Case BriefsSupreme Court

Supreme Court: While upholding the Constitutional validity of the Payment of Gratuity (Amendment) Act, 2009, the Division Bench of Sanjiv Khanna* and Bela M. Trivedi, JJ., held that the Amendment seeks to bring equality and give fair treatment to the teachers. It can hardly be categorised as an arbitrary and high-handed exercise.

Noticeably, the aforesaid Amendment Act was introduced to extend the benefit of gratuity to the teachers by including them in the definition of “employee”, who were earlier deprived of it. The Court said,

“Private schools, when they claim a vested right arising from the reason of defect, should not succeed, for acceptance would be at the expense of teachers who were denied and deprived of the intended benefit.”

The common question before the Bench was regarding constitutional validity of the amendment to Section 2(e) and insertion of Section 13A to the Payment of Gratuity Act, 1972 (the Act), with retrospective effect from 03-04-1997 vide the Payment of Gratuity (Amendment) Act, 2009.

Government Notification No. S-42013/1/95-SS.(II)

The Act requires payment of gratuity to an employee after he has rendered continuous service for not less than 5 years, on his superannuation, retirement or resignation or on his death or disablement due to accident or disease. Noticeably, by the Notification No. S-42013/1/95-SS.(II) issued by the Ministry of Labour and Employment, Government of India on 03-04-1997, the provisions of the Act have been made applicable to the educational institutions with ten or more employees.

Decision in Ahmedabad Private Primary Teachers’ Association’s case, (2004) 1 SCC 755

Therefore, the private schools being educational institutions, in which ten or more persons are employed, became liable to pay gratuity to their employees as per the provisions of the Act. However, some private schools raised a dispute claiming that the teachers in educational institutions or schools are not “employee” as defined in Section 2(e) of the Act. The Supreme Court in Ahmedabad Private Primary Teachers’ Association v. Administrative Officer, (2004) 1 SCC 755, held that teachers who impart education to students are not “employee” under Section 2(e) of the Act as they do not perform any kind of skilled, unskilled, semi-skilled, manual, supervisory, managerial, administrative, technical or clerical work.

Thus, the teachers were denied the benefit of gratuity, but other employees of the private schools, were entitled to the benefit of gratuity.

Payment of Gratuity (Amendment) Act, 2009

Referring the judgment in Ahmedabad Private Primary Teachers’ Association (supra) in the object and reasons for Amendment, the Government introduced the Payment of Gratuity (Amendment) Act, 2009 to cover the definition of “employee” to all kinds of employees. The Amendment Act inserted a new Section 13A and also Clause (e) to Section 2 of the Act with retrospective effect from 03-04-1997 to confer, with retrospective effect, benefit of gratuity to the teachers who have rendered continuous service for not less than 5 years.

Analysis and Findings

Whether the government empowered overrule judicial decisions by introducing Statutory Amendments?

The petitioners contended that the legislation vide the Amendment Act 2009 overrules the judicial decision in Ahmedabad Private Primary Teachers’ Association (supra) and violates the doctrine of separation of powers. Rejecting the aforesaid argument, the Court observed that the legislation in question rather rectifies the infirmities and defects pointed out by the Court in the aforesaid decision, and the amended clause (e) to Section 2, defining the word “employee” and the newly inserted Section 13A with retrospective effect, effectuate and catalyse the object and purpose of the Notification No. S-42013/1/95-SS.(II).

The Court opined that though a court decision cannot be overruled by the legislature, the legislature can amend the language of the provision that was the subject matter of the court decision, and such an amendment does not overrule the court decision. The Court said,

“Overruling assumes a decision based on the same law. Where the law, as in the present case, has been amended, and the defects have been removed or cured, the law changes, and therefore, the earlier interpretation is no longer applicable and becomes irrelevant.”

Noting that the decision in Ahmedabad Private Primary Teachers’ Association (supra) even acknowledged and prompted the legislature to enact a legislation granting the benefit of gratuity to teachers, who had been excluded because of the legal flaw, the Court held that the amendment enforces and gives effect to what was intended by the notification, but could not be achieved on account of the technical and legal defect. The lacuna, a distortion in the language that had the unwitting effect of leaving out teachers, has been rectified so as to achieve the object and purpose behind the issuance of the notification, making the Act applicable to all educational institutions.

Whether the Amendment financially confiscatory?

The private educational institutions also assailed the Amendment on the ground that they would be liable to pay gratuity for a period of service prior to 03-04-1997, and, therefore, the amendments are unconscionable and tyrannous, equally fallacious and financially confiscatory.  The Court, calling the aforesaid argument fallacious, observed that the argument, predicated on past liability, deserved to be rejected as there are upper-cap limits on payment of gratuity; i.e., the payment towards gratuity cannot exceed the specified amount, even if the employee would be entitled to higher amount in view of the years of the service rendered to the employer.

Relying on T.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481, some schools argued that charging of capitation fee or profiteering by educational institutions is impermissible and they do not have capacity and ability to pay gratuity to the teachers.

Finding the aforesaid argument unapt and parsimonious, the Court clarified the decision in T.M.A. Pai Foundation (supra) by holding that the judgment does not state that the teachers should not be paid gratuity; in fact, the judgment holds that the educational institutions are entitled to reasonable surplus to meet the cost of expansion and augmentation of the facilities and this does not amount to profiteering.

The Court noted that though it is possible that in some States there are fee fixation laws which will have to be complied with, but compliance with these laws does not mean that the teachers should be deprived and denied gratuity, which they were/are entitled to receive as other employees of an educational institution. The Court said that regulation of fee is to ensure that there is no commercialisation and profiteering, and the effect is not to prohibit a school from fixing and collecting ‘just and permissible school fee’. The Court added,

“We would not accept any attempt to circumscribe and limit the power vested with the sovereign legislature, thereby putting fetters when such fetters are not prescribed by the Constitution. When and which cases to exercise the power has to be left to the legislature.”

Applicability: Retrospective v. Retroactive

The Court, while holding that the Amendment retroactive, observed that the provisions of the Act, even post the retrospective amendments, will apply only to those teachers who were in service as on 03-04-1997, and at the time of termination have rendered service of not less than 5 years. The Court said that the period of 5 years may be partly before 03-04-1997, as the date on which the person was employed does not determine the applicability of the PAG Act.

However, the date of termination of service, should be post the enforcement date. The entire length of service, including the service period prior to 03-04-1997, is to be counted for the purpose of computing the entitlement condition of 5 years of service.

Whether the Amendment violative of Fundamental Rights?

The schools had claimed violation of Articles 14, 19(1)(g), 21 and 300-A of the Constitution. Holding that the Constitutional provisions are not violated, the Court said that to deny gratuity benefits to the teachers upon enforcement of the notification No. S-42013/1/95-SS.(II) was itself an anomaly which mandated correction.

The Court observed that the teachers were discriminated to be denied benefit of gratuity, a terminal benefit, which was payable to other employees of the private schools/educational institutions, including those engaged in administrative and managerial work. The amendment with retrospective effect remedies the injustice and discrimination suffered by the teachers on account of a legislative mistake.

Whether the Amendment violated other enactments?

The last contention raised by the private schools and writ petitioners was predicated on the enactment of the Repealing and Amending Act 2016, by virtue of which the Amendment Act 2009 was repealed. Once again, rejecting such contention, the Court opined that the argument overlooked Section 6A of the General Clauses Act, 1897 and Section 4 of the Repealing and Amendment Act, which states that the repeal shall not affect any of the enactment in which the repealed enactment has been applied, incorporated or referred to. It also states that the Repealing Act shall not affect the validity, invalidity, effect or consequences of anything already done or suffered, or any right, title, obligation or liability already acquired, accrued or incurred etc.

Verdict

In the light of aforesaid, the Court upheld the validity of the Amendment Act and directed that the private schools would make payment to the employees/teachers along with the interest in accordance with the provisions of the Act within a period of 6 weeks and in case of default, the employees/teachers may move the appropriate forum to enforce payment in accordance with the provisions of the Act.

Hence, the Court vacated the partial stay on the Amendment Act in the order dated 31-01-2020 passed in Saint Xaviers High School v. Jayashree Shamal Ghosh, (SLP (C) No. 2235 of 2020) or in any other case. The appeals and the petition were dismissed.

[Independent Schools’ Federation of India (Regd.) v. Union of India, 2022 SCC OnLine SC 1113, decided on 29-08-2022]


*Judgment by: Justice Sanjiv Khanna


Kamini Sharma, Editorial Assistant has put this report together

Case BriefsSupreme Court

Supreme Court: In the case where Rule 55A of the M.P. Motor Vehicles Rules, 1994 were challenged for being ultra vires the state’s power under the Motor Vehicles Act, 1988 and the Central Motor Vehicle Rules, 1989, the bench of L. Nageswara Rao and S. Ravindra Bhat, JJ upheld the validity of the said Rule and said that

“… the assignment of “distinctive marks” i.e. registration numbers to motor vehicles (which includes the power to reserve and allocate them, for a specific fee) is a distinct service for which states or their authorities are entitled to charge a prescribed fee. Rule 55A of the MP Rules is not therefore, in excess of the powers conferred upon the state, by the Act or the Central Rules.”

What is Rule 55A of the M.P. Motor Vehicles Rules, 1994?

  • The said Rule prescribes four different fees – ₹15000/- for the registration marks 1 to 9 in any series prevalent within the jurisdiction of the registering authority; and ₹ 12000/- for reservation of marks from 10 to 100 in any series within the jurisdiction of the registering authority.
  • For reservation of large series of numbers indicated in Rule 55A(c), ₹ 10000/- and ₹ 2000/- for reservation of any other number or numbers within 1000 from the last number assigned in the serial order. 31.
  • In addition to charging such fees, the registering authority is enjoined by Rule 55A(2) to follow the principle of first-come-first-serve in reserving particular numbers; and to allot the registration mark reserved upon production of the vehicle along with the application in Form-20 (of the Central Rules), provided the vehicle is compliant with the provisions of the Act and Rules.
  • By Rule 55A(d), the reservation of the mark would be cancelled if the vehicle is not produced for allotment within three months from the date of allotment. This is meant to avoid abuse of the reservation process by trafficking in numbers, by providing finite time within which such numbers can be used.

Does Rule 55A of the MP Rules violate the Motor Vehicles Act, 1988?

The existence of specific provisions empowering the State (such as Sections 41(13), 47(7), 49(4) and 50(5)), means that the power of the State to claim or charge amounts is specifically recognized by express provisions. Further, there are certain services and functions for which the State is empowered to levy fees. It is precisely to cover these contingencies, i.e. where the service is rendered or some function performed, that the State is empowered by a residual provision to levy fees.

Further, Section 211 is cast in wide terms and that any rule which the Central Government or the State Government is empowered to make under this Act may, notwithstanding the absence of any express provision to that effect, provide for the levy of such fees in respect of applications, amendment of documents, issue of certificates, licences, permits, tests, endorsements, badges, plates, countersignatures, authorisation, supply of statistics or copies of documents or orders and for any other purpose or matter involving the rendering of any service.

“Clearly, therefore, the Parliament intended that contingencies not covered by a specific power to levy fees or amounts, which entailed some activity on the part of the State, including rendering of any service could be legitimately charged or subjected to the levy of fee or amounts.”

The Court further explained that Section 43 enables the owner of a motor vehicle to apply to any registering authority or other authority which may be prescribed by the State Government to have the vehicle temporarily registered. This provision contains a non-obstante clause. Various provisions of the Act deal with orders of higher authorities and appellate authorities.

It also said that the generality of the power under Section 65(1) to frame rules, is sufficient along with Section 211, to conclude that the State Government has the authority to prescribe a fee for reserving certain numbers or distinguishing marks to be assigned as registration numbers.

After an overall reading of the M.P. Rules and the Act, the Court held that besides the express authorization to levy fees or collect amounts, both the Central Government and the State Government are empowered – in fact duty bound to extend certain services in the performance of such duties. Both these bodies, i.e. the Central and State Governments would therefore, be acting within their authority to charge or levy fees.

Why Assignment of Registration Numbers is a part of State Policy?

The assignment of numbers by the registering authority through an official/agency or department notified by the State Government, cannot be seen as a mere step – albeit at the fag-end of the registration allotment process. In fact, though it is the culmination of the allotment process, it is nevertheless an important step. The state is entitled to indicate its choice or manner of assigning by prescribing a particular set of procedures for the assignment of numbers. Thus, for instance, the assignment of the concerned “code” – to the individual registering authorities followed by the assignment of numerics may follow a predetermined pattern which may be district wise, state government department wise (in the case of publicly owned vehicles), different sequences for buses and heavy vehicles and so on. If such a predetermined choice can be made by prescribing the mode of assignment, it is both regulatory and at the same time indicative of State policy.

“Per se, the Court cannot brush aside the element of service which may be involved – especially if the general public or a sub-section of it, wishes to choose particular numbers for various considerations. Such “fancy” numbers or “auspicious” numbers may well therefore have to be set apart having regard to the peculiar socio-cultural needs of the people of the state. It is in such an event that the availability of such numbers and their reservation as a choice and the power of their assignment assumes importance.”

[State of MP v. Rakesh Sethi, 2020 SCC OnLine SC 673, decided on 26.08.2020]