JUDGMENT [ENTITY], C.J.
1. [ACT]ality of [SECTION] of the [ACT] (for short 'the [ACT]") is in question in this writ petition.
FACTS:
2. The petitioner-company, 'Srinivasa Resorts Limited', engaged in the business of managing and running hotels, is a company incorporated under the provisions of the [ACT]. The petitioner has a hotel in the name and style of "ITC Kakatiya Sheraton" and is being run by ITC 'Hotels Limited, another company incorporated under the [ACT]. The said hotel was also registered under the provisions of the [ACT].
3. 3rd respondent is the [ENTITY] of employees and workers of the said hotel. It is alleged that the 2nd respondent at the instance of 3rd respondent union visited the hotel on 31-5-2001 and as required by the 2nd respondent, the petitioner furnished information regarding the employees who had left the service of the hotel during the last 2-3 years and the amounts paid to them towards full and final settlement of the dues. The petitioner by letter dated 6-8-2001 also furnished the receipts signed by the employees who had left the hotel in taken of the amounts received by them. It may be noticed herein that lot of correspondence took place between the petitioner-company and the 2nd respondent on the issue and it is not necessary to refer to the same as the main challenge in the writ petition is as to the [ACT]al validity of the provisions of [SECTION] of the [ACT]. Suffice it to state that while the 2nd respondent was insisting upon the petitioner-company to furnish the final settlement statements of the employees who had left the service of the Hotel in order to know whether any service compensation has been paid to them or not in accordance with the provisions of the [ACT], the case of the petitioner was that no further documents except those already produced were available with them. By reason of letter of the 2nd respondent dated 7-8-2001, the petitioner was also called upon to show-cause why penal action should not be taken under [SECTION] of the Act for failure to furnish the required documents.
STATUTORY PROVISIONS:
4. The [ACT] was enacted in the year 1966. [SECTION] of [ACT] provided for conditions for terminating the service of an employee and payment of gratuity. The said provision was amended in the year 1976 by reason of [ACT] and ultimately [ACT] was repealed by the present [ACT]. [SECTION] of [ACT] provides for conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation etc. For convenience sake, the unamended [SECTION] of [ACT], the amended Section as existed in 1976 as also [SECTION] of [ACT] may be tabulated as under:
[SECTION] of [ACT] prior to 1976 Conditions for terminating the service of an employee and payment of gratuity : (1) No employer shall without a reasonable cause and except for misconduct, terminate the services of an 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 continuously for a period of not less man 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.
(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 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 dependent of an employee who dies while in service shall be entitled to receive a gratuity amounting to fifteen-days' average wages for each year of continuous employment calculated in the manner provided in the explanation to sub-[SECTION]. 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.
[SECTION] of [ACT] as amended by [ACT] Conditions for terminating the service of an employee and payment of gratuity : (1) No employer shall without a reasonable cause and 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 widiout 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 employment continuously for a period of not less than five years a gratuity amounting to fifteen days' average wages for each year of continuous service.
(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 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 dependent of an employee who dies while in service shall be entitled to receive a gratuity as provided in Sub-[SECTION] 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.
[SECTION] of [ACT] Conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation, disablement, etc., and payment of subsistence allowance for the period of suspension :
(1) No employer shall, without a reasonable cause, terminate the service 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 respect of an employee who has been in his employment continuously for the period of not less than one year a service compensation amounting to fifteen days average wages for each year of continuous employment:
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.
(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 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.
(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 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:
Provided that the completion of continuous service 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 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 this section to an employee, he shall be entitled to 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.
(5) The payment of service compensation under this section shall not apply in cases where the employee is entitled to gratuity under the [ACT] and gratuity has been paid accordingly consequent on the termination or cessation of service.
5. The [ACT] was enacted to consolidate and amend the law relating to the regulation of conditions of work and employment in shops, commercial establishments and other establishments. [SECTION] defines various expressions as under:
2(5): 'Commercial establishment' means an establishment which carries on any trade, business, profession or any work in connection with or incidental or ancillary to any such trade, business or profession or which is a clerical department of a factory or an industrial undertaking or which is a commercial or trading or banking or insurance establishment and includes an establishment under the management and control of a co-operative society, an establishment of a factory or an industrial undertaking which falls outside the scope of the [ACT], and such other establishment as the Government may, by 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 the [ACT]; 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;
2(9): employer means a person having charge of or owning or having ultimate control over the affairs of an establishment and includes the Manager, Agent or other person acting in the management or control of an establishment;
3(10): eslablishment 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;
3(21): shop means any premises where any trade or business is carried on or where services are rendered to customers and includes a shop run by a co-operative society, an office, a storeroom, godown, 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 notification declare to be a shop for the purposes of this Act, but does not include a commercial establishment.
6. [SECTION] deals with registration of establishments. [SECTION] relates to shops and [SECTION] relates to establishments other than shops [SECTION] relates to employment of women, children and young persons. [SECTION] relates to health and safety, [SECTION] relates to leave and holidays with wages and Insurance Scheme for employees. [SECTION] deals with wages, conditions for termination of services, appeals, suspension and terminal benefits.
7. [SECTION] of [ACT] (for short 'the [ACT]') reads as follows.
/. Short tile, extent, application and commencement:
XX XX XX (3) it shall apply to,
(a) every factory, mine, oil-field, plantation, port and railway company;
(b) 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;
(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 mis behalf.
3-A: A shop or establishment to which this Act has become applicable shall continue to be governed by this Act notwithstanding that the number of persons employed there in at any time after it has become so applicable falls below ten.
[SECTION] of the [ACT] reads thus:
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 uperannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease :
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.
XXX XX XX (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 of 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 overtime work shall not be taken into account.
8. [SECTION] of the [ACT] provides for determination of the amount of gratuity. Sub-sections (1) provides an employee eligible for payment of gratuity under the said Act to make a written application. Subsection (2) provides that whether an application has been filed by the employee or not, the employer shall determine the amount of gratuity and the same shall be specified to the controlling authority. Subsection (3) mandates that such payment shall be made within thirty days from the date it becomes payable to the person to whom the gratuity is payable [SECTION] provides for interest where gratuity is not paid within the prescribed period.
SUBMISSIONS OF THE PETITIONERS:
9. The learned Counsel appearing on behalf of the petitioner would submit that the impugned provisions of the [ACT] is ex facie ultra vires having regard to the fact that a service compensation is sought to be paid even to an employee who has resigned or voluntarily left the service after attaining the age of 60 years and who had not put in long and continuous service. It was further contended that [SECTION] which prescribed that the employee is entitled to receive wages from the date of termination or cessation of his services till the date he is actually paid service compensation in terms of subSection (3) thereof is arbitrary, oppressive, discriminatory and violative of [SECTION] of the [ACT] inasmuch the employer was forced to pay the service compensation even though cessation of service in cases of resignation and voluntary cessation after completion of sixty years had not occasioned due to employer. In support of the said contention strong reliance has been placed on the decision of the Apex Court in Express Newspapers v. [ENTITY] of India, .
SUBMISSIONS OF THE STATE:
10. The learned Advocate-General appearing on behalf of the State, however, submitted that the concept of gratuity has undergone a change.
11. He would submit that by reason of the provisions of the [ACT] only a provision has been made for payment of extra wages. The learned Counsel would submit that interpretation of statute does not envisage that provision of an Act can be compared with the provisions of another Act. Reliance in this connection has been placed on [PRECEDENT], and [PRECEDENT], . It was further submitted that [SECTION] are applicable only to those employees who are not governed by the [ACT]. According to the learned Advocate-General whereas the provisions of [ACT] would be applicable only to those employees who have completed five years of service the provisions of subsections (3) and 4 of the [ACT] is applicable in relation to employees who served for less than five years of service and the classification made between the two classes of employees he would urge is a reasonable classification.
12. Mr. [ENTITY], the learned Counsel appearing on behalf of the unofficial respondent, on the other hand, would submit that by reason of the provisions of the [ACT], the provisions of [ACT] has been introduced by making a provision that such gratuity shall be payable even to an employee who has worked for just one year. Our attention has been drawn to the objects and reasons of the [ACT] and it was submitted that there does not exist any conflict between the [ACT] and the [ACT]. Mr. [ENTITY] would strongly urge that so far as the Shops and Establishments is concerned, they may employ only one or two persons and as their service may not be for a long period, therefore, only a special provision has been made which is based on intelligible diffemtia and has a direct nexus with the object sought to be achieved and thus the same is not violative of [SECTION]. Reliance in this connection has been placed on [PRECEDENT]. The learned Counsel would submit that the object of the statute must be taken into consideration for the purpose of its interpretation.
13. As regard [SECTION] of the Act, the learned Counsel would submit that the concept of [SECTION] of the [ACT] had bene brought into the statute by reason thereof. The learned Counsel would contend that while laying conditions of service of an employee by the legislature; discrimination between one set of employees and the other is permissible.
FINDINGS:
14. Before adverting to the question involved in the matter, we may note that the fact that the impugned provision of the Act had not been complied with by the petitioner is not disputed. In paragraph 3 of the affidavit filed in support of the petition it is stated:
I submit that the entire premise on which the respondent No.2 has gone on demanding the petitioner is about the alleged non-compliance of the provisions of [SECTION] of the Act in respect of the employees in question, even though there is no complaint(s) from them at all in that regard. They have all left the services of the petitioner hotel and settled down at various places and neither the petitioner nor the second respondent knows their whereabouts
The respondent No.3 [ENTITY] admittedly has been formed only in June, 2000. The representation it has purported to make is about the erstwhile employees who ceased be in the services of the petitioner over 2 years ago having left their services on their own accord. It is not understood as to how the [ENTITY] can be permitted to espouse their cause as the membership of the [ENTITY] is obviously confined to the existing employees of the petitioner, as per the bye-laws of the [ENTITY]. Moreover, in the absence of the whereabouts of those employees, it is obvious that the representation made by the union is to benefit itself and is obviously intended for the personal aggrandizement of the officer bearers of the [ENTITY]. Hence the bona fides are totally lacking.
It is true that the 2nd respondent sought for the records of the petitioner relating to the payment made to employees, who had left the service of the petitioner-hotel. This was consequential to a complaint made by the 3rd respondent union.
15. A bare comparison of the relevant provisions of Act of 1966 and Act of 1988 would demonstrate that the provisions are almost identical. By reason of the new Act, the provision for service compensation has been introduced instead and place of gratuity and the period of six months has been extended to one year. In view of the definition of 'establishment', there is no dispute that the provisions of the [ACT] are attracted to the hotel in question.
16. Undisputedly, the [ACT]ality of the unamended provisions of [SECTION] of [ACT] came up for consideration before a Division Bench of this Court in [PRECEDENT]. The said provision was declared ultra vires [SECTION] of the [ACT] inter alia on the ground that the workman working in the factory which would be large in size are eligible to be paid gratuity on the rendition of long and meritorious service under a scheme of payment of gratuity by industrial adjudication i.e., prior to enactment of the [ACT] whereas the employees of a shop or establishment which is smaller in its operations covered under the 1966 Act, will be entitled to such gratuity on rendering of minimum qualifying period of only six months unbroken service. It was held:
Under [SECTION] of the [ACT], the State shall not deny to any person the equality before the law or the equal protection of the laws within the territories of India. Any law which is inconsistent with the provisions of the [ACT], to the extent of such inconsistency, is void and ineffective under [SECTION] of the [ACT].
We are inclined to accept the argument of the learned counsel appearing for the writ petitioner, in this behalf, when the very idea of payment of gratuity is to give a reward for a long, continuous unbroken and efficient service, restriction of that period to.six months under the [ACT] as as against 5 to 10 years period fixed in cases of companies and other industries, in our opinion, amounts to an unreasonable discrimination. In an industrial undertaking or a company, schemes for payment of gratuity are prepared in advance, after taking into consideration the financial capacity of the employer to bear the burden whereas under the [ACT], without taking into consideration the financial capacity of a petty shop keeper or a businessman, the qualifying service is fixed as six months. In a way, both shops and establishments as well as the companies are alike. The owners of shops and establishments are treated by the Act in one way and the companies and industrial undertakings in a different manner. This discrimination, in our opinion, is unreasonable and is violative ' of [SECTION] of the [ACT].
We, therefore, accept the contention of the learned counsel appearing for the petitioner that [SECTION] of the Act, insofar as it fixes the minimum qualification of six months unbroken service for entitlement to gratuity even in case of resignation, is unreasonable and violarive of [SECTION] of the [ACT]. Hence, we hold that portion of [SECTION] of the [ACT] is void and ineffective.
17. This Court was of the opinion that when gratuity is required to be paid for long and meritorious service, the fixation of six months for being eligible for payment of gratuity under the [ACT] in contrast to five years of service fixed, in cases of Companies and other industries amounts to unreasonable restriction being discriminatory and violative of [SECTION] of the [ACT]. Despite the fact the said judgment has attained finality the legislature inter alia sought to make similar provision by making some cosmetic amendment.
18. [SECTION] provides that no employer shall without a reasonable cause, terminate the service 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 respect of an employee who has been in his employment continuously for the period of not less than one year, a service compensation amounting to fifteen days average wages for each year of continuous employment.
19. Whereas Sub-[SECTION] provides for service compensation when the service of an employee is terminated by the employer, in terms of Sub-section (3) the same amount of service compensation is required to be paid even if the cessation of service is caused at instance of the employee i.e., (i) voluntary cessation of work after completion of 60 years of age, (ii) on his resignation or (iii) on physical or mental infirmity or (iv) on his death or disablement due to accident or disease. In the case of termination of employment due to death or disablement, the condition of completion of continuous service of one year is; not necessary. Sub-section (4) provides that where service compensation is payable under [SECTION], the employee shall be paid wages from the date of termination or cessation of his services until the date on which the service compensation so payable is actually paid.
20. Contract of service is basically a contract between the parties. Only when the conditions of service are governed by a statute, statutory provisions shall prevail over the agreed conditions.
21. The [ACT] seeks to cover the establishments attached to factories i.e., Administrative Offices etc. and the employees working therein. While the employees working in a factory would become eligible for gratuity only on rendering five continuous years of meritorious service, the employees working in the administrative office adjacent thereto would become eligible for service compensation under [SECTION] which is nothing but gratuity by mere rendering of one year service. This is what the Division Bench of this Court in the case of Suryapet Co-operative Marketing Society case has pointed out while striking down virtually an identical provision under [ACT].
"Service compensation" has been defined under [SECTION] of the [ACT] only to mean the service compensation payable under [SECTION] of the said Act. Under [SECTION]. 'service compensation' means fifteen days wages for each year of continuous employment. Therefore, in a way it amounts to gratuity. Even the payment of [ACT] has not defined the word 'gratuity'. Therefore, we have to necessarily fall back on dictionary meanings. Chambers Twentieth Dictionary defines gratuity to mean "present under an acknowledgement of service". The Concise Oxford Dictionary, New Edition for the 1990s defines gratuity to mean 'money given in recognition of service".
22. Referring to the decision of the Apex Court in [PRECEDENT], in the Book "Supreme Court on words and phrases" by [ENTITY], it was stated:
The word "gratuity" imports an idea of a gift or a present generally in return for favours or services. In industrial disputes it has come to mean some sort of retrial benefit and in view of the trend of decisions of the Supreme Court, service which earns gratuity need not be meritorious and is available to an employee for long and continuous service.
23. In [PRECEDENT], , it was observed:
The object of providing a gratuity scheme is to provide a retiring benefit to workmen who have rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer. It is one of the 'efficiency', 'orderly' and humane elimination from industry of superannuated or disabled employees who, but for such retiring benefits, would continue in employment even though they function inefficiently.
24. Service jurisprudence contemplates cessation of employment either at the instance of the employer or at the instance of the employee. In both the cases there will be termination of contract of service wherefor notice of a reasonable period and/ or wages in lieu therefor may be provided. Wages are paid by the employer in lieu of service rendered by the employee. It is not paid when no service is rendered. Employee may be a full time employee or part-time employee.
25. Therefore, it is evident that 'service compensation' or 'gratuity' is payable to an employee as gift or reward on rendering long and continuous service. In our view, fixation of one year as qualifying service for being eligible to claim service compensation can by no stretch of imagination be construed as long and continuous service. An employee who joined an organisation is expected to render long and faithful service to the employer to be eligible for gratuity. It may not be possible to draw a line to fix the minimum qualifying service for being entitled to claim gratuity. But having regard to the provisions of [ACT], it cannot be said fixation five years of service as being eligible to claim gratuity as unreasonable. Even under the rules applicable to the Government servants of the State, a minimum period of ten years qualifying service is fixed for being eligible for gratuity. Therefore, fixation of one year minimum qualifying service under the provisions of [SECTION] of the [ACT] for being eligible to claim gratuity is unreasonable and discriminatory.
26. The provision relating to payment of service compensation is made both under Sub-sections (1) and (3) subject to certain conditions. The conditions, however, stand on different footings. In case of death or disablement, the condition of completion of one year of service is not necessary. Such provision, in our opinion, is wholly unreasonable and violative of [SECTION] of the [ACT]
27. [SECTION] of the [ACT] embraces within its fold reasonableness. A statute which is wholly unreasonable would be ultra vires the [ACT].
28. In Indian Express Newspapers (Bombay) P. Ltd. v. [ENTITY] of India, , the Supreme Court held:
A piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is contrary to some other statute. That is because subordinate legislation must yield to plenary legislation. It may also be questioned on the ground that it is unreasonable, unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary. In England, the Judges would say "Parliament never intended authority to make such rules. They are unreasonable and ultra vires". The present position of law bearing on the above point is stated by [ENTITY] L. J. in Mixnam. Properties Ltd. v. [PRECEDENT] thus:-
"The various grounds upon which subordinate legislation has sometimes been said to be void can, 1 think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus the kind of unreasonableness which invalidates a bye-law is not the antonym of "reasonableness" in the sense of which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say : 'Parliament never intended to give authority to make such rules; they are unreasonable and ultra vires ' If the courts can declare subordinate legislation to be invalid for 'uncertainty,' as distinct from unenforceable this must be because Parliament is to be presumed not to have intended to authorise the subordinate legislative authority to make changes in the existing law which are uncertain "
Prof. [ENTITY] in his Article entitled 'Judicial Control of Delegated Legislation : The Test of Reasonableness' in 36 Modern Law. Review 611 at pages 622-23 has summarised the present position in England as follows:
"(i). It is possible that the courts might invalidate a statutory instrument on the grounds of unreasonableness or uncertainty, vagueness or arbitrariness : but the writes view is that for all practical purposes such instruments must be read as forming part of the parent statute, subject only to the ultra vires test.
(ii) The courts are prepared to invalidate bye-laws, or any other form of legislation, emanating from an elected, representative authority, on the grounds of unreasonableness, uncertainty or repugnance to the ordinary law : but they are reluctant to do so and will exercise their power only in clear cases.
(iii) The courts may be readier to invalidate bye-laws passed by commercial undertakings under statutory power, although cases reported during the present century suggest that the distinction between elected authorities and commercial undertakings, as explained in [PRECEDENT], might not now be applied so stringently.
(iv) As far as subordinate legislation of non-statutory origin is concerned, this is virtually obsolete, but it is clear from In re [PRECEDENT] that it would be subject to strict control."
(See also [ENTITY]: Administrative Law (5th Edn.) pp. 747-748).
75. In India arbitrariness is not a separate ground since it will come within the embargo of [SECTION] of the [ACT]. In India any enquiry into the vires of delegated legislation must be confined to the grounds on which plenary legislation may be questioned, to the ground that it is contrary to the statute under which it is made, to the ground that it is contrary to other statutory provisions or that it is so arbitrary that it could not be said to be in conformity with the statute or that it offends [SECTION] of the [ACT].
That subordinate legislation cannot be questioned on the ground of violation of principles of natural justice on which administrative action may be questioned has been held in [PRECEDENT] : [PRECEDENT], and in [PRECEDENT]. A distinction must be made between delegation of a legislative function in the case of which the question of reasonableness cannot be enquired into and the investment by statute to exercise particular discretionary powers. In the latter case the question may be considered on all grounds on which administrative action may be questioned, such as, non-application of mind taking irrelevant matters into consideration, failure to take relevant matters into consideration, etc. etc. On the facts and circumstances of a case, a subordinate legislation may be struck down as arbitrary or contrary to statute if it rails to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or, say, the [ACT]. This can only be done on the ground that it does not conform to the statutory or [ACT]al requirements or that it offends [SECTION] or [SECTION] of the [ACT]. It cannot, no doubt be done merely on the ground that it is not reasonable or that it has not taken into account relevant circumstances which the Court considers relevant.
We do not, therefore find much substance in the contention that the Courts cannot at all exercise judicial control over the impugned notifications. In cases where the power vested in the Government is a power, which has got to be exercised in the public interest, as it happens to be here, the Court may require the Government to exercise that power in a reasonable way in accordance with the spirit of the [ACT].
29. Although a 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.
30. The doctrine of wednesbury's unreasonableness has been applied in many cases striking down legislation.
31. Unreasonableness of the provisions is apparent from the fact that the employees falling within Sub-sections (1) and (3) although form different classes have been given the same benefit.
32. [SECTION] proceeds on the basis as if there was no age of superannuation and employee would continue to work even after completion of sixty years. It is also well settled that a law can be declared ultra vires not only when persons similarly situated are discriminated against but also when unequals are treated as equals. In Bennet Coleman & Co. Ltd. v. [ENTITY] of India, , it was held:
The newsprint policy of fixing the page level at 10 is seeking to make unequals equal also to benefit one type of daily at the expense of another.
In our judgment the policy of the Government to limit all papers at 10 pages is arbitrary. It tends to treat unequals as equals and discriminates against those who by virtue of their efficiency, standard and service and because of their All India stature acquired a higher page level in 1957.
33. [SECTION] strikes at arbitrariness. Wednesbury's unreasonableness can also be invoked in the matter of applicability of [SECTION] of the [ACT] while exercising the power of judicial review on legislation.
34. 'Service compensation' if it is considered to be compensation, has to be given its ordinary meaning. Nobody can be asked by reason of any common law or statute law, to pay compensation if he is not at fault. The approach of the learned advocate General and Mr. [ENTITY] is different. According to the former, it is 'extra wages' arrears, whereas according to the latter it is gratuity. Service jurisprudence docs not envisage extra wages without doing extra work. If service compensation is brought within the concept of gratuity, the test of reasonableness will warrant an enquiry as to whether a person has resigned voluntarily or opted for voluntary retirement after the age of 60 years particularly when no age of superannuation is prescribed under the provisions of the [ACT] would be entitled thereto for rendering long satisfactory service. In Express Newspapers V [ENTITY] of India, it has been held:
Where however an employee voluntarily resigns from service of the employer after a period of only three years, there Will be no justification whatever for awarding him a gratuity and any such provision of the type which has been made in [SECTION] of the Act would certainly be unreasonable. We hold therefore that this provision imposes an unreasonable restriction on the petitioners' right to carry on business and is liable to be struck down as un[ACT]al.
35. In [PRECEDENT], , it has been held:
[SECTION] provides fundamental rights to all citizens to carry on any occupation, trade or business. Clause 6 thereof empowers the State to make any law imposing, in the interest of the general public, reasonable restrictions on the exercise of the said rights. Wherever a statute is challenged as violative of the fundamental rights, its real effect or operation on the fundamental rights is of primary importance. It is the duty of the Court to be watchful to protect the [ACT]al rights of a citizen as against any encroachment gradually or slealthily thereon. When a law having imposed restrictions on the fundamental rights, what the Court has to examine is the substance of the legislation without being beguiled by the mere appearance of the legislation. The Legislature cannot disobey the [ACT]al mandate by employing an indirect method. The Court must consider not merely the purpose of the law but also the means how it is sought to be secured or how it is to be administered. The object of the legislation is not conclusive as to the validity of the legislation. This does not mean the constitute onality of the law shall be determined with reference to the manner in which it has actually been administered or operated or probably been administered or operated by, those who are charged with its implementation. The Court cannot question the wisdom, the need or desirability of the regulation. The State can be regulate the exercise of the fundamental right to save the public from a substantive evil. The existence of the evil as well as the means adopted to check it are the matters for the legislative judgment. But the Court is entitled to consider whether the degree and mode of the regulation whether is in excess of the requirement or is imposed in an arbitrary manner. The Court has to see whether the measure adopted is relevant or appropriate to the power exercised by the authority or whether over-stepped the limits of social legislation. Smaller inroads may lead to larger inroads and ultimately result in total prohibition by indirect method. If it directly transgresses or substantially and inevitably affects the fundamental right, it becomes un[ACT]al, but not where the impact is only remotely possibly or incidental. The Court must lift the veil of the form and appearance to discover the true character and the nature of the legislation, and every endeavour should be made to have the efficacy of fundamental right maintained and the legislature is not invested with unbounded power. The Court has, therefore, always to guard against the gradual encroachments and strike down a restriction as soon as it reaches that magnitude of total annihilation of the right.
36. It Will at this juncture be interesting to consider the scheme of payment of gratuity. The matters relating to payment of gratuity is regulated by the provisions of the [ACT]. The Act extends to whole of India. It applies to factory, mine, oil field, plantation, port and railway company, every shop or establishment established 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, as the Central Government may by notification, specify in this behalf as provided under [SECTION] of the said Act. [SECTION] provides for a non-obstante clause. The said Act was enacted so as to regulate the payment of gratuity to industrial workers. It introduced payment of gratuity on condition of performing some service. Service of five years provided in [SECTION] being a minimal service condition, the same has been held to be a reasonable classification within the meaning [SECTION] of the [ACT].
37. In [PRECEDENT], , the Industrial Tribunal framed a gratuity scheme under which among others it had fixed five years minimum service in order to enable a workman to earn gratuity. The Court pointed out that the reason for providing a long minimum period of service for earning gratuity in the case of voluntary retirement or resignation is to see that the workmen did not leave one concern after another after putting the short minimum service qualifying them for gratuity. A longer minimum service in the case of voluntary, retirement or resignation makes it more probable that the workmen would stick to the company where they are working. That is why gratuity schemes usually provide for a longer minimum service in the case of voluntary retirement or resignation.
38. In [PRECEDENT], , the Apex Court held:
This survey of the cosmos of case-law can expand, but no service will be rendered by that exercise. All that we need say is that there is nothing fundamentally flaw some in the 5 year period being fixed as qualifying service. The real reason why some cases like British Paints required a qualifying period of ten years was that a longer minimum period for earning gratuity in the case of voluntary retirement or resignation would ensure that workmen do not leave one concern for another after putting in the short minimum service qualifying for gratuity.
39. Gratuity is a reward for good and efficient and faithful service rendered for a considerable period. A long minimum period for grant of gratuity in the case of voluntary resignation is required to be prescribed. Dealing with the provisions of [SECTION] of the [ACT], the Apex Court in [PRECEDENT], , held:
The provisions of the Act were thus meant for laying down gratuity as one of the minimal service conditions available to all employees covered by the Act. There is no provision in the Act for exempting any factory, shop etc., from the purview of the Act covered by it except those where, as pointed out above, the employees are in receipt of gratuity or pensionary benefits which are no less favourable than the benefit conferred under the Act. The payment of gratuity under the Act is thus obligatory being one of the minimum conditions of service.
It was further held:
The provisions for payment of gratuity contained in [SECTION] of the Act are one of the minimal service conditions which must be made available to the employees notwithstanding the financial capacity of the employer to bear its burden and that the said provisions are a reasonable restriction on the right of the employer to carry on his business within the meaning of [SECTION] of the [ACT], the said provisions are both sustainable and valid.
40. The concept of gratuity per se would bring within its fold rendition of few years of service by an employee for being entitled thereto. One year of service, by no stretch of imagination, can be considered to be long enough so as to entitle an employee to claim the same. Prescription of such small period would be harsh and unreasonable in relation to a small establishment where the employer may employ only one or two employees. It is thus difficult to uphold the [ACT]ality of such provision.
41. The right to equality includes the right not to be subjected by arbitrary, irrational and unreasonable administrative and legislative action. (See [PRECEDENT] of Railway Protection Force, New Delhi, (FB .
42. It may be true that having regard to the provisions contained in [SECTION] schedule of the [ACT] 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. The payment of [ACT] covers the field. Both the State Act and the Central Act, in view of [SECTION], deal with the matter relating to gratuity. In [PRECEDENT], , it was held:
The Centre and State both cannot legislate on the same subject matter as to create conflict between the two, and in case of such conflict the Central legislation will prevail over that of the State. But the State can make law where there is no Central legislation or with a view to supplement Central legislation. If the Centre enacts imposes a bar but leaves some lacunae, the State can set right the lacunae and thus make its contribution to the common cause.
43. The provisions of the State Act cannot be upheld only because it has received the presidential assent. It is pertinent to note that a [ACT] Bench of the Supreme Court in [PRECEDENT], , dealing with the Provisions of [ACT] vis-a-vis [ACT], held:
The assent of the President under [SECTION] of the [ACT] is not a matter of idle formality. The President has, atleast, to be apprise of the reason why his assent is sought if, there is any special reason for doing so. If the assent is sought and given in general terms so as to be effective for all purposes, different considerations may legitimately arise. But if, as in the instant case, the assent of the President is sought to the Law for a specific purpose, the efficacy of the assent would be limited to that purpose and cannot be extended beyond it.
44. If we have to apply the said Principles, even the provisions of [SECTION] of the [ACT] cannot be taken aid of. Mere assent of the President may not be adequate and the provision in question being directly in conflict with the central Act, the same cannot be valid. Mechanical assent given by the President may be held to an idle formality, as there does not exist any evidence that the possible conflict had been brought to the notice of the President before his assent was obtained,
45. In any event the instant case stands on a worse footing. The allegations of the petitioner to the effect that concerned employees had left their service has not been disputed. Those who abandoned service voluntarily and had not been heard of for a few years cannot be said to have rendered such work which would entitle them to receive gratuity or service compensation, as the case may be. A person, it is trite, cannot take advantage of his own wrong.
46. Where the Act is ambiguous the doctrine of justness and reasonableness must be invoked.
47. Can in a situation of this nature, the statute be interpreted to mean that even those who have left the service would be entitled to service compensation. The answer must be rendered in emphatic no. A statute is presumed to be reasonable. Rule of just construction must be applied whenever a doubt exists. In [PRECEDENT], , wherein it was held:
It is only where a provision is ambiguous that a construction that leads to a result that more just can be adopted.
48. If the provisions of the Act to be given effect to, the same will be counterproductive. A owner of a small shop would not take in employment any person at all, which would give rise to more unemployment. Even economic development in the State would receive a set back. Law has to be interpreted having regard to the economic changes.
49. Further more, the impugned notice could not have been issued at the instance of the [ENTITY]. The union cannot represent employees who had abandoned their service. The exercise of issuance of notice in the fact situation obtaining in the case appears to be for unauthorised purpose and thus would amount to malice in law.
50. Gratuity has been held to be a reward for the service rendered by an employee. A provision directing payment of gratuity to an employee who rendered only one year of service would impose unreasonable restriction not only within the meaning of [SECTION] but also within the meaning of [SECTION] of the [ACT].
51. It is not correct to contend that by reason of the provisions of the [ACT], the meaning of the Act was changed. [ACT] even does not contemplate that a person irrespective of reason for quitting the service, period of service, merit or suitability would be entitled to a reward on cessation of service.
52. The submission of Mr. [ENTITY] to the effect that the decision of this Court SURYAPET MARKET CO-OPERATIVE SOCIETY V.MUNSIF MAGISTRATE, SURYAPET AND ORS., in is not applicable because at that point of time the [ACT] had not come into force cannot be accepted. The [ACT] recognises the concept of gratuity evolved under the industrial jurisprudence by the Courts. 'Service compensation' under the [ACT] is nothing but gratuity under the [ACT].
53. If the legislature intended to apply the provisions of the [ACT] it could say so in no uncertain terms. It is accepted at the Bar that the provisions in the said Act are more harsh than the [ACT]. Furthermore, in a factory or an industrial undertaking a large number of workers or workmen would be employed, whereas in shops and establishments the number of employees may be of varying nature. In some cases, an employer of a shop may employee one or two employees. To put much more heavy burden upon a small investor than an employer of a factory or an industrial undertaking cannot be said to be reasonable. They belong to different classes, but as by reason of the impugned provision, harsher measures had been imposed unreasonableness of the statute becomes more apparent. [SECTION] must, therefore, be held to be discriminatory and un[ACT]al.
54. We may now examine [SECTION]. It seeks to continue the relationship of employer and employee despite cessation of employment insofar as the employer has to go on paying him wages unless the dues in terms of [SECTION] are actually paid. [SECTION] is patently arbitrary and unreasonable. Such a provision can by no stretch of imagination be considered to be protective employment; as it applies also to those employees who have resigned or voluntarily retired. By reason of the said provision, even if an employee resigned the service on his own volition and joined another shop or establishment for higher wages, even then also the employer has to pay wages till he was paid service compensation even though he gainfully earns in the other shop or establishment. Such a provision, in our view, is contrary to the basic principles of service jurisprudence and would amount to unreasonable discrimination. Arbitrariness and unreasonableness being inherent in the provision attracting the wrath of [SECTION] of the [ACT] the same must be held to be un[ACT]al.
55. The decision of the Apex Court in Shashikant Laxman Kali v. [ENTITY] of India has no application. There the Apex Court was considering whether exclusion of employees of private sector companies from the benefit under [SECTION] of the [ACT] exempting the payment received by an employee at the time of voluntary retirement for the purpose of taxation while extending such benefit to the employees of the public sector companies would amount to hostile discrimination attracting the wrath of [SECTION] of the [ACT] The Apex Court having regard to the scheme of voluntary retirement introduced for improvement of public sector to overcome the problem of overstaffing and the economic status of the employees of both the sectors held that there exists an intelligible differentia between the two and had nexus with the object sought to be achieved and differentiation has been rightly made. Here we do not find any intelligible differentia in not fixing minimum qualifying service of five years under the provisions of [ACT] for being eligible to service compensation under [SECTION] and [SECTION] when such a provision exists under the [ACT] particularly when the Supreme Court upheld that fixation of five years minimum qualifying service reasonable.
56. In [PRECEDENT] (Supra) the Apex Court held:
When a statute is impugned under [SECTION] what the Court has to decide is whether the statute is so arbitrary or unreasonable that it must be struck down. At best, a statute upon a similar subject which derives its authority from another source can be referred to, if its provisions have been held to be reasonable or have stood the test of time, only for the purpose of indicating what may be said to be reasonable in the context.
57. The above decision, in our considered view, is of no help to the case of the respondents. Even as per the above decision, provisions of a statute upon a similar subject which have been held to be reasonable or stood the test of time, can be taken up for comparison with another statute for the limited purpose of indicating whether the provisions of a statute in question would be reasonable in the context. As already indicated hereinbefore, fixation of 5 years of minimum qualifying service under [SECTION] in the [ACT] for the purpose of entitlement to claim gratuity has been held to be reasonable one by the Apex Court in STRAW BOARD CO. case. Therefore, we are of the view that the provisions of [ACT] can be taken into account for comparison in dealing with the [ACT]al validity of the provisions of [SECTION] of the Act.
58. Reliance placed by Mr. [ENTITY] in [PRECEDENT]., , not apposite. In the said case it was held:
The service conditions and the extent of their protection are not fundamental rights They are creatures of either statute or of the contract of employment. What Service conditions would be available to particular employees, whether they are liable to be varied, and to what extent are matters governed either by statute or the terms of contract. The legislature cannot be mandated to prescribe and secure particular service conditions to the employees or a particular set of employees. The service conditions and the extent of their protection as well as the set of employees in respect of whom they may be prescribed and protected are all matters to be left to the legislature. Hence when a legislation extends protective umbrella to the employees of a particular class, ii cannot be faulted so long as the classification made is intelligible and has rational nexus to the object sought to be achieved.
59. In the aforesaid case, the question that arose for consideration was whether the 'medical representatives' are workmen according to the definition of 'workman' under [SECTION] of the [ACT]. Apex Court was also dealing with the provisions of [ACT]. The [ACT] made a distinction between sales promotion employees drawing wages not exceeding Rs.750/- per mensem (excluding commission) or Rs. 9000 per annum (including commission) and those drawing wages above the said amounts for the purpose of inclusion of the said categories within the meaning of workmen. It was argued that the inclusion of first category of employees only in the definition is arbitrary and violative of [SECTION] of the [ACT]. In that context the Apex Court held that the Court cannot interfere in the legislative competence or discretion of the State and employees performing same nature of job can be classified on the basis of their pay and the same cannot be faulted with so long as the classification made is intelligible and has rational nexus to the sought to be achieved. In this case, we are concerned with the un[ACT]ality of the provisions fixing a particular minimum qualifying service for being eligible to claim gratuity and whether it amounts to unreasonable discrimination. It is one thing to say that a legislature has the legislative competence to make an enactment, but it is another thing to say that the same is based on reasonableness thus can be struck down by a court of law having regard to [SECTION] of the [ACT].
60. For the reasons aforementioned, we hold that the [SECTION] of the [ACT] are un[ACT]al and amounts to unreasonable discrimination and violative of [SECTION] of the [ACT]. Let a writ of mandamus issue accordingly. Writ petition is disposed of accordingly. No order as to costs.