“REPORTABLE”

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 6499 OF 2002

Grand Kakatiya Sheraton Hotel & Towers  Employees & Workers Union …. Appellant

Versus

Srinivasa Resorts Ltd. & Ors.       …. Respondents

J U D G M E N T

V.S. SIRPURKAR, J.

This appeal is directed against the judgment and order passed by the

High Court, whereby, Sections 47(3) and 47(4) of the Andhra Pradesh Shops &

Establishments Act, 1988 (hereinafter referred to as ‘the Shops Act’) are declared

unconstitutional, discriminatory and violative of the Articles 14 and 19(1)(g) of the

Constitution  of  India.   Following  facts  would  be  necessary to  understand  the

controversy.  

2. Respondent  No.  1  M/s.  Srinivasa  Resorts  Ltd.  is  a  company

incorporated  under  the  Companies  Act,  while  the  respondent  No.  2  is  a

shareholder  of  the  said  company.   Respondent  No.  1  company  is  engaged  in

business of managing and running hotels.  They have hotel in the name and style

of “ITC Kakatiya Sheraton”, which is being run by the ITC Hotels Ltd., which is

another  company  incorporated  under  the  Companies  Act.   The  said  hotel  is

registered under the provisions of the Shops Act.  The appellant is the Union of

employees and workers of the said hotel.  Assistant Labour Officer, respondent No.

4 herein, visited the hotel at the instance of the appellant Union on 31.5.2001 and

as required by him, the respondent Nos. 1 & 2 furnished information regarding

the employees, who had left the service of the hotel during last 2-3 years, as also

the  amounts  paid  to  them towards full  and final  settlement of  the  dues.   The

respondent company, by letter dated 6.8.2001, also furnished the receipts signed

by the employees who had left the hotel in token of the amounts received by them.

It seems that, thereafter, there was lot of correspondence between the respondent

No.  1  company  and  respondent  No.  4  Assistant  Labour  Officer  on  the  issue,

whereby,  the  Assistant  Labour  Officer  was  insisting  upon  the  respondent

Company to furnish the final settlement statements of the employees, who had left

the service of the hotel, in order to know whether any service compensation had

been paid to them or not in accordance with the provisions of the Shops Act.  It

was pleaded by the respondent company that no further documents except those

which were already produced, were available with them.  However, the Assistant

Labour Officer, by his letter dated 7.8.2001, called upon the respondent company

to show cause as to why penal action should not be taken under Section 16(3) of

the Act for failure to furnish the required documents.  It is at this juncture that a

Writ  Petition  came to  be  filed before the  Andhra Pradesh High  Court  by  the

respondent Nos. 1 & 2 herein, whereby, constitutional validity of the provisions of

Sections  47(3)  and  47(4)  of  the  Shops  Act  in  question,  was  challenged on  the

ground that  they  are illegal,  invalid,  inoperative and unsustainable  in  law and

violative of Article 13,  14 and 19(1)(g)  of the Constitution  of India.   Since the

action  against  the  respondent  company  was  initiated  by  the  appellant  Grand

Kakatiya  Sheraton Hotel  & Towers Employees  & Workers Union  (hereinafter

referred to as  ‘the  Union’  for short),  the  said  Union  joined  as a  party,  as  the

respondent No. 3 to the Writ Petition.  An injunction was also sought for against

the  concerned  authorities  under  the  Act  and  more  particularly,  the  State

Government and the Assistant Labour Officer, restraining them from inferring the

provisions of Sections 47(3)  and 47(4)  of the Shops Act against  the respondent

company.  This Writ Petition was allowed by the High Court, whereby, the High

Court  declared  the  two  aforementioned  provisions  as  unconstitutional  and

amounting  to  unreasonable  discrimination  and  violative  of  Article  14  of  the

Constitution of India.

3. The  original  respondent  No.  3  Union  has  filed  the  present  appeal,

challenging the impugned judgment.   

4. There was one other appeal being Civil Appeal No. 2746 of 2006, which

was attached with the present Civil Appeal No. 6499 of 2002, however, when the

matter was called for hearing on 5.11.2008, nobody remained present for arguing

that  appeal,  which was dismissed for non-prosecution with no orders as to  the

costs.  We are, therefore, left with Civil Appeal No. 6499 of 2002 only.

5. Before we note and appreciate the rival contentions, it will be better to

see the impugned provisions along with the legislative history thereof.

6. The  Andhra Pradesh Shops  and  Establishments  Act  (Act  No.  15  of

1966) (hereinafter referred to as ‘the 1966 Act’)  came on the anvil in the year

1966.   Section  40  of  the  1966 Act  provided  for conditions  for terminating  the

service of an employee, as also the payment of gratuity to him.  This provision

came to be amended in the year 1976 by reason of Act No. 53 of 1976, however, the

said  Act  was  repealed  by  the  present  Act  of  1988.   The  present  Act  of  1988

provides for conditions of terminating the services of an employee and payment of

service  compensation  for  termination,  retirement,  resignation  etc.   In  short,

Section  40  of  the  1966  Act  and  Section  47  of  the  1988  Act  are  pari-materia

Sections.  It will be better to compare the unamended Section 40, that existed from

1966 till its amendment in 1976, secondly, the amended Section 40 of the 1966 Act

as amended by Act No. 53 of 1976 and Section 47 of the present 1988 Act, more

particularly, sub-Sections 3, 4 and 5 thereof, as they stood on the date of petition.

The following tables would succinctly bring out the qualitative changes made in

the texture of the said Section.  At the same time, they would give us the idea as to

how a liability was created via sub-Sections 3 and 4 for the payment of the service

compensation and the conditions for such payment.

Section 40 of A.P. Shops and Establishments Act, 1966 prior to 1976:-

Conditions for terminating the service of an employee and payment of

gratuity:-

1 No  employer  shall  without  a  reasonable  cause  and  except  for  misconduct, terminate the services of an employee and payment of gratuity.

2 No  employer  shall  without  a  reasonable  cause  and  except  for  misconduct, terminate  the  services  of  an  employee,  who  has  been  in  his  employment continuously  for a  period  of  not  less  than  six  months  without  giving  such employee at least one month’s notice in writing or wages in lieu thereof and gratuity amounting to fifteen days’ average wages for each year of continuous service.

3 An employee who has completed the age of sixty years or who is physically or mentally unfit having been declared by a medical certificate, or who wants to retire on medical grounds or to resign his services, may give up his employment after giving to his employer, notice of at  least one month in  the case of an employee of sixty years of age, and fifteen days in any other case; and every such employee and the dependant of an employee who dies while in service, shall be entitled to receive a gratuity amounting to fifteen days’ average wages for each year of continuous employment calculated in the manner provided in the explanation to sub-Section (1).  He shall be entitled to receive the wages from the date of giving up the employment until the date on which the gratuity so payable is actually paid subject to a maximum of wages for two months.

Section 40 of A.P. Shops and Establishments Act, 1966 as amended by Act No. 53

of 1976:-

Conditions for terminating the service of an employee and payment of

gratuity:-

1 No  employer  shall  without  a  reasonable  cause  and  except  for  misconduct, terminate  the  services  of  an  employee,  who  has  been  in  his  employment continuously  for a  period  of  not  less  than  six  months  without  giving  such employee at least one month’s notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than five years, a gratuity amounting to fifteen days’ average wages for each year of continuous service.

2 An employee who has completed the age of sixty years or who is physically or mentally unfit having been declared by a medical certificate, or who wants to retire on medical grounds or to resign his services, may give up his employment after giving to his employer, notice of at  least one month in  the case of an employee of sixty years of age, and fifteen days in any other case; and every such employee and the dependant of an employee who dies while in service, shall be entitled to receive a gratuity as provided in sub-Section (1).  He shall be entitled to receive the wages from the date of giving up the employment until the date on which the gratuity so payable is actually paid subject to a maximum of wages for two months amounting to fifteen days’ average wages for each year of continuous employment calculated in the manner provided in the explanation to sub-Section (1).  He shall be entitled to receive the wages from the date of giving up the employment until the date on which the gratuity so payable is actually paid subject to a maximum of wages for two months.

Section 47(3), (4) and (5) of A.P. Shops and Establishments Act, 1988:-

Conditions  for  terminating  the  service  of  an  employee,  payment  of

service  compensation  for  termination,  retirement,  resignation,  disablement  etc.

and payment of subsistence allowance for the period of suspension:-

1 No  employer  shall  without  a  reasonable  cause  and  except  for  misconduct, terminate  the  services  of  an  employee,  who  has  been  in  his  employment continuously  for a  period  of  not  less  than  six  months  without  giving  such employee at least one month’s notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than one year, a service compensation amounting to fifteen days average wages for each year of continuous employment: provided that every termination shall be made by the employer in writing and a copy of such termination order shall be furnished to the Inspector having jurisdiction over the area within three days of such termination.

2 The service of an employee shall not be terminated by the employer when such employee made a complaint to the Inspector regarding the denial of any benefit accruing  to  him  under  any  labour  welfare  enactment  applicable  to  the establishment and during the pendency of such complaint before the Inspector. The services of an employee shall not also be terminated for misconduct except for such acts or omissions and in such manner as may be prescribed.

3 Every employee who has put in a continuous service of not less than one year, shall be eligible for service compensation amounting to fifteen days’ average wages for each year of continuous employment (i) on voluntary cessation of his work after completion of 60 years of age,  (ii)  on his  resignation,  or (iii)  on physical or mental infirmity duly certified by a registered medical practitioner or (iv) on his death or disablement due to accident or disease: provided that  the completion of continuous service of one year shall not be necessary where the termination of the employment of an employee is due to death or disablement: provided further that  in case of death of an employee service compensation payable to him shall be paid to his nominee or if no nomination has been made to his legal heir.

4 Where a service compensation is payable under this Section to an employee, he shall be entitled to receive his wages from the date of termination or cessation of his services until the date on which the service compensation so payable is actually paid.

5 The payment of service compensation  under this  Section  shall not  apply in cases where the employee is entitled to gratuity under the payment of Gratuity Act,  1972  and  gratuity  has  been  paid  accordingly  consequent  on  the termination or cessation of service.

At this juncture, it will be necessary to see definitions in the amended

Act.  Section 2 gives definitions in the Act.

2(5): ‘Commercial establishment’ means an establishment which carries on

any trade business, profession or any work in connection with or incidental or

ancillary to any such trade business or profession or which is a commercial or

trading  or  banking  or  insurance  establishment  and  includes  an  establishment

under the management and control of a co-operative society, an establishment of a

factory or an industrial undertaking which falls outside the scope of the Factories

Act,  1948  (Central  Act  63  of  1948),  and  such  other  establishment  as  the

Government may, by notification, declare to be a commercial establishment for the

purposes of this Act but does not include a shop’.

2(8) ‘employee’ means a person wholly or principally employed in and in

connection with any establishment and includes an apprentice and any clerical or

other staff of a factory or an industrial establishment who fall outside the scope of

Factories Act, 1948 (Central Act 63 of 1948); but does not include the husband,

wife, son, daughter, father, mother, brother or sister of an employer or his partner,

who is living with and depending upon such employer or partner and is not in

receipt of any wages;

2(9) ‘employer’  means  a  person  having  charge  of  or  owning  or  having

ultimate control over the  affairs of an establishment and includes the Manger,

Agent or other person acting in the management or control of an establishment;

2(10) ‘establishment’  means  a  shop,  restaurant,  eating  house,  residential

hotel, lodging house, theatre or any place of public amusement or entertainment

and  includes  a  commercial  establishment  and  such  other  establishment  as  the

Government may, by notification, declare to be an establishment for the purpose

of this Act;

2(21) ‘shop’ means any premises where any trade or business is carried on

where  services  are  rendered  to  customers  and  includes  a  shop  run  by  a  co-

operative  society,  an  office,  a  store-room,  go-down,  warehouse  or  work place

whether in the same premises or otherwise, used in connection with such trade or

business and such other establishments, as the Government may, by notification,

declare to be a shop for the purpose of this Act, but does not include a commercial

establishment.

Chapter II deals with registration of establishments.  Chapter III relates to shops

and Chapter IV relates to establishments other than shops.  Chapter V relates to

employment of women, children and young persons.  Chapter VI relates to health

and safety, Chapter VII relates to leave and holidays with wages and insurance

scheme for employees.  Chapter VIII deals with wages, conditions for termination

of services, appeals, and suspension and terminal benefits.

At this juncture, it will be better to see a few provisions of Payment of

Gratuity Act, 1972.  Sub-Section (3) of Section 1 provides as under:-

(3) It shall apply to:-

(a) every factory,  mine,  oil  field,  plantation,  port  and railway

company;

(b) every shop or establishment within the meaning of any law

for the time being in force in relation to shops and establishments in a State, in

which ten or more persons are employed or were employed, on any day of the

preceding twelve months;

(c) 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.

3A. A  shop  or  establishment  to  which  this  Act  has  become

applicable shall continue  to  be governed by this  Act,  notwithstanding  that  the

number of persons employed therein at any time after it has become so applicable

falls below ten.

4. Payment of gratuity:-

(1) Gratuity shall be payable to an employee on the termination

of his employment after he has rendered continuous service for not less than five

years.

(a) on his superannuation, or

(b) on his retirement or resignation or

(c) on his death or disablement due to accident or disease.

provided that the completion of continuous service of five years shall

not be necessary where the termination of the employment of any employee is due

to death or disablement.

xxx xxx

xxx

(2) For every completed year of service or part thereof in excess

of six months, the employer shall pay gratuity to an employee at the rate of fifteen

days’ wages based on the rate of wages last drawn by the employee concerned

provided that  in  the  case of a  piece-rated employee,  daily

wages shall be computed on the average of the total wages received by him for a

period of three months.  Immediately preceding the termination of his employment

and for this purpose, the wages paid for any over time work shall not be taken into

account.

Section  7  of  the  Payment  of  Gratuity  Act,  1972  provides  for  the

determination  of  the  amount  of  grautuity.   Under  sub-Section  (1),  an  eligible

employee under the said Act has to make a written application, while sub-Section

(2) makes it  binding on the employer to determine the amount of gratuity and

specify the same to the controlling authority, even if such application is not made.

The mandate of sub-Section (3) is to make the payment of gratuity within 30 days

of the date, it becomes payable to such eligible employee.  Section 3A provides for

the interest, where gratuity is not paid within the prescribed period.

7. The challenge before the High Court was that the impugned provisions

of the Shops Act, viz., Sections 47(3) and 47(4) are ex-facie unreasonable, since the

service compensation is now payable under the same even to the employee, who

has resigned or voluntarily left service after attaining the age of 60 years though he

had not put  in long and continuous service, as required under the Payment of

Gratuity Act.  The further challenge was that the employee becomes entitled to

receive wages from the date of termination or cessation of his services till the date

he is actually paid the service compensation as per sub-Section 4 of the Shops Act.

The respondent company (petitioner before the High Court) urged that this was

arbitrary,  oppressive,  discriminatory  and  violative  of  the  Article  14  of  the

Constitution  of  India.   It  was  urged that  the  employer was forced to  pay  the

service compensation, even though cessation of service in cases of resignation and

voluntary cessation after completion of 60 years, was not on account of any act on

the part of the employer.

8. Heavy reliance was placed by the appellant/petitioner on the judgment

of this Court in Express Newspapers Vs. Union of India reported in AIR 1958 SC

578.

9. Before the High Court, the State sought to defend the said provisions

on the ground that the impugned provisions were made for the payment of extra

wages.   It  was  urged  that  the  provisions  of  Sections  47(3)  and  47(4)  were

applicable only to those employees,  who were not  governed by the Payment of

Gratuity Act.  It was pointed out that the provisions of Payment of Gratuity Act

were applicable only to those employees, who had completed minimum of 5 years

of service, while the provisions of the impugned sub-Sections (3) and (4) of the

Shops Act would be applicable to the employees, who had served even less than 5

years.  According to State, this was a reasonable classification, having a nexus with

the purpose for which the provisions were brought into existence.  It was stated

further that considering objects and reasons of the Shops Act, it was apparent that

there was no conflict between the Payment of Gratuity Act and the Shops Act.  It

was also urged that  since the number of employees in a shop, governed by the

Shops Act could be limited to one or two persons and their services also might not

continue for a long period, therefore, in order to help such employees, a special

provision was made considering such employees as a separate class.  Section 47(4)

was sought to be saved on the logic that it was nothing, but a concept of Section

25F of the Industrial Disputes Act, 1947 and on that basis, the said sub-Section

would be constitutionally valid.   

10. The  High  Court  in  its  judgment  firstly  found  that  the  respondent

company admittedly had not complied with the provisions of sub-Sections (3) and

(4)  of the Shops Act  on the basis of the Reply Affidavit  filed on behalf of the

appellant/petitioner.  The Court further found on comparison of the provisions of

the 1966 Act and 1988 Act that they were almost identical and the payment of

gratuity was replaced by the introduction of the concept of service compensation.

The only change was to extend the minimum requirement period of six months to

one year.  The High Court also found that the establishment of the respondent

company  was  indisputably  covered  under  the  Shops  Act.   The  High  Court

thereafter noted that the unamended provisions of Sections 40(1) and 40(3) of the

1966 Act had been challenged earlier before the Division Bench and the same were

declared invalid under Article 14 of the Constitution of India on the ground that

while in factories which are large in size, the workers, in order to earn the gratuity,

would have to render long and meritorious service under a scheme of Payment of

gratuity prior to enactment of the Payment of Gratuity Act,  1972, however, the

employees working in the nearby office, which is much smaller in its operations,

would be entitled to such gratuity on rendering a mere six months of unbroken

service.  The High Court then commented that even when the earlier judgment of

the High Court had attained finality,  by way of the present amendment only a

cosmetic amendment was made.  The High Court then went on to analyse Section

47 and pointed out that in contrast with sub-Section thereof, under sub-Section

(3), the amount of service compensation is required to be paid even if the cessation

of service is caused not by the employer, but at the instance of the employee.  It

was further noted  that  in  case of termination of an employee due to  death or

disablement, even the condition of completion of continuous service of one year

was not necessary.  The onerousness of sub-Section 4 was also noted by the High

Court that the employee becomes entitled to be paid the wages from the date of his

termination or cessation of his service right until the date of the actual payment of

service compensation.  The High Court also saw the contradictions that the Shops

Act was applicable to the administrative offices of the factories and the employees

working therein.  While the employee working in the factory would be eligible for

gratuity  only  after  rendering  five  continuous  years  of  meritorious  service,  the

employees working in the administrative office adjacent to the said factory, would,

however,  be  eligible  for  service  compensation  under  Section  47(3)  by  merely

rendering  one  year’s  service.   The  High  Court  then  held  that  the  service

compensation was nothing, but a gratuity.  Considering the meaning of the word

“gratuity”, the High Court found that the service compensation was nothing, but

the gratuity, which was payable to the employee as a gift or reward for rendering

long and continuous service.  It also found that a mere service of one year or so

could not be viewed as a long and continuous service, so as to entitle the employee

to earn the service compensation or in other words,  the “gratuity”.   The High

Court took into consideration the provisions of the Gratuity Act and found that

the minimum period of service therein was five years, as also for the Government

servants of the State, the minimum qualifying period for earning gratuity was 10

years of  service.   Comparatively,  the  High  Court  came to  the  conclusion  that

limiting this period of long, continuous and satisfactory service only to one year

was unreasonable and discriminatory.  The High Court also severely commented

on the provisions that in case of death or disablement, the condition of completion

of one year of service was also not necessary.  The High Court then relying on the

judgment of Bennet Coleman & Co. Ltd. Vs. Union of India reported in AIR 1973

SC 106,  held that to treat unequals equal, would amount to discrimination and

held that Section 47(3) had that effect.  The High Court then referred to the cases

in  Express  Newspapers  Vs.  Union  of  India  (cited  supra)  and  Peerless  General

Finance  And  Investment  Co.  Ltd.  Vs.  R.B.I.  reported  in 1992  (2)  SCC  343.

Thereafter,  the  High  Court  considered  the  scheme of  payment  of  gratuity  as

required by the Payment of Gratuity Act and observed that Section 4(1)(b) has

been held to be a reasonable classification within the meaning of Article 19(1)(g) of

the Constitution of India.  Referring to number of other decisions, the High Court

observed:-

“It may be true that having regard to the provisions contained in List

III of the VII Schedule of the Constitution, the State can also lay down certain

conditions of service.  But,  the same would not mean that smaller units will be

burdened with a harsher, oppressive and more onerous statutory obligations than

their big brothers.”

It  was  found  that  the  same field was  being  covered by  the  Central

legislation, as well as, the impugned State legislation.  The High Court, however,

pointed out that merely because the State legislation had received the Presidential

assent,  that,  by  itself,  could  not  save  the  State  legislation  if  it  was  otherwise

discriminatory.   This  observation  was  made  on  finding  that  there  existed  no

evidence that the possible conflict in Central Act and the State Act was brought to

the notice of the President before the assent was obtained.  On the factual aspect,

the High Court observed that, in fact, there were number of employees, who had

left the service and thereafter, had not been heard for a few years and as such,

they could not be said to have rendered any work which would entitle them to

receive gratuity or service compensation.   The High Court ultimately held that

those,  who had abandoned their services,  were not  entitled to  get  any benefits

under the impugned provisions.  Thus, the High Court specifically found the two

provisions, viz., 47(3) and 47(4) to be unreasonable.  These provisions and more

particularly,  Section  47(4)  was  found to  be  contrary to  the  basic  principles of

service jurisprudence.  The High Court ultimately allowed the Writ Petition.  It is

this judgment, which has fallen for our consideration in the present appeal.

11. The  Learned  Counsel  for  the  appellant  firstly  pointed  out  that

impugned Sections 47(3) and 47(4) are constitutionally valid and suffer from no

infirmity.   He  secondly  urged  that  as  has  been  done  by  the  High  Court,  the

legislation  cannot  be struck down on the  ground of mere hardship.   His  third

contention was that the High Court had resorted to the comparisons between two

legislations by two different legislatures while deciding upon the constitutionality

of  the  aforementioned  provisions,  which  was  not  permissible.   The  Learned

Counsel fourthly urged that merely because the lesser period for the purpose of

grant  of  service  compensation  was  provided,  it  did  not  impinge  upon

constitutionality and it  was perfectly permissible for the legislature to prescribe

lesser period.  Fifthly, the Learned Counsel urged that in the impugned judgment,

it was not shown as to how the fundamental rights of the respondent Nos. 1 & 2

under Article 14 and 19(1)(g) were violated.  The Learned Counsel also suggested

that the High Court erred in holding that the Presidential assent under Article 254

(2) was inconsequential.  Lastly, the Learned Counsel urged that the decision in

Suryapet  Market  Cooperative  Society  Vs.  Munsif  Magistrate,  Suryapet  and  Ors.

reported in  1972(2)  ALT 163 was not correctly decided and could not be relied

upon for striking down Section 47(3) of the Shops Act.

12. Shri L. Nageshwar Rao, Learned Senior Counsel appearing on behalf of

the  respondent  company  urged  that  the  High  Court  had  not  struck  down

concerned impugned provisions merely on the ground of hardship.  He pointed out

that the High Court had taken the overall effect of the provisions and had come to

conclusion that the provisions were unreasonable and hence, unconstitutional.  As

regards the third contention raised by the Learned Counsel for the appellant, Shri

Rao  pointed  out  that  the  Court  had  not  made  any  comparisons  between  two

legislations by two different legislatures.  On the other hand, the Court had found

that the basic concept of “service compensation” or as the case may be, “gratuity”,

was completely abused by Section 47(3), while Section 47(4) was inherently bad, as

it was unreasonable and capable of misused.  The Learned Senior Counsel pointed

out that the Court had also pointed out that Section 47(3) was capable of giving

different treatment to the two sets of employees, who were similarly circumstanced

and, therefore, it was hit by Article 14 of the Constitution of India.  As regards the

fourth contention, the Learned Senior Counsel also relied on Bakshish Singh Vs.

Darshan Engineering Works & Ors. reported in  1994 (1) SCC 9  and pointed out

that the principles on which the gratuity was granted, were completely abused by

providing a period of one year’s service or even lesser period for the entitlement of

gratuity or as the case may be, service compensation.  Shri Rao further pointed

out that the Court had given good reasons relying on the judgment of  Express

Newspapers  Vs.  Union  of  India  (cited  supra)  and  Division  Bench  judgment  in

Suryapet  Market  Cooperative  Society  Vs.  Munsif  Magistrate,  Suryapet  and  Ors.

(cited supra),  as also in  Bakshish Singh Vs. Darshan Engineering Works & Ors.

(cited supra) that the High Court had properly tested the impugned provisions and

showed as to  how the fundamental rights of the respondent  Nos.  1 & 2 under

Article 14 and 19(1)(g) were violated.  The Learned Senior Counsel pointed out

that the finding of the High Court was that there was no evidence placed before it

regarding  the  material  placed  before  the  President  for  obtaining  the  consent.

Lastly,  the  Learned  Senior  Counsel  pointed  out  that  after decision  in  case  of

Suryapet  Market  Cooperative  Society  Vs.  Munsif  Magistrate,  Suryapet  and  Ors.

(cited supra) by the Division Bench of the High Court, striking down Section 47(3)

of  the  Shops  Act,  mere  cosmetic  changes  were  brought  about  in  the  fresh

legislation, which was impermissible for the legislature.

13. We  shall  collectively  consider  the  arguments.   The  High  Court  has

quoted from the judgment of this Court in Express Newspapers Vs. Union of India

(cited supra), more particularly, from paragraph 205, which is the final verdict of

this Court in that case, but before that also, in paragraph 198, it is observed:-

“198. When we come, however, to the provision in regard to the payment of

gratuity  to  working  journalists  who  voluntarily  resigned  from  service  from

newspaper establishments, we find that this was a provision which was not at all

reasonable.  A gratuity is a scheme of retirement benefit and the conditions for its

being awarded have been thus laid down in the Labour Court decisions in this

country.”

This Court then referred to the case of  Workmen employed under the

Ahmedabad  Municipal  Corporation  Vs.  Ahmedabad  Municipal  Corporation

reported in 1955 Lab A C 155, as also, the observations made in the case of Indian

Oxygen & Acetylene Co.  Ltd. reported in  1956-1 Lab L J 435  and observed in

paragraph 202 to the following effect:-

“It  will  be  noticed  from the  above  that  even  in  those  cases,  where

gratuity was awarded on the employee’s resignation from service, it was granted

only after the  completion of 15 years’ continuous service and not  merely on a

minimum of 3 years’ service as in the present case.  Gratuity being a reward for

good, efficient and faithful service rendered for a considerable period (vide Indian

Railway Establishment Code, Vol. I at page 614 – Chapter XV, Para 1503), there

would be no justification for awarding the same when an employee voluntarily

resigns  and  brings  about  a  termination  of  his  service,  except  in  exceptional

circumstances.”

The  Court,  thereafter,  quoted  a  passage  in  relation  to  Journalists’

Working Conditions and their Moral Rights, as also from the collective agreement

between  the  Geneva  Press  Association  and  the  Geneva  Union  of  Newspaper

Publishers and ultimately found in paragraph 205 that such provision, providing

for a payment of gratuity even to an employee who voluntarily resigns from service

after  a  period  of  only  three  years,  was  certainly  unreasonable,  imposing

unreasonable restrictions on the right of the petitioner to carry on business and

was, therefore, liable to be struck down as unconstitutional.  The other judgment

relied  upon  by  Shri  L.  Nageshwar  Rao  was  Peerless  General  Finance  and

Investment Co. Limited and Another Vs. Reserve Bank of India reported in 1992 (2)

SCC  343.   Following  observation  from  paragraph  48  from  this  judgment  is

extremely apposite.  The observation is as follows:-

“48. ….   Article  19(1)(g)  provides  fundamental  rights  to  all

citizens  to  carry  on  any  occupation,  trade  or  business.   Clause  (6)  thereof

empowers the State to make any law imposing in the interest of the general public,

reasonable restrictions on the exercise of the said rights.  Wherever a statute is

challenged as violative of the fundamental rights, its real effect or operation on the

fundamental rights is of primary importance.  It is the duty of the Court to be

watchful  to  protect  the  constitutional  rights  of  a  citizen  as  against  any

encroachment  gradually  or  stealthily  thereon.   When  a  law  has  imposed

restrictions  on  the  fundamental  rights,  what  the  Court  has  to  examine  is  the

substance of the legislation without being beguiled by the mere appearance of the

legislation.   The  legislature  cannot  disobey  the  constitutional  mandate  by

employing an indirect method.  The Court must consider not merely the purpose

of the law, but also the means how it is sought to be secured or how it is to be

administered.  The object of the legislation is not conclusive as to the validity of

the legislation…………  The Court must lift the veil of the form and appearance to

discover the true character and the nature of the legislation and every endeavour

should  be made to  have the  efficacy of  fundamental  right  maintained  and the

legislature  is  not  invested  with  unbounded  power.   The  Court  has,  therefore,

always to guard against the gradual encroachment and strike down a restriction as

soon as it reaches that magnitude of total annihilation of the right.”

The observations are extremely relevant in the present context.  Now,

there could be no dispute that the impugned provision 47(3) is nothing,  but an

award  of  gratuity,  though  it  has  been  given  a  nomenclature  of  “service

compensation”.   When  we  closely  examine  Section  47(3),  it  suggests  that  an

employee, who has to be in a continuous service of not less than one year, becomes

eligible for service compensation, amounting to fifteen days average wages for each

year  of  continuous  employment  (i)  on  voluntary  cessation  of  his  work  after

completion of 60 years of age or (ii) on his resignation or (iii) on physical or mental

infirmity duly certified by a Registered Medical Practitioner or (iv) on his death or

disablement due to accident or disease.   This is nothing but the provision of a

gratuity.   It  is  already held by  this  Court  time and again  that  the  concept  of

gratuity as conceived in the Payment of Gratuity Act and even earlier to that in

labour jurisprudence is that gratuity is a reward for long and continuous service.

It is for the first time by that Act, a worker or an employee was made entitled to

the gratuity by his rendering continuous service for five years.  If this is so, then

providing  only  one  year  for  entitlement  to  get  the  gratuity,  is  certainly

unreasonable.   What  we have to  see is the real nature of the  so-called service

compensation.  The service compensation is nothing, but a gratuity and the High

Court has correctly held it to be a gratuity.  If we are required to lift the veil as per

the mandate of this Court in Peerless General Finance and Investment Co. Limited

and Another Vs. Reserve Bank of India reported in 1992 (2) SCC 343 (cited supra),

then it is obvious that the unnatural name of “service compensation” is given to

what in fact, is a “gratuity”.  We need not dilate on this subject as the High Court

has given good reasons to hold it to be a “gratuity”.  As if this is not sufficient, the

proviso to sub-Section (3) provides that in case of termination of the employment

due to death or disablement, even this one year’s service will not be necessary.  In

spite of the presumption of constitutionality of a provision, we do not think that

such a provision can be held to be reasonable.  It is undoubtedly an unreasonable

inroad on the  fundamental right of the respondent  (petitioner before the High

Court) under Article 19(1)(g) of the Constitution of India.  

14. As if this is not sufficient, we find from the definitions of “Commercial

Establishment” and “Establishment” under the Shops Act that there are always

two sets of employees in an establishment,  being administrative or clerical and

technical  employees.   While  the  factory  owner  would  be  required  to  pay  the

gratuity to the employee working in the factory only on his completing five years

of continuous service, in case of the employee working on the administrative or

clerical side of the factory or in the office, which may be in the same premises

where the factory is situated, merely one year of service or even lesser than that,

would be sufficient and the factory owners would have to pay the gratuity or the

service compensation, as the case may be, to such person.  Thus, the provision is

clearly  discriminatory  and  unreasonable.   One  look  at  the  definition  of

“Commercial  Establishment”  would  convince  that  the  inclusion  of  an

establishment of a  factory or an industrial undertaking which  falls outside  the

scope of Factories Act, 1948 and thereby entitling the employees working therein

for the  payment  of service compensation,  clearly brings out  the  discrimination

between such employees and the employees working in the factories as covered by

Factories Act, 1948.  The definition of “Employee” is also extremely relevant in

this  behalf,  and when the two provisions,  viz.,  Sections 2(5)  and 2(8)  are read

together along with Sections 2(11) and 2(10),  the position becomes crystal clear

that the provision of Section 47(3) is clearly discriminatory and, therefore, hit by

Article 14 of the Constitution of India.  We, therefore, cannot accept the argument

of  the  appellant  that  the  said  provision  under  Section  47(3)  is  made  for  a

classification and, therefore, there is no discrimination as the classification has a

nexus with the object of the Act.  Much debate went on the said object, which was

stated  in  the  Statement  of  Objects  and  Reasons  and  was  also  clear  from the

Preamble.  We, however, do not see as to how such discrimination is permissible in

the two sets of employees and what is the rationale for providing a short period of

one year as compared to five year period in case of employees covered under the

Factories Act, 1948.

15. In our opinion, the High Court was absolutely correct in holding that

the provision of Section 47(3) is hit by Article 14 of the Constitution of India.

16. We must, at this juncture, take stock of the argument that it was legally

permissible for the legislature to prescribe lesser period for the purpose of grant of

service  compensation.   Our  attention  was  invited  to  the  oft  quoted  case  of

Bakshish Singh Vs. Darshan Engineering Works & Ors. (cited supra).  In fact, Shri

L. Nageshwar Rao, Learned Senior Counsel for the respondents also relied on the

case of Bakshish Singh Vs. Darshan Engineering Works & Ors.(cited supra)  along

with two other cases earlier decided, viz.,  M/s. British Paints (India) Ltd.  Vs. Its

Workmen reported in 1966 (2) SCR 523 and Straw Board Manufacturing Co. Ltd.

Vs. Its Workmen reported in 1977 (2) SCC 329.  Our attention was invited by the

Learned Counsel for the appellant, more particularly, to paragraph 16 and 17 in

case of Bakshish Singh Vs. Darshan Engineering Works & Ors. (cited supra).   The

observations  are,  in  fact,  adverse  to  the  case  put  up  by  the  appellant.   In

paragraph 16,  this Court observed that  the concept  of gratuity had undergone

metamorphosis  over  the  years.   This  Court  further  recognized  that  though

“gratuity” meant payment, gift or a boon made by the employer to employee in

industrial adjudication, it  was considered as a reward for long and meritorious

service and the payment of gratuity depended upon duration and the quality of

service rendered by the employee.  The Court further observed that at a later stage

in the industrial jurisprudence,  the gratuity came to be recognized as a retiral

benefit in consideration of the service rendered and the employees could raise an

industrial dispute for introducing the concept of gratuity as a condition of service.

The Court also went on to observe that such payment of gratuity depended on

various factors like financial stability and capacity of the employer, the service

conditions prevalent in the industry and the region, availability of the other retiral

benefits and the standard of other service conditions.  The Court very specifically

observed that the quantum of gratuity was determined by the said factors.  The

Court  then  made  observations  that  the  minimum  qualifying  service  for  the

entitlement to the gratuity or the rate at which it was to be paid and the maximum

amount payable was determined on the basis of the aforementioned factors.  In

paragraph 17, the Court observed that the industrial adjudicators insisted upon

certain minimum years of qualifying service before an employee could claim it

whether on superannuation  or resignation  or voluntary retirement,  which  was

inconsistent  with  the  concept  of  gratuity  being  an  earning  for  the  services

rendered.  The Court then went on to observe that there was no fixed concept of

gratuity or of the method of its payment, and like all other service conditions, the

gratuity schemes could differ from establishment to establishment depending upon

various factors mentioned earlier.  One such prominent factor was the financial

capacity of the employer to bear the burden.  The Court was also not unmindful of

the distinction between the provident fund and gratuity.  While in former, there

was a contribution from the employer, in case of gratuity such contribution was

not a necessary ingredient.  The Court then observed in paragraph 17 as under:-

“17. …….   Likewise,  the  gratuity  schemes  may  also  provide

differing qualifying service for entitlement to gratuity.  It is true that in the case of

gratuity, an additional factor weighed with the industrial adjudicators and courts,

viz., that being entirely a payment made by the employer without there being a

corresponding contribution from the employee, the gratuity scheme should not be

so liberal as would induce the employees to change employment after employment

after putting  in  the  minimum service qualifying  them to  earn it.”   (Emphasis

supplied)

This would suggest that before introducing any such concept of service

compensation  which  was  nothing  but  the  gratuity,  the  aforementioned  factors

were bound to be taken into consideration and to be provided for.  What we see

from the  impugned  provisions  is,  firstly,  the  compulsory nature  of  the  service

compensation and secondly, the total absence of guidelines.  It is not understood as

to how and why in all employments through out, such a short period of one year or

even lesser than that has been provided and what is the rationale for the same.

When we see the observations in case of Bakshish Singh Vs. Darshan Engineering

Works & Ors. (cites supra), it is clear that there has to be some minimum qualifying

service.  To reduce the service to one year or even to the lesser period, a qualifying

service would,  in our opinion,  be absurd and was rightly rejected by the High

Court.  Therefore, it cannot be said that in all the circumstances, it is permissible

for the legislatures to prescribe a lesser period.  We can understand the period

being a lesser, but not to the extent of non-existent period of one year or as the

case may be, six months, as provided in Section 47(3), which would not amount to

reasonable  period  for  the  entitlement  to  get  the  gratuity.   Such  provision  is,

therefore, obviously, unreasonable.  The contention of the Learned Counsel for the

appellant is, therefore, rejected.

17. At the same time, insofar as Section 47(4) is concerned, the provision is

per se unreasonable.  We have already quoted Section 40(3) of the 1966 Act in the

earlier part of the judgment.  We, therefore, do not reproduce the Section here.  It

is to  be remembered that  this  Section was found to be unconstitutional  in  the

earlier judgment  of the  Division Bench in case of  Suryapet  Market  Cooperative

Society  Vs.  Munsif  Magistrate,  Suryapet  and  Ors.  (cited  supra)  and  the  said

judgment had become final.  The Section is clearly comparable to Section 47(3)

and also Section 47(4), as the last part of that Section is identical with the wording

in  Section  47(4).   The  only  difference,  which  we  find  is  that  instead  of  word

“gratuity”,  the  terminology  of  “service  compensation”  is  substituted.   In  our

opinion,  the High Court was right in opining that a mere cosmetic amendment

could not have been made by way of introduction of Sections 47(3) and 47(4).  It

was tried to be argued before us that in the present 1988 Act, the mischief pointed

out by the High Court in earlier Section 40(3) of the 1966 Act has been remedied.

We are unable to agree with such argument.  We do not see as to how and in what

manner, the mischief has been remedied.   In its judgment,  the High Court has

compared both the provisions and has found that  the period of six months,  as

contemplated in the 1966 Act, was made one year.  The High Court also noted that

the provision was declared ultra-vires on the ground that the workmen working in

the  factory  which  would  be  large  in  size  are  eligible  to  be  paid  gratuity  on

rendering long and meritorious service under the scheme of Payment of Gratuity

by industrial adjudication, i.e., prior to the enactment of Payment of Gratuity Act,

1972, whereas, the employees of a shop or an establishment which is smaller in its

operations  covered  under  the  1966  Act,  will  be  entitled  to  such  gratuity  on

rendering of minimum qualifying period of only six months’ unbroken service.

The High Court also noted that the provisions of Sections 47(3) and 47(4) were

nothing, but a cosmetic amendment to the earlier Section 40(3).  It is, therefore,

clear that no attempt has been made, whatsoever, to point out the mischief found

by the High Court in Section 40(3) of the 1966 Act.  It was tried to be urged that

the  Payment of Gratuity  Act  was not  in  existence at  the time the  High  Court

rendered its decision in Suryapet Market Cooperative Society Vs. Munsif Magistrate,

Suryapet and Ors. (cited supra).  We do not see as to how it is relevant at all.  On

the other hand, with the advent of Payment of Gratuity Act, the unreasonableness

of the provision of Section 47(3) would be all the more prominent.  We are also not

in  a  position  to  agree  that  Section  47(4)  is,  in  any  manner,  a  valid  piece  of

Legislation  and  is  only in  the  nature  of  a  procedure and  does  not  amount  to

penalty.  Now, merely because there is a remedy to the employer under Sections 50

and 51 to point out reasons for not being able to have complied with Section 47(3),

the  Section  does  not  become  a  valid  Section,  particularly,  when  the  identical

provision was found to be unconstitutional in case of Suryapet Market Cooperative

Society Vs. Munsif Magistrate, Suryapet and Ors. (cited supra), which judgment had

become final.  We, therefore, cannot accept that Section 47(4) is a valid piece of

Legislation.  This is apart from the fact that this provision is also capable of being

abused  or  misused  by  an  employee,  who  may  bring  out  a  situation  to  avoid

accepting the payment of gratuity, so as to be able to claim later the wages of the

interregnum period.

18.  It  was argued by the Learned Counsel for the  appellant that  there

could not have been a comparison between the provisions of Payment of Gratuity

Act  and  the  present  provisions,  while  deciding  the  constitutionality.  For  this

purpose, the Learned Counsel relied on the law laid down by this Court in State of

M.P. Vs. G.C. Mandawar reported in 1955(1) SCR 599.  The following observations

in that case were relied upon:-

“Article 14 does not authorize the striking down of a law of one State on

the ground that in contrast with a law of another State on the same subject, its

provisions are discriminatory nor does it contemplate a law of the Centre or of the

State dealing with similar subjects being held to be unconstitutional by a process

of comparative study of the provisions of the  two enactments.   The sources of

authority for the two statutes being different, Article 14 can have no application.”

It may immediately be clarified that though it is true that both the laws,

i.e.,  the  Shops Act  and the Payment of Gratuity  Act  have been passed validly

under Entry 24 of List III of the VII Schedule, it is incorrect to say that the High

Court has compared the two provisions.  It is one thing to refer to a provision and

quite  another  to  compare  it  with  impugned  provision.   The  High  Court  has

actually gone into the concept of gratuity right from its inception and has come to

the  conclusion  that  for  earning  the  gratuity,  the  employee  does  not  have  to

contribute anything, as in the case of a provident fund.  Gratuity is more or less a

gratuitous payment by the employer in consideration of long and faithful service

by the employee.   The concept  of gratuity  came to  be developed firstly in  the

industrial jurisprudence and was crystallized by the Central Legislation by way of

an Act,  where a  provision  of  five years of  minimum service was  made for an

employee to be entitled for payment of gratuity.   However, as has been held in

Bakshish Singh Vs. Darshan Engineering Works & Ors. (cited supra), the length of

five years of service could not have been reduced in absurd manner to a minuscule

period of one year or even less than that.  The High Court, therefore, found fault

that  the  basic  concept  of  gratuity  was  being  abused  by  the  reduction  of  the

required service to an almost non-existent level.  It cannot, therefore, be said that

the High Court compared the two provisions.  This is apart from the fact that the

reduction to a period of six months was already held to be unconstitutional in the

judgment of Suryapet Market Cooperative Society Vs. Munsif Magistrate, Suryapet

and Ors.  (cited supra),  which judgment had attained finality.   The High Court

found  that  instead  of  remedying  the  defects  pointed  out  in  the  judgment  of

Suryapet  Market  Cooperative  Society  Vs.  Munsif  Magistrate,  Suryapet  and  Ors.

(cited supra),  a cosmetic change was made by raising the period of six months to

one year.   We are,  therefore,  unable  to  accept  the  submission of  the  Learned

Counsel  for  the  appellant  that  the  High  Court  proceeded  on  to  decide  the

constitutionality on the basis of a comparison.  We do not, therefore, see how the

aforementioned judgment in State of M.P. Vs. G.C. Mandawar reported in 1955(1)

SCR 599 (cited supra) can be of any application and help to the present case.

19. A  further  criticism  was  leveled  by  the  Learned  Counsel  for  the

appellant that the High Court had struck down the provisions only on the grounds

of hardship and that was not permissible.  Learned Counsel relied on a decision in

Prafulla Kumar Das & Ors. Vs. State of Orissa & Ors.  reported in 2003 (11) SCC

614  and our attention was invited to paragraph 45 thereof.  Learned Counsel also

relied  on  another  decision  in  R.N.  Goyal  Vs.  Ashwani  Kumar  Gupta  &  Ors.

reported  in  2004  (11)  SCC  753,  particularly  on  the  observations  made  in

paragraph 5, as also the decision in Government of Andhra Pradesh Vs. P. Laxmi

Devi reported in 2008 (4) SCC 720.  Insofar as the last decision is concerned, we do

not  see  as  to  how  it  helps  the  appellant,  as  in  that  decision,  this  Court  has

recognized the presumption of constitutional validity of a statute.  There can be no

quarrel with that proposition.  Our attention was invited to paragraphs 70, 72, 73

and 78.   We could not  find anything  in those paragraphs,  which supports the

contention that a mere hardship cannot be a ground for striking down a provision.

This Court had only shown the presumption of constitutionality and has cautioned

against the light treatment being given to the subject.  In our opinion, that is not

the case here.   The High Court’s judgment  proceeds on solid bedrock of lucid

reasoning and is not restricted to hardship alone.   

20. In R.N. Goyal Vs. Ashwani Kumar Gupta & Ors. reported in 2004 (11)

SCC 753 (cited supra),  while repealing the constitutional challenge to the  rules,

which was observed by this Court that if the Rules framed under Article 309 of the

Constitution of India were for general good, but caused hardship to the individual,

the same could not be a ground for striking down the Rules.  These observations

are not apposite to the present controversy.  Here the impugned provisions have

not been struck down merely because they would cause hardship to any individual

or any class.  In fact, the provisions have been shown to be totally unreasonable

and in total contradiction with the established norms for the concept of gratuity.

Not only that, the provisions have been shown to be discriminatory in respect of

the two sets of workers, who are similarly, if not identically circumstanced.  In case

of Prafulla Kumar Das & Ors. Vs. State of Orissa & Ors. (cited supra) also, it was

specifically  observed  in  paragraph  45  that  the  Legislature  had  the  requisite

jurisdiction  to  pass  appropriate  Legislation,  which  would  do  justice  to  its

employees.  The Court went on to hold that if a balance is sought to be struck

down by reason of the impugned Legislation, it would not be permissible for the

Court  to  declare  the  legislation  ultra  vires  only  because  it  may  cause  some

hardships  to  the  petitioners.   These observations were made in  relation to  the

service jurisprudence, where, the constitutional validity of Orissa Administrative

Service, Class II (Appointment of Officers Validation) Amendment Act, 1992, was

in challenge.  By that  amendment,  relative seniority was awarded to the direct

recruits for the year 1973, who were appointed in the year 1975, over and above,

the mergerists born in the said Service by virtue of merger of their parent cadre

with the Orissa Administrative Service, Class II.  The argument was raised that

such grant of seniority would amount to a hardship to the petitioners in the matter

of  seniority.   The  Constitution  Bench  of  this  Court  thoroughly  examined  the

provisions of Section 2 of the Amendment Act with reference to the earlier cases

decided on the  question  and came to  the  conclusion that  it  was disinclined to

temper with  the  settled practice,  particularly,  in  view of  the  law laid  down in

Direct Recruit Class II Engg. Officers’ Assn. Vs. State of Maharashtra reported in

1990 (2) SCC 715.  It was found that the concept of the “year of allotment” was

workable and it was within the powers of the Government to recruit the officers

from variety of sources.  It was also found that the seniority awarded was on the

basis of a legal fiction, which had to be given its full effect.  It was in that context

that  the observations regarding hardship were made.   We are afraid,  the fact-

situation in the present case is entirely different and the observations made are not

applicable to the present matter.  We, therefore, reject the argument raised by the

appellant.  This is apart from the fact that the High Court has correctly observed

that even if the law cannot be declared ultra vires on the ground of hardship, it

can  be  so  declared  on  the  ground  of  total  unreasonableness  applying

Wednesbury’s  “unreasonableness” principles.   The  Court,  specifically,  has  also

found that this reasonableness is apparent from the fact that the employees falling

within Sub-Sections (1) and (3), although from different classes, had been treated

equally, giving them the same benefit.  For this purpose, the Court also relied on

the observations made in Bennet Coleman & Co. Ltd. Vs. Union of India reported

in AIR 1973 SC 106.

21. The High Court also referred to in this behalf, the observations made in

Peerless  General  Finance  and  Investment  Co.  Limited  and  Another  Vs.  Reserve

Bank of India (cited supra) and rightly concluded that the impugned provision was

totally unreasonable.

22. This takes us to the last contention raised by the Learned Counsel for

the appellant, regarding the question of “Doctrine of occupied field”.  The High

Court has observed:-

“It may be true that having regard to the provisions contained in List

III  of  VII  Schedule  of  the  Constitution,  the  State  can  also  lay  down  certain

conditions of service.  But,  the same would not mean that smaller units will be

burdened with a harsher, oppressive and more onerous statutory obligations than

their big brothers.  The Payment of Gratuity Act covers the field.  Both the State

Act and the Central Act,  in view of sub-Section (5) of Section 47 deal with the

matter relating to gratuity.”

The High Court then referred to a decision in Ramachandra Mowa Lal

Vs. State of U.P. reported in AIR 1987 SC 1837.  It also referred to the decision in

Gram Panchayat of Village Jamalpur Vs. Malwinder Singh  reported in 1985 (3)

SCC 661 and relying on the observations made in that  judgment,  came to the

conclusion that the State could not take aid from the provisions of Article 254(2) of

the Constitution.  The Court further observed that mere assent of the President

may not be adequate and the provision in question, being directly in conflict with

the Central Act, the same cannot be valid.  Further, the Court observed:-

“Mechanical assent given by the President may be held to be an idle

formality, as there does not exist any evidence that the possible conflict had been

brought to the notice of the President before his assent was obtained.”

The High Court then went on to hold that the instant case would stand

on the worse footing, as factually, it would not be disputed that the employees had

left the services and those who abandoned the service voluntarily, had not been

heard of for a few years.  It was noted by the High Court that if the provisions of

Sections  47(3)  &  47(4)  are  held  valid,  then  such persons  who  had  voluntarily

abandoned  the  service,  would  be  taking  the  advantage  of  their  own  wrong,

particularly, in relation to Section 47(4).  The High Court also further observed

that the union could not have taken the cause of the persons, who had abandoned

their services.   

23. The impugned judgment is a complete answer to the question raised

regarding Article 254(2).  There can be no doubt that both the Central Act and the

impugned  State  Act  operate  in  the  same  field  in  as  much  as,  the  “service

compensation” is nothing,  but  the “gratuity”,  though called by different name.

Under  such  circumstances,  unless  it  was  shown  that  while  obtaining  the

Presidential  assent  for  the  State  Act,  the  conflict  between  the  two  Acts  was

specifically brought to the notice of the President, before obtaining the same, the

State  could  not  have  used  the  escape  route  provided  by  Article  254(2)  of  the

Constitution.  We fully agree with the High Court when the High Court held that

the two Acts occupy the common field and were in conflict with each other.  The

contention of the appellant that Article 254(2) would save the impugned provisions

is, therefore, rejected.

24. In  the  result,  we  concur with  the  judgment  of  the  High  Court  and

confirm the same.  The appeal has no merits and it is dismissed, but without any

order as to the costs.

………………………………..J.    (Lokeshwar Singh Panta)

                ………………………………..J.     (V.S. Sirpurkar)

New Delhi; February 27, 2009.