is filed for the purpose of challenging
the arbitrariness, unreasonableness and the
constitutionality of the retrospective operation of the
provisions of the Payment of Gratuity (Amendment) Act,
2009 in respect of private unaided educational institutions
in the State of Karnataka.
12
8. The Payment of Gratuity Act, 1972 was enacted into law by
the Parliament of India, presumably, under the concurrent
legislative power it exercises over ‘Social Security and
social insurance; employment and unemployment’ (Entry
23, List III, Schedule VII, Constitution of India) or ‘Welfare of
labour including conditions of work, provident funds,
employer’s liability, workmen’s compensation, invalidity and
old age pensions and maternity benefits’. (Entry 24, List III,
Schedule VII, Constitution of India). The said statute,
Payment of Gratuity Act, 1972 was brought into operation
w.e.f. 16-Sep-1972.
9. The preamble to the Payment of Gratuity Act, 1972
(referred to hereinafter also as the ‘statute’ or ‘Act’
wherever the context admits) reads as under:
“An Act to provide for a scheme for the payment of
gratuity to employees engaged in factories, mines,
oilfields, plantations, ports, railway companies, shops
or other establishments and for matters connected
therewith or incidental thereto.”
10. Judicial Dictionary by AJ Aiyar, 14th Edition, 2007 defines
‘Gratuity’ as under (page 490):
Gratuity: Meaning of, It is a reward for long and
meritorious service. (Calcutta Insurance Ltd. v.
Workmen 31 FJR 446, AIR 1967 SC 1286, 14 Lab LR
345)
‘Gratuity’ in its etymological sense means a gift
especially for services rendered or return for favours
received. Gratuity paid to workmen is intended to help
them after retirement on superannuation, death,
13
retirement, physical incapacity, disability or
otherwise…
It would thus be apparent both from its object as well
as its provisions that the Act was placed on the statute
as a welfare measure to improve the service
conditions of the employees. The provisions of the
statute were applied uniformly throughout the country
to all establishments covered by it... (Bakshish Singh
v. Darshan Engineering Works, AIR 1994 SC 251).
11. The Petitioner society has been primarily constituted for the
protection of the interests of private unaided educational
institutions in the State of Karnataka. However, educational
institutions that impart school education only are eligible to
become members of the Petitioner society. The Petitioner
society has been active ever since its inception in pursuing
legal remedies on behalf of its members in the event that
the constitutional or statutory rights of its members, as a
class, are invaded or infringed by statutes, regulations or
conduct, whether by the Centre or the State.
12. The instant petition has been preferred by the Petitioner
society with the objective of safeguarding the constitutional
rights of its members to protection against arbitrary State
action and for protection against regulation that
unreasonably impinges upon the administration of their
affairs. Primarily, the retrospective operation of the
Payment of Gratuity (Amendment) Act, 2009 is the subject
of this petition.
13. The Petitioner submits that the Payment of Gratuity Act,
1972 is a complete code that contains detailed provisions
14
for payment of gratuity. It creates a right to receive a
gratuity, a further obligation to so pay gratuity, indicates
the point of time when such right will accrue and when a
corresponding obligation is so incurred and lays down the
principles for quantification of the gratuity. It provides
further for recovery of the amount due to an employee.
14. The Petitioner further submits that Section 1 (3) (c) of the
Act authorises the Central Government to apply the Act to
any establishment or class of establishments in which ten or
more employees are or were employed by so specifying in a
Notification that may be issued for the purpose. The said
provision reads as under:
Section 1 (3) (c): It shall apply to - such other
establishments or class of establishments, in which
ten or more employees are employed, or were
employed, on any day of the preceding twelve
months, as the Central Government may, by
notification, specify in this behalf.
15. Further, the Petitioner submits that the definition of an
‘employee’ is at the heart of the Payment of Gratuity Act,
1972. The definition of the term ‘employee’ as originally
stated in the Act, until replaced by the Payment of Gratuity
(Amendment) Act, 2009, read as under:
Section 2 (e): "Employee" means any person (other than an
apprentice) employed on wages, in any
establishment, factory, mine, oilfield, plantation,
port, railway company or shop, to do any skilled,
semiskilled or unskilled, manual, supervisory,
technical or clerical work, whether the terms of
15
such employment are express or implied, (and
whether or not such person is employed in a
managerial or administrative capacity), but does
not include any such person who holds a civil
post under the Central Government or a State
Government, and is governed by any other Act or
by any rules providing for payment of gratuity."
16. In the context of the aforesaid definition of an ‘employee’ in
the Payment of Gratuity Act, 1972, the Central Government,
in exercise of powers under Section 1 (3) (c) of the Act,
issued a Notification on 03-April-1997 declaring that ‘the
Payment of Gratuity Act, 1972 is extended to educational
institutions in which ten or more persons are employed or
were employed on any day of the preceding 12 months’.
The said Notification read as under:-
APPLICABILITY OF THE PAYMENT OF GRATUITY ACT,
1972 TO EDUCATIONAL INSTITUTIONS
NOTIFICATION NO. S-42013/1/95-SS II. DATED 3RD
APRIL, 1997:
In exercise of the powers conferred by Cl. (c) of sub-
section (3) of Section 1 of the Payment of Gratuity Act,
1972 (39 of 1972), the Central Government hereby
specifies the educational institutions in which ten or
more persons are employed or were employed on any
day of the preceding 12 months, as a class of
establishments to which the said Act shall apply with
effect from the date of publication of this Notification.
Provided that nothing contained in this Notification
shall affect the operation of the Notification of the
Ministry of Labour S.O. 239 dated 8th January, 1982.
16
17. The Petitioner submits that its member institutions, upon
becoming aware of the aforesaid notification, were
professionally advised that the teaching staff of educational
institutions were not covered under the definition of an
‘employee’ occurring in the Payment of Gratuity Act, 1972
and that the aforesaid Notification applied merely to the
non-teaching staff of educational institutions.
18. The Petitioner further submits that the dispute whether the
definition of an ‘employee’ as occurring in the Payment of
Gratuity Act,1972 also covered a ‘teacher’ employed by an
educational institution reached the Hon’ble Supreme Court
in the year 2001.
19. The Petitioner submits that, the Hon’ble Supreme Court, on
13-Jan-2004, in the case of Ahmedabad Private Primary
Teachers Association v. Administrative Officer (AIR 2004 SC
1426) decisively held that the definition of an ‘employee’ as
it occurred then in the Payment of Gratuity Act, 1972 could
not be interpreted to also include a ‘teacher’ employed by
an educational institution. Specifically, the Hon’ble Supreme
Court held that:
4. As all the learned Judges have unanimously held
that teachers are not covered by the definition of
'employee' under Section 2 (e) of the Act, it has
become necessary for this Court to consider the
correctness of the view with regard to the applicability
of the Act to the teachers as a class.
8. The following important words and expressions in
the definition clause 2 (e), are before us for
consideration and interpretation in the light of the
17
arguments advanced which project different points of
view:-
2 (e): 'employee' means any person (other than
an apprentice) employed on wages, in any
establishment, factory, mine, oilfield, plantation,
port, railway company or shop, to do any skilled,
semi-skilled, or unskilled, manual, supervisory,
technical or clerical work ... whether or not such
person is employed in a managerial or
administrative capacity.
12. We have critically examined the definition clause
in the light of the arguments advanced on either side
and have compared it with the definitions given in
other labour enactments. On the doctrine of 'pari
materia', reference to other statutes dealing with the
same subject or forming part of the same system is a
permissible aid to the construction of provisions in a
statute. See the following observations contained in
Principles of Statutory Interpretation by G. P. Singh
(8th Ed.) Synopsis 4 at pp. 235 to 239:-…
13. The definition of 'workman' contained in S. 2 (s) of
the Industrial Disputes Act, 1947 meaning 'any person
employed in any industry to do any skilled or
unskilled, manual, supervisory, technical, operational,
or clerical work' came up for consideration before this
Court when teachers claimed that they are covered by
the definition of the Industrial Disputes Act. In the
case of A. Sundarambal v. Govt. of Goa, Daman and
Diu [1988 (4) SCC 42 : AIR 1988 SC 1700 : 1989 Lab IC
1317], this Court negatived the claim of teachers that
18
they are covered by the definition of 'workman' under
Industrial Disputes Act thus:
"Even though an educational institution has to be
treated as an 'industry,' teachers in an
educational institution cannot be considered as
workman.
The teachers employed by educational
institutions whether the said institutions are
imparting primary, secondary, graduate or post-
graduate education cannot be called as
'workman' within the meaning of S. 2 (s) of the
Act. Imparting of education which is the main
function of teachers cannot be considered as
skilled or unskilled, manual work or supervisory
work or technical work or clerical work. Imparting
of education is in the nature of a mission or a
noble vocation. The clerical work, if any, they
may do, is only incidental to their principal work
of teaching."
14. The definition of 'employee' as contained in
Section 2 (i) of the Minimum Wages Act, 1948 came
up for consideration before this Court in the case of
Haryana Unrecognised Schools' Association v. State of
Haryana (AIR 1996 SC 2108). In Section 2 (i) of the
Minimum Wages Act, the word 'employee' is defined to
mean: 'any person who is employed for hire or reward
to do any work, skilled or unskilled, manual or clerical,
in a scheduled employment in respect of which
minimum rates of wages have been fixed'. This Court
held that as teachers are not employed for any skilled
or unskilled, manual or clerical work, it is not open to
19
the State Government to include their employment as
a scheduled employment under the Minimum Wages
Act. The relevant observations need to be quoted:-
"A combined reading of Sections 3, 2 (i) and 27
of the Minimum Wages Act, 1948 and the
Statement of Objects and Reasons of the
legislation makes it explicitly clear that the State
Government can add to either part of the
Schedule any employment where persons are
employed for hire or reward to do any work
skilled or unskilled, manual or clerical. If the
persons employed do not do the work of any
skilled or unskilled or of a manual or clerical
nature then it would not be possible for the State
Government to include such an employment in
the Schedule in exercise of power under Section
27 of the Act. Since the teachers of an
educational institution are not employed to do
any skilled or unskilled or manual or clerical work
and therefore, could not be held to be an
employee under Section 2 (i) of the Act, it is
beyond the competence of the State
Government to bring them under the purview of
the Act by adding the employment in educational
institution in the Schedule in exercise of power
under Section 27 of the Act. Hence, the State
Government in exercise of powers under the Act
is not entitled to fix the minimum wage of such
teachers. The impugned notifications so far as
the teachers of the educational institution are
concerned are accordingly quashed."
20
15. The definitions of 'employee' in other labour
legislations which need to be considered for
comparison are first Section 2 (13) of the Payment of
Bonus Act, 1965 where the definition reads as under:-
'2 (13). 'Employee' means any person (other
than an apprentice) employed on a salary or
wage not exceeding [three thousand and five
hundred rupees] per mensem in any industry to
do any skilled or unskilled, manual, supervisory,
managerial, administrative, technical or clerical
work for hire or reward, whether the terms of
employment be express or implied.'
16. Section 2 (f) of the Employees' Provident Funds
Act, 1952 defines 'employee' as under:-
"2 (f): 'employee' means any person who is
employed for wages in any kind of work, manual
or otherwise, in or in connection with the work of
[an establishment] and who gets his wages
directly or indirectly from the employer."
17. Learned counsel appearing for the Corporation
does not dispute that definition of employee under the
Employees' Provident Funds Act, 1952 is very wide
and may include even a teacher in an educational
establishment because the expression in the definition
clause used is 'any person who is employed for wages
in any kind of work, manual or otherwise, in or in
connection with the work of [an establishment] and
who gets his wages directly or indirectly from the
employer'.
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18. It is submitted that since such language of wide
import in defining 'employee' is not used in the
Payment of Gratuity Act of 1972, the definition is
restrictive and not expansive. It has to be understood
as excluding 'teachers' who are not doing any kind of
skilled or unskilled, manual, supervisory, managerial,
administrative, technical or clerical work.
19. It is not disputed that by notification dated 3rd
April, 1997, issued in exercise of powers under Section
1 (3) (c) of the Payment of Gratuity Act, 1972, the
Gratuity Act is extended to educational institutions in
which ten or more persons are employed or were
employed on any day preceding 12 months.
20. An educational institution, therefore, is an
'establishment' notified under Section 1 (3) (c) of the
Payment of Gratuity Act, 1972. On behalf of the
Municipal Corporation, it is contended that the only
beneficial effect of the Notification issued under
Section 1 (3) (c) of the Act of 1972, is that such non-
teaching staff of educational institutions as answer the
description of any of the employments contained in
the definition Clause 2 (e), would be covered by the
provisions of the Act. The teaching staff being not
covered by the definition of 'employee' can get no
advantage merely because by notification 'educational
institutions' as establishments are covered by the
provisions of the Act.
21. Having thus compared the various definition
clauses of word 'employee' in different enactments,
with due regard to the different aims and objects of
the various labour legislations, we are of the view that
22
even on plain construction of the words and
expression used in definition clause 2 (e) of the Act,
'teachers' who are mainly employed for imparting
education are not intended to be covered for
extending gratuity benefits under the Act. Teachers do
not answer description of being employees who are
'skilled,' 'semi-skilled' or 'unskilled.' These three words
used in association with each other intend to convey
that a person who is 'unskilled' is one who is not
'skilled' and a person who is 'semi-skilled' may be one
who falls between two categories meaning he is
neither fully skilled nor unskilled. The Back's Law
Dictionary defines these three words as under:-
"Semi-skilled work: Work that may require some
alertness and close attention, such as
inspecting items or machinery for
irregularities, or guarding property or
people against loss or injury.
Skilled work: Work requiring the worker to use
judgment, deal with the public, analyze
facts and figures, or work with abstract
ideas at a high level of complexity.
Unskilled work: Work requiring little or no judgment,
and involving simple tasks that can be
learned quickly on the job.”
22. In construing the above mentioned three words
which are used in association with each other, the rule
of construction noscitur a sociis may be applied. The
meaning of each of these words is to be understood by
the company it keeps. It is a legitimate rule of
23
construction to construe words in an Act of Parliament
with reference to words found in immediate
connection with them. The actual order of these three
words in juxtaposition indicates that meaning of one
takes colour from the other. The rule is explained
differently: 'that meaning of doubtful words may be
ascertained by reference to the meaning of words
associated with it'. [See Principles of Statutory
Interpretation by Justice G.P. Singh (8th Ed.), Syn.8 at
pg.379].
23. The word 'unskilled' is opposite of the word
'skilled' and the word 'semi-skilled seems to describe a
person who falls between the two categories i.e. he is
not fully skilled and also is not completely unskilled
but has some amount of skill for the work for which he
is employed. The word 'unskilled' cannot, therefore, be
understood dissociated from the word 'skilled' and
'semi-skilled' to read and construe it to include in it all
categories of employees irrespective of the nature of
employment. If the Legislature intended to cover all
categories of employees for extending benefit of
gratuity under the Act, specific mention of categories
of employment in the definition clause was not
necessary at all. Any construction of definition clause
which renders it superfluous or otiose has to be
avoided.
24. The contention advanced that teachers should be
treated as included in expression 'unskilled' or 'skilled'
cannot, therefore, be accepted. The teachers might
have been imparted training for teaching or there may
be cases where teachers who are employed in primary
24
schools are untrained. A trained teacher is not
described in industrial field or service jurisprudence as
a 'skilled employee'. Such adjective generally is used
for employee doing manual or technical work.
Similarly, the words 'semi-skilled' and 'unskilled' are
not understood in educational establishments as
describing nature of job of untrained teachers. We do
not attach much importance to the arguments
advanced on the question as to whether 'skilled',
'semi-skilled' and 'unskilled' qualify the words
'manual', 'supervisory', 'technical' or 'clerical' or the
above words qualify the word 'work'. Even if all the
words are read disjunctively or in any other manner,
trained or untrained teachers do not plainly answer
any of the descriptions of the nature of various
employments given in the definition clause. Trained or
untrained teachers are not 'skilled', 'semi-skilled',
'unskilled', 'manual', 'supervisory', 'technical' or
'clerical' employees. They are also not employed in
'managerial' or 'administrative' capacity. Occasionally,
even if they do some administrative work as part of
their duty with teaching, since their main job is
imparting education, they cannot be held employed in
'managerial' or 'administrative' capacity. The teachers
are clearly not intended to be covered by the
definition of 'employee'.
25. The Legislature was alive to various kinds of
definitions of word 'employee' contained in various
previous labour enactments when the Act was passed
in 1972. If it intended to cover in the definition of
'employee' all kinds of employees, it could have as
25
well used such wide language as is contained in
Section 2 (f) of the Employees' Provident Funds Act,
1952 which defines 'employee' to mean 'any person
who is employed for wages in any kind of work,
manual or otherwise, in or in connection with the work
of [an establishment]'…Non-use of such wide
language in the definition of 'employee' in Section 2
(e) of the Act of 1972 reinforces our conclusion that
teachers are clearly not covered in the definition.
20. The Petitioner submits that, the Parliament thereafter chose
to amend the definition of the term ‘employee’ occurring in
the Payment of Gratuity Act, 1972 for the purpose of also
covering a ‘teacher’ employed by an educational institution.
As such, the ‘Statement of Objects And Reasons dated 07-
Sep-2007’ to a proposed amendment to the definition of
‘employee’ read as under:
STATEMENT OF OBJECTS AND REASONS
The Payment of Gratuity Act, 1972 (the Act) provides
for payment of gratuity to employees employed in any
establishment, factory, mine, oilfield, plantation, port,
railway company or shop employing 10 or more
persons.
2. The Central Government had extended the
provisions of the Act to the educational institutions
employing 10 or more persons vide this Ministry’s
notification No.S.O. 1080 dated 3rd April, 1997. The
Hon’ble Supreme Court in its judgment dated 13th
January, 2004, in Ahmedabad Private Primary
Teachers Association v. Administrative Officer (AIR
2004 SC 1426) held that teachers are not entitled to
26
gratuity under the Act, in view of the fact that
teachers do not answer description of ‘employee’ who
are ‘skilled’, ‘semi-skilled’, or ‘unskilled’. The Supreme
Court observed that non-use of wide language similar
to definition of ‘employee’ as is contained in section 2
(f) of the Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952, reinforces the
conclusion that teachers are not covered in that
definition. Para 26 of the said judgment reads as
follows:
“Our conclusion should not be misunderstood
that teachers although engaged in very noble
profession of educating our young generation
should not be given any gratuity benefit. There
are already in several States separate statutes,
rules and regulations granting gratuity benefits
to teachers in educational institutions which are
more or less beneficial than the gratuity benefits
provided under the Act. It is for the Legislature to
take cognizance of situation of teachers in
various establishments where gratuity benefits
are not available and think of a separate
legislation for them in this regard. That is the
subject matter solely of the Legislature to
consider and decide.”
3. Keeping in view the observations of the Hon’ble
Supreme Court, it is proposed to widen the definition
of ‘employee’, in order to extend the benefits of
gratuity to the teachers, by amending the same.
4. The Bill seeks to achieve the above objects.
27
NEW DELHI.
The 7th September, 2007
OSCAR FERNANDES
21. Accordingly, the Petitioner submits that the Payment of
Gratuity (Amendment) Act, 2009 came to be passed by the
Hon’ble Parliament and received the assent of the President
of India on 31-Dec-2009. By a Notification issued on 31-Dec-
2009, the said Amendment Act of 2009 was given
retrospective effect from 03-Apr-1997.
22. The complete text of the Payment of Gratuity (Amendment)
Act, 2009 as Notified is as under:
An Act further to amend the Payment of Gratuity Act,
1972.
Be it enacted by Parliament in the Sixtieth year of the
Republic of India as follows:
1. (1) This Act may be called the Payment of Gratuity
(Amendment) Act, 2009,
(2) It shall be deemed to have come into force on the
3rd day of April, 1997.
2. In the Payment of Gratuity Act, 1972 (hereinafter
referred to as the principal Act), in section 2, for
clause (e), the following clause shall be substituted,
namely:-
(e) “employee” means any person (other than an
apprentice) who is employed for wages, whether
the terms of such employment are express or
implied, in any kind of work, manual or
otherwise, in or in connection with the work of a
28
factory, mine, oilfield, plantation, port, railway
company, shop or other establishment to which
this Act applies, but does not include any such
person who holds a post under the Central
Government or a State Government and is
governed by any other Act or by any rules
providing for payment of gratuity’.
3. After section 13 of the principal Act, the following
section shall be inserted, namely:-
“13A. Notwithstanding anything contained in any
judgment, decree or order of any court, for the
period commencing on and from the 3rd day of
April, 1997 and ending on the day on which the
Payment of Gratuity (Amendment) Act, 2009
receives the assent of the President, the gratuity
shall be payable to an employee in pursuance of
the notification of the Government of India in the
Ministry of Labour and Employment vide number
S.O. 1080 dated the 3rd day of April, 1997 and
the said notification shall be valid and shall be
deemed always to have been valid as if the
Payment of Gratuity (Amendment) Act, 2009 had
been in force at all material times and the
gratuity shall be payable accordingly:
Provided that nothing contained in this section
shall extend, or be construed to extend, to affect
any person with any punishment or penalty
whatsoever by reason of the non-payment by
him of the gratuity during the period specified in
this section which shall become due in
pursuance of the said notification.”
29
23. The Petitioner submits that, the immediate impact from the
passage of the Payment of Gratuity (Amendment) Act, 2009
upon private unaided educational institutions is as under:
Time Period Impact upon private unaided
educational institutions in
the State of Karnataka
a) From: Passage of the
Payment of Gratuity
Act, 1972 w.e.f. 16-Sep-
1972
To: Issue of Notification
declaring educational
institutions to be
covered within the
ambit of the Act w.e.f.
03-Apr-1997
Educational institutions as a
class were outside the ambit
of the Payment of Gratuity
Act, 1972 until 03-Apr-1997.
As such, private unaided
educational institutions were
excluded from the ambit of
the Payment of Gratuity Act,
1972 until 03-Apr-1997.
b) From: Passage of the
Notification on 03-Apr-
1997
To: Decision by the
Supreme Court in
Ahmedabad Private
Primary Teachers
Association v.
Administrative Officer,
(AIR 2004 SC 1426) on
13-Jan-2004.
The members of the
Petitioner were
professionally advised that
the 03-Apr-1997 Notification
would apply only to the non-
teaching staff employed in
educational institutions. As
such, only a private unaided
education institution that
employed in excess of 10
non-staff members for any
month beginning from April,
30
1996 became subject to the
provisions of the Act in
respect of such non-teaching
staff.
c) From: Decision by the
Supreme Court in the
Ahmedabad Teachers
(supra) case on 13-Jan-
2004
To: Just prior to the
passage of the Payment
of Gratuity
(Amendment) Act, 2009
on 31-Dec-2009.
Private unaided educational
institutions that are
members of the Petitioner
witnessed no change from
the position described
above.
d) From: Passage of the
Payment of Gratuity
(Amendment) Act, 2009
on 31-Dec-2009 with a
retrospective operation
from 03-Apr-1997.
Private unaided educational
institutions in the State of
Karnataka are suddenly
burdened with a financial
distress that they had never
foreseen or anticipated. Most
of the private unaided
educational institutions are
now liable to discharge this
abrupt liability cast on them
– as the Act would apply to
every institution that
employs or has employed
ten or more persons in any
month commencing from
31
April, 1996. Most of the
educational institutions that
were excluded until 31-Dec-
2009 on the ground that
they employed less than 10
non-teaching staff members
are now subject to the
statute and liable w.e.f. 03-
Apr-1997.
24. The Petitioner submits that the retrospective operation of
the Payment of Gratuity (Amendment) Act, 2009 (referred
to hereinafter as ‘2009 Amendment’, wherever the context
admits) is onerous and casts an unbearable financial burden
upon private unaided educational institutions.
25. Further, when considered against a host of other statutes,
rules and regulations that prescribe or limit the fee that
private unaided educational institutions are authorised to
charge and collect, the Petitioner submits that the
retrospective operation of the 2009 Amendment infringes
upon the fundamental right of the members of the
petitioner to establish and administer an educational
institution by unreasonably creating an unforeseen financial
burden in the face of numerous Government restrictions
upon collection of fee or revenue by educational
institutions.
26. Further, the Petitioner submits that the Parliament has
deprived the binding nature of a judicial decision by
legislating that the interpretation advanced by the Supreme
Court would not protect those who relied upon such
32
interpretation. By replacing a different definition in place of
the earlier definition, the Parliament could not have
supposed to merely correct ‘some’ inadvertent error and is
therefore, disentitled to argue that the 2009 Amendment is
merely in the nature of a validating statute or that such
validation is fully within legislative prerogative.
27. Further, the Petitioner submits that a private unaided
educational institution is already subject to stringent
regulation in the matter of deriving its revenue. By a series
of judicial decisions, educational institutions have been
decisively forbidden from profiteering in any manner. As
such, the revenue of a private unaided educational
institution is solely comprised of fees collected from its
pupils. The 2009 Amendment to the Payment of Gratuity
Act, 1972 is therefore bound to adversely impact the
financial health of educational institutions due to a failure of
the Parliament to recognise the financial limitation of a
private unaided educational institution.
28. The Petitioner further submits that private unaided
educational institutions in the State of Karnataka are further
subject to a host of regulations that mandate the incurring
of certain expenses on par with what is incurred by
educational institutions operated by the Government.
Specifically, the Karnataka Educational Institutions (Certain
terms and conditions of service of employees in Private
unaided Primary and secondary and Pre-university
Educational Institutions) Rules 20052 notified on 12-Jan-
2006 mandates that salaries of the teaching staff in private
2 In exercise of powers conferred upon the Government of Karnataka in terms of Section 145 of the Karnataka Education Act, 1983.
33
unaided educational institutions that are governed by the
Karnataka Education Act, 1983 (all members of the
Petitioner are governed by the Karnataka Education Act,
1983) are to match the scale of salaries of teachers in
Government schools. Rule 3 (1) (b) of the said Regulation
specifically mandates that:
Rule 3 (1) (b): Minimum number of posts, Educational
Qualifications and conditions of service of
employees:- Subject to the other provisions of
these rules the salary of the employees in the
educational Institutions of namely, the unaided
Primary, Secondary and Pre-University
educational Institutions shall not be less than the
minimum of the basic of the scale of the pay of
the corresponding post held by an employee in a
Government educational institution and shall be
disbursed through A/c Payee cheques drawn in
favor of such employee.
29. Further, the Petitioner submits that the above Regulation
also mandates that the staffing pattern in a private
educational institution is to be structured in the same
manner as is done in educational institutions operated by
the Government. Specifically, Rule 3 (1) (a) of the aforesaid
Regulation provides that:
Rule 3 (1) (a): Minimum number of posts, Educational
Qualifications and conditions of service of
employees:- Subject to the other provisions of
these rules the minimum number of categories
and number of posts and staffing pattern shall be
as applicable to aided educational institutions.
34
30. Accordingly, the Petitioner submits that the minimum
strength of the staff of a private unaided educational
institution in the State of Karnataka is itself made the
subject of a binding regulation. As such, in view of the fact
that the Payment of Gratuity Act, 1972 is made applicable
to an establishment consequent to the employment of 10 or
more qualifying persons (at any point of time commencing
from the 12 months prior to 03-Apr-1997) the retrospective
operation of the 2009 Amendment to the Payment of
Gratuity Act, 1972 is bound to create an enormous fiscal
burden upon the members of the Petitioner by subjecting
most of them to the rigour of the Payment of Gratuity Act,
1972.
31. Further, private unaided educational institutions in the State
of Karnataka are already subject to onerous regulation that
severely limits their financial flexibility. The revenue and all
sources of income to a private unaided educational
institution in the State of Karnataka are severely restricted
in terms of the following provisions of law:
The Karnataka Educational Institutions (Prohibition of
Capitation Fee) Act, 1984:
Section 3: Collection of Capitation fee prohibited:
Notwithstanding anything contained in any law
for the time being in force, no capitation fee shall
be collected by or on behalf of any educational
institution or by any person who is in charge of
or is responsible for the management of such
institution.
Section 5: Regulation of fees etc: (1) It shall be competent
for the Government by notification, to regulate
35
the tuition fee or any other fee or deposit or
other amount that may be received or collected
by any educational institution or body of such
institutions in respect of any or all class or
classes of students.
(2) No educational institution shall collect any
fees or amount or accept deposits in excess of
the amounts notified under sub section (1) or
permitted under the proviso to section 3.
Section 6 Regulation of Expenditure and maintenance of
accounts etc. (1) The Government may regulate
the expenditure of the educational institutions
and the maintenance of accounts by them in
such manner as may be prescribed.
The Karnataka Educational institutions (Classification,
Regulation and Prescription of Curricula etc.,) Rules 1985
Rule 10 (2) The fees to be collected shall be classified as:
a) Term fees;
b) Tuition fees;
c) Special development fees.
Rule 10 (3) (a) Term Fees:
i) No term fees shall be collected from pre-
primary and lower primary students;
ii) In upper primary and higher classes, term fees
shall be collected at the rate specified by the
State Government or the competent Authority
authorized in their behalf through a notification
36
and shall be collected only for the items listed in
the said notification;
iii) Term fees collected by the recognized
educational institutions for each term from the
students shall be subject to exemption made by
the State Government from time to time in this
regard.
Rule 10 (3) (b): Tuition fees-
ii) In case of recognized private unaided
institutions tuition fees may be collected from all
the students, which shall be commensurate with
the expenditure incurred towards salary of staff
and the quality of education provided by the
institution;
Rule 10 (3) (c): Special Development fees may be collected-
ii) In the case of recognized unaided educational
institution up to a maximum of Rs 600 per year.
Karnataka Educational Institutions (Regulation of Certain
fees and donations) Rules, 1999.
Rule 3 : Regulations of Donations etc:- No donation or
voluntary donation or any money by whatever
name called shall be received by the Educational
Institutions, other than prescribed fee as notified
by the management before during or after
admission and during entire stay of the student
in the concerned educational institutions from
parents or any person in connection with such
admission. No donation made in connection with
any admission shall be construed as voluntary
37
donations, for the purpose of section 48 and 51
of the Act.
Rule 4 : Fees in unaided Private Educational Institutions:-
(1) Notwithstanding anything contained in any
rules made in this behalf and in lieu of tuition fee
charged under rule 10 (2) (b) (ii) of the
Karnataka Education institutions (Classification,
Regulation Prescription of curricula etc) Rules
1995, the maximum tuition fee in respect of
private unaided educational institutions shall be
fixed taking into consideration the salary
expenditure on teaching and non teaching staff
plus 30% of the salary expenditure towards
contingency and maintenance costs divided by
total number of students.
32. Respectfully, the Petitioner submits that, in addition to the
above Regulation, the Parliament has also enacted a law to
further restrict the revenue source of a private unaided
educational institution by bringing forth drastic social
measures under the Right of Children to Free and
Compulsory Education Act, 2009. The critical provisions of
this statute provide that:
Section 12: Extent of school’s responsibility for free and
compulsory education-
(1) For the purposes of this Act, a school:- (c)
Specified in sub clause (iii) and (iv) of section 23
shall admit in class I, to the extent of at least
twenty-five percent of the strength of that class
children belonging to weaker section and 3Covers unaided private educational institutions imparting elementary education, that is, education for standards I to VIII.
38
disadvantaged group in the neighbourhood and
provide free and compulsory elementary
education till its completion;
(2) The school specified in sub-clause (iv) of
clause (n) of section 2 providing free and
compulsory elementary education as specified in
clause (c) of sub section (1) shall be reimbursed
expenditure so incurred by it to the extent of
per-child-expenditure incurred by the State, or
the actual amount charged from the child,
whichever is less, in such manner as may be
prescribed.
Provided that such reimbursement shall not
exceed per-child-expenditure incurred by a
school specified in sub-clause (i) of clause (n) of
section 2;
Section 13: No capitation fee and screening procedure for
admission - (1) No school or person shall, while
admitting a child, collect any capitation fee and
subject the child or his or her parents or
guardian to any screening procedure.
33. The Petitioner submits that, as is plainly evident from a bare
perusal of the regulation to which a private unaided
education institution is already subject to in the matter of
deriving its revenue, the retrospective operation of the
2009 Amendment is bound to dislocate the financial health
of such institutions in the State of Karnataka.
39
34. The petitioner submits that it has not filed, on the instant
cause of action, any other petition before this Hon’ble Court
or before any other Court of competent jurisdiction.
35. The Petitioner reasonably asserts that the violation of the
fundamental rights of its member educational institutions
by reason of retrospective operation of the 2009
Amendment is such that the relief sought herein offers an
adequate remedy under the circumstances.
36. That, under the circumstances, the petitioner seeks the
intervention of this Hon’ble Court under Article 226 of the
Constitution, amongst others, on the following:
GROUNDS
I. The definition of an ‘employee’ occurring in Section 2 (e) of
the Payment of Gratuity Act, 1972 is the very heart and soul
of that statute. The 2009 Amendment seeks to change this
very heart of the statute retrospectively. Unlike validation
statutes that have been upheld by decisions of various
courts4, the amendment in question surpasses the breadth
of any validating statute that has withstood judicial scrutiny
thus far.
II. In almost every case where the retrospective operation of a
validating statute has been upheld by a Court of law, the
retrospective amendment affected an incidental or an
4 …Where the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, it can also provide for the retrospective operation of the said provisions. The legislative power in addition, includes the subsidiary or auxiliary power to validate laws which have been found to be invalid. If a law passed by a legislature is struck down by the court as being invalid for one infirmity or another, it would be competent to the appropriate legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said earlier law effective from the date when it was passed.Krishnamurthi And Co. v. State of Madras., AIR 1972 SC 2455
40
ancillary provision of the relevant statute. Never did any
such validating statute change the very heart or defining
feature5 of the original statute. As such, when challenged,
Courts have upheld retrospective operation of validating
statutes only in so far as such amendment preserved the
defining feature of that statute while modifying an
incidental feature of the statute in question6.
III. The power of a Legislature to enact a retrospective
legislation is limited to the extent of fairness it could
demonstrate when it seeks to impose a liability or a penalty
upon a citizen for failure to conduct himself in a certain
manner even while it prescribed some specific conduct only
after the citizen had concluded his conduct. Whether such
retrospective legislation could be termed ‘reasonable’ under
5 …But the core of a taxing statute is in the charging section and the provisions levying such a tax and defining persons who are liable to pay such tax. If that core disappears the remaining provisions have no efficacy….B.Shama Rao v. Union Territory of Pondicherry., AIR 1967 SC 14806 …The fiscal enactments brought on the statute book in that connection are sometimes challenged by the tax payer in courts of law. The courts then scrutinise the legal provision to decide whether the levy of tax is legally valid or suffers from some infirmity. In case the court comes to the conclusion that the levy of tax is not valid as the legal provision enacted for this purpose does not warrant the levy of tax imposed because of some defect in phraseology or other infirmity, the legislature quite often passes an amending and validating Act. The object of such an enactment is to remove and rectify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. Such an amending and validating Act to make "small repairs'' is a permissible mode of legislation and is frequently resorted to in fiscal enactments. As observed in 73 Harvard Law Review 692 at p. 705:"It is necessary that the legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called 'small repairs'. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the legislature's or administrator's action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of government outweighs the individual's interest in benefiting from the defect...The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government among those who benefit from it.''The above passage was quoted with approval by the Constitution Bench of this Court in the case of Assistant Commr. of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd. (1970) 1 SCR 268 = (AIR 1970 SC 169).Krishnamurthy And Co. v. State of Madras., AIR 1972 SC 2455
41
the circumstances under which it came to be passed is a
matter for a decision by a Court of law. A Court of law would
be failing in its duty if it were to uphold a retrospective
legislation merely on the ground that a Legislature in India
has been traditionally empowered to legislate
retrospectively.
IV. As such, when a retrospective legislation seeks to impose a
financial burden upon a citizen, should any of the
constitutional rights of a citizen be affected by such
retrospective legislation, the constitutionality of such
legislation is to be examined by a court of law with
reference to the tests that the constitution has itself
prescribed. The 2009 Amendment fails the tests so
prescribed by the Constitution itself.
V. Substantial differentiation exists between the 2009
Amendment and a host of other fiscal statutes that
operated retrospectively and came to be upheld by the
Courts. As Courts have consistently held that the
reasonableness of a tax rate is not justiciable7, where a
retrospective legislation sought to enhance a rate of tax or
sought to remove an exemption, courts have upheld such
retrospective operation primarily on the ground that an
assessee cannot claim a proprietary right to any specific
rate of tax or claim an immutable expectation to the non-
7 Chief Justice Marshall said in McCulloch v. Maryland,. (1819) 4 Law Ed. 579 at p. 607-"The power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself."(See Willoughby on the Constitution of the United States, Vol. 2 at p. 666).In Pacific Insurance Co. v. Soule, (1868) 7 Wall 433 the Court said :-"Congress may prescribe the basis, fix the rate and require payment as it may deem proper. Within the limits of the constitution it is supreme in its action. No power of supervision or control is lodged in either of the other departments of the government."Chhotabai Jethabai Patel And Co. v. Union of India., AIR 1962 SC 1006
42
revocation of an exemption. Therefore, a general principle
deducible from those decisions upholding a retrospective
legislation is an observation in each instance that the
retrospective legislation did not breach a reasonable notice
of a liability to tax8. However, the instant case is markedly
and fundamentally different from such cases and no
reasonable expectation existed in the minds of educational
institutions that the Parliament desired a certain objective
which, though expressed in prior statutes, it had chosen to
not express in the Payment of Gratuity Act, 1972. As
specifically noted by the Hon’ble Supreme Court in the
Ahmedabad Teachers case (supra):
25. The Legislature was alive to various kinds of
definitions of word 'employee' contained in various
previous labour enactments when the Act was passed
in 1972. If it intended to cover in the definition of
'employee' all kinds of employees, it could have as
well used such wide language as is contained in
Section 2 (f) of the Employees' Provident Funds Act,
1952 which defines 'employee' to mean 'any person
who is employed for wages in any kind of work,
manual or otherwise, in or in connection with the work
of [an establishment]'......Non-use of such wide
language in the definition of 'employee' in Section 2
(e) of the Act of 1972 reinforces our conclusion that
teachers are clearly not covered in the definition.
VI. In view of the fact that it has been well established judicially
that the Legislature in India is competent to legislate
8 Further, where the Legislature never intended an exemption in a fiscal statute, but an exemption was inferred by an assessee and a Court of law also held that a reasonable interpretation evidences such exemption, such interpretation of a court protects the assessee.
43
retrospectively9, the only issue that arises for consideration
by this Hon’ble Court is whether, under the circumstances
of this case, the retrospective legislation impugned herein
could withstand judicial scrutiny10. The Petitioner
respectfully submits that the impugned statute does not
withstand a careful judicial scrutiny.
VII. As on 03-Apr-1997, the date on which the Government of
India issued the Notification to bring in educational
institutions within the ambit of the Payment of Gratuity Act,
1972, neither the Parliament of India nor the Government of
India could have reasonably entertained any doubt over the
judicial meaning of the terms ‘clerical’, ‘mechanical’,
‘skilled’ or ‘unskilled’ that stood to define an ‘employee’ for
the purpose of the Payment of Gratuity Act, 1972 in view of
the prior authoritative declaration by the Supreme Court:
a. On 27-Jul-1988 – nearly 10 years earlier – in the case of
Miss A. Sundarambal v. Government of Goa, Daman and
Diu (AIR 1988 SC 1700) wherein the Supreme Court had
decisively rejected the contention that the definition of a
“workman” employed in any industry to do any skilled or
unskilled manual, supervisory, technical or clerical work
for hire or reward, as occurring in the Industrial Disputes
Act, 194711 could be interpreted to include a ‘teacher’
9 The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective.J.K.Jute Mills Co. Ltd. v. State of Uttar Pradesh., AIR 1961 SC 153410 It is well recognised that the power to legislate includes the power to legislate prospectively as well as retrospectively, and in that behalf, tax legislation is no different from any other legislation. If the Legislature decides to levy a tax, it may levy such tax either prospectively or even retrospectively. When retrospective legislation is passed imposing a tax, it may, in conceivable cases, become necessary to consider whether such retrospective taxation is reasonable or not…Jawaharmal v. State of Rajasthan., AIR 1966 SC 76411 At the relevant time, Section 2 (s) of the Industrial Disputes Act, 1947 defined 'workman' thus :
44
employed in an educational institution, though an
educational institution itself may be regarded as an
‘industry’ for the purpose of the said Act. Specifically, the
Supreme Court had held that:
In order to be a workman, a person should be one who
satisfies the following conditions: (i) he should be a
person employed in an industry for hire or reward; (ii)
he should be engaged in skilled or unskilled manual,
supervisory, technical or clerical work; and (iii) he
should not be a person falling under any of the four
clauses, i.e., (i) to (iv) mentioned in the definition of
'workman' in section 2 (s) of the Act….
We are concerned in this case primarily with the
meaning of the words 'skilled or unskilled manual,
supervisory, technical or clerical work'. If an employee
in an industry is not a person engaged in doing work
falling in any of these categories, he would not be a
workman at all even though he is employed in an
industry. The question for consideration before us is
whether a teacher in a school falls under any of the
four categories, namely, a person doing any skilled or
unskilled manual work, supervisory work, technical
work or clerical work. If he does not satisfy any one of
the above descriptions he would not be a workman
"2 (s): 'Workman' means any person (including an apprentice) employed in any industry to do any skilled or unskilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be expressed or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person -(i) who is subject to the Army Act, 1950 (46 of 1950), or the Air Force Act, 1950 (45 of 1950), or the Navy (Discipline) Act, 1934 (34 of 1934); or(ii) who is employed in the police service or as an officer or other employee of a prison; or(iii) who is employed mainly in a managerial or administrative capacity; or(iv) who, being employed in a supervisory capacity, draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature."
45
even though he is an employee of an industry as
settled by this Court…
…We are of the view that the teachers employed by
educational institutions whether the said institutions
are imparting primary, secondary, graduate or post-
graduate education cannot be called as 'workmen'
within the meaning of section 2 (s) of the Act.
Imparting of education which is the main function of
teachers cannot be considered as skilled or unskilled
manual work or supervisory work or technical work or
clerical work. Imparting of education is in the nature of
a mission or a noble vocation. A teacher educates
children, he moulds their character, builds up their
personality and makes them fit to become responsible
citizens. Children grow under the care of teachers. The
clerical work, if any they may do, is only incidental to
their principal work of teaching. We agree with the
reasons given by the High Court for taking the view
that teachers cannot be treated as 'workmen' as
defined under the Act. It is not possible to accept the
suggestion that having regard to the object of the Act,
all employees in an industry except those falling under
the four exceptions (i) to (iv) in section 2 (s) of the Act
should be treated as workmen. The acceptance of this
argument will render the words 'to do any skilled or
unskilled manual, supervisory, technical or clerical
work' meaningless. A liberal construction as suggested
would have been possible only in the absence of these
words. The decision in May and Baker (India) Ltd. v.
Their Workmen (AIR 1967 SC 678) (supra) precludes
us from taking such a view. We, therefore, hold that
46
the High Court was right in holding that the appellant
was not a 'workman' though the school was an
industry in view of the definition of 'workman' as it
now stands.
b. On 12-Apr-1996, in the case of Haryana
Unrecognised Schools Association v. State of Haryana
(AIR 1996 SC 2108) whereby the Supreme Court had
again rejected the contention that the definition of an
‘employee’ employed for hire or reward to do any work,
skilled or unskilled, manual or clerical, as occurring in the
Minimum Wages Act, 194812 could be interpreted to
include a ‘teacher’ employed in an educational
institution. Specifically, the Supreme Court had held that:
…Since the teachers of an educational institution are
not employed to do any skilled or unskilled or manual
or clerical work and therefore could not be held to be
an employee under Section 2 (i) of the Act, it is
beyond the competence of the State Government to
bring them under the purview of the Act by adding the
employment in educational institution in the Schedule
in exercise of power under Section 27 of the Act. This
Court while examining the question whether the
teachers employed in a school is workmen under
Industrial Disputes Act had observed in Miss A.
12 At the relevant time, Section 2 (i) of the Minimum Wages Act, 1948 read as:2 (i): "employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed, and includes an out worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of that other person where the process is to be carried out either in the home of the out worker or in some other premises not being premises under the control and management of that other person; and also includes an employee declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union.
47
Sundarambal v. Govt. of Gao, Daman and Diu (1988) 4
SCC 42 : (AIR 1988 SC 1700 Para 10) :
"We are of the view that the teachers employed by
educational institutions whether the said institutions
are imparting primary, secondary, graduate or post
graduate education cannot be called as workmen'
within the meaning of Section 2 (s) of the Act.
Imparting of education which is the main function of
teachers cannot be construed as skilled or unskilled
manual work or clerical work. Imparting of education is
in the nature of a mission or a noble vocation. A
teacher educates children, he moulds their character,
builds up their personality and makes them fit to
become responsible citizens. Children grow under care
of teachers. The clerical work, if any they may do, is
only incidental to their principal work of teaching".
Applying the aforesaid dictum to the definition of
employee under Section 2 (i) of the Act it may be held
that a teacher would not come within the said
definition. In the aforesaid premises we are of the
considered opinion that the teachers of an educational
institution cannot be brought within the purview of the
act and the State Government in exercise of powers
under the Act is not entitled to fix the minimum wage
of such teachers. The impugned notification so far as
the teachers of the educational institution are
concerned are accordingly quashed. This appeal is
allowed. Writ petition filed succeeds to the extent
mentioned above…
48
VIII. As such, as on 03-Apr-1997, the Parliament and the
Government of India had full notice that the definition of an
‘employee’ as occurring in the Payment of Gratuity Act,
1972 could not include within its ambit, a ‘teacher’
employed by an educational institution in view of the
published authoritative pronouncement of the Supreme
Court on the very terms that were similarly contained13 in
the Industrial Disputes Act, 1947 and the Payment of Wages
Act, 1948. Therefore, neither the Parliament nor the
Government of India possessed any basis on 03-April-1997
to entertain any notion that the definition of an ‘employee’
in the Payment of Gratuity Act, 1972 as it existed on 03-Apr-
1997 could include a ‘teacher’ employed in an educational
institution. As such, neither the Parliament nor the
Government of India was authorised to disregard the
binding judicial precedent that existed on 03-Apr-1997 and
to assume that its Notification issued on that date was
intended to include a ‘teacher’ employed by educational
institutions. Further, any such assumption would partake
the character of legislation that improperly encroaches into
the province of the judiciary by assuming a meaning
contrary to the interpretation advanced by a Court of law –
the province of the Judiciary being the interpretation of the 13 “employee” under the Payment of Gratuity Act, 1972: (As on 03-Apr-1997)
Section 2 (e): "employee" means any person (other than an apprentice) employed on wages, in any establishment, … to do any skilled, semiskilled or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, (and whether or not such person is employed in a managerial or administrative capacity), …“workman” under the Industrial Disputes Act, 1947: (As on 03-Apr-1997)
Section 2 (s): “workman” means any person (including an apprentice) employed in any industry to do any skilled or unskilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be expressed or implied…“employee” under the Minimum Wages Act, 1948: (As on 03-Apr-1997)
Section 2 (i): "employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed, …
49
laws issued by the Legislature and to attach finality to such
interpretation so long as the language so interpreted
remains intact on the statute book. As such, the
retrospective operation of the 2009 Amendment acts as a
plain encroachment into the judicial sphere by disregarding
binding nature of the decisions of the Supreme Court.
Accordingly, the 2009 Amendment deserves to be
permanently injuncted to the extent of its retrospective
operation.
IX. Even assuming merely for the sake of argument that prior
to 03-Apr-1997, the benefit of the decisions of the Supreme
Court in the cases of A.Sundarambal v. Government of Goa,
Daman and Diu (supra) and Ahmedabad Private Primary
Teachers Association v. Administrative Officer (supra) was
somehow unavailable, and the Government of India
intended on 03-Apr-1997 that ‘teachers’ should be
ordinarily covered under the definition of an ‘employee’
already occurring in the Act, such an intention of the
Government was proper only so long as a Court of law did
not have an occasion to disagree with the contention of the
Government. With the Hon’ble Supreme Court squarely
disagreeing with the interpretation of the Government of
India in the case of Ahmedabad Teachers on 13-Jan-2004,
the interpretation desired by the Government of India was
required to yield to the interpretation advanced by the
Supreme Court of India. Therefore, an educational
institution is bound to receive the protection of the
Ahmedabad Teachers decision of the Supreme Court until
such time that the definition of ‘employee’ stood intact. In
view of the fact that the interpretation of laws is the
exclusive domain of a Court of law under our Constitution, if
50
the Parliament intended that ‘teachers’ ought to be covered
within the definition of an ‘employee’, it was necessary for
the Parliament to clearly recognise that such intention was
grossly inconsistent with the language it had employed in
the statute. As such, the Parliament could have given effect
to its intention only by amending the very definition of the
‘employee’ prospectively; the definition of an ‘employee’ is
not an incidental or ancillary aspect of the Payment of
Gratuity Act, 1972. Rather, the definition of an ‘employee’ is
at the very heart and soul of the Payment of Gratuity
Act,1972. Therefore, the Parliament could not have given
effect to its intention except by replacing the earlier
definition of ‘employee’ with that contained in a statute
approvingly quoted by the Supreme Court (the Employees
Provident Funds And Miscellaneous Provisions Act, 1952). In
the matter of replacing the very heart of the statute, the
Parliament could not have assumed in bringing forth a
retrospective amendment that, it was merely correcting an
incidental or ancillary error that had somehow crept into the
legislation. There is no such error here. The Payment of
Gratuity Act, 1972 is no legislation in the absence of a
definition of ‘employee’. When a retrospective amendment
is passed for the purpose of correcting an error that had
crept into the statute, the Parliament should first
demonstrate that the statute retains a basic existence that
is somehow distinguishable from the errors that are sought
to be cured in the instant case. When the Parliament
detaches the previous definition of an employee from the
statute, the very basic structure of the statute is imperiled
and nothing remains for the Parliament to cure. As such, in
the instant case, the retrospective legislation is not in the
51
nature of a validating statute14 at all. Simply because, in
order to validate a part of a statute, the statute should
retain an essential core and a retrospective validation
should be consistent with such core. In the instant case, the
very core of the statute is sought to be replaced by another
core. As such, the resulting statute may only apply
prospectively and not retrospectively15.
X. Further, in view of a series of decisions by the Hon’ble
Supreme Court, no educational institution is authorised to
operate in a manner so as make any profit or to permit the
sharing of such profits by any person16. Accordingly, the
14 "When a legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition is that the legislature must possess the power to impose the tax, for if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind, for that is tantamount to reversing the decision in exercise of judicial power which the legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances."Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality., (1970) 1 SCR 388 : AIR 1970 SC 19215 It would be within the exclusive domain of judiciary to expound the law as it is and not to speculate what it should be as it is the function of the Legislature. It is also within the exclusive power of the judiciary to hold that a Statute passed by the Legislature is ultra vires. The Legislature in that situation does not become a helpless creature as it continues to remain a living pillar of a living Constitution. Though it cannot directly override the judicial decision, it retains the plenary powers under Articles 245, 246 and 248 to alter the law as settled or declared by judicial decisions. This is what was observed by this Court in M/s. Anwar Khan Mahboob Co. v. State of Madhya Pradesh, (1966) 2 SCR 40 : (AIR 1966 SC 1637), which had the effect of indirectly overruling its previous decision in Firm C.J. Patal and Co. v. State of Madhya Pradesh, AIR 1953 SC 108. The Legislature can also validate an Act which was declared invalid by the Court or amend it with retrospective effect so as to remove the grounds of its invalidity. (See : Rai Ramkrishna v. State of Bihar, (1964) 1 SCR 897 : (AIR 1963 SC 1667) and Mt. Jadao Bhuji v.Municipal Committee, Khandwa, AIR 1961 SC 1486.The power to make a law includes the power to give it retrospective effect subject to the restriction imposed by Article 20(1) that a Legislature cannot make retrospective penal laws. It would be valid for the Legislature to make any other enactment with retrospective effect provided no Fundamental Right is infringed by reasons of its taking away the vested right...Chintaman Rao v. State of M.P., AIR 1951 SC 118 16 …But one thing is clear: commercialization of education cannot and should not be permitted. The Parliament as well as the State Legislatures have expressed this intention in unmistakable terms. Both in the light of our tradition and from the standpoint of interest of general public, commercialization is positively harmful; it is opposed to public policy….…Trade or business normally connotes an activity carried on with a profit motive. Education has never been commerce in this country. Making it one is opposed to the ethos, tradition and sensibilities of this nation. The argument to the contrary has an unholy ring to it. Imparting of education has never been treated as a trade or business in this country since times immemorial. It
52
Parliament is bound to be aware of the fact that educational
institutions in India are established and operate without a
profit motive. As such, the act of retrospectively subjecting
a private unaided educational institution to an unforeseen
and unexpected financial burden is plainly arbitrary, is an
unreasonable exercise of legislative power and is therefore,
unconstitutional17.
XI. Further, as expounded in paragraphs above, the revenue
earning ability of a private unaided educational institution in
the State of Karnataka is pervasively regulated and
restricted by several statutes – both Parliamentary and of
the State. Because a private unaided educational institution
has been treated as a religious duty. It has been treated as a charitable activity. But never as trade or business. We agree with Gajendragadkar, J. that "education in its true aspect is more a mission and a vocation rather than a profession or trade or business, however wide may be the denotation of the two latter words........" [See University of Delhi (1964) 2 SCR 703 : (AIR 1963 SC 1873)]……We are, therefore, of the opinion, adopting the line of reasoning in State of Bombay v. R.M.D.C., 1957 SCR 874 : (AIR 1957 SC 699), that imparting education cannot be treated as a trade or business. Education cannot be allowed to be converted into commerce…Unnikrishnan J.P. v. State of Andhra Pradesh., AIR 1993 SC 2178 : (1993) 1 SCC 645
…Every institution is free to devise its own fee structure subject to the limitation that there can be no profiteering and no capitation fee can be charged directly or indirectly, or in any form (paras 56 to 58 and 161 [answer to Question 5(c)] of Pai Foundation are relevant in this regard).P.A.Inamdar v. State of Maharashtra., 2005 (6) SCC 537
We, however, wish to emphasize one point, and that is that inasmuch as the occupation of education is, in a sense, regarded as charitable, the Government can provide regulations that will ensure excellence in education, while forbidding the charging of capitation fee and profiteering by the institution. Since the object of setting up an educational institution is by definition "charitable", it is clear that an educational institution cannot charge such a fee as is not required for the purpose of fulfilling that object. To put it differently, in the establishment of an educational institution, the object should not be to make a profit, inasmuch as education is essentially charitable in nature….T.M.A. Pai Foundation v. State of Karnataka., AIR 2003 SC 355 : 2002 (8) SCC 48117 The phrase "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. The word "reasonable" implies intelligent care and deliberation, that is the choice of a course which reason dictates. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Art. 19 (1) (g) and the social control permitted by cl. (6) of Art. 19, it must be held to be wanting in that quality.…The determination by the legislature of what constitutes a reasonable restriction is not final or conclusive; it is subject to the supervision by this Ct. In the matter of fundamental rights, the S. C. watches and guards the rights guaranteed by the Constitution and in exercising its functions it has the power to set aside an Act of the Legislature if it is in violation of the freedoms guaranteed by the Constitution….Chintaman Rao v. State of M.P., AIR 1951 SC 118
53
derives no further revenue than is stipulated by a host of
such statutes, it essentially lacks the resources to honour
abrupt fiscal responsibilities thrust on it by the 2009
Amendment. As such, under such circumstances, the
impact of the retrospective operation of a fiscal statute
upon a private unaided educational institution is not
comparable to a burden that would be thrust upon
businesses or other class of profit-oriented assesses.
Therefore, the 2009 Amendment is liable to be injuncted
forthwith for the prevention of harsh and oppressive
consequences upon private unaided educational institutions
in the State of Karnataka.
XII. Further, the public good sought to be achieved by the
Parliament by giving retrospective operation to the 2009
Amendment is plainly illusory. ‘Teachers’ who were
employed by private unaided educational institutions during
the period 03-Apr-1997 to 31-Dec-2009 held no reasonable
expectation of being covered by the Payment of Gratuity
Act, 1972. The petitioner specifically submits that none of
its members entertained any belief, at any point of time
(between 03-Apr-1997 and 31-Dec-2009) that ‘teachers’
under their employment were entitled to gratuity benefits.
As such, neither the ‘teachers’ who were employed by
educational institutions during the relevant period nor the
educational institutions themselves entertained any belief
that the Payment of Gratuity Act,1972 would apply to
‘teachers’ in their employment. Therefore, the Parliament
could not have, acting reasonably and as a representative
of both the classes of citizens, assumed that the reasonable
belief and expectation of ‘teachers’ and educational
institutions was somehow injurious or detrimental to public
54
interest. As such, the Parliament is not authorised to
legislate retrospectively in the manner that it has done18.
XIII. The retrospective operation of the 2009 Amendment is, by
its very nature, arbitrary. Arbitrariness is the antithesis of
equality. An arbitrary legislation as at present should
necessarily injure the rights of the Petitioner protected
under Article 14 of the Constitution19.
XIV. All citizens of this country have a fundamental right to
establish and administer educational institutions under
Article 19 (1) (g)20. The right of the members of the
Petitioner to establish and administer an educational
institution has been wrongfully injured by the 2009
Amendment and there is no overriding governmental
objective behind such legislation21. The 2009 Amendment
has no reasonable relation to the exercise of governmental
power and such excessive power is demonstrably harmful to
the Petitioners’ occupation. As such, the 2009 Amendment
18 The general rule of interpretation is that the language employed is primarily the determining factor to find out the intention of the legislature. Gajendragadkar, J., as he then was, in the case of, Kanailal Sur v. Paramnidhi Sadhukhan, (1958) 2 SCR 360 : (AIR 1957 SC 907), had observed that "the first and primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself." In the case of, Robert Wigram Crawford v. Richard Spooner, (1846) 4 MIA 179 (PC) p. 187. Lord Brougham had stated thus". If the legislature did intend that which it has not expressed clearly; much more, if the legislature intended something very different; if the legislature intended pretty nearly the opposite of what is said, it is not for judges to invent something which they do not meet within the words of the text." Thus when the plain meaning of the words used in a statute indicate a particular state of affairs the Courts are not required to get themselves busy with the "supposed intention" or with "the policy underlying the statute" or to refer the objects and reasons which was accompanied the Bill while introducing the same on the floor of the legislation.S.S.Bola v. B.D.Sardana AIR 1997 SC 3127 : 1997 AIR SCW 317219 E.P.Royappa v. State of Tamil Nadu., AIR 1974 SC 555, 1974 (4) SCC 320 T.M.A.Pai Foundation And Ors. Vs. State Of Karnataka., AIR 2003 SC 355, 2002 (8) SCC 48121 Islamic Academy of Education v. State of Karnataka., AIR 2003 SC 3724, 2003 (6) SCC 697
55
is liable to be struck down for being unconstitutional to the
extent of its retrospective operation22.
XV. Further, the length of time that has elapsed between the
decision of the Supreme Court in Ahmedabad Teachers
(supra) on 13-Jan-2004 and the passage of the Payment of
Gratuity (Amendment) Act, 2009 on 31-Dec-2009 is
extraordinarily large – 2180 days (5 years, 11 months, 19
days). The Petitioner submits that the Constitution of India
clearly provides for the urgent promulgation of legislation
even when the Parliament or a State Legislature is not in
session23. The existence of such a provision in our
Constitution furnishes a guide to assess the reasonableness
of time with which, an Executive Government or the
legislature embarks upon the passage of a validating or a
correcting statute. The act of the Parliament in consuming
close to six years in the process of issuing an extraordinarily
simple legislation is plainly fatal to the giving of a
retrospective operation to the 2009 Amendment. Further,
no indication to give a retrospective operation is even
evident in the ‘Statement of Objects and Reasons’ to the
2009 Amendment published on 07-Sep-2007.
XVI. The ‘Statement of Objects and Reasons’ dated 07-Sep-2007
published by the Government of India in relation to the
2009 Amendment merely states a desire to bring in
‘teachers’ within the ambit of the Payment of Gratuity Act,
1972. When read as a whole, the said Statement merely
reproduces a desire to act in terms of the observation of the
22 P.A.Inamdar v. State of Maharashtra., AIR 2005 SC 2336, 2005 (6) SCC 53723 Article 123: Power of President to promulgate Ordinances during recess of Parliament(1) If at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him to require
56
Hon’ble Supreme Court contained in para 26 of the
Ahmedabad Teachers (supra). In fact, the said Statement
steers clear of the decisive ruling of the Supreme Court
contained in para 25 of its judgment which states that:
25. The Legislature was alive to various kinds of
definitions of word 'employee' contained in various
previous labour enactments when the Act was passed
in 1972. If it intended to cover in the definition of
'employee' all kinds of employees, it could have as
well used such wide language as is contained in
Section 2 (f) of the Employees' Provident Funds Act,
1952 which defines 'employee' to mean 'any person
who is employed for wages in any kind of work,
manual or otherwise, in or in connection with the work
of [an establishment]'... Non-use of such wide
language in the definition of 'employee' in Section 2
(e) of the Act of 1972 reinforces our conclusion that
teachers are clearly not covered in the definition.
XVII. The Petitioner submits that the ruling of the Supreme Court
contained in the paragraph reproduced above clearly
evidences, reinforces and further confers a substantial right
to all persons who relied upon the same. Therefore, the
2009 Amendment violates the vested rights of the members
of the Petitioner and is therefore liable to be struck down to
the extent of its retrospective operation.
XVIII. Further, the fact also that not even the ‘Statement of
Objects and Reasons’ dated 07-Sep-2007 offered any
indication, howsoever, of a retrospective operation of a
statute that came 2 years, 3 months later (847 days) is
further pleaded in support of the relief sought hereinafter.
57
GROUNDS IN SUPPORT OF INTERIM RELIEF:
XIX. All averments, arguments and grounds stated in support of
the main relief are adopted for the purpose of also seeking
an interim relief.
XX. The Petitioner is entitled to succeed on the merits on the
matter. Accordingly, the Petitioner is entitled to an interim
injunction in relation to the retrospective operation of the
Payment of Gratuity (Amendment) Act, 2009.
REST OF THIS DOCUMENT IS INTENTIONALLY BLANK
58
PRAYER
Under these circumstances, the Petitioners humbly pray
that this Hon’ble Court may graciously be pleased to:
i. to issue a judicial declaration that the retrospective
operation (prior to 31-Dec-2009) of the Payment of
Gratuity (Amendment) Act, 2009 operates unreasonably,
arbitrarily and harshly in respect of private unaided
educational institutions in the State of Karnataka and is
therefore, in violation of the constitutional right secured
to private unaided educational institutions in terms of
Articles 14 against arbitrary State action and in terms of
19(1)(g) to protection against unreasonable restriction in
the matter of administration of their affairs;
ii. to issue a Writ of Prohibition or a Writ of any other nature
or description restraining the Respondents from
enforcing the Payment of Gratuity (Amendment) Act,
2009 for any period prior to 31-December-2009 in
respect of educational institutions that are members of
the Petitioner;
iii. to issue any other order, direction or instruction to secure
any purpose or objective that this Hon’ble Court deems
fit under the circumstances of this case in the interests of
justice, equity and expediency.
K.V.DHANANJAY.
Bangalore Roll No.KAR/659/2002
Date: 07-Apr-2011 ADVOCATE FOR PETITIONER
59
INTERIM PRAYER
WHEREFORE, IN VIEW OF THE CIRCUMSTANCES NARRATED
ABOVE, THIS HON'BLE COURT MAY GRACIOUSLY BE
PLEASED TO, PENDING THE COMPLETE ADJUDICATION AND
DETERMINATION OF THIS WRIT PETITION:
i. issue an ad-interim ex-parte injunction upon the
Respondents from enforcing the Payment of Gratuity
(Amendment) Act, 2009 for any period prior to 31-
December-2009 in respect of educational institutions that
are members of the Petitioner;
ii. issue any other Order or direction as this Hon’ble Court
may deem fit or expedient in the facts and circumstances
of this case.
AND FOR THIS ACT OF KINDNESS, THE PETITIONER SHALL EVER IN
DUTY, PRAY.
K.V.DHANANJAY.
Bangalore Roll No.KAR/659/2002
Date: 07-Apr-2011 ADVOCATE FOR PETITIONER
Address for Service of Notice:K.V.DHANANJAY, AdvocateNo.296, KamakshipalyaMagadi Main RoadBangalore 560 079
60
Mobile: +91 9902909390Email: dhananjaylegal@gmail.com
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