# MADAN MOHAN PATHAK v. UNION OF INDIA & ORS. ETC

- **Citation:** [1978] 3 S.C.R. 334
- **Court:** Supreme Court of India
- **Decided:** 1978-02-21
- **Case number:** Writ Petitions Nos. 108 and 174-177 of 1976
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/madan-mohan-pathak-v-union-of-india-ors-etc-7326
- **Pages:** 36

## Headnote

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334
MADAN MOHAN PATHAK
v.
UNION OF INDIA & ORS. ETC.
February 21, 1978
/~l. H. BEG, C.J., Y. V. CHANDRACHUD, 1'. N. BHAGWA'IJ, V. R.
KRISHNA IYER, s. MURTAZA FAZAL ALI, P. N. SHINGII.\t AND
D. A. DESAI, JJ.J
Life Insurance Corporation (Modification of Settlen1ent) Act, 1976-S. 3-....
Validity of-Corporation entered into Settlement with Class Ill and Class IV
employees regarding bonus-Settlen1ent was subject to the approval of Central
Government-During emergency Central Government issued instructions not to
pay bonus under the settlement-Employees filed Writ Petition
in the High
Court-A Single Judge allowed the Writ Petition-The impugned Act was
passed when Letters Patent Appeal was pending before the High (,'ourt--C'orpo.
ration withdrew the appeal-Impugned Act, if absolved the Corporation
fron1
obligation to carry out the Writ of Mandarnus issued by t!ie Single Judge.
Constitution of India : Art. 31-Bonus payable under the. Settlement, if
property within the mtaning of Art. 3)(2)-Stopping payment of bonus,
tf
a1110111us tv cnr11pufsory acquisition of property without poy1nen: of con1pe1Bativn.
From time to time the Life Insurance Corporation and its employees arrived
at settlement relating to the terms and conditions of service of Class III and
Class IV employees including bonus payable to them. Clause (8) of the Settlement dated January 24, 1974, which related to payment of bonus provided-(i)
that no profit-sharing bonus shall be paid but the Corporation may, subject to
such directions as the Central Government may issue from time to time, grant
any other kind of bonus to its Class III and Class IV employees; (ii) that an
annual cash bonus will be paid to all Class ID and Class IV employees at the
rate of 15% of the annual salary actually drawn by an employee in respect of
the financial year to which the bonus relates and (iii) that save as
provided
therein all other terms and conditions attached to the admissibility and payment
of bonus shall be as laid down in the Settlement on bonus dated June 26, 1972.
Clause ( 12) of the Settlement which refers to the period of settlement provided
(!) that the Settlement shall be effective from April !, 1973 for a period of four
years and (2) that the terms of the Settlement shall be subject to the approval
of the Board of the Corporation and the Central Government.
One of the administrative instructions issued by the Corporation in regard to
the payment of cash bonus under cl. S(ii) of the Settlement was that in ca~e of
retirement or death, salary up to the date of cessation of service shall be taken
into account for the purpose. of determining the amount of bonus payable to the
employee or his heirs and the other was that the bonus shall be paid along with
the salary for the month of April but in case of retirement or death, payment
will be made soon after the contingency.
The Payment of Bonus (Amendment) Act. 1976 considerably curtailed the
rights of the employees to bonus in industrial establishments.
But in_ so far as
the employees of the Corporation were concerned this Act had no application
because by reason of s. 32 of the Payment of Bonus Act, the Corporation was
outside the purview of its operation. The Central Government however decided
that the employees of establishments which were not covered by the Bonus Act
would not be eligible for payment of bonus but exgratia payment in lieu of
bonus would be made to them.
Pursuant to this decision the L.IC. was adYised
by the Ministry of Finance, Goverriment of India, that no further payment of
bonus should be made to its employees without getting the same cleared by the
Government. The Corporation accordingly issued administrative
instructions
not to pay bonus to its employees under the cxif'ting provisions until further
instructions. To the employees' assertion that the Corporation was bound to
)
MADAN MOHAN PATHAK V. UNION
335
pay bonus in accordance with the terms of the Settlement the Corporation contended that payment of

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_Characters 0–39,701 of 121,374. This is a partial read: ask again with offset=39701 for what follows._

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334
MADAN MOHAN PATHAK
v.
UNION OF INDIA & ORS. ETC.
February 21, 1978
/~l. H. BEG, C.J., Y. V. CHANDRACHUD, 1'. N. BHAGWA'IJ, V. R.
KRISHNA IYER, s. MURTAZA FAZAL ALI, P. N. SHINGII.\t AND
D. A. DESAI, JJ.J
Life Insurance Corporation (Modification of Settlen1ent) Act, 1976-S. 3-....
Validity of-Corporation entered into Settlement with Class Ill and Class IV
employees regarding bonus-Settlen1ent was subject to the approval of Central
Government-During emergency Central Government issued instructions not to
pay bonus under the settlement-Employees filed Writ Petition
in the High
Court-A Single Judge allowed the Writ Petition-The impugned Act was
passed when Letters Patent Appeal was pending before the High (,'ourt--C'orpo.
ration withdrew the appeal-Impugned Act, if absolved the Corporation
fron1
obligation to carry out the Writ of Mandarnus issued by t!ie Single Judge.
Constitution of India : Art. 31-Bonus payable under the. Settlement, if
property within the mtaning of Art. 3)(2)-Stopping payment of bonus,
tf
a1110111us tv cnr11pufsory acquisition of property without poy1nen: of con1pe1Bativn.
From time to time the Life Insurance Corporation and its employees arrived
at settlement relating to the terms and conditions of service of Class III and
Class IV employees including bonus payable to them. Clause (8) of the Settlement dated January 24, 1974, which related to payment of bonus provided-(i)
that no profit-sharing bonus shall be paid but the Corporation may, subject to
such directions as the Central Government may issue from time to time, grant
any other kind of bonus to its Class III and Class IV employees; (ii) that an
annual cash bonus will be paid to all Class ID and Class IV employees at the
rate of 15% of the annual salary actually drawn by an employee in respect of
the financial year to which the bonus relates and (iii) that save as
provided
therein all other terms and conditions attached to the admissibility and payment
of bonus shall be as laid down in the Settlement on bonus dated June 26, 1972.
Clause ( 12) of the Settlement which refers to the period of settlement provided
(!) that the Settlement shall be effective from April !, 1973 for a period of four
years and (2) that the terms of the Settlement shall be subject to the approval
of the Board of the Corporation and the Central Government.
One of the administrative instructions issued by the Corporation in regard to
the payment of cash bonus under cl. S(ii) of the Settlement was that in ca~e of
retirement or death, salary up to the date of cessation of service shall be taken
into account for the purpose. of determining the amount of bonus payable to the
employee or his heirs and the other was that the bonus shall be paid along with
the salary for the month of April but in case of retirement or death, payment
will be made soon after the contingency.
The Payment of Bonus (Amendment) Act. 1976 considerably curtailed the
rights of the employees to bonus in industrial establishments.
But in_ so far as
the employees of the Corporation were concerned this Act had no application
because by reason of s. 32 of the Payment of Bonus Act, the Corporation was
outside the purview of its operation. The Central Government however decided
that the employees of establishments which were not covered by the Bonus Act
would not be eligible for payment of bonus but exgratia payment in lieu of
bonus would be made to them.
Pursuant to this decision the L.IC. was adYised
by the Ministry of Finance, Goverriment of India, that no further payment of
bonus should be made to its employees without getting the same cleared by the
Government. The Corporation accordingly issued administrative
instructions
not to pay bonus to its employees under the cxif'ting provisions until further
instructions. To the employees' assertion that the Corporation was bound to
)
MADAN MOHAN PATHAK V. UNION
335
pay bonus in accordance with the terms of the Settlement the Corporation contended that payment of bonus by the Corporation was subject to such directions
as the Central Government might issue from time to time, and since the Central
Government had advised it not to make any payment of bonus without
its
specific approval, bonus could not be paid to the employees.
Thereupon, the
All India Insurance Employees' Association moved the High Cou1t for issue of
a writ directing the Corporation to act in accordance with the
terms of the
Settlement dated January 24, 1974 read with administrative instructions dated
March 29, 1974 and not to refuse to pay cash bonus to Class III and Class JV
employees. A single Judge of the Hig~ Court allowed the: writ petition. While
the Letters Patent Appeal was pending, Parliament passed the Life
Insurance
Corporation (Modification of Settlement) Act, 1976 (which is the Actl impugned
in this case.). In the Letters Patent Appeal the Corporation stated that in view
of the impugned Act, there was no necessity for proceeding with the appeal ancl
hence the Division Bench made no order in the appeal.
Since the effect of the impugned Act was to deprive Class III and Class IV
employees of bonus payable to them in accordan'ce with the terms of the Settle·
ment, two of the associations filed writ petitions in this Court ch<111enging the
constitutional validity of the impugned Act. It was contended on their behalf
that even if the impugned Act rendered cl. (8) (ii) ineffective with effect fron1
April 1, 1975 it did not have the effect of absolving the Life Insurance Corporation from its obligation to carry out the writ of Mandamus issued by the High
Court and (2) that the right of Class III and Class IV employees to annual
cash bonus for the years 1975·76 and 1976·77 under CL 8(ii) of th0 Srttlement
was property and since the impugned Act provided for compulsory acquisition of
this property without payment of compensation, it was violative of Art. 31(2)
of the Constitution.
Allowing the writ petitions
Rei C.J. (concurring with the majority)
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HELD: Section 3 of the Life Insurance. Corporation
(Modification of
Settlement) Act, 1976 is struck by the provisions of Art. 19(1) (f) and is not
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saved by Art. 19(6) of the Constitution. [346 A]
1. The Statement of Objects and Reasons of the Act discloses that the pur~
pose of the impugned Act was to undo settlements arrived at between the Cor·
poration and Class III and Clas!! IV employees on January 24 and February 6,
1974 and recognised by the High Court. In S1nt. Indira Gandhi v. Raj f\-larain
thi5 Court held that even a constitutional amendment cannot authorise
the
assurnptinn of judicial power by Parliament. One of the test"; laid down was
whether the decision is of a kind" whiCh requires hearing to be given to the
F
parties i.e., whether it involves a quasi.judicial procedure. A decision reached
by the· Central Government is the result of a satisfaction on matters stated there
and would imply quasi·judicial procedure where the terms of a settlement had
to be reviewed or revised.
But, the legislative procedure, followed in this case
does not require that to be done. It would be unfair to adopt legislative proce·
dure to undo a settlement which had become the basis of a decision of a High
c.·ourt.
Even if legislation can remove the basis of a decision it has to do it by
an alteration of general rights of a class but not by simply excluding
f\VO
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specific settlements between the Corporation anc1 its employees from the purvie1,v
of s. 18 of the Industrial Disputes Act. 1947 which had been held to be valid
and enforceable by a High Court. [341 G, H, 342 A·C]
2(a) The object of the Act was in effect to take away the force
of the
Judgment of the High Court.
Rights under that judgment could be said
to
arise independently of Art. 19 of the Constitution. To give effect to that judg·
ment is not the same thing as enforcing a right under Art. 19. It may be that
a right under Art. 19 becomes linked up with the enforceability of the judgment.
H
Nevertheless the two could be viewed as separ!ble sets of rights. If the right
conferred by the judgment independently is sought to be set aside s. 3 would be
invalid for trenching upo:e the judicial power. f343 B-D]
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336
SUPREME COURT REPORTS
(1978] 3 S.C.R.
(b) A restriction upon a right may even cover taking away of the right to
increased remuneration in the interests of the general public. But the present is
a pure and simple case of deprivation of rights of the employees \vitbout any
apparent nexus with any public interest.
In the instant case the impugned Act is a measure which seeks to deprive
workers of the benefits of settlement arrived at and assented to by the Central
Goverament under the provisions of the Industrial Disputes Act.
Such a settle·
mcnt should not be set at naught by an Act designed to defeat the purpose. In
judging the reasonableness of an Act the prospects held out, the representations
made, the conduct of the Government and equities arising therefrom mRy all be
taken into ~nsideration. f342 E-F, 344 E-F]
3. Even though the real object of the Att was to set aside
the
result of
m<H1damus, the section does not mention this object. This wns perhaes bevnu~·e
the jurisdiction of a High Court and the effectiveness of its orders derived their
force from Art 226 of the Constitution. Even· if s. 3 seeks to take away the
basis of the judgment without mentioning it, yet where the rights of the citizens
against the State are concerned the court should adopt an interpretation which
upholds those rights.
Therefore, the rights_ which
had
passed
into
those
embodied in a judgment and become the basis of a 1nandan1us from the High
Coun, could net be taken away in an indirect fr,:)hion. (343 D-EJ.
4. Even though the Directive Principles contained in Art. 43 cast an obligation on the State. to secure a living wage for the workers and is
part of the
principles declared fundamental in the governance of the country, it is not a
fundamental right which can be enforced.
Even though the Directive Principles give a direction in \Vhich the fundamental policies of the State
must be
oriented, yet this Court cannot direct either the Central Government or the
Parliament to proceed in that direction.
Even if the Directives are not directly
enforceable by a Court they cannot be declared ineffective. They have the life
and force of fundamentals.
The best way to give vitality and effect to then1 is
to use them as criteria of reasonableness. [344 B~C]
5(a) Articles 358 and 359(1A) provide that as soon as the vroclamation of
cn1ergency ceases to operate the eJcct of suspension must vanish "except as respects things done or omitted to be done before the law so ceases to have effect.,..
[346 B-Cj
(b) The term "things done or omitted to be done", should be
interpreted
very narrowly.
In the present case it means that the settlements are not to be
deemed to be wiped off.
All that it means is that no payment of bonus could
be demanded during the emergency but as soon as the emergency was over, the
settlement would revive and what could not be demanded during the emergency
would become payable even for the period of emergency for which payment was
suspended. In other words valid claims cannot be washed off by the emergency
per .<>c.
They can only be suspended by a law passed during the opera-Hon of
Arts. 358 and 359(1A). [346 C-F]
(Per Chandrachud, Fazal Ali and Shinghal, JJ.).
Concurring \vith the majority.
The in1pug:ncd Act violates Art. 31(2) and i:>, therefore. void. [369 G]
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(Per Bhagwati, Iyer and Desai, JJ.)
H
Irrespective whether the impugned Act is constitutionally valid or not,
the
Corporation is bound to obey the Writ of Mandamus issued by the High Court
and to pay annual cash bonus for the year 1975-76 to Class III and Class IV
employees. (352 D-E]
1. Section 3 of the impugned Act merely provided that the provisions of the
Settlement, in so far as they related to payment of annual cash bonus to Class
ITI and Class IV employees, shall not have any force or effect and shall not be
deemed to have had any force or effect from April 1,
1975. The writ of
tv1!lndamus issued by the High Court was not touched by the impugned Act.
The right of the employees to annual cash bonus for the year 1975-76 became
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MADAN MOHAN PATHAK V. UNION
337
.crystallised in the judgment and this right v.·as not sought to be taken away by
A.
the impugned Act. The Judgment continued to subsist and the corporat~on \.Yas
bound to pay bonus in obedience to the writ of Mandamus. By the time the
Letters Patent Appeal came up for hearing, the impugned Act had already come
into force and the Corporation could have successfully contended in the appeal
that since the Settlement, in so far as it provided for payment of annual cash
bonus, was annihilated by the impugned Act with effect from Ist April, 197 5
and so the employees were not entitled to bonus for the year 1975-76 and hence
111
no writ of 11<!odnmus could issue against the Corporation directing it to 1nake
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p<!!yn1ent of bonus. If such contention had b~en raised, there is little doubt
that the ju:lgment of the single Judge would have been upturned. But that was
not done, and the judgment of the single Judge bccan1e final and. binding on
tho parties. [353 A-F. 355 C]
Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality,
[1970]
1
SCR 358 and Patel Gordhandas Hargovindas v. ~Yunicipal Con1n1issioner, Ahn1cdabad, [1964] 2 SCR 608; distinguished and held inapplicable.
C
2(a). The argument on behalf of the Corporation that on a proper tnterpretatioa of the clauses annual cash bonus payable under cl. 8(ii) was, by re<-1son of cl. 8 ( i) subject to the directions issued by the Central Government
from time to time and the Government having stopped further payment of
bonus, the employees were not entitled to claim annual cash bonus, is erroneous.
The employees had absolute right to receive annual cash bonus from the Corporation in terms of cl. 8(ii) and it was not competent to the Central Government to issue any directions to the Corporation to refuse or withhold payment
D
of the same. [356 D-HJ
·
"
(b) Although under regulation 58 of the Service Regulations
non-profit
sharing bonus could be granted subject to the directions of the Central Government and if the Government issues a direction to the contrary bonus could not
be paid by the Corporation, in the instant case, as provided in cl. 12 of the
Settlement, the Central Government approved the payment of bonus under cl.
8(ii). That having been done it was not competent to the Central Governn1ent
E
thereafter to issue another contrary direction which would have the effect of
compelling the Corporation to commit a breach of its obligation under s. 18{1)
of the Industrial Disputes Act, 1947 to pay annual cash bonus under clause S(ii).
The overriding power given to the Central Government to
issue
directions
from time to time contained in cl. 8(i) is conspicuously absent in cl. 8(ii). The
power contained in cl. 8(i) cannot be projected or read into cl. 8(ii). These
two clauses are distinct and independent.
While cl. 8(i) is a general provision,
cl. 8(ii) specifically provides that cash bonus in the manner prescribed therein
shall be paid to the employees.
This specific provision is made subject only
F
to the approval of th.e Central Government, v.:hich was vbtai•ne-d. [357 A-FJ
(c) Moreover, under cl. 8(ii) read with the administrative instruction issued
by the Corporation, annual cash bonus accrued from day to day, though payable in case of retirement, resignation or death on the happening of that contingency and otherwise on the expiration of the year to which the bonus related. Thus the annual cash bonus payable for the year 1975-76 was a debt
due and owing from the Corporation to each of the employees. On the date
_ \vhen the impugned Act came into force each of the employees was entitled to
a· d~bt due and owing to him from the Corporation. [357 I-T, 358 A]
3(a) The impugned Act must be held to be violative of Att. 31(2) since
it did not provide for payment of "ny compensation for the· compulsory acquisition of the debts. [369 CJ
(b) The direct effect of the impugned Act \Vas to transfer ownership of the
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debts due <in::l' owing to Class III and Class I\' ernployees i!l respect nf ;:i,r;,•,n1al
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-cash bonus to the Life Insurance Corporation and since the Corporation is a
Corporation owned by the State, the impugned Act \Vas a lav.' providing for
·compulsory acquisition of the debts by the State within the meaning of Art.
31(2A). !%9 B-CJ
338
SUPREME COURT REPORTS
[J 978] 3 S.C.R.
A
(c) Choses in action can be acquired by the State. So Jong as the acqrf1~1tion sub-serves a public purpose, it would satisfy the requirement of Art. 31 (2).
There is a fundamental distinction between a chose in action and money.
A
chose in action has not the same mobility and liquidity as money, and it::. value
is not measured by the amount recoverable under it but depends on a variety
of factors.
Where money is given as compensation for taking money the
theory of forced loan may apply, but it is not applicable where· a chose in action
is taken and mcncy representing its value is given as compens:1tion. [363 A,
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R. C. Cooper v. Union of India, [1970] 3 SCR 530; Madl!av Rao Sciiidia
v. Union of lndia: fl9711 3 SCR
9 reiterated.
State of Bihar v. Kameshwar Singh, [1952] S.C.R. 889; State of Mudhya
Pradesh v. Ranojirao Shinde, (1968] 3 S.C.R. 489; dissented;
Deokinandan Prasad v. State of Bihar, [1971} Suppl. S.C.R. 634; State of
P11njab v. K. R. Erray & Sobhag Rai Mehta, [l 9731 2 S.C.R. 405; State of
Gujarat V. Sri Ambica Mills Ltd., [1974] 3 s.c.R: 760' and Stah' of Kera/a
v. The (iwalior Rayon Silk
Mfg. (Wvg.) Co. Ltd.,
[1974] 1
S.C.R.
671
followed;
State of Madhya Pradesh v. Ranojirao Shinde, [1968] 3 S.C.R. 489; Stute of
Bihar v. Kameshwar Singh, !1952] S.C.R. 889 and Bombay Dyeing and lvfanufacturing Co. Ltd. v. State of Bombay, [1959] S.C.R. 1122; explained;
[1968]
3 S.C.R. 489 and (1952] S.C.R. 889; held no longer good law.
(d) The debts due and owing from the Corporation in respect of annual
cash bonus were clearly property of the employees within the meaning of Art.
31(2) and they could be con1pulsorily acquired under Art. 31(2). Similarly
their right to receive. cash bonus for the period from the date of commcnccn1ent
of the impugned Act upto, March 31, 1977 was a legal right enforceable· through
a coun of law. f360 B-C1
(a) Property within the meaning of Arts. 19(l)(f) and 31(2) comprises
every form of property, tangible or intangible, including debts and choses in
action such as unpaid accumulation of wages, pension, cash grants etc. [360 AJ
R. C. Cooper v. Union of India, [1970] 3 S.C.R. 530; H. II. Maharajudhiiaia
Madhav Rao Jiwaji Rao Scindia Bahadur & Ors. v. Union of India, [1971] 3
S.C.R. 9; State of M.P. v. Ranojirao Shinde & Anr., [1968] 3 S.C.R.
489;
Deokinanda11 Prasad v. State of Bihat, [1971] Supp. S.C.R_, 634; State of Punjab
v. K. R. Erry & Sobhag Rai Mehta, [1973] 2 S.C.R. 485; and State of Gujarat
& Anr. v. Shri Ambica Mills Ltd., Ahmedobad; [1974] 3 S.C.R. 760 referred to.
4(a) The contention of the Corporation that when o\Vllership· of a debt is
transferred it continues to exist as a debt but that when the debt is extinguished
it ceases to exist as a debt and that extinguishment of a debt does not therefore
involve transfer of nwnership of the debt to the debtor is not well founded.
Where, by reason of extingu!shment of a right or interest of a persoo, detriment
is suffered by him and a. corresponding benefit accrues to the State, there \vou1d
G
b• transfer of ownership of such right or interest to the State. The question
would always be : who is the beneficiary of the extinguishment of the right or
interest effectuated by the law ? If it is the State, then there would be transfer
of ownership of the right or interest to the State, because what the owner of the
right or interest would lose by reason of the extinguishment would be the benefit
accrued to the State f367 H, 368 B-C1
H
(b) Extinguishment of the debt of the creditor with corresponding benefit ta
the State or State owned/controlled Corporation would
involve
transfer of
ownership of the amount representing the debt from the former to the latter.
This is the real effect of extinguishment of the debt and· by garbing it in the
form of extinguishment, the Sta-te or State owned /controlled Corporatlon cannot obtain benefit at the cost of the creditor and yet avoid the .ippl1cab1lity ot
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MADAN MOHAN PATHAK V. UNION (Beg, C.J.)
339
Art. 31(2). The verbal veil constructed by employing the device of extinguishA
ment of debt cannot be permitted to conceal or hide the real nature
of the
transaction [368 F-H]
ORIGINAL JURISDICTION: Writ Petitions Nos. 108 and
174-177
of 1976.
(Under Article 32 of the Constitution of India)
R. K. Garg, S. C. Agarwala & Aruneshwar Gupta for the petitioners in WP 108
B.
Somnath Chatrerjee, P. K. Chatterjee & Rathin Das for the petitioners in 174-77
S. V. Gupte, Attorney Genl., U. R. La/it, R. N. Sacluhey & A.
Subhashini for r. 2 in all the WPs.
~
S. V. Gupte, Attorney Genl. & D. N. Mishra for rr. 2 & 3 in WP
108 and rr. 2-4 in WP 174-77.
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l
P. S. Khera for the Intervener (AIN UC Employees Federation)
The following Judgments were delivered
BEG, C.J.-The Life Insnrnce Corporat10n was constituted under
the Life Insurance Corporation Act 31 of 1956 (hereinafter to be
referred to as "the Act"). On 1-6-1957, the Central Government
issued, under s. 11 ( 1) of the Act, an order prescribing the pay scales,
dearness allowance and conditions of service applicable to Class III
and IV employees. Among these conditions it is stated that no bonus
would be paid but amenities like insnrance and medical treatment free
of cost would be provided.
On 26-6-1959, an order was passed by
the Central Government under s. 11 (2) of the Act, amending para
9 of the 1957 Order inasmuch as it was provided that bonus other
than profit sharing bonus v.:ould be paid to the employees drawing
the salarj' not exceeding Rs. 500/-
per month.
On 2nd of July
1959, there was a settlement between the L.I.C. and the employees
providing for payment of cash bonus at the rate of one-and-a-half
month's basic salary which was to be effective from 1-9-1956
and
valid upto 31-12-1961. In July 1960, regulations were
framed
under section 49 to regulate the conditions of service of classes of
employees and regulation 5 8 provided for payment of
non-profit
sharing bonus to the employees.
Orders were again
passed
on
14-4-1962 and 3rd August 1963, the effect of which was to remove
the restriction of Rs. 500/- for eligibility for payment of bonus. On
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29th January 1963, another settlement was arrived at between the
L.I.C. and its employees for payment of cash bonus at the rate
of
one-and-a-half month's basic salary. This was to continue in operation
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until 31st March 1969.
On 20th June 1970, a third settlement was
reached for payment of cash bonus at the same rate which was to be
effective upto 31st March 1972.
On 26-6-1972, a fourth settlement
for payment of cash bonus at the rate of l 0 per cent of gross wages
(basic and special pay and dearness allowance) was made effective
from 1st \April 1972 to 1973.
On 21st January 1974 and 6th
February 1974, settlements for payment of cash bonus at 15 per cent
of gross wages, valid for four years from 1st April 1973 to 31st
March 1977 were reached. It is clear that this so called "bonus"
did not depe~d upon profits earned but was nothing short of increas-
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340
SUPREME COURT REPORTS
[ 1978] 3 s.c.R.
ed wages.
The settlements were approved by the Board of Directors
of the L.I.C. and also by the Central Government.
On 29th March
1974, a circular was issued by the L.I.C. for payment of bonus in ac~
cordance with the settlement along with the salary in April.
In
April 1974, the payment of bonus for the year 1973-74 was actually
made ih accordance with the settlement.
Again,
in
April
1975,
bonus for the year 1974-75 was made in accordance with the settlements.
On 25th September 1975, however, a Payment of Bonus
Amendment Ordinance was promulgated. On 26-9-1975, the L.I.C.
issued a circular stating that, as the payment of bonus
was
being
reviewed in the light of the Ordinance, and, on 22nd of March, 1976,
payment of bonus for the year 1975-76 was to be withheld until
a
final decision was' taken.
Against this, a writ petition was filed in
the High Court of Calcutta.
On 21st May 1976, the Calcutta High
Court passed an order recognising the right of petitioners
to
payment of bonus for the year 1975-76 which had become payable
along with the salary in April 1976 and ordered that it must be
paid to the employees. Apparently, banns was
treated
as part of
the right of the petitioners to property protected by Article 19 ( 1) ( f)
and 31 (I) of the Constitution.
On 29th May 1976, the Life fiisurance Corporation Modification of Settlement Act 1976 was enacted
by Parliament denying to the petitionern the right which had been
recognised by the settlements, approved by the Central Government
and acted upon by the actual payment of bonus to the. employees,
and, finally, converted into right under the decision of flie Calcutta
High Court on 21st May 1976.
Provisions of section 11 (2) may read as follows :
"(2) Where the Central Government is satisfied that
fo.r the purpose of securing uniformity in the scales o( remuneration and the other terms and conditions of service
applicable to employees of insurers whose controlled business has been transferred to, and vested in, the Corporation, it is necessary so to do, or that, in the interests of
the Corporation and its policy-holders, a reduction in the
remuneration payable, or a revision of the other terms and
conditions of service applicable, to employees or· any class
of them is called for, the Central Government may, notwithstanding anything contained in sub-section ( 1), or in the
Industrial Disputes Act, 194 7, or in any other law for the
time being in force, or in any award, settlement or agreement for the time being in force, alter (whether by way of
reduction or otherwise) the remuneration and the other terms
and conditions of service to snch extent, and in such manner
as it thinks fit; and if the alteration is not acceptable to any
employee, the Corporation may terminate his employment
by giving him compensation equivalent to three months'
remuneration unless the contract of service with such employee provides for a shorter notice of termination.
Explanation :-The compensation payable to an employee under this sub-section shall be in addition to, and
shall not affect, any pension, gratuity, provident fund money
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MADA); MOHAN PATHAK V. UNION (Beg., C.J.)
341
or any other benefit to which the employee may be e'ntitled
A
under his contract of service."
Section 11 (2) of the Act shows that the Central Government had
ample power to revise the scales of remuneration and other terms
and conditions of service if it was satisfied that the iqterest of the
Corporation or the policy-holders demanded this.
Of course, such
orders had to be passed as a result of satisfaction upon material
placed before the
Central Government relating to the interests
of
the Corporation or its policy holders.
But, no such order was passed.
What was actually done was that the Act was passed to set
aside the terms of the settlements which had been incorporated in
the Judgment inter-parties of the Calcutta High Court.
The objects and reasons of the Act were set out as follows :
"The provisions of the Payment of Bonus Act, 1965
do not apply to the employees employed by the Life Insurance Corporation of India.
However, the
Corporation
has, as a matter of practice, been pa)~ng bonus to its employees.
The bonus to Class I and Class II employees is
being paid in pursuance of agreements between the Corporation and such employees.
The bonus to Class III and
Class IV employees is being paid under the terms of settlement arrived at between the Corporation and such employees from time to time.
In terms of the settlement arrived at between the Corporation and its Class III and class
IV employees on 24th January, 1974 under the Industrial
Disputes Act, 1947, which is in force upto the 31st March,
1977, bonus is payable by the Corporation to its Class
JI! and Class IV employees at the rate of fifteen per cent,
of their annual salary without any maximum limit.
2. It is proposed to set aside, with effect from the 1st
April, 1975, these provisions of the settlement arrived 'at
between
the
Corporation
and
its
Class III
and
Class IV employees on 24th January, 1974 to enable
the Corporation to make ex gratia payments to such employees at the rates determine\! on the basis of the general.
Government policy for making ex gratia payments to
the
employees of the non-competing public sector undertakings.
3. The bill seems to• achieve the above object."
The statement of objects and reasons discloses that the purpose
of toe impugned Act was to undo settlements which had been arrived at between the Corporation and Class III and Class IV employees
on January 24 and February 6, 1974, and actually recognised by
the order of the Calcutta High COl.Irt.
The question conld well
arise whether this was really the exercise of a legislative power or of
a power comparable to that of an appellate authority considering the
merits of what had passed into a right to property recognised by the
courts.
This Court has decided in Shrimati Indira Gandhi Vs. Raj
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SUPREME COURT REPORTS
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Narain(') that even a constitutional amendment cannot authorise the
assumption of a judicial power by Parliament.
One
of
the
tests
laid down there was whether the decision is of a kind which requires
hearing to be given to the parties, or, in other words, involves at least
a quasi-judicial procedure, which the Parliament does not, in exercise
of its legislative power, follow.
A decision reached by the Central
B
Government, under s. 11 (2) of the Act, is the result of a satisfaction on matters stated there and would imply quasi-judicial procedure
where the terms of a settlement had to be reviewed or revised. But,
the legislative procedure, followed here, does not require that to be
done.
It would, in any event, be unfair to adopt legislative procedure to undo such a settlement which had become the basis of a
decision of a High Court.
Even if legislation can remove the basis
C
of a decision it has to do it by an alteration of general rights of a
class but not by simply excluding two specific settlements between
the Corporation and its employees from the purview of the section
18 of the Industrial Disputes Act, 194 7, which had been held to be
valid and enforceable by a High Court. Such selective exclusion could
also offend Article 14.
D
If Parliament steps in to set aside such a settlement, which the
Central Government could much more reasonably 'have examined
after going into the need for it or for its revision, the question also
arises whether it violates the fundamental right to property guaranteed under Article 19 ( 1 )(f) of the Constitution, inasmuch as
the
right to get bonus is part of wages and, by its deprivation, a judicially recognised right to property is taken away and not saved by· the
E
provisions of Article 19 ( 6) of the Constitution ? A restriction upon
a right may even cover taking away of the right to increased remuneration in the interests of the general public.
Where was the question
of any restriction here in the interests of the general public?
It
seems a pure and simple case of a deprivation of rights of Class III
and Class IV employees without any apparent nexus with any public
interest
F
.
The first hurdle in the way of this attack upon the Act undoing
the settlement under Article 19(1) (f) of the Constitution placed
before us what that the Act of 1976 notified on 29-5-1976 was passed during the emergency.
Hence. it was
submitted
that
Article
358 of the Constitution is an absolute bar against giving effect
to any right arising under Article 19 of the Constitution. FurtherG
more, it was submitted that the effect of the Act was to wash off the
liability altogether after 1-4-1975 so that nothing remained to be enforced after 1-4-1975.
The Act is a very short one of 3 sections.
After defining the
settlement as the one which was arrived at between the Corporation
and their workers on 24-1-197 4 under section 18, read with clause
H
(p) of section 2, of the Industrial Disputes Act, 1947 and the similar
further settlement of 6-2-1974, section 3 lays down:
(I) [1976] (2) S.C.R. 347.
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MADAN MOHAN PATHAK V. UNION (Beg, C.J.)
343
"Notwithstanding anything contained in the Industrial
Disputes Act, 194 7, the provisions of each of the settlements, in so far as they relate to the payment of an annual
cash bonus to every Class III and Class IV employees of
the Corporation at the rate of fifteen per cent of his annual
salary, shall not have any force or effect and shall not be
deemed to have any force or effect on and from !st day of
April, 1975."
The object of the Act was, in effect, to take away the force
of
the judgment of the Calcutta High Court recognising the settlements
in favour of Class III and Class IV employees of the Corporation.
Rights under that judgment could be said td arise independently of
Article 19 of the Constitution.
I find my self in complete agreement
with my learned brother Bhagwati that to give effect to the judgment
of the Calcutta High Court is not the same thing as enforcing a right
under Article 19 of the Constitution. It may be that a right under
Article 19 of the Constitution becomes linked up with the enforceability
of the judgment.
Nevertheless, the two could be viewed as separable
sets of r.ights. If the right conferred by the judgment independently
is sought to be set aside, section 3 of the Act, would, in my opinion,
be invalid for trenching upon the judicial power.
I may. however, observe that even though the real object of the
Act may be to set aside the result of the mandamus issued by the Calcutta High Court, yet, the section does not mention this
object
at
all.
Probably this was so because the jurisdiction of a High Court
and the effectiveness of its orders derived their force from Article 226
of the Constitution itself.
These could not be touched -by an ordinary
act of Parliament.
Even if section 3 of the Act seeks to take away
the basis of the judgment of the Calcutta High Court, without mentioning it, by enacting what may appear to be a law, yet, I think that,
where the rights of the citizen against the State are concerned,
we
should adopt an interpretation which upholds those rights.
Therefore, according to the interpretation I prefer to adopt the rights wnich
had passed into those embodied in a judgment and became the basis
Qf a Mandamus from the High Court could not be taken away in
this indirect fashion.
Apart from the consideration mentioped above there are also
other considerations put forward, with his usual vehemence, by Mr.
R. K. Garg who relies upon the directive principles of tlie State Policy
as part of the basic structure of our Constitution.
At any rate, he
submits that in judging the reasonableness of a provision the directive
principles of State policy can be used, -as this Court has repeatedly
done, as criteria of reasonableness, and, therefore, of validity. -Mr.
Garg had relied strongly upon the provisions of Article 43 of the
Constitution which says :
"43. The State shall endeavour to secure by
suitable
legislation or economic organisation or in any other way, to
all workers, agricultural, industrial or otherwise, work,
a
living wage, conditions of work ensuring a decent standard
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SUPREME COURT REPORTS
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of life and full enjoyment of leisure and social and cultural
opportunities and, in particular, the State shall endeavour
to promote cottage industries on an individual or co-operative
basis in rural areas."
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He submits that Article 43 casts an obligation on the State to secure
a living wage for the workers and is part of the principles "declared
fundamental in the governance of the country".
In other words, he
would have us use Article 43 as conferring practically a fundamental
right which can be enforced.
I do not think (hat we can go so far as
that because, even though the directive principles of State policy, including the very important general ones contained in Article 38 and
39 of the Constitution, give the direction in which the fundamental
policies of the State must be oriented, yet, we cannot direct either the
Central Government or Parliament to proceed in that direction. Article
3 7 says that they "shall not be enforceable by any court, but the
principles therein laid down are nevertheless
fundamental in
the
governance of the country and it shall be the duty of the State
to
apply these principles in making laws."
Thus, even if they are not
directly enforceable by a c,,urt they cannot be
declared ineffective.
They have the life and force of fundamentals.
The best way in which
they can be, without being directly enforced, given vitality and effect
in Courts of laws is to use them as criteria of reasonableness, and,
therefore, of validity, as we have been doing.
Thus, if progress towards goals found in Articles 38 and 39 and 43 are desired, there
should not be any curtailment of wage rates arbitrarily wi(hout disclosing any valid reason for it as is the case here.
It is quite reasonable, in my opinion, to submit that the measure which seeks to deprive workers o( the benefits of a settlement arrived at and assented to
by the Central Government, under the provisions of the Industrial Disputes Act, should not be set at naught by an Act designed to defeat a
particular settlement. If this be the purpose of the Act, as it evidently
is, it could very well be said to be contrary to public interest, and,
therefore, not protected by Article 19 ( 6) of the Constitution.
f
Furthermore, I think that the principle laid dcwn by this Court in
..J
Union of India & Ors. v. M/s. Indo-Afgha11 Agencies Ltd.(') can
G
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also be taken int© account in judging tl1e reasonableness of the pfiivi-
/
sion in this case.
It was held there (ai p. 385) :
"Under our jurisprudence the Government is not exempt
from liability to carry out the representation made by it as
to its future conduct and it cannot on some undefined and
undisclosed ground of necessity or expediency fail to carry
out the promise solemnly made by it, nor claim to be the
judge of its own obligation to the citizen. on an
ex . p~rte
appraisement of the circumstances m which the obhgat1on
has arisen."
(I) [1961](2) S.C.R. 365.
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345
In that case, equitable principles were invoked against the GovernA
ment.
It is true that, in the instant case, it is a provision of the
Act of Parliament and not merely a governmental order whose validity
is challenged before us.
Nevertheless, we cannot forget that the' Act
is the result of a proposal made by the Government of the day which,
instead of proceeding under section 11 (2) of
the
Life Insurance
Corporation Act, chose to make an Act of Parliament protected by
emerg.,ncy provisions.
I think that the prospects held out, the rep8-
rcsenta\ions made, the conduct of the Government, and equities arising therefrom, may all be taken into consideration for judging whether
a particular piece of legislation, initiated by the Government and enacted by Parliament, is reasonable.
Mr.