# STATE OF TAMIL NADU v. K. SABAN A Y AGAM AND ANR. ETC. NOVEMBER 25, I 997

- **Citation:** [1997] Supp. 5 S.C.R. 345
- **Court:** Supreme Court of India
- **Decided:** 1997
- **Case number:** Civil Appeal No. 4559 of 1989
- **Bench:** S. B. Majmudar, M. Jagannadha Rao
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-tamil-nadu-v-k-saban-a-y-agam-and-anr-etc-november-25-i-997-15901
- **Pages:** 38

## Headnote

B
Payment of Bonus Act, 1965 :
Section 36-Exemption orders thereunder-Whether could be
restrospective-Order of exemption passed exempting TN. Housing Board C
from all the provisions of the Act-Such orders issued several years after the
expiry of the operation of the previous exemption order-Such an order
could be interpreted as granting exemption for the remaining part of the then
current accounting year from the date of issuance of the order and not as
operating retrospectively and granting exemption from the earlier accounting D
year-GO Ms No. 2018 dated 31-10-1979 and GO Ms No. 1033 dated 2311-1982 issued by the Government of Tamil Nadu.
Sections 32(v)(c) and 36-Plea of statutory exemption under Section
32(v)(c) and grant of exemption under Section 36-Housing Board of the
State of Tamil Nadu, in various legal proceedings, consistently taken the· E
view that it required exemption from the provisions of the Act-Held, the
High Court, on the principle of waiver and estoppel, rightly rejected the
Board's claim to statutory exemption from payment of bonus under Section
32(v)(c) of the Act-Estoppel-Sections 115 and 58 of the Evidence Act,
1872-Admission-Waiver.
Nature of opportuntiy to be afforded to employees-Persona/ hearing,
held not necessary-However; opportunity to submit rebuttal evidence or
material against the material famished by the employer seeking exemption,
is necessary-Adminstrative law-Natura/justice-Hearing or notice-Nature
F
of opportuntiy to be afforded before exercising power of conditional G
legislation.
Expression "other relevant circumstances"-Scope of-Held, has to be
read with the financial position of the claimant-establishments themeslves
and has to be seen on the touchstone of public interest to enable the
345
H
346
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.~.
. A formation of opinion qua claim of such existing establishments-Does not
refer to any future establishment, yet to be set up.
Section 32(v)(c)-Facts require lo be proved for claiming exemption
under-Restated.
B
Nature of Act-Held, is a piece of welfare legislation-Constitution of
India-Article 21.
Administrative Law :
Subordinate legislation-Conditional legislation and delegated
C legislation-Distinction pointed out-Delegation of legislative function and
power-Delegated legislation viz-a-viz conditional legislation.
Conditional legislation-Classification of-Exercise of power in respect
of conditional legislation-Cannot be said to exclude totally the principles
of fair play, consultation or natural justice-Payment of Bonus Act, 1965D Section 36-Power of exemption under.
E
F
Words and phrases :
Words "other circumstances "-In the context of Section 36 of the
payment of Bonus Act, 1965.
In exercise of its power under Section 36 of the Payment of Bonus Act,
1965, the Housing and Urban Development Department of the State of Tamil
Nadu issued Government Order Ms No. 2018 dated 31-10-1979, exempting
the Housing Board of the State from all the provisions of the Act for a period
up to accounting year 1977-78. By a subsequent Government Order Ms No.
1033 dated 23-11-1982 which provided that having read the eariler Government
Order dated 31-10-1979 and other relevant letters, the Governor exercising
the power under Section 36 of the Act, exempted the Housing Board of the
State from all the provisions of the Act for a further period up to the
Accounting year 1982-83. The employees who were to get statutory bonus
G under the Act, feeling aggrieved by the said exemption orders, moved the
High Court. Their writ petition was allowed and the Housing Board was
directed to pay the minimum statutory bonus to the employees from the
Accounting year 1978--79 onwards. Writ appeal filed by the Housing Board
&nd the State Government was also dismissed. Hence this appeal by the State.
fl
It was contended on behalfof the appellants that the employees of the
1
1
STATE v. K. SABA NAY AGAM
347
Board will not be entitled to the statutory bonus under the Act or. twin A
grounds:

## Text

_Characters 0–39,843 of 101,659. This is a partial read: ask again with offset=39843 for what follows._

STATE OF TAMIL NADU
A
v.
K. SABAN A Y AGAM AND ANR. ETC.
NOVEMBER 25, I 997
[S. B. MAJMUDAR AND M. JAGANNADHA RAO. JJ.]
B
Payment of Bonus Act, 1965 :
Section 36-Exemption orders thereunder-Whether could be
restrospective-Order of exemption passed exempting TN. Housing Board C
from all the provisions of the Act-Such orders issued several years after the
expiry of the operation of the previous exemption order-Such an order
could be interpreted as granting exemption for the remaining part of the then
current accounting year from the date of issuance of the order and not as
operating retrospectively and granting exemption from the earlier accounting D
year-GO Ms No. 2018 dated 31-10-1979 and GO Ms No. 1033 dated 2311-1982 issued by the Government of Tamil Nadu.
Sections 32(v)(c) and 36-Plea of statutory exemption under Section
32(v)(c) and grant of exemption under Section 36-Housing Board of the
State of Tamil Nadu, in various legal proceedings, consistently taken the· E
view that it required exemption from the provisions of the Act-Held, the
High Court, on the principle of waiver and estoppel, rightly rejected the
Board's claim to statutory exemption from payment of bonus under Section
32(v)(c) of the Act-Estoppel-Sections 115 and 58 of the Evidence Act,
1872-Admission-Waiver.
Nature of opportuntiy to be afforded to employees-Persona/ hearing,
held not necessary-However; opportunity to submit rebuttal evidence or
material against the material famished by the employer seeking exemption,
is necessary-Adminstrative law-Natura/justice-Hearing or notice-Nature
F
of opportuntiy to be afforded before exercising power of conditional G
legislation.
Expression "other relevant circumstances"-Scope of-Held, has to be
read with the financial position of the claimant-establishments themeslves
and has to be seen on the touchstone of public interest to enable the
345
H
346
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.~.
. A formation of opinion qua claim of such existing establishments-Does not
refer to any future establishment, yet to be set up.
Section 32(v)(c)-Facts require lo be proved for claiming exemption
under-Restated.
B
Nature of Act-Held, is a piece of welfare legislation-Constitution of
India-Article 21.
Administrative Law :
Subordinate legislation-Conditional legislation and delegated
C legislation-Distinction pointed out-Delegation of legislative function and
power-Delegated legislation viz-a-viz conditional legislation.
Conditional legislation-Classification of-Exercise of power in respect
of conditional legislation-Cannot be said to exclude totally the principles
of fair play, consultation or natural justice-Payment of Bonus Act, 1965D Section 36-Power of exemption under.
E
F
Words and phrases :
Words "other circumstances "-In the context of Section 36 of the
payment of Bonus Act, 1965.
In exercise of its power under Section 36 of the Payment of Bonus Act,
1965, the Housing and Urban Development Department of the State of Tamil
Nadu issued Government Order Ms No. 2018 dated 31-10-1979, exempting
the Housing Board of the State from all the provisions of the Act for a period
up to accounting year 1977-78. By a subsequent Government Order Ms No.
1033 dated 23-11-1982 which provided that having read the eariler Government
Order dated 31-10-1979 and other relevant letters, the Governor exercising
the power under Section 36 of the Act, exempted the Housing Board of the
State from all the provisions of the Act for a further period up to the
Accounting year 1982-83. The employees who were to get statutory bonus
G under the Act, feeling aggrieved by the said exemption orders, moved the
High Court. Their writ petition was allowed and the Housing Board was
directed to pay the minimum statutory bonus to the employees from the
Accounting year 1978--79 onwards. Writ appeal filed by the Housing Board
&nd the State Government was also dismissed. Hence this appeal by the State.
fl
It was contended on behalfof the appellants that the employees of the
1
1
STATE v. K. SABA NAY AGAM
347
Board will not be entitled to the statutory bonus under the Act or. twin A
grounds: Firstly, in view of the statutory exclusion of the Housing Board
from the applicability of the Act as per Section 32(v)(c) of the Act; and
secondly, on the ground that the State of Tamil Nadu for the relevant years
had exercised its power of exempting the Housing Board under Section 36
of the Act from all the provisions of the Act
B
Rejecting the contentions and dismissing the appeal, this Court
HELD: I. On the language of the notification dated 23.11.1982 it is
not possible to countenance the contention of the appellants, viz., the State
Government and the Tamil Nadu Housing Board, that the said notification C
sought to apply the net of exemption retrospectively for earlier years 197879 to 1981-82. The notification indicates that even though the Governor had
read the earlier Government Order dated 31.10.1979, he was pleased to
order that all the provisions of the Payment of Bonus Act will not apply to
the Housing Board for a further period up to Accounting year 1982-83. The
notification is dated 23.11.1982. Therefore, from that date onwards till the D
end of the Accounting Year 1982-83 exemption was granted. Nowhere in the
said notification it is stated that the author of the notification wanted the said
notification to retrospectively cover even earlier accounting years which had
already gone by. It has, therefore, to be held that the State of Tamil Nadu
while issuing the notification of 23.11.1982 for reasons best known to it, had E
thought it fit not to cover the earlier accounting years from 1978-79 to
1981-82 in spite of the fact that the earlier notification under section 36 of
the Act had ceased to operate on the expiry of the accounting year I 977-78.
1360-D-GI
2. In the reltvant proceedings spread over the year wherein the Housing F
Board has consistently taken the stand that it would require exemption from
the provisions of the Payment of Bonus Act by invoking the powers of the
State under Section 36 of the Act. In such circumstances, no fauit can be
found with the reasoning of the High Court that the Housing Board had
waived its contention that there was a statutory exemption for the Housing G
Board as per Section 32 (v)(c) of the Act. Simultaneous invocation of Sections
32(v)(c) and 36 of the Act during the course of present proceedings would
indicate that the Housing Board tried to blow hot and cold at the same time
by taking inconsistent positions. In fact the claim for statutory exempticn
under Section 32(v)(c) of the Act cannot stand if the power of exemption of
the State Government under Section 36 is invoked by the Housing Board. H
348
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R.
A Similarly Section 36 of the Act would get out of the picture once Section 32
(v)(c) of the Act was resorted to by the Housing Board. But both the provisions
could not be simultaneously resorted to. Under these circumstances,
therefore, the High Court was right in not considering the case of the
Housing Board for statutory exemption under Section 32(v) (c) of the Act for
B the relevant accounting year wherein the Housing Board has tried to obtain
and actually got orders of exemption under Section 36 of the Act. One has,
therefore, to proceed on the basis that it was an admitted position on behalf
of the Housing Board during the relevant accounting years that it was
governed by the provisions of the Act and but for exempt ion under Section
36 of the Act it would be bound to pay the minimum statutory bonus as laid
C down by the Act to its employees. Obviously facts which are admitted need
~
not be proved. Therefore, it can certainly be held to be bound by its admissions
on these facts and it can be said to have waived its contention in this
connection for the relevant accounting years. It would amount to estoppel on
facts and not on law and would also certainly amount to a conscious giving
up of its claim for statutory exemption under the said provisions. Thus on
D the principle of waiver and estoppel the contention of the appellants has to
be repelled as has been rightly done by the High Court.
[362-B-G; 364-F-G; 365-C-D]
Housing Board of Haryana v. Haryana Housing Board Employees'
E Union, (19961 1 sec 951, referred to.
F
3. Before Section 32(v)(c) of the Payment of Bonus Act can be pressed
into service the following factual aspects have to be pleaded and proved by
an institution claiming exemption thereunder; (a) that it is a social welfare
institution; (b) that it is established not for the purpose of profit; and (c) even
otherwise it is an institution which is established from its inception not for
the purpose of profit. This would require investigation into facts as to whether
the statute under which the Housing Board is created enjoins upon the
Housing Board functions which are likely to generate profit and whether in
fact profit gets generated by the exercise of permissible statutory functions
G by the Housing Board. (361-F-H; 362-Al
4. In the case of conditional legislation, the legislation is complete in
itself but its operation is made to depend on fulfilment of certain conditions
and what is delegated to an outside authority is the power to determine
according to its own judgement whether or not those conditions are fulfilled.
H In case of delegated legislation proper, some portion of the legislative power
..
ST ATE v. K. SABANA Y AGAM
349
of the legislature is delegated tohhe outside authority in that the legislature A
though competent to perform both the essential and ancillary legislative
functions, performs only the former and parts with the latter. i.e., the ancillary
function of laying down details in favour of another for executing the policy
of the statute enacted. The distinction between the two exists in this that
whereas conditional legislation contain no element of delegation of legislative B
power and is therefore, not open to attack on the ground of excessive
delegation, delegated legislation does confer some legislative power on some
outside authority and is therefore, open to attack on the ground of excessive
delegation. (367-B-E(
Hamdard Dawakhana (Wakj) v. Union of India, (1960( 2 SCR 671, C
relied on.
Sardar lnder Singh v. State of Rajasthan, 11957( SCR 605, referred to.
Hampton & Co. v. U.S., (276 U.S. 394(; The Queen v. Burah, (1898) 6
App. Cas. 889; Ruseell v. The Queen, (1882) 7 App. Cas. 829 and King D
Emperor v. Benoari/al Sarma, (1944( LR 72 I.A. 57, referred to.
5.1. When the legislature has completed its task of enacting a statute,
the entire superstructure of the legislation is ready but its future applicability
to a given area is left to the subjective satisfaction of the delegate who being E
satisfied about the conditi~ns indicating the ripe time for applying the
machinery of the said Act t~ a given area exercises that power as a delegate
of the parent legislative body. This would be an act of pure and simple
conditional legislation depending upon the subjective satisfaction of the
delegate as to when the Act enacted and completed by the parent legislature
is to be made effective. (370-H; 371-A-q
F
Sardar lnder Singh v. State of Rajasthan, (1957( SCR 605; Tulsipur
Sugar Co. ltd v. Notified Area Committee, (1980( 2 SCC 295; Union of
India v. Cynamide India Ltd., ( 1987( 2 SCC 720 and Jalan Trading Co. (P)
Ltd. v. Mill Mazdoor Sabha, (1967( 1 SCR 151, referred to.
G
Bowen v. Georgetown University Hospital, 488 US 204 (1988(, referred
to.
Schwartz's Administrative Law, (1976) Edn. Pp. 143-44; Schwartz's,
(1991) Ed., pp. 163-64; "Making Regulatory Policy.", Ed. Keath Hawkins H
350
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R.
A and John Thompson, 119891p.199 and Cornelius M. Kerwin: ~'Rule Making
-How Government Agencies Write law and make Policy", (1994) p.6,
referred to.
5.2. There may be conditional legislation wherein the delegate has to
B decide whether and under what circumstances a completed Act of the parent
legislation which has already come into force is to be partially withdrawn
from operation in a given area or in given cases so as not to be applicable
to a given class of persons who are otherwise admittedly governed by the Act.
In such an eventuality if the satisfaction regarding the existence of condition
precedent to the exercise of such power depends upon pure subjective
C satisfaction of the delegate and if such an exercise is not to required to be
based on the prima facie proof of factual data for and against such an
exercise and if such an exercise is to uniformly apply in future to a given
common class of subjects to be governed thereby and when such an exercise
is not to be confined to individual cases only, then even in such category of
D cases while exercising conditional legislative powers the delegate may not
be required to have an objective assessment after considering rival versions
on the data palced before it for being taken into consideration by it in
exercise of such power of conditional legislation. 1371-E-HI
E
5.3. A delegate who exercises conditional legislation acting on its
pure subjective satisfaction regarding existence of conditions precedent for
exercise of such power may not be required to hear parties likely to be
affected by the exercise of such power. Where the delegate proceeds to fill
up the details of the legislation for the future- which is part of the integrated
action of policy-making for the future, it is part of the future policy and is
F legislative. But where he merely determines either subjectively or objectively
- depending upon the "conditions" imposed in the statute permitting exercise
of power by the delegate -there is no legislation involved in the real sense
and therefore, applicability of principles of fair play, consultation or natural
justice to the extent necessary cannot be said to be foreclosed. Of course,
G the fact that in such cases of "conditional legislation" these principles are
not foreclosed does not necessarily mean that they are always mandated. In
a case of purely ministerial function or in a case where no objective conditions
are prescribed and the matter is left to the subjective satisfaction of the
delegate no such principle of fair play, consultaion or natural justice could
be attracted. That is because the very nature of the adminstrative
H determination does not attract these formalities and not because the
STA TE v. K. SABAN A Y AGAM
351
determination is legislative in c!iaracter. There may also be situations where A
the persons affected are unidentifiable class of persons or where public
interest or interests of State etc. preclude observance of such a procedure.
1372-D-GI
5.4. But there may be a third category of cases wherein the exercise
of conditional legislation would depend upon satisfaction of the delegate on B
objective facts placed by one class of persons seeking benefit of such an
exercise with a view to deprive the rival class of persons who otherwise might
have already got statuory benefits under the Act and who are likely to lose
the exist~ng benefit because of exercise of such a power by the delegate. In
...
such type of cases the satisfaction of the delegate has necessarly to be based C
on objective consideration of the relevant data for and against the exercise
of such power. This exercise is not left to his subjective satisfaction nor it
is merely a ministerial exercise. Section 36 of the Payment of Bonus Act
falls in this type of conditional legislative functions. 1372-H; 373-A-C)
5.5. But for the exercise of exemption under Section 36, the employees D
of an institution governed by the sweep of the Act would be entitled to
minimum statutory bonus as per Section IO of the Act. Moreover, the Act
is a piece of welfare legislation enacted for the benefit of a large category
of workman seeking a living wage to make their lives more meaningful and
for fructifying the benevolent guarantee of Article 21 of the Constitution of E
India. While exercising the power under Section 36 of the Payment of Bonus
Act, the data which would be available from the establishment would obviously
be one-sided data in support of its claim for exemption. Therefore, in the
absence of any rebuttal data furnished by the other side which is likely to
be affected by such an exercise, namely, the opinion arrived at by the
appropriate Government, puerly based on the one-sided version and data F
submitted by the establishment or a class of establishments for claiming
exemption, would be a truncated opinion which would necessarily not amount
to an opinion on all relevant facts placed before it for and against the
exercise of such power of exemption qua a given establishment or a class of
establishments. The decision taken consequent to such opinion if challenged G
in a competent court, would be liable to be struck down. Therefore, implicit
in Section 36 is the direction to the appropriate Government by the legislature
that it should form its opinion on objective facts furninshed not only by the
establishment or class of establishment claiming such exemption but also by
the employees who are likely to be affected by the exercise of that power and
should necessarily get an opportunity to submit their material in rebuttal. H
352
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R.
A It must, therefore, be held that in such category of cases of exercise of power
of conditional legislation objective assessment of relevant data furnished by
rival classes of persons likely to be affected by such an exercise cannot be
said to be ruled out or a taboo. It is also necessary to keep in view that in
such category of cases the delegate exercising power of conditional legislation
does not lay down a uniform course of conduct for a smaller class of persons
B at the cost of rival category of persons covered by the very same exercise
of power. To that extent there is a mini tis betweem these two rival categories
of persons. Such exercise may also cover existing situations as well as
future situations sought to be subjected to exemption for the period prescribed
in the order and may sometimes affect to any permissible extent even past
C transactions in individual cases. In the instant case the ligislation has
prescribed objective standards and has permitted the delegate to grant
exemption and to withdraw the benefit of the statute which is being enjoyed
by the persons and in such a situation, principles of fair play or consultation
or natural justice cannot be totally excluded.
D
1373-G-H; 374-G-H; 375-A-C; 376-F-H; 377-A-BJ
Visakhapatnam Port Trust v. Ram Bahadur Thakur (P) Ltd., 11997) 4
sec 582, relied on
6.1. The High Court was right in holding that the impugned exemption
E notifications issued from time to time by the State under Section 36 of the
Act were not legal and valid and they were issued without giving any
opportuntiy whatsoever to the employees of the Housing Board. 1378-DJ
6.2. However, the High Court's view that hearing should be given to
the affected employees of the establishment before the appropriate Government
F can exercise its power of exemption under Section 36 qua a given
establishment like the Housing Board cannot be sustained on the nature of
the power conferred under Section 36 of the Act on the appropriate
Government; otherwise instead of remaining a conditional legislative power
it would assume the characteristics of quasi-judicial power. All that is
G required for such an exercise is, therefore, not any personal hearing to be
granted to the employees likely to be affected by the said exercise but they
must be given at least an opportunity to put forward their rebuttal evidence
or material against the material furnished by the claimant-establishment.
1378-G-H; 379-CI
H
7.1. The following steps can be easily visualised for being followed by
~
. -.
ST A TE v. K. SABAN A Y AGAM
353
the appropritate Government when moved by any establishment or class A
establishments for exemption under Section 36 of the Act for the relevant
year:
(a) The receipts of the establishments ' applications mentioning the
date of receipt of the applications and the ground on which they are based
has to be brought to the notice of the employees likely to be affected by grant B
of such applications and for that purpose notices can be suitably got affixed
by the appropriate Government on the notice boards of the concerns or
factory premises of the establishment where the workmen are working.
(b) Suitable public notices in newspapers having circulation in the area C
concerned may be given, the expenses reimbursable by the claimants to the
appropritate Government
(c) The employees concerned through their representative unions may
be permitted to file their written repsresentations with relevant data for
rebutting the material furnished by the claimants within the time-limit given D
in the notices.
(d) Personal hearing although not necessary, it may be still open in
appropriate cases for the Government to give opportunity of personal hearing
to the representatives of the establishments as well as of the employees, if E
any elucidation is required in this connection.
(e)If the employees concerned through their representative unions
seek an opportuntiy to look into the material supplied by the establishments
in support of their claims for exemption, inspection of such material can be
permitted to the unions of employees to enable them to file their F
representations and to furnish the data in rebuttal for opposing such claims.
(I) Strict time schedule can be fixed by the appropriate Government
within Which the entire exercise get completed. [379-H; 380-A-G]
7.2. The aforesaid procedural steps are illustrative and not exhaustive.
But they have to be read in Section 36 of the Act. However only in the
category of cases of conditional legislation in which Section 36 of the Acts
falls, the aforesaid procedure is required to be followed. It cannot have any
application to the other categories of.cases of exercise of powers of conditional
G
legislation. [381-D-F)
H
354
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R.
A
7.3. The High Court's decision that the impugned exemption
notifications issued under Section 36 from year to year by the State of Tamil
Nadu were null and void, has to be upheld not on the ground that hearing,
personal or otherwise, was not given to the employees but on the ground that
the procedure indicated by this Court hereinabove regarding exercise of
B powers of conditional legislations was admittedly not followed by the appellantState while passing the impugned orders of exemption in favour of the
Housing Board. It is also to be kept in view that the financial position and
other relevant circumstances are not independent of their nexus with the
existing claimant-establishment or class of establishments and they do not
refer to any future establishments which have yet not seen the light of day
C and which have not still employed any employees who could be said to have
earned any statutory benefits under the Act till then. Therefore the other
rclevi:nt circumstances as mentioned in Section 36 will have to be read wit!>
the financial position of the claimant-establishments themselves and their
other circumstances have to be seen on the touchstone of public interest to
enable the appropriate Government to form its opinion under Section 36 qua
D the claims of such existing establishments. [381-"F-G; 382-C-E]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4559 of 1989
Etc. Etc.
E
From the Judgment and Order dated 22.2.89 of the Madras High Court
in W.A. No. 199 of I 983.
R. Mohan, A. Mariarputham and Mrs. Aruna Mathur for the Appellant.
Ambrish Kumar for the Respondents.
F
The Judgment of the Court was delivered by
S. B. MAJMUDAR, J. Leave granted in the S.L.Ps.
As common questions of law and fact arise in this groups of appeals
G they were heard together and are being disposed of by this common judgment.
The State of Tamil Nadu and the Tamil Nadu State Housing Board (hereinafter
referred to as 'the Housing Board') as appellants in these appeals have raised
a contention for our consideration as to whether the Payment of Bonus
Act, 1965 (hereinafter referred to as 'the Act') will be applicable to the employees
of the Housing Board during the relevant accounting years from 1978H 79 onwards. lt is contended on behalf of the appellants that the employees
-
STATE v. K. SABANAYAGAM iS.B. MA.IMUDAR . .I.]
355
of the Board will not be entitled to the statutory bonus under the Act on twin A
grounds. Firstly, in view of the statutory exclusio'l of the Housing Board from
the applicability of the Act as per Section 32(v)(c) of the Act: and secondly,
on the ground that the State of Tamil Nadu for the relevant years had
exercised its power of exempting the Housing Board under Section 36 of the
Act from all the provisions of the Act. In the writ petitions filed by employees B
of the Housing Board the High Court of Madras has taken the view that the
Housing Board is not entitled on the facts of the cases to earn statutory
exemption under Section 32(v)(c) of the Act and the orders of exemption·
issued by the state of Tam ii Nadu in exercise of its powers under Section 36
of the Act in favour of the Housing Board for the relevant years, were not
legally sustainable. The High Court has also taken the view that in any case C
the State of Tamil Nadu had no authority to retrospectively grant exemption
under Section 36 of the Act for the earlier accounting years. Net result of the
impugned orders is that the Housing Board has been directed to make payment
of statutory bonus to the employees from accounting year 1978-79 onwards.
It may be mentioned that while admitting these appeals to final hearing D
the stay of impugned orders was not granted. Resultantly we are informed
that but for one year, for all the rest of the years the amounts of bonus in
dispute have already been released by the Housing Board and paid to its
employees.
Background facts and the relevant statutOI)' scheme
For highlighting the aforesaid controversy between the parties 1t 1s
necessary to note a few introductory facts. The Housing Board is a statutory
body established under the Tamil Nadu State Housing Board Act, 1961. As
E
the preamble of the said Act shows it is to provide for the execution of F
housing and improvement schemes, for the establishment of a State Housing
Board and for certain other matters. By the Central Act, namely, the Payment
of Bonus Act. 1965 every factory as defined by clause (m) of Section 2 of
the Factories Act, 1946 and every other establishment in which twenty or
more persons are employed on any day in the accounting years, are covered G
by the sweep of the Act as per Section I thereof. The employees of such
establishments as per section 8 of the Act are entitled to be paid by their
employers in an accounting year, bonus, in accordance with the provisions
of the Act provided he has worked in the establishment for not less than
thirty working days in that year. Section I 0 which deals with 'Payment of
minimum bonus' lays down that, 'subject to the other provisions of this Act, H
356
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R.
A every employer shall be bound to pay to every employee in respect of the
accounting year commencing on any day in the year 1979 and in respect of
every subsequent accounting year, a minimum bonus which shall be 8.33 per
cent of the salary or wage earned by the employees during the accounting
year or one hundred rupees, whichever is higher, whether or not the employer
B has any allocable surplus in the accounting year'. Section 32 of the Act giv~s
classes of employees who are statutorily exempted from the applicability of
the Act, Relevant provisions thereof lay down that, 'nothing in this Act shall
apply to (i) ... :(ii) ... :(iii) ... :(iv) ... :(v) employees employed by-(a) ... :(b) ... : and (c)
institutions (including hospitals , chambers of commerce and social welfare
institutions) established not for purposes of profit'. Section 36 of the Act
C deals with 'Power of exemption' and reads as under :
D
E
"36. Power of exemption ,-lfthe appropriate Government, having regard
to the financial position and other relevant circumstances of any
establishment or class of establishments, is of opinion that it will not
be in public interest to apply all or any of the provisions of this Act
thereto, it may, by notification in the official Gazette exempt for such
period as may be specified therein and subject to such conditions as
it may think fit to impose, such establishment or class of establishments
from all or any of the provision of this Act."
In exercise of its powers under Section 36 of the Act the State of Tamil
Nadu by Government Order Ms. No. 2018 dated 31st October 1979 in the
Housing and Urban Development Department directed that the Tamil Nadu
Housing Board was exempted from all the provisions of the payment of Bonus
Act 1965 for a period upto accounting year 1977-78. A similar Government
Order Ms. No. 1033 in the same Department was issued on 23rd November
F
1982 exempting the Tamil Nadu Housing Board from all the Provisions of the
Payment of Bonus Act. 1965 for a further period upto accounting year 198283. We are told that for subsequent years similar such Government Orders
under Section 36 of the Act were issued by the State of Tamil Nadu in favour
of the Tamil Nadu Housing Board. The employees who were to get.statutory
G bonus under the Act naturally felt aggrieved by the said exemption orders of
the State of Tamil Nadu and moved various writ petitions in the High Court
on diverse grounds. The earliest Petition No.2343 of 1981 before the High
Court was heard by a learned Single Judge of the High Court, Mohan, J, (as
he then was), wherein the claim of bonus was confined by the employee from .
accounting year 1978-79 onwards. This writ petition was allowed and the
H Housing Board was directed to pay the minimum statutory bonus to the
..
STATE v. K. SABAN A Y AGAM [S.B. MAJMUDAR. J.]
357
employee from the accounting year 1978-79 onwards. The learned Single A
judge voided the exemption orders issued by the State of Tamil Nadu under
Section 36 the Act qua the relevant accounting years. Writ Appeals preferred
by the Housing Board as well as the State of Tamil Nadu were disposed of
by the impugned common judgment by a Division Bench of the High Court
speaking through Nainar Sundaram, J., (as he then was). That has resulted B
in Civil Appeal No.4559of1989. Following this decision the High Court also
granted similar relief for successive years to the employees concerned after
declaring the exemption orders for the relevant years, as issued by the State
of Tamil Nadu under Section 36 of the Act, to be null and void. That is how.
in this group of appeals the State of Tamil Nadu and the Housing Board have
sought to re-agitate their main grievances against the claim of the employees C
for statutory bonus under the Act for the relevant years.
Rival Contentions
Learned senior counsel, Shri R. Mohan for the appellants vehemently
contended that the High Court in the impugned judgments has patently erred D
in taking the view that the State of Tamil Nadu in exercise of its powers under
Section 36 of the Act had no authority and jurisdiction to grant exemption
retrospectively for the· earlier accounting years. This submission was
canvassed in the light of the aforesaid two Government Orders dated 31st
October 1979 and 23rd November 1982. It was next contended that even E
otherwise the Housing Board had earned statutory exemption under Section
32(v)(c) of the Act as it was a social welfare institution established not for
the purposes of profit and consequently its employees could not claim any
bonus under the Act. It was ultimately contended that in any view of the
matter once power of exemption which is in the nature of conditional legislation
was exercised by the State of Tamil Nadu under Section 36 of the Act, the F
orders of exemption for the relevant years as issued by the State of Tamil
Nadu could not have been declared to be null and void on the ground that
before invoking such power of exemption the State had not given opportunity
of hearing to the employees concerned who we.re likely to be affected by the
grant of such exemption,
Learned counsel for the respondent employees represented by their
unions on the other hand submitted that the impugned orders of the High
Court were quite justified on the facts and circumstances of the cases. That
G
the Government Order dated 23rd November 1982 was rightly held by the
High Court to be inoperative so far as it tried to retrospectively grant the H
358
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R.
A exemption under Section 36 of the Act for earlier accounting years to the
Housing Board as such an exercise of power is not contemplated by the said
Section. It was next contended that question of availability of statutory
exemption to the Bqard under Section 32(v)(c) of the Act does not arise on
the facts and circumstances of the present cases inasmuch as it was the stand
B of the Housing Board itself before the High Court and even before the State
that the Act was applicable to it and it would have been required to pay the
bonus and for exempting it from its liability the exemption p0wers of the State
under Section 36 of the Act were invoked by the Board and that too
successfully. It was submitted that questions whether the Housing Board was
an institution in the nature of social welfare institution and whether it was
C established not for the purposes of profit, required investigation of facts and
when such contentions which raise mixed question of law and fact were not
canvassed earlier by the Housing Board and on the contrary the Housing
Board had accepted its statutory liability to be covered by the Act but for
the invocation of the powers of the State under Section 36 it could be said
that such contentions on the facts of the present cases were waived by the
D housing Board and the Housing Board was rightly held to be estopped from
raising such contentions before the High Court as held in the impugned
judgments. In the alternative it was tried to be submitted that even on merits
this contention had no substance as the Housing Board in the light of the
relevant provisions of the Act cannot be said to be an institution established
E not for the purposes of profit. In this connection it was submitted that there
was ample evidence on record including admissions on the part of the
authorities of the Housing Board themselves that various other Housing
Boards like the West Bengal Housing Board, Gujarat Housing Board and
other Housing Boards were paying bonus under the Act to their employees.
F
That in view of this stand taken by the Board itself, for invoking the power
of exemption by the State Government under Section 36 of the Act, this Court
may not examine the merits of this contention especially when bonus amounts
for the relevant years have already been paid by the Housing Board to its
employees. It was lastly contended that the High Court was justified in taking
the view that the impugned exemption orders issued by the State from time
G to time were null and void as no opportunity of hearing was given to the
employees by the State while issuing the impugned orders which had a direct
pernicious and adverse effect on their civil rights and amounted to depriving
them of their statutory right of bonus under the Act. That implicit in Section
36 is the requirement for the appropriate Government to have a look at the
rival contentions which may have to be put forward before the appropriate
H Government by the claimants of exemption on the one hand and their employees
STATE v. K. SABAN A Y AGAM {S.B. MAJ MU DAR . .l.l
359
likely to be adversely affected by such exemptions on the other hand, before A
such drastic power of exemption having pernicious civil consequences and
evil effects on the employees on their pay packet could be visited on the
employees for whom minimum statutory bonus as granted by the Act of the
Parliament was sort of a deferred wage.
Points for Consideration
In the light of the aforesaid rival contentions the following points arise
for consideration :
B
I.
Whether the exemption order dated 23rd November I 982 is bad
inasmuch as it seeks to retrospectively apply to earlier accounting C
years I 978-79, I 979-80, I 980-8 I and 1981-82,
2.
3.
Whether the provisions of the Act are not applicable to the
Housing Board in view of Section 32(v)(c) of the Act.
Whether the exemption orders issued by the State of Tamil Nadu D
from time to time during the relevant years as per Section 36 of
the Act are null and void as no hearing was admittedly given
by the State of Tamil Nadu to the employees likely to be affected
by such exercise of power of exemption before issuing such
orders.
E
We shall deal with these points for determination seriatim.
Point No.I
So far as the alleged retrospective effect of Government Order dated F
23rd November 1982 is concerned, we have to keep in view that earlier
Government Order of exemption under Section 36 of the Act was dated 31st
October I 979. The said order recited that, in exercise of the powers conferred
by section 36 of the Payment of Bonus Act 1965 (Central Act 21of1965), the
Governor of Tamil Nadu hereby exempts the Tamil Nadu Housing Board, from G
all the provisions of the said Act for a further period upto the accounting year
1977-78. That was followed by the impugned notification/Government Order
Ms. No. I 033 dated 23rd November I 982. It recited that having read the earlier
Government Order dated 3 I st October I 979 and other relevant letters from the
chairman of the Housing Board, the Governor, in exercise of the powers
conferred by section 36 of the payment of Bonus Act, 1965 (Central Act 21 H
360
SUPREME COURT REPORTS [19971 SUPP. 5 S.C.R.
A of 1965), exempts the Tamil Nadu Housing Board, from all the provisions of
the said Act for a further period upto the accounting year 1982-83. It was
vehemently contended by learned senior counsel for the appellants that first
notification of 31st October 1979 exempted the Housing Board from the
provisions of the Act for a further period upto accounting year 1977-78 and
B in continuation thereof the second notification was issued on 23rd November
1982 by which exemption from the provisions of the Act was further extended
upto the accounting year 1982-83 and, therefore, the second notification
certainly sought to cover earlier accounting years 1978-79, 1979-80, 1980-81
and 1981-82. That such an exercise, according to learned senior counsel for
the appellants, was legally pem1issible for the State under Section 36 of the
C Act as it was an exercise of power of conditional legislation and that the High
Court ha'cl wrongly held that such a power could not be exercised
retrospectively. We would have been required to closely examine this
contention but for the fact that on the language of the notification dated 23rd
November 1982 it is not possible to countenance the contention of learned
senior counsel for the appellants that the said notification on its express
D temiinology sought to apply the net of exemption retrospectively for earlier
years 1978-79 to 1981-82. On the language of the notification it appears clear
that even though the Governor had read the earlier Government Order dated
31st October 1979 as recited in the notification all that the Governor was
pleased to order was that all the provisions of the Act will not apply to the
E Housing Board for a further period upto accounting year 1982-83. The
notification is dated 23rd November 1982. Therefore, from that date onwards
till the end of the accounting year 1982-83 exemption was granted.