State of Gujarat and Ors. vs. Shri. Ambica Mills Ltd. Ahmedabad and Ors.

In the Supreme Court of India
Civil Appellate Jurisdiction
Case No. 
Civil Appeal Nos. 1931 to 1933 and 2271 of 1968 and 492 to 512 and 1114 to 1929 of 1969
Petitioners
State of Gujarat and Ors. 
Respondent 
Shri. Ambica Mills Ltd., Ahmedabad and Ors.
Decided on
26 March 1974
Bench
N. Ray, (C.J.); Alagiriswami; R. Khanna; K. Mathew; V. Chandrachud

Background

The present case deals with the application of the fundamental rights of the Constitution of India. Indians were guaranteed with fundamental rights by the Constitution of India but there was a question on whether the non-citizens are entitled to enjoy these rights. The Hon’ble Supreme Court held that the non-citizens are not having the fundamental rights and therefore they are not allowed to take advantage of the voidness of the law which is inconsistent with Part III of the Constitution. Therefore, the Apex Court again confirmed that the existing laws are applicable to non-citizens and no law can be held void in rem or for all purposes.

Background of the Statute

The State of Bombay in 1953 has enacted the Act for the purpose of welfare of the employees which directs the formation of the labour welfare fund including the unpaid accumulations from the employees. The fund is said to be vested with the Board of Trustees and governed by them depending upon the provisions of the Act. But the Act was questioned before the Hon’ble Supreme Court of India in Bombay Dyeing & Manufacturing Co. Ltd. v. The State of Bombay and Ors. [1958] S.C.R. 1122 in which the provisions were held to be unconstitutional and therefore the amendment Act was made to rectify the errors pointed out by the Apex Court.

The State of Bombay was bifurcated into the states of Gujarat and Maharashtra in 1960. With the intention to apply the Labour Welfare Act, the Amendment was made in 1961 for the application of the Act in Gujarat and also enacted certain provisions with retrospective effect. § 3 of the Act now allow the Labour Welfare Fund will comprise of the unpaid accumulations and the agencies mentioned under the Act will be having the power to collect the fund. The sums so collected by the agencies will be audited and will be given to the Board which will maintain a separate account and utilize it for the other provisions of the Act.

The unpaid accumulations deposited with the Board will be considered as the abandoned property and the liability of the employer will be exempted to the extent of payment of such sum. But it will not release the employer from the liability for the amount which he has not paid. After obtaining the amount, the Board will put forth a public notice regarding the amount so received on notice board or any conspicuous place (also published in the Official Gazette) so that the employees can put forth their claims before the board which will continue for the period of three years. When a claim has been made within four years of the date when the notice was first affixed, the Board will direct the claim to authority established under §15 of the Payment of Wages Act, 1936 and the concerned authority will decide the case. If there is no claim made within the stipulated time, the funds will be considered as bona vacantia and the concerned sums without further assurance will be made the part of the welfare fund.

The second Amendment Act was made by the Gujarat State Legislature which mentioned that the unpaid accumulations for which separate accounts have not been created or spent before 1961 will be deemed to be not collected under §6A (13) of the Act.

Judicial Background

In Bombay Dyeing & Manufacturing Co. Ltd. v. The State of Bombay, the Apex Court held that the provisions which direct the employers to pay the unpaid accumulations to the board by the employers. This will not release the employers from the liability to pay to the employees which is against Article 19(1) (f) of the Constitution of India. The State contended that the unpaid accumulations must be considered as the abandoned property but the court rejected the plea that not eliminating rights will not make the property to be abandoned.

After the First Amendment Act, 1961, the same Act was questioned before the Hon’ble High Court of Bombay which declared the provisions to be violative of fundamental rights and held the sections under the Act to be unconstitutional. Then through Civil Appeals, the case reached the Apex court of India where the Court held that the impugned Sections are valid based on the following reasoning.

Constitution and Statutory Provisions

• § 3, 6A and 7 of the Bombay Labour Welfare Fund Act, 1953
• 13 of the Bombay Labour Welfare Fund (Gujarat Extension and Amendment) Act, 1961

Rules 3 and 4 of the Bombay Labour Welfare Fund Rules, 1953

Article 14, 19(1) (f) of Constitution of India, 1950.

Facts

All the civil appeals mentioned in this case deal with the same set of facts and thus the Hon’ble Supreme Court decided to discuss and render judgment on one of the appeals Civil Appeal No. 2271 of 1968.  Shri Ambica Mills is a company registered under the Companies Act which has filed the petition before the Hon’ble High Court of Gujarat to declare §§ 3, 6A and 7 of the Bombay Labour Welfare Fund Act, 1953 (Act), § 13 of the Bombay Labour Welfare Fund (Gujarat Extension and Amendment) Act, 1961 (Amendment Act) and Rules 3 and 4 of the Bombay Labour Welfare Fund Rules, 1953 (Labour Welfare Rules) to be unconstitutional and prayed before the Hon’ble court to issue the writ of mandamus and desist the state from enforcing the notice dated August 2, 1962 to pay the unpaid accumulations.

Procedural history

The Hon’ble High court of Bombay decided that § 3(1) is invalid to the extent that it deals with unpaid accumulations mentioned under § 3(2) (b). It is also held that §§ 3(4) and 6A of the Act and rules 3 and 4 of the Labour Welfare rules are unconstitutional. Then the sections were held to be valid by the Hon’ble Supreme Court of India.

Issues which were in Challenge

1. Whether the first respondent was competent to challenge the validity of the impugned provisions on the basis that they violated the fundamental right under Article 19(1) (f) of citizen-employers or employees and thus show that the law was void and non-existent and, therefore, the action taken against it was bad?

2. Whether the definition of ‘establishment’ in Section 2(4) violated the fundamental right of the respondent under Article 14 and the impugned provisions were void for that reason?

3. Whether, on that assumption, the first respondent could claim that the law was void as against the non-citizen employers or employees under Article 13(2) and further contend that the non-citizen employers have been deprived of their property without the authority of law, as, ex hypothesi a void law is a nullity.

Arguments

Contentions of the Appellant

• The differentiation between factories and commercial establishments employing less than 50 persons was made for the reason that the turnover of labour is more in factories than in commercial establishments other than factories on account of the fact that industrial labour frequently changes employment for a variety of reasons.

Contentions of the Respondent

• The impugned provisions violated the fundamental rights of the citizens- employers and employees under Article 19(1)(f) and therefore the provisions were void under Article 13(2) of the Constitution of India.
• Since there was no law, the notice that was issued by the Welfare Commissioner is not held to be valid.
• There was huge discrimination in the definition of “establishment” under § 2(4) of the Act and the definition permeates through the entire Act which forms an integral part of every provision of the Act and thus all the impugned provisions must be held to be violative of Article 14 of Constitution of India.
• There is no intelligible differentia in the definition of “establishment” under § 2(4) of the Act.
• The establishments that have been left out in the definition has international nexus with the object of the Act and thus it affects the rights and liabilities of the employers and violative of Article 14.
• It is said that the “establishments” defined is synonymous to “Factories” definition under the Factories Act. Moreover the classification is unreasonable as the factories with less than 50 employees and government establishments are left out whereas the trams and motor omnibus establishments are included, which is unreasonable.
• The amount of unpaid accumulation either meager or huge must be submitted to Board and there must be no differentiation in treatment of the establishments. 

Judgment:

Ratio Decidendi

• The Sovereign has the prerogative right to appropriate bona vacantia and here the abandoned property i.e., the unpaid accumulations can be appropriated by the State and it cannot be considered as a cheat.
• The money which is due by the employer to the employee will be considered as the property for both. Though the dues are money, the state is having the power to appropriate the property and distribute it to the employees who have claims.
• On payment of certain sum to the Board, the employer will lose the liability to pay the concerned amount to the employee. Mere recognition of the State as the debtor will not create an unconstitutional burden on the side of employees or will deprive them of the property.
• Moreover, the employee will lose the right to claim the property if he/ she makes the claim within 7 years. The court held that the time given as limitation is reasonable. The various modes of notice under § 6A of the Act are sufficient to give reasonable information to the employees to come forward and claim the amount if they want to.
• The court again affirmed that corporation cannot be considered as a citizen for the purpose of Article 19. Thus the first respondent is having all the right to dispose of the property as he deems fit as that of the ordinary citizen.
• The court held that even the pre-existing laws are applicable to the non-citizens though the laws are held void as it violates the fundamental rights of the citizens of India. The pre-existing laws are operative with respect to non-citizens and the doctrine of eclipse is applicable only in case of pre-existing laws but not the post-constitutional laws.
• Any law will be void only to the extent of inconsistency but will remain applicable to inchoate rights and liabilities. Moreover it only stays in dormant state in case of citizens.
• Article 13(1) and 13(2) differentiates between the post and pre constitutional laws which highlight the need for distinction between the citizens and non-citizens. With the advent of the constitution, special rights were given to the citizens, which render them a protection against any unconstitutional post-constitution laws. (the law cannot be held void in rem)
• There are many fundamental rights and they inhere in diverse types of persons, minorities or denominations. Thus the laws which are against one set of group may not be void for others.
• Article 13 imposes the injunction on the state while making laws, no law can be made against the fundamental rights.
• The non-citizens are given the right to approach the courts for infringement of their right to property. But the non-citizens are not allowed to question the valid laws passed by the competent legislature by taking the plea that their right to property is infringed. The non-citizens cannot take advantage of the voidness of law.
• The citizens and non-citizens cannot be placed on the same footing as the citizens are provided with the fundamental rights whereas the non-citizens are not vested with fundamental rights under the Constitution of India. Thus the principle of Equality before Law is not affected.
• The doctrine of reasonable classification is applied here and the similar things are placed under the same category.
• The classification is said to be under-inclusive when the classification burden people by not including the people who are entitle to get benefitted whereas the classification is said to be over-inclusive when the classification includes a lot of people who are not equals but are potential enough to cause mischief. Here the classification of not including the establishments with less than 50 people seem to be unreasonable but it is legitimate as it is in consonance with the long term goal of the legislature to reshape the society and eliminate the discrimination.
• Size is an index to the evil at which the law is directed, discriminations between the large and small are permissible, and it is also permissible for reform to take one step at a time, addressing itself to the phase of the problem which seems most acute to the legislative mind.
• Pertaining to the facts of the case, the exclusion of the factories owned below 50 members, governmental establishments show that the accumulations obtained from them is very low and also a very few governmental institutions are working with such conditions. Moreover, the inclusion of tramways and motor omnibus is supported by the possibility of more sums from such establishments. It is well supported by the affidavit submitted by the Transport Ministry which explains the practical difficulty.
• If it is an under-inclusive clause, the people who are left out can be included whereas, in an over-inclusive clause, the people can be severed from such classification by the application of Doctrine of Severability. Thus the court is having the power to make an unreasonable clause reasonable giving no option for invalidity of the impugned provisions.

Obiter Dicta

• A person is precluded from questioning the constitutional validity of the statute unless and until it affects him or his group and he/ she cannot invoke a governmental action for the rights of others.
• The law which is not having the legislative competence is nullity but the law which is against the constitutionality is not null but merely unenforceable.
• The law might be ‘still-born’ so far as the persons, entities or denominations whose fundamental rights are taken away or abridged, but there is no reason why the law should be void or ‘still-born’ as against those who have no fundamental right.
• There is nothing strange in the notion of a legislature having no inherent legislative capacity or power to take away or abridge by a law the fundamental rights conferred on citizens and yet having legislative power to pass the same law in respect of non-citizens who have no such fundamental rights to be taken away or abridged. In other words, the legislative incapacity subject wise with reference to Articles 245 and 246 in this context would be the taking away or abridging by law the fundamental rights under Article 19 of citizens.
• The equal protection of laws is the pledge of the courts. The laws may vary but the function of the laws is to go against inequality. In such a paradox the courts have not denied the principle of equality or denied the legislative right to classify. The courts take a middle stand by adopting the doctrine of reasonable classification.
• The law must either eliminate public mischief or achieve some positive public good.
• The legislature cannot be required or cannot force the administrative agencies to carry out tasks on a large scale.
• Administrative convenience must be given in deciding the classification as reasonable or not.
• The Courts attitude cannot be that the state either has to regulate all businesses, or even all related businesses, and in the same way, or, not at all. An effort to strike at a particular economic evil could not be hindered by the necessity of carrying in its wake a train of vexatious, troublesome and expensive regulations covering the whole range of connected or similar enterprise.
• The view on whether the classification is reasonable or unreasonable depends upon the judicial approach. With more diversity, more problems will arise and it is up to the legislature to make the concerned classification and laws. The position of America is different as due importance is given to human and civil rights where the equal protection clause is followed. Moreover, the independence of the legislature who determines the need of the society and the reformation needed in the territory cannot be restricted by strict and restrictive regulations.

Conclusion

This case sets an example for proper analysis of factual matrix, legal concepts and practical difficulty in applying the observed legal principles. The Hon’ble Court declared that the classification is not a perfect one but due emphasis was given to the practical difficulty in collection of unpaid accumulations. It is also pertinent to note that clause though has classification which is over-inclusive and under-inclusive; the court held that this mere deviance cannot be allowed to intervene with the administrative actions. It is up to the legislature to determine to what extent the reformation must be allowed and courts cannot enforce the strict and repressive regulations without considering the practical implementation of the laws and the judgment. Detailed discussion is made regarding the relation between the fundamental rights and the non-citizens and the court held that since the non-citizens are not given the fundamental rights, they are not allowed to question a valid law with legislative competence.

Edited by Chiranjeeb Prateek Mohanty
Approved & Published – Sakshi Raje

References

Tata Engineering and Locomotive Co. Ltd. v. State of Bihar and Ors..[1964] 6 SCR 885.

R.C. Cooper v. Union of India., [1970] 3 SCR 530.

Bennett Coleman & Co. and Ors. v. Union of India and Ors., [1973] 2 SCR 757.

Keshava Madhava Menon v. State of Bombay., 1951 Cri LJ 680.

Behram Khurshed Pesikaka v. State of Bombay., 1955 Cri LJ 215.

Bhikhai Narain Dhakras v. State of M.P., [1955] 2 SCR 589.

P. V. Sundararamaier v. State of A.P., [1958] 1 SCR 142.

Deep Chand v. State of U.P. and Ors. [1959] Supp. 2 S.C.R.

Mahendra Lal Jain v. The State of U.P. and Ors., [1963] Supp 1 S.C.R. 912.

Jagannath v. Authorised Officer, Land Reforms., [1972] 1 SCR 1055.

Missouri, R & T Rly., v. May (1904) 194 US 267

General Theory of Law and State, p. 16