9

IN THE HIGH COURT OF KARNATAKA AT BANGALORE ORIGINAL JURISDICTION WRIT PETITION NO Between: Karnataka Unaided Schools Managements Association A Registered Society Represented by its President G.S.Sharma Age 85 years No.9, V.V.Road V.V.Puram Bangalore 560 004 AND 1. Union of India Represented by its Secretary Ministry of Labour And Employment Shram Shakti Bhawan New Delhi 110 001
[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009]

/2011 (EDN. RES)

Petitioner

2. Assistant Labour Commissioner (CENTRAL) Shram Sadan, 3rd Cross 3rd Main, 2nd Phase, Yeshwanthpur Industrial Suburb Tumkur Road, Bangalore 560 022
[Judicial Challenge to Payment of Gratuity (Amendment) Act, 2009

3. State of Karnataka Represented by its Principal Secretary Department of Labour Karmika Bhavan Bannerughatta Road

Respondents

10

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 Honble Court. 2. The Petitioner, Karnataka Unaided Schools Managements 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 Societys Certificate of Registration dated 08-Mar-1984 Annexure Membership A. of is produced (followed this by herewith a is and of marked the as retype same). those

Society

open only to

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 Honble 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, employers liability, workmens 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 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, service. (Calcutta Insurance Ltd. v. Workmen 31 FJR 446, AIR 1967 SC 1286, 14 Lab LR

13

retirement, otherwise

physical

incapacity,

disability

or

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 affairs. and for protection the against regulation operation of that the unreasonably impinges upon the administration of their Primarily, retrospective 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 subsection (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.

16

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. 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 Honble Supreme Court in the year 2001. 19. The Petitioner submits that, the Honble 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 Honble 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.

17

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 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

18

Diu [1988 (4) SCC 42 : AIR 1988 SC 1700 : 1989 Lab IC 1317], this Court negatived the claim of teachers that 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 postgraduate 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

19

Court held that as teachers are not employed for any skilled or unskilled, manual or clerical work, it is not open to 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 Act the by competence adding the in of the State in in Government to bring them under the purview of employment the Schedule educational institution

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

20

minimum wage of such teachers. The impugned notifications so far as the teachers of the educational institution are concerned are accordingly quashed." 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

21

connection with the work of [an establishment] and who gets his wages directly or indirectly from the employer'. 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 3 rd 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 nonteaching 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.

22

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 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 irregularities, items or or machinery property for or guarding

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.

23

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 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 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. with it'. [See Principles of Statutory Interpretation by Justice G.P. Singh (8th Ed.), Syn.8 at

24

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 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 and importance 'unskilled' to the arguments the words advanced on the question as to whether 'skilled', 'semi-skilled' qualify '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

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. 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 07Sep-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 Ministrys

26

notification No.S.O. 1080 dated 3rd April, 1997. The Honble Supreme Court in its judgment dated 13 th January, 2004, in Ahmedabad Private Primary Teachers Association v. Administrative Officer (AIR 2004 SC 1426) held that teachers are not entitled to 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.

27

3. Keeping in view the observations of the Honble 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. 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 Honble Parliament and received the assent of the President of India on 31-Dec-2009. By a Notification issued on 31-Dec2009, 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

28

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 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:

29

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. 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 Educational institutions as a Payment 1972 of Gratuity class were outside the ambit Act, 1972 until 03-Apr-1997. As declaring institutions covered such, private unaided Act, 1972 w.e.f. 16-Sep- of the Payment of Gratuity

To: Issue of Notification educational institutions were educational excluded from the ambit of to within be the Payment of Gratuity Act, the 1972 until 03-Apr-1997.

ambit of the Act w.e.f. 03-Apr-1997 b) From: Passage of the The 1997 members of the were

Notification on 03-Apr- Petitioner

professionally advised that the 03-Apr-1997 Notification would apply only to the non-

30

To:

Decision

by

the teaching staff employed in in educational institutions. As institution that

Supreme Ahmedabad Primary Association

Court

Private such, only a private unaided Teachers education v. employed in excess of 10 Officer, non-staff members for any 1996 became subject to the provisions staff. of the Act in respect of such non-teaching

Administrative 13-Jan-2004.

(AIR 2004 SC 1426) on month beginning from April,

c)

From: Decision by the Private unaided educational Supreme Court in the institutions Ahmedabad 2004 To: Just prior to the passage of the Payment of Gratuity (Amendment) Act, 2009 on 31-Dec-2009. that are Teachers members of the Petitioner the above. position described

(supra) case on 13-Jan- witnessed no change from

d)

From: Passage of the Private unaided educational Payment of Gratuity institutions in the State of are with a suddenly financial (Amendment) Act, 2009 Karnataka on 31-Dec-2009 with a burdened from 03-Apr-1997.

retrospective operation distress that they had never foreseen or anticipated. Most of the private unaided educational institutions are now liable to discharge this

31

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 April, commencing 1996. Most of from the

educational institutions that were excluded until 31-Dec2009 on the ground that they employed less than 10 non-teaching staff members are now subject to the statute and liable w.e.f. 03Apr-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

32

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 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.

33

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-Jan2006 mandates that salaries of the teaching staff in private 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 and conditions of service of

Qualifications

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:
2

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

34

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. 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:

35

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 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.

36

Rule 10 (3) (a) Term Fees: i) No term fees shall be collected from preprimary 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 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 feesii) 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 collectedii) 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

37

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 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:

38

Section 12: Extent of schools 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 2 3 shall admit in class I, to the extent of at least twenty-five percent of the strength of that class children provide belonging free and to weaker section and disadvantaged group in the neighbourhood 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.

Covers unaided private educational institutions imparting elementary education, that is, education for standards I to VIII.

39

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.

34.

The petitioner submits that it has not filed, on the instant cause of action, any other petition before this Honble 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 Honble 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
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

40

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 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.
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
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 1480
6

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

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 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, the should any of of the such constitutional rights of a citizen be affected by such retrospective legislation, constitutionality 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 justiciable 7, where a
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 :-

42

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 nonrevocation 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 Honble 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
"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
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

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 retrospectively9, the only issue that arises for consideration by this Honble Court is whether, under the circumstances of this case, the retrospective legislation impugned herein could withstand judicial scrutiny 10. 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
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 1534
10

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 764

44

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 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
11

At the relevant time, Section 2 (s) of the Industrial Disputes Act, 1947 defined 'workman' thus : "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

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 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 postgraduate 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

46

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 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
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

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. 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

48

the

teachers

of

the

educational

institution

are

concerned are accordingly quashed. This appeal is allowed. Writ petition filed succeeds to the extent mentioned above 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 contained 13 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-Apr1997 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
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

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 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, 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 intended unavailable, on and the that Government teachers of India be 03-Apr-1997 should the 2009 Amendment deserves to be permanently injuncted to the extent of its retrospective

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 Honble 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

50

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 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

51

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 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 Honble Supreme Court, no educational institution is authorised to operate in a manner so as make any profit or to permit 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 192
15

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

52

sharing of such profits by any person 16. Accordingly, the 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.
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 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 481
17

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

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 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

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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 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
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 3172
19 20

E.P.Royappa v. State of Tamil Nadu., AIR 1974 SC 555, 1974 (4) SCC 3

T.M.A.Pai Foundation And Ors. Vs. State Of Karnataka., AIR 2003 SC 355, 2002 (8) SCC 481
21

Islamic Academy of Education v. State of Karnataka., AIR 2003 SC 3724, 2003 (6) SCC 697

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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 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
22 23

P.A.Inamdar v. State of Maharashtra., AIR 2005 SC 2336, 2005 (6) SCC 537

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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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 Honble 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

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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. 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 Honble 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 Honble Court deems fit under the circumstances of this case in the interests of justice, equity and expediency.

K.V.DHANANJAY. Bangalore Date: 07-Apr-2011 Roll No.KAR/659/2002 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 31December-2009 in respect of educational institutions that are members of the Petitioner; ii. issue any other Order or direction as this Honble 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 Date: 07-Apr-2011 Address for Service of Notice: K.V.DHANANJAY, Advocate No.296, Kamakshipalya Magadi Main Road Bangalore 560 079 Roll No.KAR/659/2002 ADVOCATE FOR PETITIONER

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