Independent Schools’ Federation of India (Regd.) vs Union of India and Another

Retroactive effect and retrospective operation – Distinction between – Discussed.

Dismissing the appeals, the Court

HELD: 1.1 The first ground should not hold for long, as the legislation in question rectifies the infirmities and defects pointed out by the Court, and the amended clause (e) to Section 2, defining the word “employee” and the newly inserted Section 13A with retrospective effect from 3rd April 1997, effectuate and catalyse the object and purpose of the Notification No. S-42013/1/95-SS.(II). This power to legislate with retrospective effect, which vests in every sovereign legislature, is not taken away by a court decision. However, a court decision cannot be overruled by the legislature. The legislature can amend the language of the provision that was the subject matter of the court decision, and such an amendment does not overrule the court decision. Overruling assumes a decision based on the same law. Where the law, as in the present case, has been amended, and the defects have been removed or cured, the law changes, and therefore, the earlier interpretation is no longer applicable and becomes irrelevant. Doctrine of separation of powers demarcates the exclusive domains of the legislature, which enacts the laws, and the courts’, which interpret the law as enacted. The earlier decision in Ahmedabad Private Primary Teachers’ Association by this Court had interpreted the law, that is, Section 2(e) of the PAG Act, as it then existed in the statute. The judgment even acknowledged and prompted the legislature to enact a legislation granting the benefit of gratuity to teachers, who had been excluded because of the legal flaw. When the legislature acts within its power to usher in a valid law and rectify a legal error, even after a court ruling, the legislature exercises its constitutional power to enact the law and does not overrule an earlier court decision. [Para 13][791-E-G; 792-A-B]

1.2 The second ground is again devoid of any merit and substance. The legislature, vide the Amendment Act, 2009, has given retrospective effect to the amended provision of Section 2(e) and the newly inserted Section 13A with effect from 3rd April 1997, which is also the date of the notification issued by the Government under Section 1(3)(c), making the PAG Act applicable to the educational institutions with ten or more employees. The amendment enforces and gives effect to what was intended by the notification, but could not be achieved on account of the technical and legal defect. The lacuna, a distortion in the language that had the unwitting effect of leaving out teachers, has been rectified so as to achieve the object and purpose behind the issuance of the notification, making the PAG Act applicable to all educational institutions. The argument of the educational institutions that they have been taken by surprise is incorrect and unacceptable as the legislation had cured the inadvertent defect in a statute, as pointed out by this Court, through legislative repair. Private schools, when they claim a vested right arising from the reason of defect, should not succeed, for acceptance would be at the expense of teachers who were denied and deprived of the intended benefit. Marginal inconvenience in the form of financial outgo or difficulty is of little weight, when curing of an inadvertent defect is made retrospectively in greater public interest, which consideration would overrule the interest of one or some institutions. The observations of this Court in Ahmedabad Private Primary Teachers’ Association were sufficient to indicate that a legislation should intervene to grant the benefit of gratuity to teachers. The contention that the private schools were sure to succeed as to deny the teachers the benefit of the Notification No. S-42013/1/95-SS.(II) dated 3rd April 1997, is questionable and farfetched to be accepted. The challenge was contested and had remained pending before the High Courts and then this Court. The private schools had relied on some judgments of this Court, but these judgments have interpreted the word “employee” under other enactments. The law is subject to uncertainty ex-ante when two or more views are possible, but there may be certainty ex-post litigation in view of the law of precedents, which reduces uncertainty. [Para 14][792-D-G; 793A-C]

1.3 A secondary argument on behalf of the private educational institutions that they would be liable to pay gratuity for a period of service prior to 3rd April 1997, and, therefore, the amendments are unconscionable and tyrannous, is equally fallacious for several reasons. The argument of unreasonableness and that the amendment is financially confiscatory, predicated on past liability, which may pre- date the notification effective from 3rd April 1997, apart from the other reasons, is to be rejected as there are upper-cap limits on payment of gratuity. Therefore, though gratuity is computed with reference to the years of service, in view of the upper-cap limit, the payment towards gratuity cannot exceed the specified amount, even if the employee would be entitled to higher amount in view of the years of the service rendered to the employer. [Para 15, 16][793-D; 795-E-F]

1.4 The provisions of the PAG Act, even post the retrospective amendments, will apply only to those teachers who were in service as on 3rd April 1997, and at the time of termination have rendered service of not less than 5 years. The period of 5 years may be partly before 3rd April 1997, as the date on which the person was employed does not determine the applicability of the PAG Act. The date of termination of service, in the form of superannuation, retirement, or resignation, or death or disablement due to accident or disease, should be post the enforcement date, which in the present case is 3rd April 1997. The entire length of service, including the service period prior to 3rd April 1997, is to be counted for the purpose of computing the entitlement condition of 5 years of service. This is the correct effect of the ratio and decision in Management of Goodyear India Limited’s case and the decisions explaining retroactive effect of a statute. This legal position would be equally true and correct when the PAG Act was first enforced with effect from 16th September 1972, and when Notification No. S-42013/1/95-SS.(II) under Section 1(3)(c) of the PAG Act was issued and enforced with effect from 3rd April, 1997. It would be the position in case of all notifications issued under Section 1(3)(c) of the PAG Act, unless a contrary intention is expressed.[Para 19][800-C-F]

1.5 The schools have claimed violation of Articles 14, 19(1)(g), 21 and 300-A of the Constitution of India which, are not violated as, to deny gratuity benefits to the teachers upon enforcement of the notification No. S-42013/1/95-SS.(II) dated 3rd April 1997 was itself an anomaly w hich mandated correction. The effect of the decision in Ahmedabad Private Primary Teachers’ Association’s case was that although private educational institutions were covered under the PAG Act, gratuity benefits could not be extended to teachers in view of the legal flaw in the definition, consequent to which they were not treated as employees. The teachers were discriminated to be denied benefit of gratuity, a terminal benefit, which was payable to other employees of the private schools/educational institutions, including those engaged in administrative and managerial work. The amendment with retrospective effect remedies the injustice and discrimination suffered by the teachers on account of a legislative mistake, which was understood after the pronouncement of the judgment in Ahmedabad Private Primary Teachers’ Association’s case. The amendment was necessary to ensure that something which was due and payable to the teachers is not denied to them due to a defect in the statute. Payment of gratuity cannot be categorized as a windfall or a bounty payable by the private schools as it is one of the minimal conditions of service.The argument of the private schools that they do not have capacity and ability to pay gratuity to the teachers is unapt and parsimonious. All establishments are bound to follow the law, including the PAG Act. The private schools were certainly aware of the intent of the Government that the educational institutions, as an establishment, would be covered and must pay gratuity upon issue of notification No. S-42013/1/95-SS.(II) dated 3rd April 1997. Some schools have raised an argument relying upon decision of this Court in T.M.A. Pai Foundation and Others v. State of Karnataka and Others, which observes that as a matter of principle, charging of capitation fee or profiteering by educational institutions is impermissible. However, the judgment does not state that the teachers should not be paid gratuity. In fact, the judgment holds that the educational institutions are entitled to reasonable surplus to meet the cost of expansion and augmentation of the facilities and this does not amount to profiteering. It is possible that in some States there are fee fixation laws which will have to be complied with. But compliance with these laws does not mean that the teachers should be deprived and denied gratuity, which they were/ are entitled to receive as other employees of an educational institution. Regulation of fee is to ensure that there is no commercialisation and profiteering, and the effect is not to prohibit a school from fixing and collecting “just and permissible school fee”. [Para 20][800-G-H; 801-A-B, D-G]

1.6 The submission of the private schools was that the judgments of this Court upholding retrospective amendments are valid only when there is a tax implication as the Government has to refund the paid taxes, is unfounded and irrational.The power to amend, which includes the power to amend the statute with retrospective effect, is a constitutional power vested with the legislature, which is not confined and restricted to any particular type of statutes, namely, tax statutes. This Court would not accept any attempt to circumscribe and limit the power vested with the sovereign legislature, thereby putting fetters when such fetters are not prescribed by the Constitution. When and which cases to exercise the power has to be left to the legislature. In case the constitutional validity of the amendment act is challenged, the court is entitled to examine the relevant circumstances which prompted the legislature to make retrospective amendment. Judicial review, when validity of an amendment act is challenged, is decided on the grounds of lack of legislative competence, violation of the fundamental rights or any other provisions of the Constitution of India. In the present case, the notification No. S42013/1/95-SS.(II) dated 3rd April 1997 had ensured that the benevolent provisions requiring payment of gratuity should be extended to the “employees” of the educational institutions. The amendment with retrospective effect is to make the benevolent provisions equally applicable to teachers. The amendment seeks to bring equality and give fair treatment to the teachers. It can hardly be categorised as an arbitrary and high-handed exercise. [Para 22][802-D-H; 803-A]

1.7 The stay orders are vacated. The private schools would make payment to the employees/teachers along with the interest in accordance with the provisions of the PAG Act within a period of 6 weeks from today and in case of default, the employees/teachers may move the appropriate forum to enforce payment in accordance with the provisions of the PAG Act. [Para 26][807-BC] Management of Goodyear India Limited. v. Shri K.G. Devessar (1985) 4 SCC 45; - Relied (Para 25)

Ahmedabad Private Primary Teachers’ Association v. Administrative Officer and Others, (2004) 1 SCC 755 : [2004] 1 SCR 470; A. Sundarambal v. Government of Goa, Daman and Diu and Others (1988) 4 SCC 42 : [1988] 1 Suppl. SCR 604; Haryana Unrecognised Schools’ Association v. State of Haryana (1996) 4 SCC

225 : [1996] 1 Suppl. SCR 253; State of Tamil Nadu v. Arooran Sugar Ltd. (1997) 1 SCC 326 : [1996] 8 Suppl. SCR 193; State of Gujarat and Another v. Raman Lal Keshav Lal Soni and Others (1983) 2 SCC 33; [1983]

2 SCR 287; T.R. Kapur and Others v. State of Haryana and Others, (1986) Supp SCC 584. Union of India and Others v. Tushar Ranjan Mohanty and Others (1994) 5 SCC 450 : [1994] 1 Suppl. SCR 651; Shri Prithvi Cotton Mills Ltd. and Another v. Broach Borough Municipality and Others (1969) 2 SCC 283 : [1970] 1 SCR 388; Ujagar Prints and Others (II) v. Union of India and Others (1989) 3 SCC 488 : [1988] 3 Suppl. SCR 770; National Agricultural Cooperative Marking Federation of India Ltd. and Another v. Union of India and Others (2003) 5 SCC 23 : [2003] 3 SCR 1; Shanti Conductors Private Limited and Another v. Assam State Electricity Board and Others (2019) 19 SCC 529; Vineeta Sharma v. Rakesh Sharma and Others (2020) 9 SCC 1: [2020]

10 SCR 135; Darshan Singh v. Ram Pal Singh and Another 1992 Supp. (1) SCC 191 Bakshish Singh v. M/s Darshan Engineering Works and Others, (1994) 1 SCC 9 : [1993] 3 Suppl. SCR 178; T.M.A. Pai

Foundation and Others v. State of Karnataka and Others (2002) 8 SCC 481 : [2002] 3 Suppl. SCR 587; Indian School, Jodhpur and Another v. State of Rajasthan and Others. (2021) 10 SCC 517 : 2021 (5) JT 432; Lohia Machines Ltd. and Another v. Union of India and Others (1985) 2 SCC 197 : [1985] 2 SCR 686; JethanandBetab v. State of Delhi (1960) 1 SCR 755; Secretary of State for India in Council v. Hindusthan Co-operative Insurance Society, Ltd. 1931 SCC OnLine PC 37; KhudaBux v. Manager, Caledonian Press 1954 SCC OnLine Cal 132; - Referred to.