MD ED SOCIETY & ORS V. UNION OF INDIA & ORS

CWP/16884/2012

AI Insights

The case revolves around the challenge to the retrospective amendment of the Payment of Gratuity Act, 1972, which was amended to include teachers as 'employees' eligible for gratuity in educational institutions with 10 or more employees, effective from April 3, 1997. The petitioners argued that this retrospective application imposed substantial liability and was unreasonable. However, the court referenced several precedents, including judgments from the Delhi High Court and the Supreme Court, which supported the validity of such retrospective amendments as they aimed to correct legislative oversights and extend benefits to previously excluded groups, thereby achieving equity.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 724094 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 18-10-2012
• Assessment Year: misc
• Other Referred Cases: Ahmedabad Primary Teachers' Association's case, Ujagar Prints v. Union of India, Sri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, Krishnamurthi and Co. v. State of Madras, National Agricultural Co-operative Marketing Federation of India Ltd. & Anr. v. Union of India & Ors.
• Laws Referred To: Payment of Gratuity Act, 1972
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: VIKRAM BAJAJ; B S RANA
• Assessee Lawyers: P K MUTNEJA
• Keywords: Educational Institutions; Retrospective amendment; Payment of Gratuity Act; Definition of employee
• Section: 2(e)

Judgement Text

"IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH CWP No. 16884 of 2012 Date of Decision: 18.10.2012 Maharishi Dayanand Education Society and others ...Petitioners Versus Union of India and others ..Respondents. CORAM: HON'BLE MR. JUSTICE A.K.SIKRI, CHIEF JUSTICE. HON'BLE MR. JUSTICE RAKESH KUMAR JAIN. Present : Mr. P.K.Mutneja, Advocate, for the petitioners. Mr. Vikram Bajaj, Advocate, for respondent No.1. Mr. B.S.Rana, Addl. Advocate General, Haryana, for respondent No.2. **** A.K.SIKRI C.J.(Oral) Amendment to the Payment of Gratuity Act, 1972 is challenged in this petition. Basically, the challenge is to the retrospective operation making it enforceable w.e.f. 03.04.1997. 2. The Payment of Gratuity Act, 1972 came into force w.e.f. 16th September, 1972 vide S.O. 601 (E). The Payment of Gratuity Act 1972, defined ‘employee vide Section 2 (e) of the Act, 1972, which is reproduced as under:- “Section 2 (3):- “employee” means any person (other than an apprentice) employed on wages, [***] in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are expressed or implied, 3 [ and whether or not such person is employed in a managerial or administrative capacity, but does not include any such person who holds a post under the Central Government or a State government and is governed by any other Act or by any rules providing or payment of gratuity.” CWP No. 16884 of 2012 3. The Ministry of Labour and Employment, Government of India issued notification dated 3.4.1997, whereby the Payment of Gratuity Act, 1972 was extended to the Educational Institutions as well in which 10 or more persons are employed or were employed on any day preceding twelve months. 4. An important issue cropped up in a writ petition filed by a teacher before the Gujarat High Court as to whether the teachers working in the education institutions are covered by the definition of “employees’ as given in Section 2(e) of the Payment Gratuity Act, 1972. The Full Bench of the Gujarat High Court answered the issue in negative by unanimously holding that teachers are not covered by the definition of “employee” under Section 2 (e) of the Act, 1972. The Full Bench decision came up for consideration before the Supreme Court in the matter of Ahemdabad Primary Teachers’ Association’s case that teachers are clearly not covered in the definition. 5. The Union of India, in view of the law laid down by the Supreme Court in the Ahmedabad Pvt. Primary Teachers’ Association’s case, proposed to widen the definition of “employee” under the Payment of Gratuity Act, 1972, in order to extend the benefit of gratuity to teachers introduced the Payment of Gratuity (Amendment) Bill 2007 in Lok Sabha. Though this bill, 2007 was later on withdrawn. New bill, namely the Payment of Gratuity (Amendment) Bill, 2009 was introduce in the Lok Sabha on 24th February, 2009. This bill proposed retrospective effect to be given to the amendments with effect from 3rd April, 1997, i.e. the date on which the provision of the Payment of Gratuity Act, 1972 were made applicable to the educational institutions vide notification dated 3 rd April, 2 CWP No. 16884 of 2012 1997. The Payment of Gratuity (Amendment) Act, 2009 was notified in the Gazette on 31st December, 2009. 6. Sub Section 2 of Section1 of the Payment of Gratuity (Amendment) Act, 2009 has given retrospective effect to the provisions of Amendment Act, 2009, deemed to have come into force w.e.f. the 3rd day of April, 1997 i.e. some more than 12 years back. Section 13-A has been newly inserted by Section 3 of the Payment of Gratuity (Amendment) Act, 2009 in the Payment of Gratuity Act, 1972, which has validated the Notification dated 3.4.1997 with retrospective w.e.f. 3rd April, 1997. 7. As stipulated above, the grievance of the petitioners is that by enforcing the amendment retrospectively, there is a substantial liability imposed upon the petitioner with retrospective effect and it is argued that such an amendment is unreasonable, arbitrary and violation of Articles 14 and 19(1)(g) of the Constitution. 8. Validity of this very Amendment Act was challenged before Delhi High Court in Writ Petition (C) No. 6168 of 2010 and Delhi High Court vide judgment dated 02.12.2011 upheld the said amendment. A perusal of the judgment would show that various judgments of the Hon’ble Supreme Court on the issue of retrospectivity were taken note of and the Court gave the following reasons while upholding the said legislation:- “22. It also cannot be disputed that it was a benevolent and beneficiary measure thereby extending the scope of this Act to the employees of educational institutions/schools. It is worthwhile to mention here that Payment of Gratuity Act was made applicable to local bodies w.e.f. 8th January, 1992. Therefore, the schools under the control of legal bodies stood cover from 8th January, 1982 itself. Thus, whereas the employees of the government schools were entitled to gratuity. Insofar as government schools are concerned, their employees were already entitled to gratuity under 3 CWP No. 16884 of 2012 the extent rules of government governing gratuity and pension. It is only the employees of the private school which were left out. As the gratuity is an old age retiral social security benefit, the Central Government deemed it proper to extent the benefit of this Act to all employees employed in all educational institutions having 10 or more persons. With this objective in mind, the aforesaid notification dated 3rd April, 1997 was issued. 23. While issuing this notification it was not realized that any person employed by the school has also to come within the definition of employees under Section 2 (e) of the Payment of Gratuity Act but this definition existing at that time did not cover the teachers. It is for this reason that the Supreme Court held that with the aforesaid notification teachers would still be not the beneficiary of the said Act. At the same time, all other category of staff in the schools who fit in the definition of “employee” stood cover by the aforesaid notification and started getting gratuity. In order to remove this anomaly, it became necessary to amend the definition of ‘employee’ contained in Section 2 (e) of the Act and that is precisely is done by the impugned amendment. As the Act is otherwise extended to all the educational institutions vide Notification dated 3rd April, 1997 w.e.f. 19th April, 1997 and all other employees except teachers stood cover by the aforesaid notification, in order to cover teachers as well from the same date, the Parliament has amended the definition of teachers with retrospective effect i.e. w.e.f. 3rd April, 1997. 24. Keeping in view the aforesaid parameters, we now consider the question as to whether such retrospective amendment is valid or not. 25. As noted above, there is no quarrel with the proposition that the Legislature has power to amend the laws with retrospective effect to any substantive provision. It is quite trite that such retrospective action takes away vested rights and the amendment must be reasonable and not arbitrary or discriminatory violating Article 14 of the Constitution. Amendment in question is not arbitrary. Rather, it achieves the equity by bringing within the ambit of Gratuity Act also as beneficiary which only remained excluded. The only question, therefore, is as to whether this amendment has taken away any vested rights of the petitioner. 26. The legislative power either to introduce enactment for the first time or to amend the enacted law with retrospective effect is subject to certain judicially recognised limitations, some of which are as under: 4 CWP No. 16884 of 2012 (i) There should be express language used by the Legislature expressly providing for or clearly applying retrospective operation; (ii) The retrospectivity must be reasonable and not excessive or harsh. Otherwise, it runs the risk of being struck down as unconstitutional; and (iii) Where the Legislation is introduced to overcome a judicial decision, the power cannot be used to subvert the decision without removing the statutory basis of the decision. 27. In the present case, the first two limitations are clearly not attracted. It is not in dispute that the Legislature has expressly made the amendment retrospective. The date from which the amendment to Section 2(e) of the Gratuity Act has to come into force has been specified. It also cannot be disputed that the amendment does not suffer from the vice of arbitrariness. On the contrary, it is a benevolent measure introduced for the welfare of teachers by making them as well beneficiary of the Gratuity Act. Therefore, it cannot be said to be harsh. 28. As pointed out above, the Legislature had intended to extend the Gratuity Act to the educational institutions as well with effect from 3.4.1997 and it stands extended to all the employees of educational institutions. Only teachers remained out as consequential amendment in the definition of “employee” was not made. The retrospective amendment thus only seeks to remove the statutory basis of the earlier decision. This is permissible and it is so held by the Apex Court time and again. In Ujagar Prints v. Union of India, (1989) 3 SCC 488, the Supreme Court explained the permissibility of such a power in the following words: “ ….A competent legislature can always validate a law which has been declared by courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the legislature – granting legislative competence – the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Sri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283 : (1907) 1 SCR 388 : (1971) 79 ITR 136. 66. Such legislative expenditure of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire 5 CWP No. 16884 of 2012 a vested right from a defect in a statute and seek a windfall from the legislature’s mistakes. Validity of legislations retroactively curing defects in taxing statutes is well recognized and courts, except under extraordinary circumstances, would be reluctant to override the legislative judgment as to the need for and wisdom of the retrospective legislation.” The aforesaid observations qua taxing statute would apply in the present context as well. 29. We may also usefully refer to the judgment of the Apex Court in Krishnamurthi and Co. v. State of Madras, AIR 1972 SC 2455 : [1973] 2 SCR 64. In that case, the Madras General Sales Tax Act, 1959 (as it stood) provided under entry 47 for tax on \"lubricating oils, all kinds of mineral oils (not otherwise provided for in this Act) quenching oil and greases with effect from 1-4- 1964\". The question was whether this entry covered furnace oil. The Madras High Court construed the phrase and came to the conclusion that it did not. The Legislature then enacted an amendment Act in 1967. Entry 47 was amended - so as to expressly provide that furnace oil would be subjected to tax. The Act was made effective from 1964. The Act was challenged as being unreasonable since it retrospectively made the dealers liable for sales tax which they had not passed on to others. The challenge was negatived and it was said that (page 197 of 31 STC and page 2459 of AIR 1972): \"The object of such an enactment is to remove and rectify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the court to be vitiated by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. Such an amending and validating Act to make small repairs is a permissible mode of legislation and is frequently resorted to in fiscal enactments.\" 30. It is not necessary to multiply the judgments. Our purpose would be served by taking note of another judgment of the Supreme Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. & Anr. v. Union of India & Ors., [2003] 260 ITR 548 where entire law on the subject was re-visited by the Court. 31. In that case, Section 80P(2)(a)(iii) of the Income-tax Act, 1961, as originally inserted, provided that in the case of a co-operative society engaged in “(iii) the marketing of the agricultural produce of its members” the whole of the amount of profits and gains of business attributable to such activity would be deducted from the gross total income. The Supreme Court, in the decision of 6 CWP No. 16884 of 2012 Assam Co-operative Apex Marketing Society Ltd. v. CIT(Addl.), [1993] 201 ITR 338 rendered under the corresponding earlier provision, section 81, had held that the phrase “produce of its members” must refer to agricultural produce actually “produced by its members”. In a later decision, Kerala State Co-operative Apex Marketing Federation Ltd. v. CIT , [1993] 231 ITR 814, a larger Bench of the Supreme Court overruled the decision in the case of Assam Co- operative Apex marketing Society Ltd., [1993] 201 ITR 338 and held that the exemption under section 80P(2)(a)(iii), was not restricted only to primary societies and that “produce of its members” in that provision had to be construed as including the “produce belonging to “ a member society. Immediately thereafter, in 1999 the provisions of section 80P(2)(a)(iii), were amended by the Income- tax (Second Amendment) Act, 1998 (No. 11 of 1999), with retrospective effect from April 1, 1968, by substituting sub-clause (iii) to read “the marketing of agricultural produce grown by its members”. The appellant, an apex co-operative society of a chain of societies operating at different levels, challenged, by a writ petition, the validity of section 80P(2)(a)(iii) as amended retrospectively. The High Court dismissed the writ petition. On appeal to the Supreme Court, the Supreme Court held as follows: “….the retrospective amendment was valid. By the impugned amendment Parliament had, in effect, substituted the word “of” in section 80P(2)(a)(iii), and which had been construed by the Supreme Court in 1998 as “belonging to”, with the phrase “grown by”. The clear effect of the retrospective substitution would be that section 80P(2)(a) (iii) must be read as if the substituted phrase were included from April 1, 1968. In making this change Parliament did not overrule the decision of the Supreme Court in Kerala State Co-operative Marketing Federation [1998] 231 ITR 814. Where the law, as in this case, had been changed and was no longer the same, there was no question of the Legislature overruling the Supreme Court. Once the circumstances were altered by legislation, it neutralized the effect of the earlier decision of the Supreme Court.” (Taken from the case notes) 9. It would also be pertinent to mention here that even Bombay High Court has upheld the validity of this very amendment in its judgment dated 21.02.2011 in case The President/Secretary, Viderbha Youth Welfare Institution (Society), Chaitanya, building, 36, Ganediwal 7 CWP No. 16884 of 2012 Layout, Camp, Amravati Vs. Shri Pradip Kumar son of Ramchandrarao, Lambhate 2012 I.L.R. 417. Following the aforesaid judgments, we dismiss this writ petition. (A.K.SIKRI) CHIEF JUSTICE (RAKESH KUMAR JAIN) JUDGE 18.10.2012 'ravinder' 8 "