# GRAND KAKATIYA SHERATON HOTEL & TOWERS EMPLOYEES & WORKERS UNION v. SRINIVASA RESORTS LTD. & ORS

- **Citation:** [2009] 3 S.C.R. 668
- **Court:** Supreme Court of India
- **Decided:** 2009-02-27
- **Case number:** Civil Appeal No. 6499 of 2002
- **Bench:** Lokeshwar Singh Panta, V.S. Sirpurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/grand-kakatiya-sheraton-hotel-towers-employees-workers-union-v-srinivasa-25653
- **Pages:** 38

## Headnote

c
Andhra Pradesh Shops and Establishments Act, 1988 -
s. 47 (3) and (4) - Constitutional validity of - Held: The
provisions are unconstitutional, discriminatory and violative
of Articles 14 and 19 (1) (g) of the Constitution - On lifting
the veil from s. 47 (3), it is clear that the 'service compensation'
D is in fact 'gratuity' - The Act being a State Act is in conflict
..
with the Central Act i.e. Payment of Gratuity Act, 1972 as both,
operate in the common field - The Act cannot be saved by
virtue of Article 254(2) unless shown that while obtaining
Presidential asset for the State Act, conflict between two Acts
E were brought to notice of the President- Constitution of India,
1950 - Article 254 (2) - Payment of Gratuity Act, 1972 - ss.
2(5), (8), (9), (10) and (21); 3, 3A, and 4 - Andhra Pradesh
Shops and Establishments Act, 1966 - s. 40.
F
Doctrines/Principles: (1) 'Doctrine of occupied field' -
Applicability of.
(2) Wednesbury principle - Applicability.
High Court, in a writ petition, declared ss. 47(3) and
G 47 (4) of Andhra Pradesh Shops and Establishments Act,
1988, as unconstitutional, discriminatory and violative of
Articles 14 and 19 (1) (g) of Constitution of India, 1950.
Hence the present appeal.
H
Dismissing the appeal, the Court
668
\
GRAND KAKATIYA SHERATON HOTEL & TO\l\/ERS EMP. & WORKERS 669
UNION v. SRINIVASA RESORTS LTD .
.....
...
HELD: 1.1 s. 47 (3) is nothing, but an award of A
gratuity, though it has been given a nomenclature of
"service compensation". Section 47(3), suggests that an
employee, who has to be in a continuous service of not
less than one year, becomes eligible for service
compensation. The concept of gratuity as conceived in
B
the Payment of Gratuity Act and even earlier to that in
,.
labour jurisprudence is that gratuity is a reward for long
and continuous service. It is for the first time by that Act,
a worker or an employee was made entitled to the gratuity
by his rendering continuous service for five years. If this c
is so, then providing only one year for entitlement to get
the gratuity, is certainly unreasonable. [Para 13] [693:EH; 694-A]
~
1.2. If the court lifts the veil, then it is obvious that the
unnatural name of "service compensation" is given to D
what in fact, is a "gratuity". As if this is not sufficient, the
proviso to sub-Section (3) provides that in case of
termination of the employment due to death or
disablement, even this one year's service will not be
necessary. lnspite of the presumption of constitutionality
E
of a provision, such a provision cannot be held to be
reasonable. It is undoubtedly an unreasonable inroad on
the fundamental right of the respondent under Article
19(1 )(g) of the Constitution of India. [Para 13] [695-C-E]
Peerless General Finance and Investment Co. Limited
F
and Anr. vs. Reserve Bank of India 1992 (2) SCC 343,
referred to.
1.3. The definitions of "Commercial Establishment"
and "Establishment" under the Shops Act disclose that
G
there are always two sets of employees in an
establishment, being administrative or clerical and
technical employees. While the factory owner would be
required to pay the gratuity to the employee working in
the factory only on his completing five years of H
670
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A continuous service, in case of the employee working on
the administrative or clerical side of the factory or in the
office, which may be in the same premises where the
factory is situated, merely one year of service or even
lesser than that, would be sufficient and the factory
8 owners would have to pay the gratuity or the service
compensation, as the case may be, to such person. Thus,
the provision is clearly discriminatory and unreasonable.
[Para 14) [694-F-H; 696-A]
1.4. The definition oj "Commercial Establishment"
C would convince that the inclusion of an establishment of
a factory or an industrial undertaking which falls outside
the scope of Factories Act, 1948 and thereby entitling the
employees working therein for

## Text

_Characters 0–39,784 of 74,653. This is a partial read: ask again with offset=39784 for what follows._

(2009) 3 S.C.R. 668
• -
A
GRAND KAKATIYA SHERATON HOTEL & TOWERS
EMPLOYEES & WORKERS UNION
v.
SRINIVASA RESORTS LTD. & ORS.
(Civil Appeal No. 6499 of 2002)
B
FEBRUARY 27, 2009
[LOKESHWAR SINGH PANTA AND
V.S. SIRPURKAR, JJ.]
c
Andhra Pradesh Shops and Establishments Act, 1988 -
s. 47 (3) and (4) - Constitutional validity of - Held: The
provisions are unconstitutional, discriminatory and violative
of Articles 14 and 19 (1) (g) of the Constitution - On lifting
the veil from s. 47 (3), it is clear that the 'service compensation'
D is in fact 'gratuity' - The Act being a State Act is in conflict
..
with the Central Act i.e. Payment of Gratuity Act, 1972 as both,
operate in the common field - The Act cannot be saved by
virtue of Article 254(2) unless shown that while obtaining
Presidential asset for the State Act, conflict between two Acts
E were brought to notice of the President- Constitution of India,
1950 - Article 254 (2) - Payment of Gratuity Act, 1972 - ss.
2(5), (8), (9), (10) and (21); 3, 3A, and 4 - Andhra Pradesh
Shops and Establishments Act, 1966 - s. 40.
F
Doctrines/Principles: (1) 'Doctrine of occupied field' -
Applicability of.
(2) Wednesbury principle - Applicability.
High Court, in a writ petition, declared ss. 47(3) and
G 47 (4) of Andhra Pradesh Shops and Establishments Act,
1988, as unconstitutional, discriminatory and violative of
Articles 14 and 19 (1) (g) of Constitution of India, 1950.
Hence the present appeal.
H
Dismissing the appeal, the Court
668
\
GRAND KAKATIYA SHERATON HOTEL & TO\l\/ERS EMP. & WORKERS 669
UNION v. SRINIVASA RESORTS LTD .
.....
...
HELD: 1.1 s. 47 (3) is nothing, but an award of A
gratuity, though it has been given a nomenclature of
"service compensation". Section 47(3), suggests that an
employee, who has to be in a continuous service of not
less than one year, becomes eligible for service
compensation. The concept of gratuity as conceived in
B
the Payment of Gratuity Act and even earlier to that in
,.
labour jurisprudence is that gratuity is a reward for long
and continuous service. It is for the first time by that Act,
a worker or an employee was made entitled to the gratuity
by his rendering continuous service for five years. If this c
is so, then providing only one year for entitlement to get
the gratuity, is certainly unreasonable. [Para 13] [693:EH; 694-A]
~
1.2. If the court lifts the veil, then it is obvious that the
unnatural name of "service compensation" is given to D
what in fact, is a "gratuity". As if this is not sufficient, the
proviso to sub-Section (3) provides that in case of
termination of the employment due to death or
disablement, even this one year's service will not be
necessary. lnspite of the presumption of constitutionality
E
of a provision, such a provision cannot be held to be
reasonable. It is undoubtedly an unreasonable inroad on
the fundamental right of the respondent under Article
19(1 )(g) of the Constitution of India. [Para 13] [695-C-E]
Peerless General Finance and Investment Co. Limited
F
and Anr. vs. Reserve Bank of India 1992 (2) SCC 343,
referred to.
1.3. The definitions of "Commercial Establishment"
and "Establishment" under the Shops Act disclose that
G
there are always two sets of employees in an
establishment, being administrative or clerical and
technical employees. While the factory owner would be
required to pay the gratuity to the employee working in
the factory only on his completing five years of H
670
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A continuous service, in case of the employee working on
the administrative or clerical side of the factory or in the
office, which may be in the same premises where the
factory is situated, merely one year of service or even
lesser than that, would be sufficient and the factory
8 owners would have to pay the gratuity or the service
compensation, as the case may be, to such person. Thus,
the provision is clearly discriminatory and unreasonable.
[Para 14) [694-F-H; 696-A]
1.4. The definition oj "Commercial Establishment"
C would convince that the inclusion of an establishment of
a factory or an industrial undertaking which falls outside
the scope of Factories Act, 1948 and thereby entitling the
employees working therein for the payment of service
compensation, clearly brings out the discrimination
D between such employees and the employees working in
the factories as covered by Factories Act, 1948. [Para 14)
[695-A-B]
1.5. The definition of "Employee" is also extremely
E relevant in this behalf, and when the two provisions, viz.,
Sections 2(5) and 2(8) are read together along with
Sections 2(11) and 2(10), the position becomes crystal
clear that the provision of Section 47(3) is clearly
discriminatory and, therefore, hit by Article 14 of the
F Constitution oflndia. Therefore, it is not correct to say that
the p~ovision u/s. 47(3) is made for a classification and,
therefore, there is no discrimination as the classification
has a nexus with the object of the Act. There is no
rationale for providing a short period of one year as
compared to five year period in case of employees
G coveted under the Factories Act, 1948. [Para 14) [695-8-E]
1.6 What is seen from the impugned provisions is,
firstly, the compulsory nature· of the service
compensation and secondly, the total absence of
H guidelines. There has to be some minimum qualifying
I
GRAND KAKATIYA SHERATON HOTEL & TOVVERS EMP. & WORKERS 671
UNION v. SRINIVASA RESORTS LTD.
...
service. To reduce the qualifying service to one year or A
even to the lesser period, would be absurd . It is not
permissible for the legislatures to prescribe a lesser
period in all the circumstances. Such provision is,
therefore, obviously, unreasonable. [Para 16] [698-A-C]
B
Bakshish Singh vs. Darshan Engineering Works and Ors.
1994 (1) sec 9 - relied on.
1
Express Newspapers vs. Union of India AIR 1958 SC
578; Mis. British Pints (India) Ltd. vs. Its workmen 1966(2) c
SCR 523 and Straw Board Manufacturing Co.Ltd. vs. Its
~~
Workmen 1977 (2) SCC 329, referred to.
2.1. Section 47(4) is per se unreasonable. Section
40(3) of A.P. Shops and Establishments Act, 1966 which
was found to be unconstitutional, is clearly comparable D
to Section 47(3) and also Section 47(4), as the last part
of that Section is identical with the wording in Section
47(4). The only difference, is that instead of word
"gratuity", the terminology of "service compensation" is
substituted. Mere cosmetic amendment could not have E
been made by way of introduction of Sections 47(3) and
47(4). It is not correct to say that in the 1988 Act, the
mischief pointed out by the High Court in earlier Section
40(3) of the 1966 Act has been remedied. [Para 17] [698-
"
C-F]
F
2.2. It cannot be said that Section 47 (4) is valid piece
of legislation as it is only in the nature of procedure and
does not amount to penalty. Merely because there is a
remedy to the employer u/ss. 50 and 51 to point out
reasons for not being able to have complied with Section G
47(3), Section 47 (4) does not become a valid Section,
particularly, when the identical provision was found to be
unconstitutional in Suryapet case which judgment had
become final. This is apart from the fact that this provision
is also capable of being abused or misused by an H
672
SUPREME COURT REPORTS
(2009] 3 S.C.R.
A employee, who may bring out a situation to avoid
accepting the payment of gratuity, so as to be able to
claim later the wages of the interregnum period. [Para 17]
[699-D-G]
8
Suryapet Market Cooperative Society vs. Munsif
Magistrate, Suryapet and Ors. 1972 (2) ALT 163, relied on.
3. It is not correct to say that the High Court
proceeded on to decide the constitutionality on the basis
of a comparison. Though it is true that both the laws, i.e.,
C the Shops Act and the Payment of Gratuity Act have been
passed validly under Entry 24 of List Ill of the VII
Schedule, it is incorrect to say that the High Court has
compared the two provisions. It is one thing to refer to a
provision and quite another to compare it with impugned
D provision. The High Court has actually gone into the
concept of gratuity right from its inception and has come
to the conclusion that for earning the gratuity, the
employee does not have to contribute anything, as in the
E
case of a provident fund. [Para 18] [700-C-E]
State of M.P. vs. G. C. Mandawar 1955(1) SCR 599, held
in applicable.
4. It is not correct to say that the High Court had
struck down the provisions only on the grounds of
F hardship and that was not permissible. High Court has
correctly observed that even if the law cannot be declared
ultra vires on the ground of hardship, it can be so declared
on the ground of total unreasonableness applying
Wednesbury's "unreasonableness" principles. The
G Court, specifically, has also found that this
reasonableness is apparent from the fact that the
employees falling within Sub-Sections (1) and (3),
although from different classes, had been treated equally,
giving them the same benefit. [Paras 19 and 20) [701-E;
H 703-D-F]
-
GRAND KAKATIYA SHERA TON HOTEL. & TO'NERS EMP. & IMJRKERS 673
UNION v. SRINIVASARESORTS LTD.
'
~
--
Bennet Coleman and Co. Ltd. vs. Union of India AIR
A
1973 SC 106 and Peerless General Finance and Investment
Co. Limited and Anr. vs. Reserve Bank of India 1992 (2) SCC
343, relied on.
Praful/a Kumar Das and Ors. vs. State of Orissa and Ors.
B
2003 (11) SCC 614; R.N. Goyal vs. Ashwani Kumar Gupta
and Ors. 2004 (11) SCC 753; Government of Andhra Pradesh
vs. P. Laxmi Devi 2008 (4) SCC 720; R.N. Goyal vs. Ashwani
Kumar Gupta and Ors. 2004 (11) SCC 753 and Praful/a
Kumar Das and Ors. vs. State of Orissa and Ors. 2003 ( 11) c
sec 614, distinguished.
Direct Recruit Class II Engg. Officers' Assn. vs. State of
Maharashtra 1990 (2) SCC 715, referred to.
'·
...
5. There can be no doubt that both the Central Act
D
and the impugned State Act operate in the same field in
as much as, the "service compensation" is nothing, but
the "gratuity", though called by different name. Under
such circumstances, unless it was shown that while
obtaining the Presidential assent for the State Act, the
E
conflict between the two Acts was specifically brought to
the notice of the President, before obtaining the same, the
State could not have used the escape route provided by
..,,
Article 254(2) of the Constitution. The High Court was
right in holding that the two Acts occupy the common
F
-
field and were in conflict with each other. Article 254(2)
of the Constitution would not save the impugned
provisions. [Para 23] [705-A-D]
Ramachandra Mowa Lal vs. State of U.P. AIR 1987 SC
1837 and Gram Panchayat of Village Jama/pur vs. Ma/winder
G
;. .
Singh 1985 (3) sec 661, relied on.
Case Law Reference:
AIR 1958 SC 578
Referred to.
Para 13
H
674
SUPREME COURT REPORTS
[2009) 3 S.C.R.
..
::
A
1992 (2) sec 343
Referred to.
Para 13
1994 (1) sec 9
Relied on ..
Para 16
1966(2) SCR 523
Referred to.
Para 16
8
1977 (2) sec 329
Referred to.
Para 16
1972 (2) ALT 163
Relied on.
Para 17
1955 (1) SCR 599
held not applicable. Para 18
2008 (4) sec 120
Distinguished.
Para 19
c
2004 (11) sec 753
Distinguished.
Para 20
2003 (11) sec 614
Distinguished.
Para 20
1990 (2) sec 115
Referred to.
Para 20
D
...
AIR 1973 SC 106
Relied on.
Para 20
AIR 1987 SC 1837
Relied on.
Para 22
1985 (3) sec 661
Relied on.
Para 22
E
CIVIL APPELLATE .JURISDICTION : Civil Appeal No.
6499 of 2002.
From the Judgment and Order dated 22.11.2001 of the
High Court Judicature, Andhra Pradesh at Hyderabad in W.P.
F No. 18692 of2001.
WITH
C.A. No. 2746 of 2006.
G
Naveen R. Nath and A. Dasharatha for the Petitioner.
L. Nageshwar Rao, C.R. Sridharan, Rajan Narain and Raj
Rajeshwari Shukla for the Respondent.
The Judgment of the Court was delivered by
H
GRAND KAKATIYASHERATON HOTEL& TOVvERS EMP. & V'vORKERS 675
UNION v. SRINIVASA RESORTS LTD.
_,
V.S. SIRPURKAR, J.1. This appeal is directed against A
the judgment and order passed by the High Court, whereby,
Sections 47(3) and 47(4) of the Andhra Pradesh Shops &
Establishments Act, 1988 (hereinafter referred to as 'the Shops
Act') are declared unconstitutional, discriminatory and violative
of the Articles 14 and 19(1)(g) of the Constitution of India. B
Following facts would be necessary to understand the
controversy.
2. Respondent No. 1 M/s. Srinivasa Resorts Ltd. is a
company incorporated under the Companies Act, while the c
respondent No. 2 is a shareholder of the said company.
Respondent No. 1 company is engaged in business of
managing and running hotels. They have hotel in the name and
style of "ITC Kakatiya Sheraton", which is being run by the ITC
Hotels Ltd., which is another company incorporated under the
D
<I
Companies Act. The said hotel is registered under the
provisions of the Shops Act. The appellant is the Union of
employees and workers of the said hotel. Assistant Labour
Officer, respondent No. 4 herein, visited the hotel at the instance
of the appellant Union on 31.5.2001 and as required by him,
the respondent Nos. 1 & 2 furnished information regarding the E
employees, who had left the service of the hotel during last 23 years, as also the amounts paid to them towards full and final
settlement of the dues. The respondent company, by letter dated
"'
6.8.2001, also furnished the receipts signed by the employees
who had left the hotel in token of the amounts received by them.
F
It seems that,. thereafter, there was lot of correspondence
between the respondent No. 1 company and respondent No. 4
Assistant Labour Officer on the issue, whereby, the Assistant
Labour Officer was insisting upon the respondent Company to
furnish the final settlement statements of the employees, who G
had left the service of the hotel, in order to know whether any
service compensation had been paid to them or not in
accordance with the provisions of the Shops Act. It was pleaded
by the respondent company that no further documents except
those which were already produced, were available with them.
H
676
SUPREME COURT REPORTS
(2009] 3 S.C.R.
A However, the Assistant Labour Officer, by his letter dated
'
7.8.2001, called upon the respondent company to show cause
as to why penal action should not be taken under Section 16(3)
of the Act for failure to furnish the required documents. It is at
this juncture that a Writ Petition came to be filed before the
B Andhra Pradesh High Court by the respondent Nos. 1 & 2
herein, whereby, constitutional validity of the provisions of
Sections 47(3) and 47(4) of the Shops Act in question, was
challenged on the ground that they are illegal, invalid,
inoperative and unsustainable in law and violative of Article 13,
c 14 and 19(1)(g) of the Constitution of India. Since the action
against the respondent company was initiated by the appellant
Grand Kakatiya Sheraton Hotel & Towers Employees &
Workers Union (hereinafter referred to as 'the Union' for short),
the said Union joined as a party, as the respondent No. 3 to
D the Writ Petition. An injunction was also sought for against the
~
concerned authorities under the Act and more particularly, the
State Government and the Assistant Labour Officer, restraining
them from inferring the provisions of Sections 47(3) and 47(4)
of the Shops Act against the respondent company. This Writ
E
Petition was allowed by the High Court, whereby, the High Court
declared the two aforementioned provisions as unconstitutional
and amounting to unreasonable discrimination and violative of
Article 14 of the Constitution of India.
3. The original respondent No. 3 Union has filed the
•
F present appeal, challenging the impugned judgment.
4. There was one other appeal being Civil Appeal No.
2746 of2006, which was attached with the present Civil Appeal
No. 6499 of 2002, however, when the matter was called for
G hearing on 5.11.2008, nobody remained present for arguing
that appeal, which was dismissed for non-prosecution with no
orders as to the costs. We are, therefore, left with Civil Appeal
No. 6499 of 2002 only.
5. Before we note and appreciate the rival contentions, it
H will be better to see the impugned provisions along with the
GRAND KAKATIYA SHERATON HOTEL & TOVVERS EMP. & \/l.ORKERS 677
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)
.....
~
~
legislative history thereof.
A
;..
6. The Andhra Pradesh Shops and Establishments Act
(Act No. 15 of 1966) (hereinafter referred to as 'the 1966 Act')
came on the anvil in the year 1966. Section 40 of the 1966 Act
provided for conditions for terminating the service of an
B
employee, as also the payment of gratuity to him. This provision
came to be amended in the year 1976 by reason of Act No.
53 of 1976, however, the said Act was repealed by the present
Act of 1988. The present Act of 1988 provides for conditions
of terminating the services of an employee and payment of c
service compensation for termination, retirement, resignation
etc. In short, Section 40 of the 1966 Act and Section 4 7 of the
1988 Act are pari-materia Sections. It will be better to compare
.:.
the unamended Section 40, that existed from 1966 till its
amendment in 1976, secondly, the amended Section 40 of the
...
1966 Act as amended by Act No. 53 of 1976 and Section 47
D
of the present 1988 Act, more particularly, sub-Sections 3, 4
and 5 thereof, as they stood on the date of petition. The
following tables would succinctly bring out the qualitative
4
changes made in the texture of the said Section. At the same
time, they would give us the idea as to how a liability was
E
created via sub-Sections 3 and 4 for the payment of the service
compensation and the conditions for such payment.
..
Section 40 of A.P. Shops and Establishments Act, 1966
prior to 1976:-
F
Conditions for terminating the service of an employee and
payment of gratuity:-
1
No employer shall without a reasonable cause and
except fo'. misconduct, terminate the services of an
G
j;
employee and payment of gratuity.
2
No employer shall without a reasonable cause and
except for misconduct, terminate the services of an
employee, who has been in his employment
H
678
SUPREME COURT REPORTS
(2009] 3 S.C.R.
A
•
;
continuously for a period of not less than six months
... _
without giving such employee at least one month's
..
notice in writing or wages in lieu thereof and gratuity
amounting to fifteen days' average wages for each
year of continuous service.
B
3
An employee who has completed the age of sixty
years or who is physically or mentally unfit having
been declared by a medical certificate, or who
wants to retire on medical grounds or to resign his
c
services, may give up his employment after giving
to his employer, notice of at least one month in the
case of an employee of sixty years of age, and
fifteen days in any other case; and every such
employee and the dependant of an employee who
i:
dies while in service, shall be entitled to receive a
D
gratuity amounting to fifteen days' average wages
..
for each year of continuous employment calculated
in the manner provided in the explanation to subSection ( 1). He shall be entitled to receive the
wages from the date of giving up the employment
E
until the date on which the gratuity so payable is
actually paid subject to a maximum of wages for two
months.
Section 40 of A.P. Sho[!s and Establishments Act, 1966
F as amended by Act No. 53 of 1976:-
Conditions for terminating the service of an employee and
payment of gratuity:-
1
No employer shall without a reasonable cause and
G
except for misconduct, terminate the services of an
employee, who has been in his employment
...
continuously for a period of not less than six months
without giving such employee at least one month's
notice in writing or wages in lieu thereof and in
H
respect of an employee who has been in his
....
GRAND KAKATIYA SHERATON HOTEL & TOVllERS EMP. & \MJRKERS 679
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
2
employment continuously for a period of not less
A
than five years, a gratuity amounting to fifteen days'
average wages for each year of continuous
service.
An employee who has completed the age of sixty
years or who is physically or mentally unfit having
been declared by a medical certificate, or who
wants to retire on medical grounds or to resign his
services, may give up his employment after giving
B
to his employer, notice of at least one month in the
C
case of an employee of sixty years of age, and
fifteen days in any other case; and every such
employee and the dependant of an employee who
dies while in service, shall be entitled to receive a
gratuity as provided in sub-Section (1). He shall be
entitled to receive the wages from the date of giving
D
up the employment until the date on which the
gratuity so payable is actually paid subject to a
maximum of wages for two months amounting to
fifteen days' average wages for each year of
continuous employment calculated in the manner
E
provided in the explanation to sub-Section (1 ). He
shall be entitled to receive the wages from the date
of giving up the employment until the date on which
the gratuity so payable is actually paid subject to a
maximum of wages for two months.
F
Section 47(3\. (4\ and (5) of A.P. Shops and
Establishments Act. 1988:-
Conditions for terminating the service of an employee,
payment of service compensation for termination, retirement,
G
resignation, disablement etc. and payment of subsistence
allowance for the period of suspension:-
1
No employer shall without a reasonable cause and
except for misconduct, terminate the services of an
H
680
SUPREME COURT REPORTS
(2009) 3 S.C.R.
•
;.
A
employee, who has been in his employment
continuously for a period of not less than six months
without giving such employee at least one month's
notice in writing or wages in lieu thereof and in
respect of an employee who has been in his
8
employment continuously for a period of not less
than one year, a service compensation amounting
to fifteen days average wages for each year of
...
continuous employment:
c
provided that every termination shall be made by
the employer in writing and a copy of such
termination order shall be furnished to the Inspector
having jurisdiction over the area within three days
of such termination.
..
D
2
The service of an employee shall not be terminated
by the employer when such employee made a
complaint to the Inspector regarding the denial of
any benefit accruing to him under any labour welfare
enactment applicable to the establishment and
E
during the pendency of such complaint before the
Inspector. The services of an employee shall not
also be terminated for misconduct except for such
acts or omissions and in such manner as may be
prescribed.
F
3
Every employee who has put in a continuous
service of not less than one year, shall be eligible
for service compensation amounting to fifteen days'
average wages for each year of continuous
employment (i) on voluntary cessation of his work
G
after completion of 60 years of age, (ii) on his
resignation, or (iii) on physical or mental infirmity
duly certified by a registered medical practitioner
or (iv) on his death or disablement due to accident
or disease:
H
GRAND KAKATIYA SHERATON HOTEL & TOVVERS EMP. & VVQRKERS 681
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
provided that the completion of continuous service
A
of one year shall not be necessary where the
termination of the employment of an employee is
due to death or disablement:
provided further that in case of death of an
8
employee service compensation payable to him
shall be paid to his nominee or if no nomination has
been made to his legal heir.
4
Where a service compensation is payable under
5
this Section to an employee, he shall be entitled to
C
receive his wages from the date of termination or
cessation of his services until the date on which the
service compensation so payable is actually paid.
The payment of service compensation under this o
Section shall not apply in cases where the
employee is entitled to gratuity under the payment
of Gratuity Act, 1972 and gratuity has been paid
accordingly consequent on the termination or
cessation of service.
E
At this juncture, it will be necessary to see definitions in
the amended Act. Section 2 gives definitions in the Act.
2(5):' Commercial
establishment'
means
an
establishment which carries on any trade business,
F
profession or any work in connection with or
incidental or ancillary to any such trade business or
profession or which is a commercial or trading or
banking or insurance establishment and includes
an establishment under the management and
G
control of a co-operative society, an establishment
of a factory or an industrial undertaking which falls
outside the scope of the Factories Act, 1948
(Central Act 63 of 1948), and such other
establishment as the Government may, by
H
A
B
c
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SUPREME COURT REPORTS
[2009] 3 S.C.R.
notification, declare to be a commercial
establishment for the purposes of this Act but does
not include a shop'.
2(8) 'employee' means a person wholly or principally
employed in and in connection with any
establishment and includes an apprentice and any
clerical or other staff of a factory or an industrial
establishment who fall outside the scope of
Factories Act, 1948 (Central Act 63 of 1948); but
does not include the husband, wife, son, daughter,
father, mother, brother or sister of an employer or
his partner, who is living with and depending upon
such employer or partner and is not in receipt of any
wages;
D
2(9) 'employer' means a person having charge of or
E
F
G
H
owning or having ultimate control over the affairs of
an establishment and includes the Manger, Agent
or other person acting in the management or control
of an establishment;
2(10) 'establishment' means a shop, restaurant, eating
house, residential hotel, lodging house, theatre or
any place of public amusement or entertainment
and includes a commercial establishment and such
other establishment as the Government may, by
notification, declare to be an establishment for the
purpose of this Act;
2(21) 'shop' means any premises where any trade or
business is carried on where services are rendered
to customers and includes a shop run by a cooperative society, an office, a store-room, go-down,
warehouse or work place whether in the same
premises or otherwise, used in connection with
such trade or business and such other
establishments, as the Government may, by
..
GRAND KAKATIYA SHERATON HOTEL & TOVll£RS EMP. & Vl.ORKERS 683
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
notification, declare to be a shop for the purpose
A
of this Act, but does not include a commercial
establishment.
Chapter II deals with registration of establishments.
Chapter Ill relates to shops and Chapter IV relates to
8
establishments other than shops. Chapter V relates to
employment of women, children and young persons.
Chapter VI relates to health and safety, Chapter VII relates
to leave and holidays with wages and insurance scheme
for employees. Chapter VIII deals with wages, conditions
C
for termination of services, appeals, and suspension and
terminal benefits.
At this juncture, it will be better to see a few provisions of
Payment of Gratuity Act, 1972. Sub-Section (3) of Section 1
provides as under:-
D
(3)
It shall apply to:-
(a)
(b)
every factory, mine, oil field, plantation, port and
railway company;
every shop or establishment within the meaning of
any law for the time being in force in relation to
shops and establishments in a State, in which ten
or more persons are employed or were employed,
on any day of the preceding twelve months;
E
F
(c)
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
G
behalf.
3A.
A shop or establishment to which this Act has
become applicable shall continue to be governed
by this Act, notwithstanding that the number of H
A
B
c
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SUPREME COURT REPORTS
(2009] 3 S.C.R.
persons employed therein at any time after it has
become so applicable falls below ten.
4.
Payment of gratuity:-
(1)
Gratuity shall be payable to an employee on the
termination of his employment after he has
rendered continuous service for not less than five
years.
(a) on his superannuation, or
(b) on his retirement or resignation or
(c) on his death or disablement due to accident or
disease.
o
provided that the completion of continuous service
E
F
G
of five years shall not be necessary where the termination
of the employment of any employee is due to death or
disablement.
)()()(
)()()(
)()()(
(2)
For every completed year of service or part thereof
in excess of six months, the employer shall pay
gratuity to an employee at the rate of fifteen days'
wages based on the rate of wages last drawn by
the employee concerned
provided that in the case of a piece-rated employee,
daily wages shall be computed on the average c the total
wages received by him for a period of three months.
Immediately preceding the termination of his employment
and for this purpose, the wages paid for any over time
work shall not be taken into account.
Section 7 of the Payment of Gratuity Act, 1972 provides
for the determination of the amount of gratuity. Under subH Section (1), an eligible employee under the said Act has to
•
GRAND KAKATIYA SHERATON HOTEL & TOWERS EMP. & OORKERS 685
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)
41
make a written application, while sub-Section (2) makes it A
binding on the employer to determine the amount of gratuity and
specify the same to the controlling authority, even if such
application is not made. The mandate of sub-Section (3) is to
make the payment of gratuity within 30 days of the date, it
becomes payable to such eligible employee. Section 3A B
provides for the interest, where gratuity is not paid within the
prescribed period.
7. The challenge before the High Court was that the
impugned provisions of the Shops Act, viz., Sections 47(3) and c
47(4) are ex-facie unreasonable, since the service
compensation is now payable under the same even to the
employee, who has ·resigned or voluntarily left service after
attaining the age of 60 years though he had not put in long and
continuous service, as required under the Payment of Gratuity
D
"
Act. The further challenge was that the employee becomes
entitled to receive wages from the date of termination or
cessation of his services till the date he is actually paid the
service compensation as per sub-Section 4 of the Shops Act.
The respondent company (petitioner before the High Court)
urged that this was arbitrary, oppressive, discriminatory and E
violative of the Article 14 of the Constitution of India. It was
urged that the employer was forced to pay the service
compensation, even though cessation of service in cases of
resignation and voluntary cessation after completion of 60
years, was not on account of any act on the part of the employer.
F
8. Heavy reliance was placed by the appellant/petitioner
on the judgment of this Court in Express Newspapers Vs.
Union of India reported in AIR 1958 SC 578.
9. Before the High Court, the State sought to defend the G
said provisions on the ground that the impugned provisions
were made for the payment of extra wages. It was urged that
the provisions of Sections 47(3) and 47(4) were applicable only
to those employees, who were not governed by the Payment
of Gratuity Act. It was pointed out that the provisions of Payment H
686
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A of Gratuity Act were applicable only to those employees, who
had completed minimum of 5 years of service, while the
provisions of the impugned sub-Sections (3) and (4) of the
Shops Act would be applicable to the employees, who had
served·even less than 5 years. According to State, this was a
B reasonable classification, having a nexus with the purpose for
which the provisions were brought into existence. It was stated
further that considering objects and reasons of the Shops Act,
it was apparent that there was no conflict between the Payment
of Gratuity Act and the Shops Act. It was also urged that since
c the number of employees in a shop, governed by the Shops
Act could be limited to one or two persons and their services
also might not continue for a long period, therefore, in order to
help such employees, a special provision was made
considering such employees as a separate class. Section
0
47(4) was sought to be saved on the logic that it was nothing,
but a concept of Section 25F of the Industrial Disputes Act,
194 7 and on that basis, the said sub-Section would be
constitutionally valid.
10. The High Court in its judgment firstly found that the
E respondent company admittedly had not complied with the
provisions of sub-Sections (3) and (4) of the Shops Act on the
basis of the Reply Affidavit filed on behalf of the appellanU
petitioner. The Court further found on comparison of the
provisions of the 1966 Act and 1988 Act that they were almost
F . identical and the payment of gratuity was replaced by the
introduction of the concept of service compensation. The only
change was to extend the minimum requirement period of six
months to one year. The High Court also found that the
establishment of the respondent company was indisputably
G covered under the Shops Act. The High Court thereafter noted
that the unamended provisions of Sections 40(1) and 40(3) of
the 1966 Act had been challenged earlier before the Division
Bench and the same were declared invalid under Article 14 of
the Constitution of India on the ground that while in factories
H which are large in size, the workers, in order to earn the gratuity,
GRAND KAKATIYA SHERATON HOTEL & TOV\£RS EMP. & 'v\ORKERS 687
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)
•
would have to render long and meritorious service under a
A
scheme of Payment of gratuity prior to enactment of the
Payment of Gratuity Act, 1972, however, the employees working
in the nearby office, which is much smaller in its operations,
would be entitled to such gratuity on rendering a mere six
months of unbroken service. The High Court then commented
B
that even when the earlier judgment of the High Court had
attained finality, by way of the present amendment only a
...
cosmetic amendment was made. The High Court then went on
to analyse Section 47 and pointed out that in contrast with subSection thereof, under sub-Section (3), the amount of service c
compensation is required to be paid even if the cessation of
service is caused not by the employer, but at the instance of
the employee. It was further noted that in case of termination
of an employee due to death or disablement, even the condition
of completion of continuous service of one year was not
D
~
necessary. The onerousness of sub-Section 4 was also noted
by the High Court that the employee becomes entitled to be
paid the wages from the date of his termination or cessation
of his service right until the date of the actual payment of service
compensation. The High Court also saw the contradictions that
E
the Shops Act was applicable to the administrative offices of
the factories and the employees working therein. While the
,.
employee working in the factory would be eligible for gratuity
only after rendering five continuous years of meritorious service,
•
the employees working in the administrative office adjacent to
the said factory, would, however, be eligible for service
F
·-
compensation under Section 47(3) by merely rendering one
year's service. The High Court then held that the service
compensation was nothing, but a gratuity. Considering the
meaning of the word "gratuity", the High Court found that the
service compensation was nothing, but the gratuity, which was
G
payable to the employee as a gift or reward for rendering long
and continuous service. It also found that a mere service of one
year or so could not be viewed as a long and continuous
service, so as to entitle the employee to earn the service
compensation or in other words, the "gratuity". The High Court
H
688
SUPREME COURT REPORTS
[2009] 3 S.C.R.
A took into consideration the provisions of the Gratuity Act and
•
found that the minimum period of service therein was five years,
as also for the Government servants of the State, the minimum
qualifying period for earning gratuity was 10 years of service.
Comparatively, the High Court came to the conclusion that
B limiting this period of long, continuous and satisfactory service
only to one year was unreasonable and discriminatory. The
High Court also severely commented on the provisions that in
case of death or disablement, the condition of completion of
one year of service was also not necessary. The High Court
C then relying on the judgment of Bennet Coleman & Co. Ltd.
Vs. Union of India reported in AIR 1973 SC 106, held that to
treat unequals equal, would amount to discrimination and held
that Section 47(3) had that effect. The High Court then referred
to the cases in Express Newspapers Vs. Union of India (cited
0 supra) and Peerless General Finance And Investment Co. Ltd.
Vs. R.B.I. reported in 1992 (2) SCC 343. Thereafter, the High
Court considered the scheme of payment of gratuity as required
by the Payment of Gratuity Act and observed that Section
4(1)(b) has been held to be a reasonable classification within
the meaning of Article 19(1 )(g) of the Constitution of India.
E Referring to number of other decisions, the High Court
observed:-
F
"It may be true that having regard to the provisions
contained in List Ill of the VII Schedule of the Constitution,
the State can also lay down certain conditions of service.
But, the same would not mean that smaller units will be
burdened with a harsher, oppressive and more onerous
statutory obligations than their big brothers."
It was found that the same field was being covered by the
G Central legislation, as well as, the impugned State legislation.
H
The High Court, however, pointed out that merely because the
State legislation had received the Presidential assent, that, by
itself, could not save the State legislation if it was otherwise
discriminatory. This observation was made on finding that there
-
GRAND KAKATIYA SHERATON HOTEL & TOWERS EMP. & \fliQRKERS 689
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
4
existed no evidence that the possible conflict in Central Act and
A
the State Act was brought to the notice of the President before
the assent was obtained. On the factual aspect, the High Court
observed that, in fact, there were number of employees, who
had left the service and thereafter, had not been heard for a
few years and as such, they could not be said to have rendered
B
any work which would entitle them to receive gratuity or service
compensation. The High Court ultimately held that those, who
had abandoned their services, were not entitled to get any
benefits under the impugned provisions. Thus, the High Court
specifically found the two provisions, viz., 47(3) and 47(4) to c
be unreasonable. These provisions and more particularly,
Section 47(4) was found to be contrary to the basic principles
of service jurisprudence. The High Court ultimately allowed the
Writ Petition. It is this judgment, which has fallen for our
"'
consideration in the present appeal.
D
11. The Learned Counsel for the appellant firstly pointed
out that impugned Sections 47(3) and 47(4) are constitutionally
valid and suffer from no infirmity. He secondly urged that as has
been done by the High Court, the legislation cannot be struck
down on the ground of mere hardship. His third contention was
E
that the High Court had resorted to the comparisons between
..,
two legislations by two different legislatures while deciding upon
the constitutionality of the aforementioned provisions, which was
;
not permissible.