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CASE NO.: Appeal (civil)  3396 of 2001

PETITIONER: State Bank’s Staff Union Madras

RESPONDENT: Union of India & Ors.                                    

DATE OF JUDGMENT: 15/09/2005

BENCH: ARIJIT PASAYAT & H. K. SEMA

JUDGMENT: J U D G M E N T

ARIJIT PASAYAT, J.

       Challenge in this Appeal is to judgment of a Division  Bench of  Madras High Court holding that customary bonus  was not payable by the State Bank of India (in short the  ’Bank’) after Banking Laws (Amendment) Act, 1984 (Central  Act No. 64 of 1984) (in short the ’Amendment Act’) was  enacted. Appellant has questioned constitutional validity  of the said amendment before the Madras High Court by  filing a writ petition which was dismissed.

         Factual position which is almost undisputed is as  follows:-

       By the Amendment Act, State Bank of India Act, 1955 (in  short the ’State Bank Act’) and State Bank of India  (Subsidiary Banks) Act, 1959 (in short the ’Subsidiary  Act’) and Banking Companies (Acquisition and Transfer of  Undertakings) Acts, 1970 and the Banking Companies  (Acquisition and Transfer of Undertakings) Act, 1980 (in  short ’the Undertakings Acts’) were amended.

       By that amending Act, a new Section 43-A comprising of  three sub sections (1), (2) and (3) and marginal heading  "Bonus" was introduced in the State Bank Act. The said  Section reads as under:-

       "(1) No Officer, Adviser or other Employee  (other than an employee within the meaning  of Clause (13) of Section 2 of the Payment  of Bonus Act, 1965 (21 of 1965) of the  State Bank shall be entitled to be paid any  bonus.

       (2) No employee of the State Bank, being an  employee within the meaning of Clause (13)  of Section 2 of the Payment of Bonus Act,  1965 (21 of 1965), shall be entitled to be  paid any bonus except in accordance with  the provisions of that Act.

       (3) The provisions of this Section shall  have effect notwithstanding any judgment,  decree or order of any Court, Tribunal or  other authority and notwithstanding

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anything contained in any other provision  of this Act or in the Industrial Disputes  Act, 1947 (14 of 1947), or any other law  for the time being in force or any practice  usage or custom or any contract, agreement,  settlement, award or other instrument."

       In the Subsidiary Act, a new Section 50A was introduced  in identical language.  Similar provisions numbered as  Section 12-A were introduced in the Banking Undertakings  Acts.          The Statement of Objects and Reasons, which accompanied  the Bill which later became the Amending Act, reads thus:

       "In an award notified as 14.1.1984, the  Central Government Industrial Tribunal, Madras  held that the employees of the State Bank of  India covered by the award should be paid  bonus at the rate of one month’s substantive  pay every half year on the ground that this  has also along been the custom and practice.   A writ petition filed against this award is  pending in the Madras High Court.

       All public Sector banks including the State  Bank of India come under the purview of the  Payment of Bonus Act, 1965, and the intention  is that no bonus other than what is required  to be paid under the Payment of Bonus Act,  1965, shall be paid to the employee of the  State Bank of India or of any other pubic  sector bank.  It is proposed to make express  provisions in this behalf in the State Bank of  India Act, 1955 and the enactment relating to  the other public sector banks.

           The Bill seeks to achieve the above objects."

       That award of the Central Government Industrial  Tribunal was challenged by the Management in a writ  petition filed in the Madras High Court being Writ  Petition No.1273 of 1984.  It was during the pendency of  that petition in the High Court, that the State Bank Act  came to be amended by introducing Section 43-A in that  Act.  On 24.11.1986, the Writ Petition filed by the Bank  was dismissed.  The matter was not further agitated, and  the award attained finality.                  Appellant’s primary stand before the High Court was  that the Amendment Act was unconstitutional as it merely  intended to nullify a judicial decision which Parliament  had no competence to do. Other contentions were to the  effect that an award passed under the Industrial Disputes  Act, 1947 (in short ’the Industrial Act’) is entitled to  greater recognition as in the case of conflict between the  provisions of General Law i.e. State Bank Act and the  Industrial Act the latter Act must prevail.  The bonus  which was directed to be paid was in the nature of  deferred wages and the impugned legislation had the effect  of freezing wages.  Parliament is not vested with the  power to reduce the wages and therefore the legislation is  ultra vires.  Effect of an award under the Industrial Act  cannot be wiped out except in the manner provided under

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the Industrial Act and since in the instant case that has  not been done, the award was binding on the parties  concerned.  The bonus being a customary bonus was peculiar  to the employees of the Bank and mere fact that other  public sector banks were not being paid such bonus is of  really no consequence. Stand that financial implications  were enormous is also of no consequence.  The Union of  India and the Bank took the stand that the Amendment Act  was a valid piece of legislation. It was not merely  intended to invalidate an award by acting as an Appellate  Authority, and it is not a case of any judicial power  being usurped by the legislation.  The High Court  negatived the contentions of the appellants and dismissed  the Writ Petition.   

       The points urged before the High Court was reiterated  by learned counsel for the appellant.  Reference was made  to a decision of this Court in Vegetable Products Ltd.  v.  Their Workmen (AIR 1965 SCC 1499) to highlight the basic  features of customary bonus.

       It was submitted in the case of officers of the Bank  that the quantum representing bonus merged with the basic  pay and consequential increase in Dearness Allowance and  superannuation benefits were granted. That being so, bonus  is nothing but deferred wage.  Continued payment of bonus  made it a condition of service and the same could not have  been altered without following the provisions of Section  9A of the Act.  Customary bonus is one which is paid  dehors the bonus paid under the Payment of Bonus Act, 1965  (in short the ’Bonus Act’).  Customary bonus is untouched  by the Bonus Act.  The Industrial Act is a special Act qua                                                                                                                                                                                                                                                                                                                                                                                                                                     the State Bank Act. Issues relating to continuance of  service and disputes relating thereof are covered by the  Industrial Act. While some of the aspects can be taken to  be covered by the State Bank Act, non compliance with the  special Act i.e. Industrial Act rendered the Amendment Act  invalid. The intention of the Amendment Act was to  invalidate the award as is evident from the Statement of  Objects and Reasons of the Amendment Act. Customary bonus  is not profit linked. Amendment even if accepted to be  valid can only have prospective effect.  

       In response, learned counsel for the Bank and the Union  of India submitted that the payment of customary bonus was  creating different yardsticks for different public sector  banks.  The award was challenged by the Bank in a Writ  Petition.  During the pendency of the writ petition, the  amendment was enacted.  Unfortunately the High Court did  not take note of the Amendment Act and Custom even if it  acquires a force of law, can be changed as there is no  fundamental right involved in any custom.  Bonus cannot be  called deferred wages and even if it is conceded for the  sake of argument that the payment of customary bonus was a  condition of service, after insertion of Section 43A by   the Amendment Act the same has no operation.  The  provision brings about uniformity.  The payments were  related to profits and they were not uniform, so in that  sense it was not really be a condition of service or a  deferred wage.  The High Court has also dealt with the

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Special Act and the deferred wages concept.  The Amendment  Act really brought in a curative provision, and no  retrospective effect has been given to the Amendment Act.   Section 9A of the Industrial Act has no application as the  Parliament has the power to legislate on that aspect.  A  bare look at the impugned provision makes it clear that it  is not a case of legislature by mere declaration or  without anything more, overriding a judicial decision.  On  the other hand it is a case of rendering a judicial  decision ineffective by enacting a valid law within  legislative field of the legislature.  Merely because a  reference has been made to the award in the Statement of  Objects and Reasons, that cannot in any way affect the  plain intention in enacting the law under challenge and it  is not correct to say that the intention was to declare  the decision of Tribunal as invalid and as such judicial  power has been usurped by legislation.

       Following four circumstances have to be fulfilled in  order to be entitled to payment of customary or  traditional bonus, as was noted in M/s. Grahams Trading  Co. v. Their Workmen (AIR 1959 SC 1151) and in Vegetable  Products case (supra):  

       "(i) that the payment has been made over an  unbroken series of years;

       (ii) that it has been for a sufficiently long  period, the period has to be longer than in  the case of an implied term of employment;

       (iii) that it has been paid even in years of  loss and did not depend on the earning of  profits; and

   (iv) that the payment has been made at a  uniform rate throughout to justify an  inference that the payment at such and such  rate had become customary and traditional in  the particular concern."                  Learned counsel for the appellant submitted that  considering the nature of customary bonus, the Amendment  Act was really taking away a right conferred. This Court  in Upendra Chandra Chakraborty and Anr. v. United Bank of  India (AIR 1985 SC 1010) observed as follows:-

       "There is one other aspect of the claim  now put forward, which cannot be lost sight  of, which affords an additional reason to  reject the contention of the appellants.  The  respondent is a nationalized bank.  Roughly  in all there are 25 nationalised banks.  The  concept of any customary bonus is unknown to  nationalized banks.  All the nationalized  banks are wholly owned Undertakings of the  Government of India.  In the matter of bonus,  the employees of all the nationalized banks  must be dealt with on a common denominator.   If therefore the contention of the appellants  were to prevail, the employees of the  respondent, which is only one amongst many  nationalized banks, would enjoy an undeserved  advantage compared to their counterparts in  other nationalized banks and even in the

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other branches of the respondent bank and may  become a cause of disharmony and inequality.   Therefore, in larger public interest also,  the demand for customary bonus otherwise  found to be untenable, must be negatived."

                                       (Underlined for emphasis)

                It is a cardinal rule of interpretation that Objects  and Reasons of a Statute is to be looked into as an  extrinsic aid to find out legislative intent only when the  meaning of the statute by its ordinary language is obscure  or ambiguous.  But if the words used in a statute are  clear and unambiguous then the statute itself declares the  intention of the legislature and in such a case, it would  not be permissible for a court to interpret the Statute by  examining the Objects and Reasons for the Statute in  question.(See: S.S. Bola vs. B.D. Sardana AIR 1997 SC  3127).                  The smooth balance built with delicacy must always be  maintained, and in the anxiety to safeguard judicial  power, it is unnecessary to be over-zealous and conjure up  incursion into the judicial preserve to invalidate the  valid law competently made. (see: Indian Aluminium Co. vs.  State of Kerala 1996(7) SCC 637).

       In Jalan Trading Co. vs. Mill Mazdoor Sabha (AIR 1967  SC 691) it was observed as follows:

       "It is true that by the impugned  legislation, certain principles declared by  this Court e.g. in Express Newspapers  (Private) Ltd. vs. Union of India, 1959 SCR  12: AIR 1958 SC 578) in respect of grant of  bonus were modified, but on that account it  cannot be said that the legislation operates  as fraud on the Constitution or is a  colourable exercise of legislative power.   Parliament has normally power within the  frame-work of the Constitution to enact  legislation which modified principles  enunciated by this Court as applicable to the  determination of any dispute, and by  exercising that power, the Parliament does  not perpetrate fraud on the Constitution.  An  enactment may be charged as colourable, and  on that account valid, only if it be found  that the legislature has by enacting it  trespassed upon a field outside its  competence."

       In the Indian Aluminium case (supra) in paragraph 56  certain principles have been set out. Those principles  inter alia include the principles that the Court in its  anxiety to safeguard judicial power must not be over- zealous and conjure up incursion into the judicial  preserve invalidating the valid law competently made; the  Court should scan the law to find out : (a) whether the  vice pointed out by the court and invalidity suffered by  previous law is cured after complying with the legal and  constitutional requirements; (b) whether the Legislature  has competence to validate the law; (c) whether such  validation is consistent with the rights guaranteed in

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Part III of the Constitution. So far as the legislature is  concerned, it cannot by mere declaration, without anything  more, overrule, revise, or override a judicial decision.   It may, however, render judicial decision ineffective by  enacting valid law on the topic within its legislative  field fundamentally altering or changing its character  retrospectively.  The changed or altered conditions should  be such that the previous decision would not have been  rendered by the Court, if those altered or changed  conditions had existed at the time of declaring the law as  invalid.                  At this juncture, we may also take note of what was  stated by Hidaytullah, CJI in the case of Shri Prithvi  Cotton Mills Ltd. vs. Broach Borough Municipality (1969  (2) SCC 283):

"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."

                 The principle was reiterated in State of Tamil Nadu  v.   Arooran Sugars Ltd. (1997 (1) SCC 326).

       As was noted by the Constitution Bench of this Court in  Chairman, Railway Board & Ors. v. C.R. Rangadhamaiah &  Ors. (1997 (6) SCC 623), once a person joins service under  the Government, the relationship between him and the  Government is in the nature of a status rather than  contractual and the terms of his service while he is in  employment, are governed by statute or statutory rules,  which may be altered without the consent of the employees.   This effect of a non-obstante clause and validating Act  has been examined by this Court from time to time.   Reference has already been made to the decision in Shri  Prithvi Cotton Mills Ltd. (supra). The view expressed by  Hidayatullah, C.J.I. has been reiterated in Arooran Sugars  case (supra).  

       The decision in Madan Mohan Pathak v. Union of India  (1978 (2) SCC 50) which was one of the major planks of  arguments before the High Court and this Court was  explained in the last named case. It was rendered in the  different factual background.  This was categorically  pointed out and the decision was explained in the said  case.  

       Every sovereign legislature possesses the right to make  retrospective legislation. The power to make laws includes  power to give it retrospective effect.  Craies on Statute  Law (7th Edn.) at p. 387 defines retrospective statutes  in the following words:

       "A statute is to be deemed to be  retrospective, which takes away or impairs  any vested right acquired under existing  laws, or creates a new obligation, or imposes  a new duty, or attaches a new disability in  respect to transactions or considerations  already past."

       Judicial Dictionary (13th Edn.) K.J. Aiyar,

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Butterworth, p. 857, states that the word "retrospective"  when used with reference to an enactment may mean (i)  affecting an existing contract; or (ii) reopening up of  past, closed and completed transaction; or (iii) affecting  accrued rights and remedies; or (iv) affecting procedure.   Words and Phrases, Permanent Edn., Vol. 37-A, pp. 224-25,  defines a "retrospective or retroactive law" as one which  takes away or impairs vested or accrued rights acquired  under existing laws. A retroactive law takes away or  impairs vested rights acquired under existing laws, or  creates a new obligation, imposes a new duty, or attaches  a new disability, in respect to transaction or  considerations already past.

       In Advanced Law Lexicon by P. Ramanath Aiyar (3rd  Edition, 2005) the expressions "retroactive" and  "retrospective" have been defined as follows at page 4124  Vol.4)

"Retroactive- Acting backward; affecting  what is past. (Of a statute, ruling, etc.)  extending in scope or effect to matters that  have occurred in the past. - Also termed  retrospective. (Black, 7th Edn. 1999)   ’Retroactivity’ is a term often used by  lawyers but rarely defined. On analysis it  soon becomes apparent, moreover, that it is  used to cover at least two distinct concepts.  The first, which may be called ’true  retroactivity’, consists in the application  of a new rule of law to an act or transaction  which was completed before the rule was  promulgated. The second concept, which will  be referred to as ’quasi-retroactivity’,  occurs when a new rule of law is applied to  an act or transaction in the process of  completion......The foundation of these  concepts is the distinction between completed  and pending transactions...." (T.C. Hartley,  The Foundations of European Community Law 129  (1981).  

Retrospective- Looking back; contemplating  what is past.  

Having operation from a past time.

’Retrospective’ is somewhat ambiguous and  that good deal of confusion has been caused  by the fact that it is used in more senses  than one. In general however the Courts  regards as retrospective any statute which  operates on cases or facts coming into  existence before its commencement in the  sense that it affects even if for the future  only the character or consequences of  transactions previously entered into or of  other past conduct.  Thus, a statute is not  retrospective merely because it affects  existing rights; nor is it retrospective  merely because a part of the requisite for  its action is drawn from a time and   antecedents to its passing. (Vol.44  Halsbury’s Laws of England, Fourth Edition,

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page 570 para 921)."

       The question of retrospectively affecting the award is  factually of academic interest. It was admitted before the  High Court that all amount payable under the award for the  prior period has been paid.  

       In Harvard Law Review, Vol. 73, p. 692 it was observed  that         "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 above passage was quoted with approval by the  Constitution Bench of this Court in the case of The Asstt.  Commr. of Urban Land Tax v. The Buckingham and Carnatic  Co. Ltd. (1969 (2) SCC 55).  In considering the question  as to whether the legislative power to amend a provision  with retrospective operation has been reasonably exercised  or not, various factors have to be considered.  It was  observed in the case of Stott v. Stott Realty Co. (284  N.W. 635) - as noted in Words and Phrases, Permanent Edn.,  Vol.37-A, p. 2250 that:

       "The constitutional prohibition of the  passage of ’retroactive laws’ refers only to  retroactive laws that injuriously affect some  substantial or vested right, and does not  refer to those remedies adopted by a  legislative body for the purpose of providing  a rule to secure for its citizens the  enjoyment of some natural right, equitable and  just in itself, but which they were not able  to enforce on account of defects in the law or  its omission to provide the relief necessary  to secure such right."

                Craies on Statute Law (7th Edn.) at p. 396 observes  that:

       "If a statute is passed for the purpose  of protecting the public against some evil or  abuse, it may be allowed to operate  retrospectively, although by such operation  it will deprive some person or persons of a  vested right."

       Thus public interest at large is one of the relevant  considerations in determining the constitutional validity  of a retrospective legislation.

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       The above position was elaborately noted in Virendra  Singh Hooda and Ors. v. State of Haryana & Anr. (2004 (12)  SCC 588).

       Curative Statutes are by their very nature intended to  operate upon and affect past transactions. Curative and  validating statutes operate on conditions already existing  and are therefore wholly retrospective and can have no  retrospective operation.  

       Blackstone J in Nicol v. Verelst (1779 (26) E.R. 751)  held that "declaratory do not prove that law was otherwise  before, but rather the reverse".

       There is no quarrel and in fact in our opinion rightly  that legislature cannot by a mere declaration, without  anything more, directly overrule, reverse or override a  judicial decision.  However, it may, at any time in  exercise of the plenary powers conferred on it by the  Constitution render a judicial decision ineffective by  enacting a valid law on a topic within its legislative  field, fundamentally altering or changing with  retrospective, curative or neutralizing effect the  condition on which such decision is based (see: I.N.  Saxena etc. v. State of Madhya Pradesh (1976 (4) SCC 750).

       As noted in Indira Nehru Gandhi v. Raj Narain  (1975  (suppl.) SCC 1) rendering ineffective of judgments or  orders of competent Courts or Tribunals by changing their  basis by legislative enactment is a well known pattern of  all validating Acts. Such validating legislation which  removes the causes for ineffectiveness or invalidity of  actions or proceedings is not an encroachment on judicial  power.  There is a distinction between encroachment on the  judicial power and nullification of the effect of a  judicial decision by changing the law retrospectively.  As  noted by this Court in M/s. Tirath Ram Rajindra Nath,  Lucknow v. State of U.P. and Anr. (1973 (3) SCC 585) the  former is outside the competence of the legislature but  the latter is within its permissible limits.

       It has to be noted that the legislature, as a body,  cannot be accused of having passed a law for extraneous  purpose. If no reasons are stated as appear from the  provisions enacted by it, its reasons for passing a law  are those stated in the Objects and Reasons. Even assuming  that the Executive, in a given case, has an ulterior  motive in moving a legislation, that motive cannot render  the passing of the law mala fide. This kind of  "Transferred malice" is unknown in the field of  legislation. (See K. Nagaraj and Ors. v. State of Andhra  Pradesh and Anr. (AIR 1985 SC 551) and G.C. Kanungo v.  State of Orissa (AIR 1995 SC 1655).

       Learned counsel for the appellant submitted that vested  rights cannot be taken away by the legislation by way of  retrospective legislation. The plea is without substance.   Whenever any amendment is brought in force retrospectively  or any provision of the Act is deleted retrospectively, in  this process rights of some are bound to be effective one  way or the other. In every case the exercise by  legislature by introducing a new provision or deleting an  existing provision with retrospective effect per se does  not amount to violation of Article 14 of the Constitution.  The legislature can change, as observed by this Court in

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Cauvery Water Disputes Tribunal, Re (1993 Supp. (1) SCC 96  (II)), the basis on which a decision is given by the Court  and thus change the law in general, which will affect a  class of persons and events at large. It cannot, however,  set aside an individual decision inter parties and affect  their rights and liabilities alone. Such an act on the  part of the legislature amounts to exercising the judicial  power by the State and to function as an appellate Court  or Tribunal, which is against the concept of separation of  powers.

       The amendment made by the impugned enactments is to the  State Bank Act and other statutes relating to some other  Banks. The Bank undoubtedly has power in terms of Section  7(1) of the State Bank Act to change the conditions of  service of those of its employees, who had earlier served  with Imperial Bank of India. By enforcement of the Act, the  undertaking of Imperial Bank of India was transferred to the  Bank. Employees of erstwhile Imperial Bank of India cannot  take the stand that they have an unalterable right in their  terms and conditions of employment. So far as other  employees are concerned, Section 43 of the Act empowers the  Bank to determine terms and conditions of their service.

       The Parliament has power to legislate on the topic of  bonus and it is not precluded from legislating on that  topic, other than the Bonus Act. The mere fact that an award  has been made under the Industrial Act cannot have the  effect of preventing the Parliament for all times to come  from amending the law on the foundation of which the award  was made. This of course is subject to same being not  inconsistent with provision of Part III of the Constitution;  and also being within the legislative competence of the  Parliament.  

       As noted above, the impugned Act did not merely declare  the Tribunal’s award inoperative. There is nothing to show  that the Parliament intended to exercise appellate powers  over the Tribunal or the High Court by enacting the amending  Act. The said Act in clear and unambiguous terms prohibits  the grant of bonus to the employees of public Sector Banks,  except in accordance with the Bonus Act, and also limits  such payment only to those eligible under the Act.

       The amended provision operates notwithstanding anything  contained in any other law, including the Industrial Act,  and similarly notwithstanding anything contained in any  judgment, decree or order of any Court or Tribunal.  

       In view of what has been stated above, the conclusion  is inevitable that the High Court’s judgment does not  suffer from any infirmity to warrant interference.  The  appeal is accordingly dismissed with no orders as to  costs.