9

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

ORIGINAL JURISDICTION

WRIT PETITION NO /2011 (EDN. RES)

Between:

Karnataka Unaided Schools Management’s AssociationA Registered Society Represented by its PresidentG.S.SharmaAge 85 yearsNo.9, V.V.RoadV.V.PuramBangalore 560 004

Petitioner

AND

1. Union of IndiaRepresented by its SecretaryMinistry of Labour And EmploymentShram Shakti BhawanNew Delhi 110 001

[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009]

2. Assistant Labour Commissioner(CENTRAL)Shram Sadan, 3rd Cross3rd Main, 2nd Phase,Yeshwanthpur Industrial SuburbTumkur Road,Bangalore 560 022

[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009

3. State of KarnatakaRepresented by its Principal SecretaryDepartment of LabourKarmika BhavanBannerughatta Road

Respondents

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Bangalore 560 029

[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009

MEMORANDUM OF WRIT PETITION FILED UNDER ARTICLE

226 OF THE CONSTITUTION OF INDIA

The Petitioner hereinabove most respectfully submits:

1. The instant petition is filed under Article 226 of the

Constitution of India for the purpose of invoking the Writ

jurisdiction of this Hon’ble Court.

2. The Petitioner, Karnataka Unaided Schools Management’s

Association (KUSMA for short) is organized as a ‘Society’

whose members are comprised only of educational

institutions in the State of Karnataka. This ‘Society’ is

registered under the State Law in force for the Registration

of ‘Societies’ and has been continually registered at all

relevant times – S.No.438/83-84 dated 08-Mar-1984. A

copy of the said Society’s ‘Certificate of Registration’ dated

08-Mar-1984 is produced herewith and marked as

Annexure A. (followed by a retype of the same).

Membership of this ‘Society’ is open only to those

educational institutions which are privately organized and

which do not receive aid1 or assistance of any kind from the

Government, State or Central. Membership to KUSMA is

strictly enforced and the current membership of KUSMA

stands slightly above One Thousand Three Hundred

educational institutions. The Founder and President of

1 Section 2(18) of the Karnataka Education Act, 1983 defines ‘Grant’ as“means any sum of money paid as aid out of the State funds to any educational institution”.

11

KUSMA, Sri G.S.Sharma, aged 85 years, is authorised and

competent to initiate and conduct this legal proceeding.

3. The Petitioner may be served through its counsel, Sri

K.V.Dhananjay, Advocate, No.296, Kamakshipalya, Magadi

Main Road, Bangalore 560 079.

4. Respondent No.1, the Union of India is entrusted with the

execution and administration of the Payment of Gratuity

Act, 1972, a labour welfare legislation devised by the

Hon’ble Parliament of India.

5. Respondent No.2, the Assistant Labour Commissioner

(Central) is the controlling authority, in terms of Section 3 of

the Payment of Gratuity Act, 1972, that is vested with the

statutory responsibility for the administration of the said

Act, for the State of Karnataka. (vide Notification No.

S.O.430 issued by Respondent 1, dated 04-Mar-1989).

6. Respondent No.3, the State of Karnataka is represented by

the appropriate department that is entrusted with the

obligation to coordinate with central agencies in the matter

of implementation of the Payment of Gratuity Act, 1972 in

the State of Karnataka.

7. The present petition is filed for the purpose of challenging

the arbitrariness, unreasonableness and the

constitutionality of the retrospective operation of the

provisions of the Payment of Gratuity (Amendment) Act,

2009 in respect of private unaided educational institutions

in the State of Karnataka.

12

8. The Payment of Gratuity Act, 1972 was enacted into law by

the Parliament of India, presumably, under the concurrent

legislative power it exercises over ‘Social Security and

social insurance; employment and unemployment’ (Entry

23, List III, Schedule VII, Constitution of India) or ‘Welfare of

labour including conditions of work, provident funds,

employer’s liability, workmen’s compensation, invalidity and

old age pensions and maternity benefits’. (Entry 24, List III,

Schedule VII, Constitution of India). The said statute,

Payment of Gratuity Act, 1972 was brought into operation

w.e.f. 16-Sep-1972.

9. The preamble to the Payment of Gratuity Act, 1972

(referred to hereinafter also as the ‘statute’ or ‘Act’

wherever the context admits) reads as under:

“An Act to provide for a scheme for the payment of

gratuity to employees engaged in factories, mines,

oilfields, plantations, ports, railway companies, shops

or other establishments and for matters connected

therewith or incidental thereto.”

10. Judicial Dictionary by AJ Aiyar, 14th Edition, 2007 defines

‘Gratuity’ as under (page 490):

Gratuity: Meaning of, It is a reward for long and

meritorious service. (Calcutta Insurance Ltd. v.

Workmen 31 FJR 446, AIR 1967 SC 1286, 14 Lab LR

345)

‘Gratuity’ in its etymological sense means a gift

especially for services rendered or return for favours

received. Gratuity paid to workmen is intended to help

them after retirement on superannuation, death,

13

retirement, physical incapacity, disability or

otherwise…

It would thus be apparent both from its object as well

as its provisions that the Act was placed on the statute

as a welfare measure to improve the service

conditions of the employees. The provisions of the

statute were applied uniformly throughout the country

to all establishments covered by it... (Bakshish Singh

v. Darshan Engineering Works, AIR 1994 SC 251).

11. The Petitioner society has been primarily constituted for the

protection of the interests of private unaided educational

institutions in the State of Karnataka. However, educational

institutions that impart school education only are eligible to

become members of the Petitioner society. The Petitioner

society has been active ever since its inception in pursuing

legal remedies on behalf of its members in the event that

the constitutional or statutory rights of its members, as a

class, are invaded or infringed by statutes, regulations or

conduct, whether by the Centre or the State.

12. The instant petition has been preferred by the Petitioner

society with the objective of safeguarding the constitutional

rights of its members to protection against arbitrary State

action and for protection against regulation that

unreasonably impinges upon the administration of their

affairs. Primarily, the retrospective operation of the

Payment of Gratuity (Amendment) Act, 2009 is the subject

of this petition.

13. The Petitioner submits that the Payment of Gratuity Act,

1972 is a complete code that contains detailed provisions

14

for payment of gratuity. It creates a right to receive a

gratuity, a further obligation to so pay gratuity, indicates

the point of time when such right will accrue and when a

corresponding obligation is so incurred and lays down the

principles for quantification of the gratuity. It provides

further for recovery of the amount due to an employee.

14. The Petitioner further submits that Section 1 (3) (c) of the

Act authorises the Central Government to apply the Act to

any establishment or class of establishments in which ten or

more employees are or were employed by so specifying in a

Notification that may be issued for the purpose. The said

provision reads as under:

Section 1 (3) (c): It shall apply to - such other

establishments or class of establishments, in which

ten or more employees are employed, or were

employed, on any day of the preceding twelve

months, as the Central Government may, by

notification, specify in this behalf.

15. Further, the Petitioner submits that the definition of an

‘employee’ is at the heart of the Payment of Gratuity Act,

1972. The definition of the term ‘employee’ as originally

stated in the Act, until replaced by the Payment of Gratuity

(Amendment) Act, 2009, read as under:

Section 2 (e): "Employee" means any person (other than an

apprentice) employed on wages, in any

establishment, factory, mine, oilfield, plantation,

port, railway company or shop, to do any skilled,

semiskilled or unskilled, manual, supervisory,

technical or clerical work, whether the terms of

15

such employment are express or implied, (and

whether or not such person is employed in a

managerial or administrative capacity), but does

not include any such person who holds a civil

post under the Central Government or a State

Government, and is governed by any other Act or

by any rules providing for payment of gratuity."

16. In the context of the aforesaid definition of an ‘employee’ in

the Payment of Gratuity Act, 1972, the Central Government,

in exercise of powers under Section 1 (3) (c) of the Act,

issued a Notification on 03-April-1997 declaring that ‘the

Payment of Gratuity Act, 1972 is extended to educational

institutions in which ten or more persons are employed or

were employed on any day of the preceding 12 months’.

The said Notification read as under:-

APPLICABILITY OF THE PAYMENT OF GRATUITY ACT,

1972 TO EDUCATIONAL INSTITUTIONS

NOTIFICATION NO. S-42013/1/95-SS II. DATED 3RD

APRIL, 1997:

In exercise of the powers conferred by Cl. (c) of sub-

section (3) of Section 1 of the Payment of Gratuity Act,

1972 (39 of 1972), the Central Government hereby

specifies the educational institutions in which ten or

more persons are employed or were employed on any

day of the preceding 12 months, as a class of

establishments to which the said Act shall apply with

effect from the date of publication of this Notification.

Provided that nothing contained in this Notification

shall affect the operation of the Notification of the

Ministry of Labour S.O. 239 dated 8th January, 1982.

16

17. The Petitioner submits that its member institutions, upon

becoming aware of the aforesaid notification, were

professionally advised that the teaching staff of educational

institutions were not covered under the definition of an

‘employee’ occurring in the Payment of Gratuity Act, 1972

and that the aforesaid Notification applied merely to the

non-teaching staff of educational institutions.

18. The Petitioner further submits that the dispute whether the

definition of an ‘employee’ as occurring in the Payment of

Gratuity Act,1972 also covered a ‘teacher’ employed by an

educational institution reached the Hon’ble Supreme Court

in the year 2001.

19. The Petitioner submits that, the Hon’ble Supreme Court, on

13-Jan-2004, in the case of Ahmedabad Private Primary

Teachers Association v. Administrative Officer (AIR 2004 SC

1426) decisively held that the definition of an ‘employee’ as

it occurred then in the Payment of Gratuity Act, 1972 could

not be interpreted to also include a ‘teacher’ employed by

an educational institution. Specifically, the Hon’ble Supreme

Court held that:

4. As all the learned Judges have unanimously held

that teachers are not covered by the definition of

'employee' under Section 2 (e) of the Act, it has

become necessary for this Court to consider the

correctness of the view with regard to the applicability

of the Act to the teachers as a class.

8. The following important words and expressions in

the definition clause 2 (e), are before us for

consideration and interpretation in the light of the

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arguments advanced which project different points of

view:-

2 (e): 'employee' means any person (other than

an apprentice) employed on wages, in any

establishment, factory, mine, oilfield, plantation,

port, railway company or shop, to do any skilled,

semi-skilled, or unskilled, manual, supervisory,

technical or clerical work ... whether or not such

person is employed in a managerial or

administrative capacity.

12. We have critically examined the definition clause

in the light of the arguments advanced on either side

and have compared it with the definitions given in

other labour enactments. On the doctrine of 'pari

materia', reference to other statutes dealing with the

same subject or forming part of the same system is a

permissible aid to the construction of provisions in a

statute. See the following observations contained in

Principles of Statutory Interpretation by G. P. Singh

(8th Ed.) Synopsis 4 at pp. 235 to 239:-…

13. The definition of 'workman' contained in S. 2 (s) of

the Industrial Disputes Act, 1947 meaning 'any person

employed in any industry to do any skilled or

unskilled, manual, supervisory, technical, operational,

or clerical work' came up for consideration before this

Court when teachers claimed that they are covered by

the definition of the Industrial Disputes Act. In the

case of A. Sundarambal v. Govt. of Goa, Daman and

Diu [1988 (4) SCC 42 : AIR 1988 SC 1700 : 1989 Lab IC

1317], this Court negatived the claim of teachers that

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they are covered by the definition of 'workman' under

Industrial Disputes Act thus:

"Even though an educational institution has to be

treated as an 'industry,' teachers in an

educational institution cannot be considered as

workman.

The teachers employed by educational

institutions whether the said institutions are

imparting primary, secondary, graduate or post-

graduate education cannot be called as

'workman' within the meaning of S. 2 (s) of the

Act. Imparting of education which is the main

function of teachers cannot be considered as

skilled or unskilled, manual work or supervisory

work or technical work or clerical work. Imparting

of education is in the nature of a mission or a

noble vocation. The clerical work, if any, they

may do, is only incidental to their principal work

of teaching."

14. The definition of 'employee' as contained in

Section 2 (i) of the Minimum Wages Act, 1948 came

up for consideration before this Court in the case of

Haryana Unrecognised Schools' Association v. State of

Haryana (AIR 1996 SC 2108). In Section 2 (i) of the

Minimum Wages Act, the word 'employee' is defined to

mean: 'any person who is employed for hire or reward

to do any work, skilled or unskilled, manual or clerical,

in a scheduled employment in respect of which

minimum rates of wages have been fixed'. This Court

held that as teachers are not employed for any skilled

or unskilled, manual or clerical work, it is not open to

19

the State Government to include their employment as

a scheduled employment under the Minimum Wages

Act. The relevant observations need to be quoted:-

"A combined reading of Sections 3, 2 (i) and 27

of the Minimum Wages Act, 1948 and the

Statement of Objects and Reasons of the

legislation makes it explicitly clear that the State

Government can add to either part of the

Schedule any employment where persons are

employed for hire or reward to do any work

skilled or unskilled, manual or clerical. If the

persons employed do not do the work of any

skilled or unskilled or of a manual or clerical

nature then it would not be possible for the State

Government to include such an employment in

the Schedule in exercise of power under Section

27 of the Act. Since the teachers of an

educational institution are not employed to do

any skilled or unskilled or manual or clerical work

and therefore, could not be held to be an

employee under Section 2 (i) of the Act, it is

beyond the competence of the State

Government to bring them under the purview of

the Act by adding the employment in educational

institution in the Schedule in exercise of power

under Section 27 of the Act. Hence, the State

Government in exercise of powers under the Act

is not entitled to fix the minimum wage of such

teachers. The impugned notifications so far as

the teachers of the educational institution are

concerned are accordingly quashed."

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15. The definitions of 'employee' in other labour

legislations which need to be considered for

comparison are first Section 2 (13) of the Payment of

Bonus Act, 1965 where the definition reads as under:-

'2 (13). 'Employee' means any person (other

than an apprentice) employed on a salary or

wage not exceeding [three thousand and five

hundred rupees] per mensem in any industry to

do any skilled or unskilled, manual, supervisory,

managerial, administrative, technical or clerical

work for hire or reward, whether the terms of

employment be express or implied.'

16. Section 2 (f) of the Employees' Provident Funds

Act, 1952 defines 'employee' as under:-

"2 (f): 'employee' means any person who is

employed for wages in any kind of work, manual

or otherwise, in or in connection with the work of

[an establishment] and who gets his wages

directly or indirectly from the employer."

17. Learned counsel appearing for the Corporation

does not dispute that definition of employee under the

Employees' Provident Funds Act, 1952 is very wide

and may include even a teacher in an educational

establishment because the expression in the definition

clause used is 'any person who is employed for wages

in any kind of work, manual or otherwise, in or in

connection with the work of [an establishment] and

who gets his wages directly or indirectly from the

employer'.

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18. It is submitted that since such language of wide

import in defining 'employee' is not used in the

Payment of Gratuity Act of 1972, the definition is

restrictive and not expansive. It has to be understood

as excluding 'teachers' who are not doing any kind of

skilled or unskilled, manual, supervisory, managerial,

administrative, technical or clerical work.

19. It is not disputed that by notification dated 3rd

April, 1997, issued in exercise of powers under Section

1 (3) (c) of the Payment of Gratuity Act, 1972, the

Gratuity Act is extended to educational institutions in

which ten or more persons are employed or were

employed on any day preceding 12 months.

20. An educational institution, therefore, is an

'establishment' notified under Section 1 (3) (c) of the

Payment of Gratuity Act, 1972. On behalf of the

Municipal Corporation, it is contended that the only

beneficial effect of the Notification issued under

Section 1 (3) (c) of the Act of 1972, is that such non-

teaching staff of educational institutions as answer the

description of any of the employments contained in

the definition Clause 2 (e), would be covered by the

provisions of the Act. The teaching staff being not

covered by the definition of 'employee' can get no

advantage merely because by notification 'educational

institutions' as establishments are covered by the

provisions of the Act.

21. Having thus compared the various definition

clauses of word 'employee' in different enactments,

with due regard to the different aims and objects of

the various labour legislations, we are of the view that

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even on plain construction of the words and

expression used in definition clause 2 (e) of the Act,

'teachers' who are mainly employed for imparting

education are not intended to be covered for

extending gratuity benefits under the Act. Teachers do

not answer description of being employees who are

'skilled,' 'semi-skilled' or 'unskilled.' These three words

used in association with each other intend to convey

that a person who is 'unskilled' is one who is not

'skilled' and a person who is 'semi-skilled' may be one

who falls between two categories meaning he is

neither fully skilled nor unskilled. The Back's Law

Dictionary defines these three words as under:-

"Semi-skilled work: Work that may require some

alertness and close attention, such as

inspecting items or machinery for

irregularities, or guarding property or

people against loss or injury.

Skilled work: Work requiring the worker to use

judgment, deal with the public, analyze

facts and figures, or work with abstract

ideas at a high level of complexity.

Unskilled work: Work requiring little or no judgment,

and involving simple tasks that can be

learned quickly on the job.”

22. In construing the above mentioned three words

which are used in association with each other, the rule

of construction noscitur a sociis may be applied. The

meaning of each of these words is to be understood by

the company it keeps. It is a legitimate rule of

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construction to construe words in an Act of Parliament

with reference to words found in immediate

connection with them. The actual order of these three

words in juxtaposition indicates that meaning of one

takes colour from the other. The rule is explained

differently: 'that meaning of doubtful words may be

ascertained by reference to the meaning of words

associated with it'. [See Principles of Statutory

Interpretation by Justice G.P. Singh (8th Ed.), Syn.8 at

pg.379].

23. The word 'unskilled' is opposite of the word

'skilled' and the word 'semi-skilled seems to describe a

person who falls between the two categories i.e. he is

not fully skilled and also is not completely unskilled

but has some amount of skill for the work for which he

is employed. The word 'unskilled' cannot, therefore, be

understood dissociated from the word 'skilled' and

'semi-skilled' to read and construe it to include in it all

categories of employees irrespective of the nature of

employment. If the Legislature intended to cover all

categories of employees for extending benefit of

gratuity under the Act, specific mention of categories

of employment in the definition clause was not

necessary at all. Any construction of definition clause

which renders it superfluous or otiose has to be

avoided.

24. The contention advanced that teachers should be

treated as included in expression 'unskilled' or 'skilled'

cannot, therefore, be accepted. The teachers might

have been imparted training for teaching or there may

be cases where teachers who are employed in primary

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schools are untrained. A trained teacher is not

described in industrial field or service jurisprudence as

a 'skilled employee'. Such adjective generally is used

for employee doing manual or technical work.

Similarly, the words 'semi-skilled' and 'unskilled' are

not understood in educational establishments as

describing nature of job of untrained teachers. We do

not attach much importance to the arguments

advanced on the question as to whether 'skilled',

'semi-skilled' and 'unskilled' qualify the words

'manual', 'supervisory', 'technical' or 'clerical' or the

above words qualify the word 'work'. Even if all the

words are read disjunctively or in any other manner,

trained or untrained teachers do not plainly answer

any of the descriptions of the nature of various

employments given in the definition clause. Trained or

untrained teachers are not 'skilled', 'semi-skilled',

'unskilled', 'manual', 'supervisory', 'technical' or

'clerical' employees. They are also not employed in

'managerial' or 'administrative' capacity. Occasionally,

even if they do some administrative work as part of

their duty with teaching, since their main job is

imparting education, they cannot be held employed in

'managerial' or 'administrative' capacity. The teachers

are clearly not intended to be covered by the

definition of 'employee'.

25. The Legislature was alive to various kinds of

definitions of word 'employee' contained in various

previous labour enactments when the Act was passed

in 1972. If it intended to cover in the definition of

'employee' all kinds of employees, it could have as

25

well used such wide language as is contained in

Section 2 (f) of the Employees' Provident Funds Act,

1952 which defines 'employee' to mean 'any person

who is employed for wages in any kind of work,

manual or otherwise, in or in connection with the work

of [an establishment]'…Non-use of such wide

language in the definition of 'employee' in Section 2

(e) of the Act of 1972 reinforces our conclusion that

teachers are clearly not covered in the definition.

20. The Petitioner submits that, the Parliament thereafter chose

to amend the definition of the term ‘employee’ occurring in

the Payment of Gratuity Act, 1972 for the purpose of also

covering a ‘teacher’ employed by an educational institution.

As such, the ‘Statement of Objects And Reasons dated 07-

Sep-2007’ to a proposed amendment to the definition of

‘employee’ read as under:

STATEMENT OF OBJECTS AND REASONS

The Payment of Gratuity Act, 1972 (the Act) provides

for payment of gratuity to employees employed in any

establishment, factory, mine, oilfield, plantation, port,

railway company or shop employing 10 or more

persons.

2. The Central Government had extended the

provisions of the Act to the educational institutions

employing 10 or more persons vide this Ministry’s

notification No.S.O. 1080 dated 3rd April, 1997. The

Hon’ble Supreme Court in its judgment dated 13th

January, 2004, in Ahmedabad Private Primary

Teachers Association v. Administrative Officer (AIR

2004 SC 1426) held that teachers are not entitled to

26

gratuity under the Act, in view of the fact that

teachers do not answer description of ‘employee’ who

are ‘skilled’, ‘semi-skilled’, or ‘unskilled’. The Supreme

Court observed that non-use of wide language similar

to definition of ‘employee’ as is contained in section 2

(f) of the Employees’ Provident Funds and

Miscellaneous Provisions Act, 1952, reinforces the

conclusion that teachers are not covered in that

definition. Para 26 of the said judgment reads as

follows:

“Our conclusion should not be misunderstood

that teachers although engaged in very noble

profession of educating our young generation

should not be given any gratuity benefit. There

are already in several States separate statutes,

rules and regulations granting gratuity benefits

to teachers in educational institutions which are

more or less beneficial than the gratuity benefits

provided under the Act. It is for the Legislature to

take cognizance of situation of teachers in

various establishments where gratuity benefits

are not available and think of a separate

legislation for them in this regard. That is the

subject matter solely of the Legislature to

consider and decide.”

3. Keeping in view the observations of the Hon’ble

Supreme Court, it is proposed to widen the definition

of ‘employee’, in order to extend the benefits of

gratuity to the teachers, by amending the same.

4. The Bill seeks to achieve the above objects.

27

NEW DELHI.

The 7th September, 2007

OSCAR FERNANDES

21. Accordingly, the Petitioner submits that the Payment of

Gratuity (Amendment) Act, 2009 came to be passed by the

Hon’ble Parliament and received the assent of the President

of India on 31-Dec-2009. By a Notification issued on 31-Dec-

2009, the said Amendment Act of 2009 was given

retrospective effect from 03-Apr-1997.

22. The complete text of the Payment of Gratuity (Amendment)

Act, 2009 as Notified is as under:

An Act further to amend the Payment of Gratuity Act,

1972.

Be it enacted by Parliament in the Sixtieth year of the

Republic of India as follows:

1. (1) This Act may be called the Payment of Gratuity

(Amendment) Act, 2009,

(2) It shall be deemed to have come into force on the

3rd day of April, 1997.

2. In the Payment of Gratuity Act, 1972 (hereinafter

referred to as the principal Act), in section 2, for

clause (e), the following clause shall be substituted,

namely:-

(e) “employee” means any person (other than an

apprentice) who is employed for wages, whether

the terms of such employment are express or

implied, in any kind of work, manual or

otherwise, in or in connection with the work of a

28

factory, mine, oilfield, plantation, port, railway

company, shop or other establishment to which

this Act applies, but does not include any such

person who holds a post under the Central

Government or a State Government and is

governed by any other Act or by any rules

providing for payment of gratuity’.

3. After section 13 of the principal Act, the following

section shall be inserted, namely:-

“13A. Notwithstanding anything contained in any

judgment, decree or order of any court, for the

period commencing on and from the 3rd day of

April, 1997 and ending on the day on which the

Payment of Gratuity (Amendment) Act, 2009

receives the assent of the President, the gratuity

shall be payable to an employee in pursuance of

the notification of the Government of India in the

Ministry of Labour and Employment vide number

S.O. 1080 dated the 3rd day of April, 1997 and

the said notification shall be valid and shall be

deemed always to have been valid as if the

Payment of Gratuity (Amendment) Act, 2009 had

been in force at all material times and the

gratuity shall be payable accordingly:

Provided that nothing contained in this section

shall extend, or be construed to extend, to affect

any person with any punishment or penalty

whatsoever by reason of the non-payment by

him of the gratuity during the period specified in

this section which shall become due in

pursuance of the said notification.”

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23. The Petitioner submits that, the immediate impact from the

passage of the Payment of Gratuity (Amendment) Act, 2009

upon private unaided educational institutions is as under:

Time Period Impact upon private unaided

educational institutions in

the State of Karnataka

a) From: Passage of the

Payment of Gratuity

Act, 1972 w.e.f. 16-Sep-

1972

To: Issue of Notification

declaring educational

institutions to be

covered within the

ambit of the Act w.e.f.

03-Apr-1997

Educational institutions as a

class were outside the ambit

of the Payment of Gratuity

Act, 1972 until 03-Apr-1997.

As such, private unaided

educational institutions were

excluded from the ambit of

the Payment of Gratuity Act,

1972 until 03-Apr-1997.

b) From: Passage of the

Notification on 03-Apr-

1997

To: Decision by the

Supreme Court in

Ahmedabad Private

Primary Teachers

Association v.

Administrative Officer,

(AIR 2004 SC 1426) on

13-Jan-2004.

The members of the

Petitioner were

professionally advised that

the 03-Apr-1997 Notification

would apply only to the non-

teaching staff employed in

educational institutions. As

such, only a private unaided

education institution that

employed in excess of 10

non-staff members for any

month beginning from April,

30

1996 became subject to the

provisions of the Act in

respect of such non-teaching

staff.

c) From: Decision by the

Supreme Court in the

Ahmedabad Teachers

(supra) case on 13-Jan-

2004

To: Just prior to the

passage of the Payment

of Gratuity

(Amendment) Act, 2009

on 31-Dec-2009.

Private unaided educational

institutions that are

members of the Petitioner

witnessed no change from

the position described

above.

d) From: Passage of the

Payment of Gratuity

(Amendment) Act, 2009

on 31-Dec-2009 with a

retrospective operation

from 03-Apr-1997.

Private unaided educational

institutions in the State of

Karnataka are suddenly

burdened with a financial

distress that they had never

foreseen or anticipated. Most

of the private unaided

educational institutions are

now liable to discharge this

abrupt liability cast on them

– as the Act would apply to

every institution that

employs or has employed

ten or more persons in any

month commencing from

31

April, 1996. Most of the

educational institutions that

were excluded until 31-Dec-

2009 on the ground that

they employed less than 10

non-teaching staff members

are now subject to the

statute and liable w.e.f. 03-

Apr-1997.

24. The Petitioner submits that the retrospective operation of

the Payment of Gratuity (Amendment) Act, 2009 (referred

to hereinafter as ‘2009 Amendment’, wherever the context

admits) is onerous and casts an unbearable financial burden

upon private unaided educational institutions.

25. Further, when considered against a host of other statutes,

rules and regulations that prescribe or limit the fee that

private unaided educational institutions are authorised to

charge and collect, the Petitioner submits that the

retrospective operation of the 2009 Amendment infringes

upon the fundamental right of the members of the

petitioner to establish and administer an educational

institution by unreasonably creating an unforeseen financial

burden in the face of numerous Government restrictions

upon collection of fee or revenue by educational

institutions.

26. Further, the Petitioner submits that the Parliament has

deprived the binding nature of a judicial decision by

legislating that the interpretation advanced by the Supreme

Court would not protect those who relied upon such

32

interpretation. By replacing a different definition in place of

the earlier definition, the Parliament could not have

supposed to merely correct ‘some’ inadvertent error and is

therefore, disentitled to argue that the 2009 Amendment is

merely in the nature of a validating statute or that such

validation is fully within legislative prerogative.

27. Further, the Petitioner submits that a private unaided

educational institution is already subject to stringent

regulation in the matter of deriving its revenue. By a series

of judicial decisions, educational institutions have been

decisively forbidden from profiteering in any manner. As

such, the revenue of a private unaided educational

institution is solely comprised of fees collected from its

pupils. The 2009 Amendment to the Payment of Gratuity

Act, 1972 is therefore bound to adversely impact the

financial health of educational institutions due to a failure of

the Parliament to recognise the financial limitation of a

private unaided educational institution.

28. The Petitioner further submits that private unaided

educational institutions in the State of Karnataka are further

subject to a host of regulations that mandate the incurring

of certain expenses on par with what is incurred by

educational institutions operated by the Government.

Specifically, the Karnataka Educational Institutions (Certain

terms and conditions of service of employees in Private

unaided Primary and secondary and Pre-university

Educational Institutions) Rules 20052 notified on 12-Jan-

2006 mandates that salaries of the teaching staff in private

2 In exercise of powers conferred upon the Government of Karnataka in terms of Section 145 of the Karnataka Education Act, 1983.

33

unaided educational institutions that are governed by the

Karnataka Education Act, 1983 (all members of the

Petitioner are governed by the Karnataka Education Act,

1983) are to match the scale of salaries of teachers in

Government schools. Rule 3 (1) (b) of the said Regulation

specifically mandates that:

Rule 3 (1) (b): Minimum number of posts, Educational

Qualifications and conditions of service of

employees:- Subject to the other provisions of

these rules the salary of the employees in the

educational Institutions of namely, the unaided

Primary, Secondary and Pre-University

educational Institutions shall not be less than the

minimum of the basic of the scale of the pay of

the corresponding post held by an employee in a

Government educational institution and shall be

disbursed through A/c Payee cheques drawn in

favor of such employee.

29. Further, the Petitioner submits that the above Regulation

also mandates that the staffing pattern in a private

educational institution is to be structured in the same

manner as is done in educational institutions operated by

the Government. Specifically, Rule 3 (1) (a) of the aforesaid

Regulation provides that:

Rule 3 (1) (a): Minimum number of posts, Educational

Qualifications and conditions of service of

employees:- Subject to the other provisions of

these rules the minimum number of categories

and number of posts and staffing pattern shall be

as applicable to aided educational institutions.

34

30. Accordingly, the Petitioner submits that the minimum

strength of the staff of a private unaided educational

institution in the State of Karnataka is itself made the

subject of a binding regulation. As such, in view of the fact

that the Payment of Gratuity Act, 1972 is made applicable

to an establishment consequent to the employment of 10 or

more qualifying persons (at any point of time commencing

from the 12 months prior to 03-Apr-1997) the retrospective

operation of the 2009 Amendment to the Payment of

Gratuity Act, 1972 is bound to create an enormous fiscal

burden upon the members of the Petitioner by subjecting

most of them to the rigour of the Payment of Gratuity Act,

1972.

31. Further, private unaided educational institutions in the State

of Karnataka are already subject to onerous regulation that

severely limits their financial flexibility. The revenue and all

sources of income to a private unaided educational

institution in the State of Karnataka are severely restricted

in terms of the following provisions of law:

The Karnataka Educational Institutions (Prohibition of

Capitation Fee) Act, 1984:

Section 3: Collection of Capitation fee prohibited:

Notwithstanding anything contained in any law

for the time being in force, no capitation fee shall

be collected by or on behalf of any educational

institution or by any person who is in charge of

or is responsible for the management of such

institution.

Section 5: Regulation of fees etc: (1) It shall be competent

for the Government by notification, to regulate

35

the tuition fee or any other fee or deposit or

other amount that may be received or collected

by any educational institution or body of such

institutions in respect of any or all class or

classes of students.

(2) No educational institution shall collect any

fees or amount or accept deposits in excess of

the amounts notified under sub section (1) or

permitted under the proviso to section 3.

Section 6 Regulation of Expenditure and maintenance of

accounts etc. (1) The Government may regulate

the expenditure of the educational institutions

and the maintenance of accounts by them in

such manner as may be prescribed.

The Karnataka Educational institutions (Classification,

Regulation and Prescription of Curricula etc.,) Rules 1985

Rule 10 (2) The fees to be collected shall be classified as:

a) Term fees;

b) Tuition fees;

c) Special development fees.

Rule 10 (3) (a) Term Fees:

i) No term fees shall be collected from pre-

primary and lower primary students;

ii) In upper primary and higher classes, term fees

shall be collected at the rate specified by the

State Government or the competent Authority

authorized in their behalf through a notification

36

and shall be collected only for the items listed in

the said notification;

iii) Term fees collected by the recognized

educational institutions for each term from the

students shall be subject to exemption made by

the State Government from time to time in this

regard.

Rule 10 (3) (b): Tuition fees-

ii) In case of recognized private unaided

institutions tuition fees may be collected from all

the students, which shall be commensurate with

the expenditure incurred towards salary of staff

and the quality of education provided by the

institution;

Rule 10 (3) (c): Special Development fees may be collected-

ii) In the case of recognized unaided educational

institution up to a maximum of Rs 600 per year.

Karnataka Educational Institutions (Regulation of Certain

fees and donations) Rules, 1999.

Rule 3 : Regulations of Donations etc:- No donation or

voluntary donation or any money by whatever

name called shall be received by the Educational

Institutions, other than prescribed fee as notified

by the management before during or after

admission and during entire stay of the student

in the concerned educational institutions from

parents or any person in connection with such

admission. No donation made in connection with

any admission shall be construed as voluntary

37

donations, for the purpose of section 48 and 51

of the Act.

Rule 4 : Fees in unaided Private Educational Institutions:-

(1) Notwithstanding anything contained in any

rules made in this behalf and in lieu of tuition fee

charged under rule 10 (2) (b) (ii) of the

Karnataka Education institutions (Classification,

Regulation Prescription of curricula etc) Rules

1995, the maximum tuition fee in respect of

private unaided educational institutions shall be

fixed taking into consideration the salary

expenditure on teaching and non teaching staff

plus 30% of the salary expenditure towards

contingency and maintenance costs divided by

total number of students.

32. Respectfully, the Petitioner submits that, in addition to the

above Regulation, the Parliament has also enacted a law to

further restrict the revenue source of a private unaided

educational institution by bringing forth drastic social

measures under the Right of Children to Free and

Compulsory Education Act, 2009. The critical provisions of

this statute provide that:

Section 12: Extent of school’s responsibility for free and

compulsory education-

(1) For the purposes of this Act, a school:- (c)

Specified in sub clause (iii) and (iv) of section 23

shall admit in class I, to the extent of at least

twenty-five percent of the strength of that class

children belonging to weaker section and 3Covers unaided private educational institutions imparting elementary education, that is, education for standards I to VIII.

38

disadvantaged group in the neighbourhood and

provide free and compulsory elementary

education till its completion;

(2) The school specified in sub-clause (iv) of

clause (n) of section 2 providing free and

compulsory elementary education as specified in

clause (c) of sub section (1) shall be reimbursed

expenditure so incurred by it to the extent of

per-child-expenditure incurred by the State, or

the actual amount charged from the child,

whichever is less, in such manner as may be

prescribed.

Provided that such reimbursement shall not

exceed per-child-expenditure incurred by a

school specified in sub-clause (i) of clause (n) of

section 2;

Section 13: No capitation fee and screening procedure for

admission - (1) No school or person shall, while

admitting a child, collect any capitation fee and

subject the child or his or her parents or

guardian to any screening procedure.

33. The Petitioner submits that, as is plainly evident from a bare

perusal of the regulation to which a private unaided

education institution is already subject to in the matter of

deriving its revenue, the retrospective operation of the

2009 Amendment is bound to dislocate the financial health

of such institutions in the State of Karnataka.

39

34. The petitioner submits that it has not filed, on the instant

cause of action, any other petition before this Hon’ble Court

or before any other Court of competent jurisdiction.

35. The Petitioner reasonably asserts that the violation of the

fundamental rights of its member educational institutions

by reason of retrospective operation of the 2009

Amendment is such that the relief sought herein offers an

adequate remedy under the circumstances.

36. That, under the circumstances, the petitioner seeks the

intervention of this Hon’ble Court under Article 226 of the

Constitution, amongst others, on the following:

GROUNDS

I. The definition of an ‘employee’ occurring in Section 2 (e) of

the Payment of Gratuity Act, 1972 is the very heart and soul

of that statute. The 2009 Amendment seeks to change this

very heart of the statute retrospectively. Unlike validation

statutes that have been upheld by decisions of various

courts4, the amendment in question surpasses the breadth

of any validating statute that has withstood judicial scrutiny

thus far.

II. In almost every case where the retrospective operation of a

validating statute has been upheld by a Court of law, the

retrospective amendment affected an incidental or an

4 …Where the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, it can also provide for the retrospective operation of the said provisions. The legislative power in addition, includes the subsidiary or auxiliary power to validate laws which have been found to be invalid. If a law passed by a legislature is struck down by the court as being invalid for one infirmity or another, it would be competent to the appropriate legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said earlier law effective from the date when it was passed.Krishnamurthi And Co. v. State of Madras., AIR 1972 SC 2455

40

ancillary provision of the relevant statute. Never did any

such validating statute change the very heart or defining

feature5 of the original statute. As such, when challenged,

Courts have upheld retrospective operation of validating

statutes only in so far as such amendment preserved the

defining feature of that statute while modifying an

incidental feature of the statute in question6.

III. The power of a Legislature to enact a retrospective

legislation is limited to the extent of fairness it could

demonstrate when it seeks to impose a liability or a penalty

upon a citizen for failure to conduct himself in a certain

manner even while it prescribed some specific conduct only

after the citizen had concluded his conduct. Whether such

retrospective legislation could be termed ‘reasonable’ under

5 …But the core of a taxing statute is in the charging section and the provisions levying such a tax and defining persons who are liable to pay such tax. If that core disappears the remaining provisions have no efficacy….B.Shama Rao v. Union Territory of Pondicherry., AIR 1967 SC 14806 …The fiscal enactments brought on the statute book in that connection are sometimes challenged by the tax payer in courts of law. The courts then scrutinise the legal provision to decide whether the levy of tax is legally valid or suffers from some infirmity. In case the court comes to the conclusion that the levy of tax is not valid as the legal provision enacted for this purpose does not warrant the levy of tax imposed because of some defect in phraseology or other infirmity, the legislature quite often passes an amending and validating Act. The object of such an enactment is to remove and rectify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. Such an amending and validating Act to make "small repairs'' is a permissible mode of legislation and is frequently resorted to in fiscal enactments. As observed in 73 Harvard Law Review 692 at p. 705:"It is necessary that the legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called 'small repairs'. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the legislature's or administrator's action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of government outweighs the individual's interest in benefiting from the defect...The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government among those who benefit from it.''The above passage was quoted with approval by the Constitution Bench of this Court in the case of Assistant Commr. of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd. (1970) 1 SCR 268 = (AIR 1970 SC 169).Krishnamurthy And Co. v. State of Madras., AIR 1972 SC 2455

41

the circumstances under which it came to be passed is a

matter for a decision by a Court of law. A Court of law would

be failing in its duty if it were to uphold a retrospective

legislation merely on the ground that a Legislature in India

has been traditionally empowered to legislate

retrospectively.

IV. As such, when a retrospective legislation seeks to impose a

financial burden upon a citizen, should any of the

constitutional rights of a citizen be affected by such

retrospective legislation, the constitutionality of such

legislation is to be examined by a court of law with

reference to the tests that the constitution has itself

prescribed. The 2009 Amendment fails the tests so

prescribed by the Constitution itself.

V. Substantial differentiation exists between the 2009

Amendment and a host of other fiscal statutes that

operated retrospectively and came to be upheld by the

Courts. As Courts have consistently held that the

reasonableness of a tax rate is not justiciable7, where a

retrospective legislation sought to enhance a rate of tax or

sought to remove an exemption, courts have upheld such

retrospective operation primarily on the ground that an

assessee cannot claim a proprietary right to any specific

rate of tax or claim an immutable expectation to the non-

7 Chief Justice Marshall said in McCulloch v. Maryland,. (1819) 4 Law Ed. 579 at p. 607-"The power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself."(See Willoughby on the Constitution of the United States, Vol. 2 at p. 666).In Pacific Insurance Co. v. Soule, (1868) 7 Wall 433 the Court said :-"Congress may prescribe the basis, fix the rate and require payment as it may deem proper. Within the limits of the constitution it is supreme in its action. No power of supervision or control is lodged in either of the other departments of the government."Chhotabai Jethabai Patel And Co. v. Union of India., AIR 1962 SC 1006

42

revocation of an exemption. Therefore, a general principle

deducible from those decisions upholding a retrospective

legislation is an observation in each instance that the

retrospective legislation did not breach a reasonable notice

of a liability to tax8. However, the instant case is markedly

and fundamentally different from such cases and no

reasonable expectation existed in the minds of educational

institutions that the Parliament desired a certain objective

which, though expressed in prior statutes, it had chosen to

not express in the Payment of Gratuity Act, 1972. As

specifically noted by the Hon’ble Supreme Court in the

Ahmedabad Teachers case (supra):

25. The Legislature was alive to various kinds of

definitions of word 'employee' contained in various

previous labour enactments when the Act was passed

in 1972. If it intended to cover in the definition of

'employee' all kinds of employees, it could have as

well used such wide language as is contained in

Section 2 (f) of the Employees' Provident Funds Act,

1952 which defines 'employee' to mean 'any person

who is employed for wages in any kind of work,

manual or otherwise, in or in connection with the work

of [an establishment]'......Non-use of such wide

language in the definition of 'employee' in Section 2

(e) of the Act of 1972 reinforces our conclusion that

teachers are clearly not covered in the definition.

VI. In view of the fact that it has been well established judicially

that the Legislature in India is competent to legislate

8 Further, where the Legislature never intended an exemption in a fiscal statute, but an exemption was inferred by an assessee and a Court of law also held that a reasonable interpretation evidences such exemption, such interpretation of a court protects the assessee.

43

retrospectively9, the only issue that arises for consideration

by this Hon’ble Court is whether, under the circumstances

of this case, the retrospective legislation impugned herein

could withstand judicial scrutiny10. The Petitioner

respectfully submits that the impugned statute does not

withstand a careful judicial scrutiny.

VII. As on 03-Apr-1997, the date on which the Government of

India issued the Notification to bring in educational

institutions within the ambit of the Payment of Gratuity Act,

1972, neither the Parliament of India nor the Government of

India could have reasonably entertained any doubt over the

judicial meaning of the terms ‘clerical’, ‘mechanical’,

‘skilled’ or ‘unskilled’ that stood to define an ‘employee’ for

the purpose of the Payment of Gratuity Act, 1972 in view of

the prior authoritative declaration by the Supreme Court:

a. On 27-Jul-1988 – nearly 10 years earlier – in the case of

Miss A. Sundarambal v. Government of Goa, Daman and

Diu (AIR 1988 SC 1700) wherein the Supreme Court had

decisively rejected the contention that the definition of a

“workman” employed in any industry to do any skilled or

unskilled manual, supervisory, technical or clerical work

for hire or reward, as occurring in the Industrial Disputes

Act, 194711 could be interpreted to include a ‘teacher’

9 The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective.J.K.Jute Mills Co. Ltd. v. State of Uttar Pradesh., AIR 1961 SC 153410 It is well recognised that the power to legislate includes the power to legislate prospectively as well as retrospectively, and in that behalf, tax legislation is no different from any other legislation. If the Legislature decides to levy a tax, it may levy such tax either prospectively or even retrospectively. When retrospective legislation is passed imposing a tax, it may, in conceivable cases, become necessary to consider whether such retrospective taxation is reasonable or not…Jawaharmal v. State of Rajasthan., AIR 1966 SC 76411 At the relevant time, Section 2 (s) of the Industrial Disputes Act, 1947 defined 'workman' thus :

44

employed in an educational institution, though an

educational institution itself may be regarded as an

‘industry’ for the purpose of the said Act. Specifically, the

Supreme Court had held that:

In order to be a workman, a person should be one who

satisfies the following conditions: (i) he should be a

person employed in an industry for hire or reward; (ii)

he should be engaged in skilled or unskilled manual,

supervisory, technical or clerical work; and (iii) he

should not be a person falling under any of the four

clauses, i.e., (i) to (iv) mentioned in the definition of

'workman' in section 2 (s) of the Act….

We are concerned in this case primarily with the

meaning of the words 'skilled or unskilled manual,

supervisory, technical or clerical work'. If an employee

in an industry is not a person engaged in doing work

falling in any of these categories, he would not be a

workman at all even though he is employed in an

industry. The question for consideration before us is

whether a teacher in a school falls under any of the

four categories, namely, a person doing any skilled or

unskilled manual work, supervisory work, technical

work or clerical work. If he does not satisfy any one of

the above descriptions he would not be a workman

"2 (s): 'Workman' means any person (including an apprentice) employed in any industry to do any skilled or unskilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be expressed or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person -(i) who is subject to the Army Act, 1950 (46 of 1950), or the Air Force Act, 1950 (45 of 1950), or the Navy (Discipline) Act, 1934 (34 of 1934); or(ii) who is employed in the police service or as an officer or other employee of a prison; or(iii) who is employed mainly in a managerial or administrative capacity; or(iv) who, being employed in a supervisory capacity, draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature."

45

even though he is an employee of an industry as

settled by this Court…

…We are of the view that the teachers employed by

educational institutions whether the said institutions

are imparting primary, secondary, graduate or post-

graduate education cannot be called as 'workmen'

within the meaning of section 2 (s) of the Act.

Imparting of education which is the main function of

teachers cannot be considered as skilled or unskilled

manual work or supervisory work or technical work or

clerical work. Imparting of education is in the nature of

a mission or a noble vocation. A teacher educates

children, he moulds their character, builds up their

personality and makes them fit to become responsible

citizens. Children grow under the care of teachers. The

clerical work, if any they may do, is only incidental to

their principal work of teaching. We agree with the

reasons given by the High Court for taking the view

that teachers cannot be treated as 'workmen' as

defined under the Act. It is not possible to accept the

suggestion that having regard to the object of the Act,

all employees in an industry except those falling under

the four exceptions (i) to (iv) in section 2 (s) of the Act

should be treated as workmen. The acceptance of this

argument will render the words 'to do any skilled or

unskilled manual, supervisory, technical or clerical

work' meaningless. A liberal construction as suggested

would have been possible only in the absence of these

words. The decision in May and Baker (India) Ltd. v.

Their Workmen (AIR 1967 SC 678) (supra) precludes

us from taking such a view. We, therefore, hold that

46

the High Court was right in holding that the appellant

was not a 'workman' though the school was an

industry in view of the definition of 'workman' as it

now stands.

b. On 12-Apr-1996, in the case of Haryana

Unrecognised Schools Association v. State of Haryana

(AIR 1996 SC 2108) whereby the Supreme Court had

again rejected the contention that the definition of an

‘employee’ employed for hire or reward to do any work,

skilled or unskilled, manual or clerical, as occurring in the

Minimum Wages Act, 194812 could be interpreted to

include a ‘teacher’ employed in an educational

institution. Specifically, the Supreme Court had held that:

…Since the teachers of an educational institution are

not employed to do any skilled or unskilled or manual

or clerical work and therefore could not be held to be

an employee under Section 2 (i) of the Act, it is

beyond the competence of the State Government to

bring them under the purview of the Act by adding the

employment in educational institution in the Schedule

in exercise of power under Section 27 of the Act. This

Court while examining the question whether the

teachers employed in a school is workmen under

Industrial Disputes Act had observed in Miss A.

12 At the relevant time, Section 2 (i) of the Minimum Wages Act, 1948 read as:2 (i): "employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed, and includes an out worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of that other person where the process is to be carried out either in the home of the out worker or in some other premises not being premises under the control and management of that other person; and also includes an employee declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union.

47

Sundarambal v. Govt. of Gao, Daman and Diu (1988) 4

SCC 42 : (AIR 1988 SC 1700 Para 10) :

"We are of the view that the teachers employed by

educational institutions whether the said institutions

are imparting primary, secondary, graduate or post

graduate education cannot be called as workmen'

within the meaning of Section 2 (s) of the Act.

Imparting of education which is the main function of

teachers cannot be construed as skilled or unskilled

manual work or clerical work. Imparting of education is

in the nature of a mission or a noble vocation. A

teacher educates children, he moulds their character,

builds up their personality and makes them fit to

become responsible citizens. Children grow under care

of teachers. The clerical work, if any they may do, is

only incidental to their principal work of teaching".

Applying the aforesaid dictum to the definition of

employee under Section 2 (i) of the Act it may be held

that a teacher would not come within the said

definition. In the aforesaid premises we are of the

considered opinion that the teachers of an educational

institution cannot be brought within the purview of the

act and the State Government in exercise of powers

under the Act is not entitled to fix the minimum wage

of such teachers. The impugned notification so far as

the teachers of the educational institution are

concerned are accordingly quashed. This appeal is

allowed. Writ petition filed succeeds to the extent

mentioned above…

48

VIII. As such, as on 03-Apr-1997, the Parliament and the

Government of India had full notice that the definition of an

‘employee’ as occurring in the Payment of Gratuity Act,

1972 could not include within its ambit, a ‘teacher’

employed by an educational institution in view of the

published authoritative pronouncement of the Supreme

Court on the very terms that were similarly contained13 in

the Industrial Disputes Act, 1947 and the Payment of Wages

Act, 1948. Therefore, neither the Parliament nor the

Government of India possessed any basis on 03-April-1997

to entertain any notion that the definition of an ‘employee’

in the Payment of Gratuity Act, 1972 as it existed on 03-Apr-

1997 could include a ‘teacher’ employed in an educational

institution. As such, neither the Parliament nor the

Government of India was authorised to disregard the

binding judicial precedent that existed on 03-Apr-1997 and

to assume that its Notification issued on that date was

intended to include a ‘teacher’ employed by educational

institutions. Further, any such assumption would partake

the character of legislation that improperly encroaches into

the province of the judiciary by assuming a meaning

contrary to the interpretation advanced by a Court of law –

the province of the Judiciary being the interpretation of the 13 “employee” under the Payment of Gratuity Act, 1972: (As on 03-Apr-1997)

Section 2 (e): "employee" means any person (other than an apprentice) employed on wages, in any establishment, … to do any skilled, semiskilled or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, (and whether or not such person is employed in a managerial or administrative capacity), …“workman” under the Industrial Disputes Act, 1947: (As on 03-Apr-1997)

Section 2 (s): “workman” means any person (including an apprentice) employed in any industry to do any skilled or unskilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be expressed or implied…“employee” under the Minimum Wages Act, 1948: (As on 03-Apr-1997)

Section 2 (i): "employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed, …

49

laws issued by the Legislature and to attach finality to such

interpretation so long as the language so interpreted

remains intact on the statute book. As such, the

retrospective operation of the 2009 Amendment acts as a

plain encroachment into the judicial sphere by disregarding

binding nature of the decisions of the Supreme Court.

Accordingly, the 2009 Amendment deserves to be

permanently injuncted to the extent of its retrospective

operation.

IX. Even assuming merely for the sake of argument that prior

to 03-Apr-1997, the benefit of the decisions of the Supreme

Court in the cases of A.Sundarambal v. Government of Goa,

Daman and Diu (supra) and Ahmedabad Private Primary

Teachers Association v. Administrative Officer (supra) was

somehow unavailable, and the Government of India

intended on 03-Apr-1997 that ‘teachers’ should be

ordinarily covered under the definition of an ‘employee’

already occurring in the Act, such an intention of the

Government was proper only so long as a Court of law did

not have an occasion to disagree with the contention of the

Government. With the Hon’ble Supreme Court squarely

disagreeing with the interpretation of the Government of

India in the case of Ahmedabad Teachers on 13-Jan-2004,

the interpretation desired by the Government of India was

required to yield to the interpretation advanced by the

Supreme Court of India. Therefore, an educational

institution is bound to receive the protection of the

Ahmedabad Teachers decision of the Supreme Court until

such time that the definition of ‘employee’ stood intact. In

view of the fact that the interpretation of laws is the

exclusive domain of a Court of law under our Constitution, if

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the Parliament intended that ‘teachers’ ought to be covered

within the definition of an ‘employee’, it was necessary for

the Parliament to clearly recognise that such intention was

grossly inconsistent with the language it had employed in

the statute. As such, the Parliament could have given effect

to its intention only by amending the very definition of the

‘employee’ prospectively; the definition of an ‘employee’ is

not an incidental or ancillary aspect of the Payment of

Gratuity Act, 1972. Rather, the definition of an ‘employee’ is

at the very heart and soul of the Payment of Gratuity

Act,1972. Therefore, the Parliament could not have given

effect to its intention except by replacing the earlier

definition of ‘employee’ with that contained in a statute

approvingly quoted by the Supreme Court (the Employees

Provident Funds And Miscellaneous Provisions Act, 1952). In

the matter of replacing the very heart of the statute, the

Parliament could not have assumed in bringing forth a

retrospective amendment that, it was merely correcting an

incidental or ancillary error that had somehow crept into the

legislation. There is no such error here. The Payment of

Gratuity Act, 1972 is no legislation in the absence of a

definition of ‘employee’. When a retrospective amendment

is passed for the purpose of correcting an error that had

crept into the statute, the Parliament should first

demonstrate that the statute retains a basic existence that

is somehow distinguishable from the errors that are sought

to be cured in the instant case. When the Parliament

detaches the previous definition of an employee from the

statute, the very basic structure of the statute is imperiled

and nothing remains for the Parliament to cure. As such, in

the instant case, the retrospective legislation is not in the

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nature of a validating statute14 at all. Simply because, in

order to validate a part of a statute, the statute should

retain an essential core and a retrospective validation

should be consistent with such core. In the instant case, the

very core of the statute is sought to be replaced by another

core. As such, the resulting statute may only apply

prospectively and not retrospectively15.

X. Further, in view of a series of decisions by the Hon’ble

Supreme Court, no educational institution is authorised to

operate in a manner so as make any profit or to permit the

sharing of such profits by any person16. Accordingly, the

14 "When a legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition is that the legislature must possess the power to impose the tax, for if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind, for that is tantamount to reversing the decision in exercise of judicial power which the legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances."Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality., (1970) 1 SCR 388 : AIR 1970 SC 19215 It would be within the exclusive domain of judiciary to expound the law as it is and not to speculate what it should be as it is the function of the Legislature. It is also within the exclusive power of the judiciary to hold that a Statute passed by the Legislature is ultra vires. The Legislature in that situation does not become a helpless creature as it continues to remain a living pillar of a living Constitution. Though it cannot directly override the judicial decision, it retains the plenary powers under Articles 245, 246 and 248 to alter the law as settled or declared by judicial decisions. This is what was observed by this Court in M/s. Anwar Khan Mahboob Co. v. State of Madhya Pradesh, (1966) 2 SCR 40 : (AIR 1966 SC 1637), which had the effect of indirectly overruling its previous decision in Firm C.J. Patal and Co. v. State of Madhya Pradesh, AIR 1953 SC 108. The Legislature can also validate an Act which was declared invalid by the Court or amend it with retrospective effect so as to remove the grounds of its invalidity. (See : Rai Ramkrishna v. State of Bihar, (1964) 1 SCR 897 : (AIR 1963 SC 1667) and Mt. Jadao Bhuji v.Municipal Committee, Khandwa, AIR 1961 SC 1486.The power to make a law includes the power to give it retrospective effect subject to the restriction imposed by Article 20(1) that a Legislature cannot make retrospective penal laws. It would be valid for the Legislature to make any other enactment with retrospective effect provided no Fundamental Right is infringed by reasons of its taking away the vested right...Chintaman Rao v. State of M.P., AIR 1951 SC 118 16 …But one thing is clear: commercialization of education cannot and should not be permitted. The Parliament as well as the State Legislatures have expressed this intention in unmistakable terms. Both in the light of our tradition and from the standpoint of interest of general public, commercialization is positively harmful; it is opposed to public policy….…Trade or business normally connotes an activity carried on with a profit motive. Education has never been commerce in this country. Making it one is opposed to the ethos, tradition and sensibilities of this nation. The argument to the contrary has an unholy ring to it. Imparting of education has never been treated as a trade or business in this country since times immemorial. It

52

Parliament is bound to be aware of the fact that educational

institutions in India are established and operate without a

profit motive. As such, the act of retrospectively subjecting

a private unaided educational institution to an unforeseen

and unexpected financial burden is plainly arbitrary, is an

unreasonable exercise of legislative power and is therefore,

unconstitutional17.

XI. Further, as expounded in paragraphs above, the revenue

earning ability of a private unaided educational institution in

the State of Karnataka is pervasively regulated and

restricted by several statutes – both Parliamentary and of

the State. Because a private unaided educational institution

has been treated as a religious duty. It has been treated as a charitable activity. But never as trade or business. We agree with Gajendragadkar, J. that "education in its true aspect is more a mission and a vocation rather than a profession or trade or business, however wide may be the denotation of the two latter words........" [See University of Delhi (1964) 2 SCR 703 : (AIR 1963 SC 1873)]……We are, therefore, of the opinion, adopting the line of reasoning in State of Bombay v. R.M.D.C., 1957 SCR 874 : (AIR 1957 SC 699), that imparting education cannot be treated as a trade or business. Education cannot be allowed to be converted into commerce…Unnikrishnan J.P. v. State of Andhra Pradesh., AIR 1993 SC 2178 : (1993) 1 SCC 645

…Every institution is free to devise its own fee structure subject to the limitation that there can be no profiteering and no capitation fee can be charged directly or indirectly, or in any form (paras 56 to 58 and 161 [answer to Question 5(c)] of Pai Foundation are relevant in this regard).P.A.Inamdar v. State of Maharashtra., 2005 (6) SCC 537

We, however, wish to emphasize one point, and that is that inasmuch as the occupation of education is, in a sense, regarded as charitable, the Government can provide regulations that will ensure excellence in education, while forbidding the charging of capitation fee and profiteering by the institution. Since the object of setting up an educational institution is by definition "charitable", it is clear that an educational institution cannot charge such a fee as is not required for the purpose of fulfilling that object. To put it differently, in the establishment of an educational institution, the object should not be to make a profit, inasmuch as education is essentially charitable in nature….T.M.A. Pai Foundation v. State of Karnataka., AIR 2003 SC 355 : 2002 (8) SCC 48117 The phrase "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. The word "reasonable" implies intelligent care and deliberation, that is the choice of a course which reason dictates. Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in Art. 19 (1) (g) and the social control permitted by cl. (6) of Art. 19, it must be held to be wanting in that quality.…The determination by the legislature of what constitutes a reasonable restriction is not final or conclusive; it is subject to the supervision by this Ct. In the matter of fundamental rights, the S. C. watches and guards the rights guaranteed by the Constitution and in exercising its functions it has the power to set aside an Act of the Legislature if it is in violation of the freedoms guaranteed by the Constitution….Chintaman Rao v. State of M.P., AIR 1951 SC 118

53

derives no further revenue than is stipulated by a host of

such statutes, it essentially lacks the resources to honour

abrupt fiscal responsibilities thrust on it by the 2009

Amendment. As such, under such circumstances, the

impact of the retrospective operation of a fiscal statute

upon a private unaided educational institution is not

comparable to a burden that would be thrust upon

businesses or other class of profit-oriented assesses.

Therefore, the 2009 Amendment is liable to be injuncted

forthwith for the prevention of harsh and oppressive

consequences upon private unaided educational institutions

in the State of Karnataka.

XII. Further, the public good sought to be achieved by the

Parliament by giving retrospective operation to the 2009

Amendment is plainly illusory. ‘Teachers’ who were

employed by private unaided educational institutions during

the period 03-Apr-1997 to 31-Dec-2009 held no reasonable

expectation of being covered by the Payment of Gratuity

Act, 1972. The petitioner specifically submits that none of

its members entertained any belief, at any point of time

(between 03-Apr-1997 and 31-Dec-2009) that ‘teachers’

under their employment were entitled to gratuity benefits.

As such, neither the ‘teachers’ who were employed by

educational institutions during the relevant period nor the

educational institutions themselves entertained any belief

that the Payment of Gratuity Act,1972 would apply to

‘teachers’ in their employment. Therefore, the Parliament

could not have, acting reasonably and as a representative

of both the classes of citizens, assumed that the reasonable

belief and expectation of ‘teachers’ and educational

institutions was somehow injurious or detrimental to public

54

interest. As such, the Parliament is not authorised to

legislate retrospectively in the manner that it has done18.

XIII. The retrospective operation of the 2009 Amendment is, by

its very nature, arbitrary. Arbitrariness is the antithesis of

equality. An arbitrary legislation as at present should

necessarily injure the rights of the Petitioner protected

under Article 14 of the Constitution19.

XIV. All citizens of this country have a fundamental right to

establish and administer educational institutions under

Article 19 (1) (g)20. The right of the members of the

Petitioner to establish and administer an educational

institution has been wrongfully injured by the 2009

Amendment and there is no overriding governmental

objective behind such legislation21. The 2009 Amendment

has no reasonable relation to the exercise of governmental

power and such excessive power is demonstrably harmful to

the Petitioners’ occupation. As such, the 2009 Amendment

18 The general rule of interpretation is that the language employed is primarily the determining factor to find out the intention of the legislature. Gajendragadkar, J., as he then was, in the case of, Kanailal Sur v. Paramnidhi Sadhukhan, (1958) 2 SCR 360 : (AIR 1957 SC 907), had observed that "the first and primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself." In the case of, Robert Wigram Crawford v. Richard Spooner, (1846) 4 MIA 179 (PC) p. 187. Lord Brougham had stated thus". If the legislature did intend that which it has not expressed clearly; much more, if the legislature intended something very different; if the legislature intended pretty nearly the opposite of what is said, it is not for judges to invent something which they do not meet within the words of the text." Thus when the plain meaning of the words used in a statute indicate a particular state of affairs the Courts are not required to get themselves busy with the "supposed intention" or with "the policy underlying the statute" or to refer the objects and reasons which was accompanied the Bill while introducing the same on the floor of the legislation.S.S.Bola v. B.D.Sardana AIR 1997 SC 3127 : 1997 AIR SCW 317219 E.P.Royappa v. State of Tamil Nadu., AIR 1974 SC 555, 1974 (4) SCC 320 T.M.A.Pai Foundation And Ors. Vs. State Of Karnataka., AIR 2003 SC 355, 2002 (8) SCC 48121 Islamic Academy of Education v. State of Karnataka., AIR 2003 SC 3724, 2003 (6) SCC 697

55

is liable to be struck down for being unconstitutional to the

extent of its retrospective operation22.

XV. Further, the length of time that has elapsed between the

decision of the Supreme Court in Ahmedabad Teachers

(supra) on 13-Jan-2004 and the passage of the Payment of

Gratuity (Amendment) Act, 2009 on 31-Dec-2009 is

extraordinarily large – 2180 days (5 years, 11 months, 19

days). The Petitioner submits that the Constitution of India

clearly provides for the urgent promulgation of legislation

even when the Parliament or a State Legislature is not in

session23. The existence of such a provision in our

Constitution furnishes a guide to assess the reasonableness

of time with which, an Executive Government or the

legislature embarks upon the passage of a validating or a

correcting statute. The act of the Parliament in consuming

close to six years in the process of issuing an extraordinarily

simple legislation is plainly fatal to the giving of a

retrospective operation to the 2009 Amendment. Further,

no indication to give a retrospective operation is even

evident in the ‘Statement of Objects and Reasons’ to the

2009 Amendment published on 07-Sep-2007.

XVI. The ‘Statement of Objects and Reasons’ dated 07-Sep-2007

published by the Government of India in relation to the

2009 Amendment merely states a desire to bring in

‘teachers’ within the ambit of the Payment of Gratuity Act,

1972. When read as a whole, the said Statement merely

reproduces a desire to act in terms of the observation of the

22 P.A.Inamdar v. State of Maharashtra., AIR 2005 SC 2336, 2005 (6) SCC 53723 Article 123: Power of President to promulgate Ordinances during recess of Parliament(1) If at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him to require

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Hon’ble Supreme Court contained in para 26 of the

Ahmedabad Teachers (supra). In fact, the said Statement

steers clear of the decisive ruling of the Supreme Court

contained in para 25 of its judgment which states that:

25. The Legislature was alive to various kinds of

definitions of word 'employee' contained in various

previous labour enactments when the Act was passed

in 1972. If it intended to cover in the definition of

'employee' all kinds of employees, it could have as

well used such wide language as is contained in

Section 2 (f) of the Employees' Provident Funds Act,

1952 which defines 'employee' to mean 'any person

who is employed for wages in any kind of work,

manual or otherwise, in or in connection with the work

of [an establishment]'... Non-use of such wide

language in the definition of 'employee' in Section 2

(e) of the Act of 1972 reinforces our conclusion that

teachers are clearly not covered in the definition.

XVII. The Petitioner submits that the ruling of the Supreme Court

contained in the paragraph reproduced above clearly

evidences, reinforces and further confers a substantial right

to all persons who relied upon the same. Therefore, the

2009 Amendment violates the vested rights of the members

of the Petitioner and is therefore liable to be struck down to

the extent of its retrospective operation.

XVIII. Further, the fact also that not even the ‘Statement of

Objects and Reasons’ dated 07-Sep-2007 offered any

indication, howsoever, of a retrospective operation of a

statute that came 2 years, 3 months later (847 days) is

further pleaded in support of the relief sought hereinafter.

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GROUNDS IN SUPPORT OF INTERIM RELIEF:

XIX. All averments, arguments and grounds stated in support of

the main relief are adopted for the purpose of also seeking

an interim relief.

XX. The Petitioner is entitled to succeed on the merits on the

matter. Accordingly, the Petitioner is entitled to an interim

injunction in relation to the retrospective operation of the

Payment of Gratuity (Amendment) Act, 2009.

REST OF THIS DOCUMENT IS INTENTIONALLY BLANK

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PRAYER

Under these circumstances, the Petitioners humbly pray

that this Hon’ble Court may graciously be pleased to:

i. to issue a judicial declaration that the retrospective

operation (prior to 31-Dec-2009) of the Payment of

Gratuity (Amendment) Act, 2009 operates unreasonably,

arbitrarily and harshly in respect of private unaided

educational institutions in the State of Karnataka and is

therefore, in violation of the constitutional right secured

to private unaided educational institutions in terms of

Articles 14 against arbitrary State action and in terms of

19(1)(g) to protection against unreasonable restriction in

the matter of administration of their affairs;

ii. to issue a Writ of Prohibition or a Writ of any other nature

or description restraining the Respondents from

enforcing the Payment of Gratuity (Amendment) Act,

2009 for any period prior to 31-December-2009 in

respect of educational institutions that are members of

the Petitioner;

iii. to issue any other order, direction or instruction to secure

any purpose or objective that this Hon’ble Court deems

fit under the circumstances of this case in the interests of

justice, equity and expediency.

K.V.DHANANJAY.

Bangalore Roll No.KAR/659/2002

Date: 07-Apr-2011 ADVOCATE FOR PETITIONER

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INTERIM PRAYER

WHEREFORE, IN VIEW OF THE CIRCUMSTANCES NARRATED

ABOVE, THIS HON'BLE COURT MAY GRACIOUSLY BE

PLEASED TO, PENDING THE COMPLETE ADJUDICATION AND

DETERMINATION OF THIS WRIT PETITION:

i. issue an ad-interim ex-parte injunction upon the

Respondents from enforcing the Payment of Gratuity

(Amendment) Act, 2009 for any period prior to 31-

December-2009 in respect of educational institutions that

are members of the Petitioner;

ii. issue any other Order or direction as this Hon’ble Court

may deem fit or expedient in the facts and circumstances

of this case.

AND FOR THIS ACT OF KINDNESS, THE PETITIONER SHALL EVER IN

DUTY, PRAY.

K.V.DHANANJAY.

Bangalore Roll No.KAR/659/2002

Date: 07-Apr-2011 ADVOCATE FOR PETITIONER

Address for Service of Notice:K.V.DHANANJAY, AdvocateNo.296, KamakshipalyaMagadi Main RoadBangalore 560 079

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Mobile: +91 9902909390Email: dhananjaylegal@gmail.com