MADAN MOHAN PATHAK v.

UNION OF INDIA & ORS. ETC.

February 21, 1978

/l. H. BEG, C.J., Y. V. CHANDRACHUD, 1'. N. BHAGWA'IJ, V. R.

KRISHNA IYER, s. MURTAZA FAZAL ALI, P. N. SHINGII.\t AND

D. A. DESAI, JJ.J

Life Insurance Corporation (Modification of Settlen1ent) Act, 1976-S. 3-....

Validity of-Corporation entered into Settlement with Class Ill and Class IV employees regarding bonus-Settlen1ent was subject to the approval of Central Government-During emergency Central Government issued instructions not to pay bonus under the settlement-Employees filed Writ Petition in the High Court-A Single Judge allowed the Writ Petition-The impugned Act was passed when Letters Patent Appeal was pending before the High (,'ourt--C'orpo. ration withdrew the appeal-Impugned Act, if absolved the Corporation fron1 obligation to carry out the Writ of Mandarnus issued by t!ie Single Judge.

Constitution of India : Art. 31-Bonus payable under the. Settlement, if property within the mtaning of Art. 3)(2)-Stopping payment of bonus, tf a1110111us tv cnr11pufsory acquisition of property without poy1nen: of con1pe1Bativn.

From time to time the Life Insurance Corporation and its employees arrived at settlement relating to the terms and conditions of service of Class III and Class IV employees including bonus payable to them. Clause (8) of the Settlement dated January 24, 1974, which related to payment of bonus provided-(i) that no profit-sharing bonus shall be paid but the Corporation may, subject to such directions as the Central Government may issue from time to time, grant any other kind of bonus to its Class III and Class IV employees; (ii) that an annual cash bonus will be paid to all Class ID and Class IV employees at the rate of 15% of the annual salary actually drawn by an employee in respect of the financial year to which the bonus relates and (iii) that save as provided therein all other terms and conditions attached to the admissibility and payment of bonus shall be as laid down in the Settlement on bonus dated June 26, 1972.

Clause ( 12) of the Settlement which refers to the period of settlement provided (!) that the Settlement shall be effective from April !, 1973 for a period of four years and (2) that the terms of the Settlement shall be subject to the approval of the Board of the Corporation and the Central Government.

One of the administrative instructions issued by the Corporation in regard to the payment of cash bonus under cl. S(ii) of the Settlement was that in cae of retirement or death, salary up to the date of cessation of service shall be taken into account for the purpose. of determining the amount of bonus payable to the employee or his heirs and the other was that the bonus shall be paid along with the salary for the month of April but in case of retirement or death, payment will be made soon after the contingency.

The Payment of Bonus (Amendment) Act. 1976 considerably curtailed the rights of the employees to bonus in industrial establishments.

But in_ so far as the employees of the Corporation were concerned this Act had no application because by reason of s. 32 of the Payment of Bonus Act, the Corporation was outside the purview of its operation. The Central Government however decided that the employees of establishments which were not covered by the Bonus Act would not be eligible for payment of bonus but exgratia payment in lieu of bonus would be made to them.

Pursuant to this decision the L.IC. was adYised by the Ministry of Finance, Goverriment of India, that no further payment of bonus should be made to its employees without getting the same cleared by the Government. The Corporation accordingly issued administrative instructions not to pay bonus to its employees under the cxif'ting provisions until further instructions. To the employees' assertion that the Corporation was bound to

MADAN MOHAN PATHAK V. UNION 335

pay bonus in accordance with the terms of the Settlement the Corporation contended that payment of bonus by the Corporation was subject to such directions as the Central Government might issue from time to time, and since the Central Government had advised it not to make any payment of bonus without its specific approval, bonus could not be paid to the employees.

Thereupon, the All India Insurance Employees' Association moved the High Cou1t for issue of a writ directing the Corporation to act in accordance with the terms of the Settlement dated January 24, 1974 read with administrative instructions dated March 29, 1974 and not to refuse to pay cash bonus to Class III and Class JV employees. A single Judge of the Hig~ Court allowed the: writ petition. While the Letters Patent Appeal was pending, Parliament passed the Life Insurance Corporation (Modification of Settlement) Act, 1976 (which is the Actl impugned in this case.). In the Letters Patent Appeal the Corporation stated that in view of the impugned Act, there was no necessity for proceeding with the appeal ancl

hence the Division Bench made no order in the appeal.

Since the effect of the impugned Act was to deprive Class III and Class IV employees of bonus payable to them in accordan'ce with the terms of the Settle ment, two of the associations filed writ petitions in this Court ch<111enging the constitutional validity of the impugned Act. It was contended on their behalf that even if the impugned Act rendered cl. (8) (ii) ineffective with effect fron1 April 1, 1975 it did not have the effect of absolving the Life Insurance Corporation from its obligation to carry out the writ of Mandamus issued by the High Court and (2) that the right of Class III and Class IV employees to annual cash bonus for the years 1975·76 and 1976·77 under CL 8(ii) of th0 Srttlement was property and since the impugned Act provided for compulsory acquisition of this property without payment of compensation, it was violative of Art. 31(2) of the Constitution.

Allowing the writ petitions

Rei C.J. (concurring with the majority)

HELD: Section 3 of the Life Insurance. Corporation (Modification of Settlement) Act, 1976 is struck by the provisions of Art. 19(1) (f) and is not E saved by Art. 19(6) of the Constitution. [346 A]

1. The Statement of Objects and Reasons of the Act discloses that the pur~ pose of the impugned Act was to undo settlements arrived at between the Cor poration and Class III and Clas!! IV employees on January 24 and February 6, 1974 and recognised by the High Court. In S1nt. Indira Gandhi v. Raj f\-larain thi5 Court held that even a constitutional amendment cannot authorise the assurnptinn of judicial power by Parliament. One of the test"; laid down was whether the decision is of a kind" whiCh requires hearing to be given to the F parties i.e., whether it involves a quasi.judicial procedure. A decision reached by the Central Government is the result of a satisfaction on matters stated there and would imply quasijudicial procedure where the terms of a settlement had to be reviewed or revised.

But, the legislative procedure, followed in this case does not require that to be done. It would be unfair to adopt legislative proce dure to undo a settlement which had become the basis of a decision of a High

c.ourt.

Even if legislation can remove the basis of a decision it has to do it by an alteration of general rights of a class but not by simply excluding f\VO G specific settlements between the Corporation anc1 its employees from the purvie1, v

of s. 18 of the Industrial Disputes Act. 1947 which had been held to be valid and enforceable by a High Court. [341 G, H, 342 AC]

2(a) The object of the Act was in effect to take away the force of the Judgment of the High Court.

Rights under that judgment could be said to arise independently of Art. 19 of the Constitution. To give effect to that judg ment is not the same thing as enforcing a right under Art. 19. It may be that a right under Art. 19 becomes linked up with the enforceability of the judgment.

H Nevertheless the two could be viewed as separ!ble sets of rights. If the right conferred by the judgment independently is sought to be set aside s. 3 would be invalid for trenching upo:e the judicial power. f343 B-D]

(b) A restriction upon a right may even cover taking away of the right to increased remuneration in the interests of the general public. But the present is a pure and simple case of deprivation of rights of the employees \vitbout any apparent nexus with any public interest.

In the instant case the impugned Act is a measure which seeks to deprive workers of the benefits of settlement arrived at and assented to by the Central Goverament under the provisions of the Industrial Disputes Act.

Such a settle mcnt should not be set at naught by an Act designed to defeat the purpose. In judging the reasonableness of an Act the prospects held out, the representations made, the conduct of the Government and equities arising therefrom mRy all be taken into nsideration. f342 E-F, 344 E-F]

3. Even though the real object of the Att was to set aside the result of m<H1damus, the section does not mention this object. This wns perhaes bevnue the jurisdiction of a High Court and the effectiveness of its orders derived their force from Art 226 of the Constitution. Even if s. 3 seeks to take away the basis of the judgment without mentioning it, yet where the rights of the citizens against the State are concerned the court should adopt an interpretation which upholds those rights.

Therefore, the rights_ which had passed into those embodied in a judgment and become the basis of a 1nandan1us from the High Coun, could net be taken away in an indirect fr,:)hion. (343 D-EJ.

4. Even though the Directive Principles contained in Art. 43 cast an obligation on the State. to secure a living wage for the workers and is part of the principles declared fundamental in the governance of the country, it is not a fundamental right which can be enforced.

Even though the Directive Principles give a direction in \Vhich the fundamental policies of the State must be oriented, yet this Court cannot direct either the Central Government or the Parliament to proceed in that direction.

Even if the Directives are not directly enforceable by a Court they cannot be declared ineffective. They have the life and force of fundamentals.

The best way to give vitality and effect to then1 is to use them as criteria of reasonableness. [344 B~C]

5(a) Articles 358 and 359(1A) provide that as soon as the vroclamation of cn1ergency ceases to operate the eJcct of suspension must vanish "except as respects things done or omitted to be done before the law so ceases to have effect.,.. [346 B-Cj

(b) The term "things done or omitted to be done", should be interpreted very narrowly.

In the present case it means that the settlements are not to be deemed to be wiped off.

All that it means is that no payment of bonus could be demanded during the emergency but as soon as the emergency was over, the settlement would revive and what could not be demanded during the emergency would become payable even for the period of emergency for which payment was suspended. In other words valid claims cannot be washed off by the emergency per .<>c.

They can only be suspended by a law passed during the opera-Hon of Arts. 358 and 359(1A). [346 C-F]

(Per Chandrachud, Fazal Ali and Shinghal, JJ.).

Concurring \vith the majority.

The in1pug:ncd Act violates Art. 31(2) and i:>, therefore. void. [369 G] G (Per Bhagwati, Iyer and Desai, JJ.)

Irrespective whether the impugned Act is constitutionally valid or not, the Corporation is bound to obey the Writ of Mandamus issued by the High Court and to pay annual cash bonus for the year 1975-76 to Class III and Class IV employees. (352 D-E]

1. Section 3 of the impugned Act merely provided that the provisions of the Settlement, in so far as they related to payment of annual cash bonus to Class ITI and Class IV employees, shall not have any force or effect and shall not be deemed to have had any force or effect from April 1,

1975. The writ of tv1!lndamus issued by the High Court was not touched by the impugned Act.

The right of the employees to annual cash bonus for the year 1975-76 became

MADAN MOHAN PATHAK V. UNION 337

.crystallised in the judgment and this right v.as not sought to be taken away by A. the impugned Act. The Judgment continued to subsist and the corporaton \.Yas bound to pay bonus in obedience to the writ of Mandamus. By the time the Letters Patent Appeal came up for hearing, the impugned Act had already come into force and the Corporation could have successfully contended in the appeal that since the Settlement, in so far as it provided for payment of annual cash bonus, was annihilated by the impugned Act with effect from Ist April, 197 5 and so the employees were not entitled to bonus for the year 1975-76 and hence

111 no writ of 11<!odnmus could issue against the Corporation directing it to 1nake B

_.., p<!!yn1ent of bonus. If such contention had ben raised, there is little doubt that the ju:lgment of the single Judge would have been upturned. But that was not done, and the judgment of the single Judge bccan1e final and. binding on tho parties. [353 A-F. 355 C]

Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, [1970] 1 SCR 358 and Patel Gordhandas Hargovindas v. ~Yunicipal Con1n1issioner, Ahn1cdabad, [1964] 2 SCR 608; distinguished and held inapplicable.

2(a). The argument on behalf of the Corporation that on a proper tnterpretatioa of the clauses annual cash bonus payable under cl. 8(ii) was, by re<-1son of cl. 8 ( i) subject to the directions issued by the Central Government from time to time and the Government having stopped further payment of bonus, the employees were not entitled to claim annual cash bonus, is erroneous.

The employees had absolute right to receive annual cash bonus from the Corporation in terms of cl. 8(ii) and it was not competent to the Central Government to issue any directions to the Corporation to refuse or withhold payment D of the same. [356 D-HJ "

(b) Although under regulation 58 of the Service Regulations non-profit sharing bonus could be granted subject to the directions of the Central Government and if the Government issues a direction to the contrary bonus could not be paid by the Corporation, in the instant case, as provided in cl. 12 of the Settlement, the Central Government approved the payment of bonus under cl. 8(ii). That having been done it was not competent to the Central Governn1ent E thereafter to issue another contrary direction which would have the effect of compelling the Corporation to commit a breach of its obligation under s. 18{1) of the Industrial Disputes Act, 1947 to pay annual cash bonus under clause S(ii).

The overriding power given to the Central Government to issue directions from time to time contained in cl. 8(i) is conspicuously absent in cl. 8(ii). The power contained in cl. 8(i) cannot be projected or read into cl. 8(ii). These two clauses are distinct and independent.

While cl. 8(i) is a general provision,

cl. 8(ii) specifically provides that cash bonus in the manner prescribed therein shall be paid to the employees.

This specific provision is made subject only F to the approval of th.e Central Government, v.:hich was vbtai•ne-d. [357 A-FJ

(c) Moreover, under cl. 8(ii) read with the administrative instruction issued by the Corporation, annual cash bonus accrued from day to day, though payable in case of retirement, resignation or death on the happening of that contingency and otherwise on the expiration of the year to which the bonus related. Thus the annual cash bonus payable for the year 1975-76 was a debt due and owing from the Corporation to each of the employees. On the date _ \vhen the impugned Act came into force each of the employees was entitled to

a dbt due and owing to him from the Corporation. [357 I-T, 358 A]

3(a) The impugned Act must be held to be violative of Att. 31(2) since it did not provide for payment of "ny compensation for the compulsory acquisition of the debts. [369 CJ

(b) The direct effect of the impugned Act \Vas to transfer ownership of the

debts due <in::l' owing to Class III and Class I\' ernployees i!l respect nf ;:i, r;,•, n1al H -cash bonus to the Life Insurance Corporation and since the Corporation is a Corporation owned by the State, the impugned Act \Vas a lav.' providing for compulsory acquisition of the debts by the State within the meaning of Art.

31(2A). !%9 B-CJ

(c) Choses in action can be acquired by the State. So Jong as the acqrf1~1tion sub-serves a public purpose, it would satisfy the requirement of Art. 31 (2).

There is a fundamental distinction between a chose in action and money.

A chose in action has not the same mobility and liquidity as money, and it::. value is not measured by the amount recoverable under it but depends on a variety of factors.

Where money is given as compensation for taking money the theory of forced loan may apply, but it is not applicable where a chose in action

is taken and mcncy representing its value is given as compens:1tion. [363 A, B \

R. C. Cooper v. Union of India, [1970] 3 SCR 530; Madl!av Rao Sciiidia

v. Union of lndia: fl9711 3 SCR 9 reiterated.

State of Bihar v. Kameshwar Singh, [1952] S.C.R. 889; State of Mudhya Pradesh v. Ranojirao Shinde, (1968] 3 S.C.R. 489; dissented;

Deokinandan Prasad v. State of Bihar, [1971} Suppl. S.C.R. 634; State of P11njab v. K. R. Erray & Sobhag Rai Mehta, [l 9731 2 S.C.R. 405; State of Gujarat V. Sri Ambica Mills Ltd., [1974] 3 s.c.R: 760' and Stah' of Kera/a

v. The (iwalior Rayon Silk Mfg. (Wvg.) Co. Ltd., [1974] 1

S.C.R. 671 followed;

State of Madhya Pradesh v. Ranojirao Shinde, [1968] 3 S.C.R. 489; Stute of Bihar v. Kameshwar Singh, !1952] S.C.R. 889 and Bombay Dyeing and lvfanufacturing Co. Ltd. v. State of Bombay, [1959] S.C.R. 1122; explained; [1968] 3 S.C.R. 489 and (1952] S.C.R. 889; held no longer good law.

(d) The debts due and owing from the Corporation in respect of annual cash bonus were clearly property of the employees within the meaning of Art. 31(2) and they could be con1pulsorily acquired under Art. 31(2). Similarly their right to receive. cash bonus for the period from the date of commcnccn1ent of the impugned Act upto, March 31, 1977 was a legal right enforceable through a coun of law. f360 B-C1

(a) Property within the meaning of Arts. 19(l)(f) and 31(2) comprises every form of property, tangible or intangible, including debts and choses in action such as unpaid accumulation of wages, pension, cash grants etc. [360 AJ


4(a) The contention of the Corporation that when o\Vllership of a debt is transferred it continues to exist as a debt but that when the debt is extinguished it ceases to exist as a debt and that extinguishment of a debt does not therefore involve transfer of nwnership of the debt to the debtor is not well founded.

Where, by reason of extingu!shment of a right or interest of a persoo, detriment is suffered by him and a. corresponding benefit accrues to the State, there \vou1d G b• transfer of ownership of such right or interest to the State. The question would always be : who is the beneficiary of the extinguishment of the right or interest effectuated by the law ? If it is the State, then there would be transfer of ownership of the right or interest to the State, because what the owner of the right or interest would lose by reason of the extinguishment would be the benefit accrued to the State f367 H, 368 B-C1

(b) Extinguishment of the debt of the creditor with corresponding benefit ta the State or State owned/controlled Corporation would involve transfer of ownership of the amount representing the debt from the former to the latter.

This is the real effect of extinguishment of the debt and by garbing it in the form of extinguishment, the Sta-te or State owned /controlled Corporatlon cannot obtain benefit at the cost of the creditor and yet avoid the .ippl1cab1lity ot

• '

MADAN MOHAN PATHAK V. UNION (Beg, C.J.) 339

Art. 31(2). The verbal veil constructed by employing the device of extinguish- A ment of debt cannot be permitted to conceal or hide the real nature of the transaction [368 F-H]

ORIGINAL JURISDICTION: Writ Petitions Nos. 108 and 174-177 of 1976. (Under Article 32 of the Constitution of India) R. K. Garg, S. C. Agarwala & Aruneshwar Gupta for the petitioners in WP 108 B.

Somnath Chatrerjee, P. K. Chatterjee & Rathin Das for the petitioners in 174-77 S. V. Gupte, Attorney Genl., U. R. La/it, R. N. Sacluhey & A.

Subhashini for r. 2 in all the WPs. S. V. Gupte, Attorney Genl. & D. N. Mishra for rr. 2 & 3 in WP 108 and rr. 2-4 in WP 174-77.

P. S. Khera for the Intervener (AIN UC Employees Federation) The following Judgments were delivered

BEG, C.J.-The Life Insnrnce Corporat10n was constituted under the Life Insurance Corporation Act 31 of 1956 (hereinafter to be referred to as "the Act"). On 1-6-1957, the Central Government issued, under s. 11 ( 1) of the Act, an order prescribing the pay scales, dearness allowance and conditions of service applicable to Class III and IV employees. Among these conditions it is stated that no bonus would be paid but amenities like insnrance and medical treatment free of cost would be provided.

On 26-6-1959, an order was passed by the Central Government under s. 11 (2) of the Act, amending para 9 of the 1957 Order inasmuch as it was provided that bonus other than profit sharing bonus v.:ould be paid to the employees drawing the salarj' not exceeding Rs. 500/- per month.

On 2nd of July 1959, there was a settlement between the L.I.C. and the employees providing for payment of cash bonus at the rate of one-and-a-half month's basic salary which was to be effective from 1-9-1956 and valid upto 31-12-1961. In July 1960, regulations were framed under section 49 to regulate the conditions of service of classes of employees and regulation 5 8 provided for payment of non-profit sharing bonus to the employees.

Orders were again passed on 14-4-1962 and 3rd August 1963, the effect of which was to remove the restriction of Rs. 500/- for eligibility for payment of bonus. On

29th January 1963, another settlement was arrived at between the

L.I.C. and its employees for payment of cash bonus at the rate of one-and-a-half month's basic salary. This was to continue in operation G until 31st March 1969.

On 20th June 1970, a third settlement was reached for payment of cash bonus at the same rate which was to be effective upto 31st March 1972.

On 26-6-1972, a fourth settlement for payment of cash bonus at the rate of l 0 per cent of gross wages (basic and special pay and dearness allowance) was made effective from 1st \April 1972 to 1973.

On 21st January 1974 and 6th February 1974, settlements for payment of cash bonus at 15 per cent of gross wages, valid for four years from 1st April 1973 to 31st March 1977 were reached. It is clear that this so called "bonus" did not deped upon profits earned but was nothing short of increased wages.

The settlements were approved by the Board of Directors of the L.I.C. and also by the Central Government.

On 29th March 1974, a circular was issued by the L.I.C. for payment of bonus in ac~ cordance with the settlement along with the salary in April.

In April 1974, the payment of bonus for the year 1973-74 was actually made ih accordance with the settlement.

Again, in April 1975, bonus for the year 1974-75 was made in accordance with the settlements.

On 25th September 1975, however, a Payment of Bonus Amendment Ordinance was promulgated. On 26-9-1975, the L.I.C. issued a circular stating that, as the payment of bonus was being reviewed in the light of the Ordinance, and, on 22nd of March, 1976, payment of bonus for the year 1975-76 was to be withheld until a final decision was' taken.

Against this, a writ petition was filed in the High Court of Calcutta.

On 21st May 1976, the Calcutta High Court passed an order recognising the right of petitioners to payment of bonus for the year 1975-76 which had become payable along with the salary in April 1976 and ordered that it must be paid to the employees. Apparently, banns was treated as part of the right of the petitioners to property protected by Article 19 ( 1) ( f) and 31 (I) of the Constitution.

On 29th May 1976, the Life fiisurance Corporation Modification of Settlement Act 1976 was enacted by Parliament denying to the petitionern the right which had been recognised by the settlements, approved by the Central Government and acted upon by the actual payment of bonus to the. employees, and, finally, converted into right under the decision of flie Calcutta High Court on 21st May 1976.

Provisions of section 11 (2) may read as follows :

"(2) Where the Central Government is satisfied that fo.r the purpose of securing uniformity in the scales o( remuneration and the other terms and conditions of service applicable to employees of insurers whose controlled business has been transferred to, and vested in, the Corporation, it is necessary so to do, or that, in the interests of the Corporation and its policy-holders, a reduction in the remuneration payable, or a revision of the other terms and conditions of service applicable, to employees or any class

of them is called for, the Central Government may, notwithstanding anything contained in sub-section ( 1), or in the Industrial Disputes Act, 194 7, or in any other law for the time being in force, or in any award, settlement or agreement for the time being in force, alter (whether by way of reduction or otherwise) the remuneration and the other terms and conditions of service to snch extent, and in such manner as it thinks fit; and if the alteration is not acceptable to any employee, the Corporation may terminate his employment by giving him compensation equivalent to three months' remuneration unless the contract of service with such employee provides for a shorter notice of termination.

Explanation :-The compensation payable to an employee under this sub-section shall be in addition to, and shall not affect, any pension, gratuity, provident fund money

MADA); MOHAN PATHAK V. UNION (Beg., C.J.) 341

or any other benefit to which the employee may be e'ntitled A under his contract of service."

Section 11 (2) of the Act shows that the Central Government had ample power to revise the scales of remuneration and other terms and conditions of service if it was satisfied that the iqterest of the Corporation or the policy-holders demanded this.

Of course, such orders had to be passed as a result of satisfaction upon material placed before the Central Government relating to the interests of the Corporation or its policy holders.

But, no such order was passed.

What was actually done was that the Act was passed to set aside the terms of the settlements which had been incorporated in the Judgment inter-parties of the Calcutta High Court.

The objects and reasons of the Act were set out as follows :

"The provisions of the Payment of Bonus Act, 1965 do not apply to the employees employed by the Life Insurance Corporation of India.

However, the Corporation has, as a matter of practice, been pa)ng bonus to its employees.

The bonus to Class I and Class II employees is being paid in pursuance of agreements between the Corporation and such employees.

The bonus to Class III and Class IV employees is being paid under the terms of settlement arrived at between the Corporation and such employees from time to time.

In terms of the settlement arrived at between the Corporation and its Class III and class IV employees on 24th January, 1974 under the Industrial

Disputes Act, 1947, which is in force upto the 31st March, 1977, bonus is payable by the Corporation to its Class JI! and Class IV employees at the rate of fifteen per cent,

of their annual salary without any maximum limit.

2. It is proposed to set aside, with effect from the 1st April, 1975, these provisions of the settlement arrived 'at between the Corporation and its Class III and Class IV employees on 24th January, 1974 to enable the Corporation to make ex gratia payments to such employees at the rates determine\! on the basis of the general.

Government policy for making ex gratia payments to the employees of the non-competing public sector undertakings.

3. The bill seems to• achieve the above object."

The statement of objects and reasons discloses that the purpose of toe impugned Act was to undo settlements which had been arrived at between the Corporation and Class III and Class IV employees on January 24 and February 6, 1974, and actually recognised by the order of the Calcutta High COl.Irt.

The question conld well arise whether this was really the exercise of a legislative power or of a power comparable to that of an appellate authority considering the merits of what had passed into a right to property recognised by the courts.

This Court has decided in Shrimati Indira Gandhi Vs. Raj

Narain(') that even a constitutional amendment cannot authorise the assumption of a judicial power by Parliament.

One of the tests laid down there was whether the decision is of a kind which requires hearing to be given to the parties, or, in other words, involves at least a quasi-judicial procedure, which the Parliament does not, in exercise of its legislative power, follow.

A decision reached by the Central B Government, under s. 11 (2) of the Act, is the result of a satisfaction on matters stated there and would imply quasi-judicial procedure where the terms of a settlement had to be reviewed or revised. But, the legislative procedure, followed here, does not require that to be done.

It would, in any event, be unfair to adopt legislative procedure to undo such a settlement which had become the basis of a decision of a High Court.

Even if legislation can remove the basis C of a decision it has to do it by an alteration of general rights of a class but not by simply excluding two specific settlements between the Corporation and its employees from the purview of the section 18 of the Industrial Disputes Act, 194 7, which had been held to be valid and enforceable by a High Court. Such selective exclusion could also offend Article 14.

D If Parliament steps in to set aside such a settlement, which the Central Government could much more reasonably 'have examined after going into the need for it or for its revision, the question also arises whether it violates the fundamental right to property guaranteed under Article 19 ( 1 )(f) of the Constitution, inasmuch as the right to get bonus is part of wages and, by its deprivation, a judicially recognised right to property is taken away and not saved by the E provisions of Article 19 ( 6) of the Constitution ? A restriction upon a right may even cover taking away of the right to increased remuneration in the interests of the general public.

Where was the question of any restriction here in the interests of the general public?

It seems a pure and simple case of a deprivation of rights of Class III and Class IV employees without any apparent nexus with any public interest F .

The first hurdle in the way of this attack upon the Act undoing the settlement under Article 19(1) (f) of the Constitution placed before us what that the Act of 1976 notified on 29-5-1976 was passed during the emergency.

Hence. it was submitted that Article 358 of the Constitution is an absolute bar against giving effect to any right arising under Article 19 of the Constitution. Further- G more, it was submitted that the effect of the Act was to wash off the liability altogether after 1-4-1975 so that nothing remained to be enforced after 1-4-1975.

The Act is a very short one of 3 sections.

After defining the settlement as the one which was arrived at between the Corporation and their workers on 24-1-197 4 under section 18, read with clause H

(p) of section 2, of the Industrial Disputes Act, 1947 and the similar further settlement of 6-2-1974, section 3 lays down:

(I) [1976] (2) S.C.R. 347.

.) I

I .. ,..,

MADAN MOHAN PATHAK V. UNION (Beg, C.J.) 343

"Notwithstanding anything contained in the Industrial Disputes Act, 194 7, the provisions of each of the settlements, in so far as they relate to the payment of an annual cash bonus to every Class III and Class IV employees of the Corporation at the rate of fifteen per cent of his annual salary, shall not have any force or effect and shall not be deemed to have any force or effect on and from !st day of April, 1975."

The object of the Act was, in effect, to take away the force of the judgment of the Calcutta High Court recognising the settlements in favour of Class III and Class IV employees of the Corporation.

Rights under that judgment could be said td arise independently of Article 19 of the Constitution.

I find my self in complete agreement with my learned brother Bhagwati that to give effect to the judgment of the Calcutta High Court is not the same thing as enforcing a right under Article 19 of the Constitution. It may be that a right under Article 19 of the Constitution becomes linked up with the enforceability

of the judgment.

Nevertheless, the two could be viewed as separable sets of r.ights. If the right conferred by the judgment independently is sought to be set aside, section 3 of the Act, would, in my opinion, be invalid for trenching upon the judicial power.

I may. however, observe that even though the real object of the Act may be to set aside the result of the mandamus issued by the Calcutta High Court, yet, the section does not mention this object at all.

Probably this was so because the jurisdiction of a High Court and the effectiveness of its orders derived their force from Article 226 of the Constitution itself.

These could not be touched -by an ordinary act of Parliament.

Even if section 3 of the Act seeks to take away the basis of the judgment of the Calcutta High Court, without mentioning it, by enacting what may appear to be a law, yet, I think that, where the rights of the citizen against the State are concerned, we should adopt an interpretation which upholds those rights.

Therefore, according to the interpretation I prefer to adopt the rights wnich had passed into those embodied in a judgment and became the basis Qf a Mandamus from the High Court could not be taken away in this indirect fashion.

Apart from the consideration mentioped above there are also other considerations put forward, with his usual vehemence, by Mr.

R. K. Garg who relies upon the directive principles of tlie State Policy as part of the basic structure of our Constitution.

At any rate, he submits that in judging the reasonableness of a provision the directive principles of State policy can be used, -as this Court has repeatedly done, as criteria of reasonableness, and, therefore, of validity. -Mr.

Garg had relied strongly upon the provisions of Article 43 of the Constitution which says :

"43. The State shall endeavour to secure by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard

-A of life and full enjoyment of leisure and social and cultural opportunities and, in particular, the State shall endeavour to promote cottage industries on an individual or co-operative basis in rural areas." -

He submits that Article 43 casts an obligation on the State to secure a living wage for the workers and is part of the principles "declared fundamental in the governance of the country".

In other words, he would have us use Article 43 as conferring practically a fundamental right which can be enforced.

I do not think (hat we can go so far as that because, even though the directive principles of State policy, including the very important general ones contained in Article 38 and 39 of the Constitution, give the direction in which the fundamental policies of the State must be oriented, yet, we cannot direct either the Central Government or Parliament to proceed in that direction. Article 3 7 says that they "shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws." Thus, even if they are not directly enforceable by a c,, urt they cannot be declared ineffective.

They have the life and force of fundamentals.

The best way in which they can be, without being directly enforced, given vitality and effect in Courts of laws is to use them as criteria of reasonableness, and, therefore, of validity, as we have been doing.

Thus, if progress towards goals found in Articles 38 and 39 and 43 are desired, there should not be any curtailment of wage rates arbitrarily wi(hout disclosing any valid reason for it as is the case here.

It is quite reasonable, in my opinion, to submit that the measure which seeks to deprive workers o( the benefits of a settlement arrived at and assented to by the Central Government, under the provisions of the Industrial Disputes Act, should not be set at naught by an Act designed to defeat a particular settlement. If this be the purpose of the Act, as it evidently is, it could very well be said to be contrary to public interest, and, therefore, not protected by Article 19 ( 6) of the Constitution.

Furthermore, I think that the principle laid dcwn by this Court in

..J Union of India & Ors. v. M/s. Indo-Afgha11 Agencies Ltd.(') can

also be taken int© account in judging tl1e reasonableness of the pfiivi- / sion in this case.

It was held there (ai p. 385) :

"Under our jurisprudence the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen. on an ex . prte appraisement of the circumstances m which the obhgat1on has arisen."

(I) [1961](2) S.C.R. 365.

i -

MADAN MOHAN PATHAK v. UNION (Beg, C.J.) 345

In that case, equitable principles were invoked against the Govern- A ment.

It is true that, in the instant case, it is a provision of the Act of Parliament and not merely a governmental order whose validity is challenged before us.

Nevertheless, we cannot forget that the' Act is the result of a proposal made by the Government of the day which, instead of proceeding under section 11 (2) of the Life Insurance Corporation Act, chose to make an Act of Parliament protected by

emerg., ncy provisions.

I think that the prospects held out, the rep- 8rcsenta\ions made, the conduct of the Government, and equities arising therefrom, may all be taken into consideration for judging whether a particular piece of legislation, initiated by the Government and enacted by Parliament, is reasonable.

Mr. Garg has also strongly attacked section 3 of the Act as violative of Article 14 of the Constitution which was also not available to the petitioners during the emergency.

He alleges that the Corporation has been making very handsome profits so that the question of .ieopardising the intersts of the Corporation or policyholders could not arise.

He submits that the Act is notlimii more than selective discrimination practised against the lower levels of the staff of the Life Insurance Corporation.

I do not think tliat these contentions are devoid of force.

I am sorry that due to the very short interval left for me to dictate my opinion in this ease I have not been able to fully set out the reasoning or to cite all the authorities I wonld. have liked to have done. The pressnrc of work on hand is too great.

I have several judgments to pronounce tomorrow, the last day on which I shall have the authority to participate as a Judge in the decisions ol this Court.

I have, however, thought it to be my duty to indicate my Jine of thinking briefly as J have my doubts whether Article 31 (2A), is not an effective answer to complete reliance upon Article 31 (2) of the Constitution.

It is true that the right to receive bonus which had b"en recognised

by the Central Government both by ins orders and conduct under a F settlement is a right to property.

Nevertheless, since acquisition is defined by Article 31 (2A) (lf the 'Constitution, I seriously .doubt whether that definition of acquisition really satisfied by the facts m the

case before us.

The provision reads as follows :

"31 (2A) Where a law does not provide for the transfer of the ownership or right to possession of any property to a; the Sta'.e or to a Corporation owned or controlled by the State, it shall not be deemed to provide for the comnulsory acquisition or requisitioning of property, notwithstanding that it deprives any person of his property."

I have, however, no doubt that the conclusion reached by my learned brother Bhagwati is quite correct inasmuch as the. benefits of the H rights recognised by the judgment of the. Calcntta High Court c.ould not be indirectly taken away by section 3 of tht' Act selectively directed against specified settlements only.

. I think that section 3 of the impugned Act is struck by the provis10ns of Article 19(1) (f) of the Constitution and not saved by Article 19(6) of the Constitution.

It is also struck by Article 14. If the fundamental rights guaranteed by Articles 14 and 1 9 are not suspended, but their operation is only suspended, a view which I expressed in A. D. M. Jabalpur v. Shivkant Shukla(''), the effect of the suspension is to restore the status quo ante.

Would this not mean that only the validity of an attack based on Aricles 14 and 19 is suspended during the Emergency ? But, once this embargo is lifted Articles 14 and 19 of the Constitution whose use was suspended, would strike down any i>=gislation which would have been bad. lh other words, the declaration of invalidity is stayed during the emergency.

Both Articles 358 Bnd 359(1A) provide that, as soon as a proclamation of emergency ceases to operate, the effect of suspension must vanish "except

as respects things done or omitted to be done before the law so ceases to have effect".

The things done or omitted to be dohe could certainly not mean that the rights conferred under the settlements were washed off completely as the learned Attorney General suggested.

To hold that would be to convert the suspension of invalidity into a validati,0n of law made during the emergency. If the law was not validated but only its invalidation was suspended, we should not give any wider effect to the suspension.

I think we should interpret "things done or omitted to be done" very narrowly. If this be so, it means that the settlements are not to be deemed to be wiped off.

No doubt payments under them were temporarily suspende.d.

This must obviously mean that no payment could be demanded under them durng the emergency, but, as soon as the emergency was over, th= settlements would revive and what could not be demanded dnring the emergency would become payable even for the period of emergency for which payment was suspended.

Otherwise., the enactment will have effect even after the ernergency had ceased.

This would clearly be co'ntrary to the express provisions of Article 358 and 359(1A). In other words, valid claims cannot be washed off by the emergency per se.

They can only be suspended by a law passed during the operation of Article 358 and 359(1A) of the Constitution.

For the reasons given above, I reach the same conclusion as my learhed brother Bhagwati although perhaps by a difference route.

I concur in the final order made by my learned Brother Bhagwati.

G BHAGWATI, J.-These writ petitions are filed by employees of the Life Insurance Corporation challenging the constitutional validity of the Life Insurance Corporation (Modification of Settlement) Act, \976. This unusual piece of legislation was enacted by Parliament during the emergency at a time when there could hardly be any effective debate or discussion and it sought to render ineffective a solemn

and deliberate Settlement arrived at between the Life Insurance Cor- H poration and four differe'nt associations of its employees for payment of cash bonus. It is necessary, in order to appreciate the various

(I) A.LR. 1976 S.C. 1207-[1976] Suppl. S.C.R. 172.

{I-

'r ,,

contentions arising in the writ petitions to recapitulate briefly the facts leading up to the enactment of the Life Insurance Corporation (Modification of Settleme'nt) Act, 197 6, hereinafter referred to as the impugned Act.

The Life Insurance Corporation is a statutory authority established nnJer the Life Insurance Corporation Act, 1956 and under section 6 it is the general duty of the Life Insurance Corporation to carry on life insurance business, wheth•; r in or outside India, and it is required to so exercise its powers as to secure that life insurance business is developed to the best advantage of the community.

It is not necessary to refer to the various provisions of the Life Insurance Corporation Act, 1956 which define the powers, duties and functions of the Life InsUl'ance Corporation Act, since we are not concerned with

them in these writ petitions. It would be enough to refer to section 49 which confers power on the Life Insurance Corporation to make regulations.

Sub-sec:ion ( l ) of that section provids that the Life Insurance Corporation may, with the previous approval of the Central Govcrnme'nt, make regulations, not inconsistent with the Act, "to provide for all mattero for which provision is exped>nt for the purpose of giving effect to the provisions" of the Act and sub-.section (2) enacts th3:t in particular and without prejudice to the generality of the power conferred under sub-section (l), such regulations may provide for-

''(l>) the method of recruitment of employees and agents of the Corporation a'nd the terms and conditions of service of such employees or agents; E

(bb) the terms and conditions of service of persons who have become employees of the Corporation under subsection ( 1) of section 11 ;"

The Life Insurance Corporation bas in exercise of the power conferred under clauses (b) and (bb) of sub-section (2) of section 49 and with the previous approval of the Ontral Government, made the Life Insurance Corporation (Staff) Regulations, 1960. defining the terms and conditions of service of its employees.

There is only one Regulation which is material for our purpose, and that is Regulation 58 which is in the following terms :

"The Corporation may, subject to such directions as the Central Government may issue, grant non-profit sharing bonus to its employees and the payment thereof, including conditions of eligibility for the bonus, shall be regulated by instructions issued by the Chairman from time to time."

We have set out Regulation 58 in its present form as that is the form in which it stood throughout the relevant period. It will be a matter for considerntion as to what is the effect of this Regulation on the

Settlement arrived at between the Life Insurance Corporation and its employees in regard to bonus.

SUPREME CORUT REPORTS

(1978] 3 S.C.R.

lt appears that right from 1959 Settlement were arrived at between the Life Insurance Corporation and its employees from time to

time in regard to various matters relating to the terms and conditions of service of Class III and Class IV employees including bonus payable to them.

The last of such Settlement dated 20th June, 1970, as modified by the Settlement dated 26th June, 1972, expired on 31st March. 1973.

Thereupon four different associatiohs of employees of the Life Insurance Corporation submitted their charter of demands for revision of scales of pay, allowances and other terms and conditions of service on behalf of Class III and Class IV employees.

The Life Insui:ance Corporation carried on negotiatiohs with these associations between Ju; y 1973 and January 197 4 at which there was free and frank exchange of views in regard to various matters including the oblig; ation of the Life Insurance Corporation to the policy-holders and the c:ommunity and ultimately these negotiations culminated in a Settlement dated 24th January, 1974 between the Life Tmurance Corporation and these associations.

The Settlement having been arrived at otherwise than in the course of conciliation. proceeding, was binding on the parties under section 18, sub-section (1) of the Industrial Disputes Act, 194 7 and since the four associations which were parties to the employees, the Settlement was binding on the Life Insurance Corporation and all its Class III and Class IV employees.

The Settlement provided for various matters relating to the terms and conditions of service but wc are concerned only with Clause (8) which made provision in regard to bonus.

That clause was in the following terms :

"(i) No profit sharing bonus shall be paid.

However, the Corporation may, subject to such directions as the Central Government may issue from time to time, grant any other kind of bonus to its Class III & IV employees.

(ii) An annual cash bonus will be paid to all Class Ill and Class IV employees at the rate of 15% of the annual salary (i.e. basic pay including of special pay, if any, and dearness allowance and additional dearness allowance) actually drawn by an employee in respect of the financial year to which the bonus relates.

(iii) Save as provided herein all other terms and conditions attached to the admissibility and payment of bonus shall be as laid down in tl1e Settlement on bonus dated the 26th June, 1972-"

It is aiso necessary to reproduce here Clause ( 12) as that has some bearing on the controversy between the parties :

"PERIOD QF SETTLEMENT :

(1) This Settlement shall be effective from !st April, 1973 and shall be for a period of four years, i.e., from 1st April, 1973 to 31st March, 1977.

(2) The terms of this Settlement shall be subject to the A approval of the Board of the Corporation and the Central Government.

( 3) This Settlement disposes of all the demands raised by the workmen for revision of terms and conditions oi their service .

, ( 4) Except as otherwise provided or modified by this Settlement, the workmen shall continue to be governed by all the terms and conditions of service as set forth and regulated by the Life Insurance Corporation of India (Staff) Regulations, 1960 as also the administrative instructions issuell from time to time and they shall, subject to tl1e provisions thereof including any period of operatiGn specified thereir\ be entitled to, the benefits thereunder."

It was common ground between the parties that the Settlement was approved by the Board of the Life. Insurance Corporation as also by the Central Government and the Chief of Personnel by his Circular dated 12th March, 1974 intimated to the Zonal and Divisional Managers that the approval of the Central Government to the Settlement having been received, the Life Insurance Corporation should proceed to implement the terms of the Settlement. The Executive, Director also issued a circular dated 29th March, 1974 containing administrative instructions in regard to payment of cash bonus under clause 8 (ii) of the Settlement These administrative instructions set out directions in regard to various matters relating to payment of cash bonus and of these, two are materiaL

One was that in case of retirement or death, salary up to the date of cessation of service shall be taken into account for the purpose of determining the amount of bonus payable to the employee or his heirs and the other was that the bonus shall be paid along with the salary for the month of April, but in case of retirement or death, payment wiU be made "soon after the contingency". There was no dispute that for the first two years, 1st April, 1973 to 31st March, 1974 and 1st April, 1974 to 31st March, 1975, the Life Insurance Corporation paid bomis to its Class III and Class IV employees in accordance with the provisions of Clause 8 (ii) of the Settlement read with the administrative instructions dated 29th March, 197 4, But then came the declaration olemergency on 26th June, 1975 and troubles began for Class III and Class IV employees of the Life Insurance Corporation.

On 25th September, 1975 an Ordinance was promulgated by the G President of India called the Payment of Bonus (Amendment) Ordinance, 1975 which came into force with immediate effect, Subsequently, this Ordinance was replaced by the Payment of Bonus (Amendment) Act, 1976 which was brought into force with retrospective effect from the date of the Ordinance, namely, 25th September, 1975 .. This' amending law considerably curtailed the rights of the employees to bonus in industrial establishments, but it had no impact so far as the employees H of the Life Insurance Corporation were concerned since the original Payment of Bonus Act was not applicable to the Life Insurance Corporation by reason of section 32 which exempted the Life Insurance

L5-277SCQ 78

Co1poration from its operation.

The Central Government, however, decided that the employees of establishments which were not covered by the Payment of Bonus Act would not be eligible for payment of bonus but ex-gratia cash payment in lieu of bonus would be made "as may be determined by the Government taking into account the wage level, financial circumstances etc. in each case and such payment will be subject to a maximum of 10% and pursuant to this decision, !he Life Insurance Corporation! was advised by the Ministry of Finance that no further payment of bonus should be made to the employees "without getting the same cleared by the Government". The Life Insurance Co1poraion thereupon by its Circular dated 26th September 1975 informed all.its offices that since the question of payment of bonus was being reviewed in the light of the Bonus Ordinance dated 25th September, 1975, no bonus should be paid to the employees "under the existing provisions until further instructions".

The All-India Insurance Employees' Association protested against this stand taken by the Life Insurance Corporation and pointed out that the Life Insurance Corporation was bound to pay born~ in accordance with the terms of the Settlement and the direction not to pay bonus was clearly illegal and unjustified.

The Life Insurance Corporation conceded that payment of bonus was covered by the Settlement but contended that it was subject to such directions a'.5 the Central Government might issue from time to time and since the Central Government bad advised the Life Insurance Corporation not to make any payment of bonus without their specific approval, the Life Insurance Corporation was justified in not making payment to the employees.

This stand was taken by the Life Insurance Corporation in its letter dated 7th February, 1976 addressed to the All- India Insurance Employees' Association and this was followed by a Circular dated 22nd March, 1976 instructing all the offices of the Life Insurance Corporation not to make payment by way of bonus.

The All-India Insurance Employees' Association and some others thereupon filed writ petition No. 371 of 1976 in the High Court of Calcutta for a writ of Mandamus and Prohibition directing the Life Insurance Corporatiol! to act in accordance with the terms of the Settle-- men! dated 24th January, 1974 read with the administrative instructions dated 29th March, 1974 and to rescind or cancel the Circulars dated 26th September, 1975, 7th February, 1976 and 22nd March, 1976 and not to refuse to pay cash bonus to Class III and Class IV employees along with their salary for the month of April 1976 as provided by the Settlement read with the administrative instructions.

The writ petition was resisted by the Life Insurance Corporation on various grounds to which it is not necessary to refer since we are not concerned with the correctness of the judgment of the Calcutta High Court disposing of the writ petition.

Suffice it to state, and that is material for our purpose, that by a judgment dated 21st May, 1976 a Single Judge of the Calcutta High Court allowed the writ petition and issued a writ of MandamuJ and Prohibition as prayed for in the writ petition.

The Life Insurance Corporation preferred a Letters Patent Appeal against the judgment of the learned Single Judge but in the mean time the impugned Act had already come into force and it was, therefore, stated on behalf of the Life Insurance Corporation before the Division Bench that there was.

I 1-

no necessity for proceeding with the appeal and hence the Division Bench made no order in the appeal.

The result was that the judgment of the learned Single Judge remained intact : with what effect, is a matter we shall presently consider.

On 29th May, 1976 Parliament enacted the impugned Act providing inter alia for modification of the Settlement dated 24th January, 1974 arrived at between the Life Insurance Corporation and its employees. The impugned Act was a very short statute consisting only of three sections. Section 1 gave the short title of the impugned Act, section 2 contained definitions and section 3, which was the operative section, provided as follows :

"Notwithstanding anything contained in the Industrial Disputes Act, 194 7, the provisions of the settlement in so far as they relate to the payment of an annual cash bonus to every Class III and Class IV employees of the Corporation at tbe rate of fifteen per cent, of his annual salary, shall not have any force or effect and shall not be deemed to have had any force or effect on and from the 1st day of April, 1975."

Since the impugned Act did not set at naught the entire settlement dated 24th January, 1974 but merely rendered without force and effect the provisions of the Settlement in so far as they related to payment of annual cash bonus to Class III and Class IV employees and that too not from the date when the Settlement became operative but from 1st April, 1975, it was said to be a statute modifying thz provisions of the Settlement.

The plain and undoubted effect of the impugned Act was to deprive Class III and Class IV employees of the annual cash bonus to which they were entitled under clause 8 (ii) of the Settlement for the years 1st April, 1975 to 31st March, 1976 and 1st April, 1976 to 31st March, 1977 and therefore, two of the associations along with their office bearers field the present writ petitions challenging the constitutional validity of the impugned Act.

There were two grounds on which the constitutionality of the impugned Act was assailed on behalf of the petitioners and they were as follows :

A. The right of Class III and Class IV employees to annual cash bonus for the years 1st April, 1975 to 31st March, 1976 and !st April, 1976 to 31st March, 1977 under clause 8 (ii) of the Settlement was property and since the impugned Act provided for compulsory acquisition of this property without payment of compensation, the impunged Act was violative of Article 31 (2) of the Constitution and was hence null and void.

B. The impugned Act deprived Class III and Class IV employees of the right to annual cash bonus for the years 1st April, 1975 to 31st March, 1976 and 1st April, 1976 to 31st March, 1977 which was vested in them under clause 8(ii) of the Settlement and there was, therefore, clear infringement of their fundamental right under Article

19(1) (f) and since this deprivation of the right to annual cash bonus, which was secured under a Settlement arrived at as a result of collective bargaining and with full and mature deliberation on the part of the Life Insurance Corporation and the Central Government after taking into account the interests of the policy-holders and the community and with a view to approximating towards the goal of a living wage as envisaged in Article 43 of the Constitution, amounted to an unreasonable restriction, the impugned Act was not saved by Article 19(5) and hence it was liable to be struck down as invalid.

We shall proceed to consider these grounds in the order in which we have set them out, though we may point out that if either ground succeeds, it would be unnecessary to consider the other.

But before we proceed, further, it would e convenient at this stage to refer to one other contention of the petitioner based on the judgment of the Calcutta High Court in Writ Petition No. 371 of 1976. The contention was that since the Calcntta High Court had by its judgment dated 21st May, 1976 issued a \\Tit of D Mandamus directing the Life Insurance Corporation to pay annual cash bonus to Class III and Class IV employees for the year 1st April, 1975 to 31st March, 1976 along with their salary for the month of April, 197 6 as provided by the Settlement and this judgment had become final by reason of withdrawal of the Letters Patent Appeal preferred against it, the Life Insurance Corporation was bound to obey the writ of Mandamus and to pay annual cash bonus for the year 1st E April, 1975 to 31st March, 1976 in accordance with the terms of clause 8(ii) of the Settlement. It .is, no doubt, true, said the petitioners, that the impugned Act, if valid, struck at clause 8 (ii) Of the Settlement and rendered it ineffective and without force with effect from 1st April, 1975 but it did not have the effect of absolving the Life Insurance Corporation from its obligation to carry out the writ of Mandamus. There was, according to the petitioners, nothing in the F impugned Act which set at naught the effect of the judgment of the Calcutta High Court or the binding character of the writ of Mandamus issued against the Life Insurance Corporation.

This contention of the petitioners requires serious consideration and we are inclined to accept it.

It is significant to note that there was no reference to the judgment of the Calcutta High Court in the Statement of Objects and Reasons, nor any non-obstante clause referring to a judgment of a court in section 3 of the impugned Act. The attention of Parliament does not appear to have been drawn to the fact that the Calcutta High Court had already issued a writ of Mandamus commanding the Life Insurance Corporation to pay thfl amount of bonus for the year 1st April, 1975 to 31st March, 1976. It appears that unfortunately the judgment of the Calcutta High Court remained almost unnoticed and the impugned Act was passed in ignorance of that judgment. Section 3 of the impugned Act provided that the provisions of the Settlement in so far as they relate to payment of annual cash bonus to Class nr

and Class IV employees shall not have any force or effect and shall not be deemed to have had any force or effect from 1st April, 1975.

But the writ of Mandamus issued. by the Calcutta High Court directing the Life Insurance Corporation to pay the amount of bonus for the year 1st April, 1975 to 31st March, 1976 remained untouched by the impugned Act.

So far as the right of Class III and Class IV employees to annual cash bonus for the year 1st April, 1975 to 31st March, 1976 was concerned, it became crystallised in the judgment and thereafter they became entitled to enforce the writ of Mandamus granted by the judgment and not any right to annual cash bonus under the settlement. This right under the judgment was not sought to be taken away by the impugned Act. The judgment continued to subsist and the Life Insurance Corporation was bound to pay annual cash bonus to Class Ill and Class IV employees for the year 1st April, 1975 to 31st March, 1976 in obedience to the writ of Mandamus. The error committed by the Life Insurance Corporation was that it withdrew the Letters Patent Appeal and allowed the judgment of the learned Single Judge to become final.

By the time the Letters Patent Appeal came up for hearing, the impugned Act had already come into force and the Life Insurance Corporation could, therefore, have successfully contained in the Letters Patent Appeal that, since the Settlement, in as far as it provided for payment of annual cash bonus, was annihilated by the impugned Act with effect from 1st April, 1975, Class III and Class IV employees were not entitled to annual cash bonus for the year 1st April, 1975 to 31st March, 1976 and hence no writ of Mandamus could issue directing the Life Insurance Corporation to make payment of such bonus. If such contention had been raised, there is little doubt, subject of course toany constitutional challenge to the validity of the impugned Act, that the judgment of the learned

Single Judge would have been upturned and the Writ petition dismissed.

But on account of some inexplicable reason, which is difficult to appreciate, the Life Insurance Corporation did not press the Letters Patent

Appeal and the result was that the judgment of the learned Single Judge granting writ of Mandamus became final and binding on the parties.

It is difficult to see how in these circmnstances the Life Insurance Corporation could claim to be absolved from tho obligation imposed by the judgment to carry out the Writ of Mandamus by relying on the unpugned Act.

The Life Insurance Corporation leaned heavily on the decision of this Court iu Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipa/i•y(1) in suppart of its contention that when the settlement in so far as it provided for payment of annual cash bonus was set at naught by the impugned Act with effect from 1st April, 1975, the basis on which the judgment proceeded was fundan1entally altered and that rendr.fed the judgment ineffective and not binding on the parties. We do not think this decision lays down any such wide proposition as is c.ontended for and on behalf of the Life Insurance Corporation. It doe.<, not say that whenever any actual or legal situation is altered by retrospective legislation, a judicial decision rendered by a court on the basis of such factual or legal situation prior to the alteration, would


straightaway, without more, cease to be effective and bindin" on the parties. It is true that there are certain observations in this

0 decision which seem to suggest that a court decision may cease to be binding when the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances.

But these observations have to be read in the light of the question which arose for consideration in that case.

There, the validity of the Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963 was assailed on behalf of the petitioners. The Validation Act had to be enacted because it was held by this Court in Patel Gordhandas Hargovi!ulas v. Municipal Commissioner, Ahmedabad(') that since section 73 of the Bombay Municipality Boroughs Act, 1925 allowed the, Municipality to levy a 'rate' on buildings or lands and the term 'rate' was confined tu an imposition on the baliis of annual letting value, tax levied by the Municipality on lands and buildings on the basis of capital value was invalid.

Section 3 of the Validation Act provided that notwithstanding anything contained in any judgment, decree or order of a court or tribunal or any other authority, no tax assessed or purported to have beeu assessed by a municipality on the basis of capital value of a building or land and imposed, collected or recovered by tbe municipality at any time before the commencement of the Validation Act shall be deemed to have invalidly assessed, imposed, collected or recovered and the imposition, collection or recovery of the tax so assessed shall be valid and shall be deemed to have always been valid and shall not be called in question merely on the ground that the assessment the tax on the basis of capital value of the building or land was not authorised by law and accordingly any tax so assessed before the commencement of the Validation Act and leviab\e, for a period prior to such commencement but not collected or recovered before su, h commencement may be collected or recovered in accordance with the relevant municipal law. It will be seen that by section 3 of the impugned Act the Legislature retrospectively imposed tax on building or land on the basis of capital value and if the tax was already imposed, levied and collected on that basis, made the impasition levy, collection and recovery of the tax valid, notwithstanding the declaration by the Court that as 'rate', the levy was incompetent.

This was clearly permissible to the Legislature because in doing so, the Legislature did not seek to reverse the decision of this Court on the inteqiretation of the word 'rate', but retrospectively amended the law by proVJding for imposition of tax on land or building on the basis of capital value and validated the imposition, levy, collection and recovery of tax on that basis.

The decision of this Court holding the levy of tax to be incompetent on the basis of the unamended law, therefore, became irrelevant and could not stand in the way of the tax being assessed, collected and recovered on the basis of capital value under the law as retrospectively amended.

That is why this Court held that the Validation Act was effective to validate imposition, levy, collection and recovery of tax on land, or building on the basis of capital value. It is difficult to see how this decision given in the context of a validating statute can be of any help •o the Life Insurance Corporation.

Here, the judgment given by the

(l) [196412 S.C.R. 608.

MADAN MOHAN PATHAK V. UNION (BhagWali, ].) .. -·-355

Calcutta High Court, which is relied uJ, on by the petitioner;, is not a mere declaratory judgment holding an impost or tax to iie invalid, so that a validation statute can remove the defect pointed out by the judgment amending the law with retrospective effect and validate such impost or tax. But it is a judgment giving effect to the right of the petitionerll to annual cash bonus under the Settlement by issuing a writ of Mandamus directing the Life Insurance Corporation to pay the amount of such bonus. If by reason of retrospective alteration of the factual or legal situation, the judgment is rendered erroneous, the remedy may be by way of appeal or review, but so long as the judgment stands, it cannot be disregarded or ignored and it must be obeyed by the Life Insurance Corporation. We are, therefore, of the View that, in any event, irrespective of whether the impugned Act is constitutionally valid or not, the Life Insurance Corporation is bound to obey the writ of Mandamus issued by the C'.'kutta High Court and to pay annual cash bonus for the year 1st Apnl, 1975 fo 31st March, 1976 to CTass III and Oass IV

eployees. Now, to the grounds of constitutional challenge_:

-"' Re : Ground A :

This ground raises the question whether the impugned Act is viola- . tive of clause (2) of Article 31. This clause provides safeguards against compulsory acquisition or requisitioning of property by laying down conditions subject to which alone property may be co_mpulsorily acquired or requisitioned and at the date when the impugned Act was enacted, it was in the following terms :-

"No property shall be compulsorily acquired or requisitioned save for a public purpose and save by authority of a. law which provides for acquisition 'or requisitionin;>; or the property for an amount which may be fixed by such Jaw or which may be determined in accordance with such principles and given in such manner as may be specified in such law; and no such law shall be called in question in any conn on the ground that the amount so fixed or determined is not adequate or that the whole or any part of such amount is to be given otherwise than in cash : "

Clause (2) in this form was substituted in Article 31 by the Constitution

(Twentj-fifth Amendment) Act, 1971 and by this amending Act, do.uses (2A) and (2B) were also introduced in Article 31 and they read as follows :-

. "(2A) Where a. law does not provide for the transfer of the ownership or right to possession of any property to the State or to a corporation owned or controlled by the State, it shall not be deemed to provide for the compulsory acquisition or requ!sitioning of property, notwi!; hstanding that it deprives any person of his property.

{2B) Nothing in sub-clause (f) of clause (1) of Article 19 shall effect any such law as is referred 10 in clause (2)."

G .

SUPREME CORUT REPORTS (1978] 3 s.c.R.

The argument of the petitioners was that the right of Class III and Class IV employees to 'annual cash bonus' for the years 1st April, 1975 to 31st March, 1976 and 1st April, 1976 to 31st March, 1977 under the Settlement was property and since the impugned Act provided for transfer of the ownership of this right to the Life Insurance Corporation which was 'State' within the meaning of Article 12, it was a law providing for compulsory acquisition of property as contemplated under clause (2A) of Article 31 and it was, therefore, required to meet the challenge of Article 31, clause (2). The compulsory acquisition of the right to 'annual cash bonus' sought to be effectuated by the impugned Act, said the petitioners, was not supported by public purpose nor did the impugned Act provide for payment of any compensation for the same and hence the impugned Act was void as contravening clause (2) of Article 21.

The first question which arises for consideration on this contention is wl1ether the right of Class III and Class IV employees to 'annual cash bonus' for the years 1st April, 1975 to 31st March, 1976 and !st April, 1976 to 31st March, 1977 under the Settlement wa;. property so as to attract the inhibition of Article 31, clause (2). The Life Insurance Corporation submitted that at the date when the impugned Act was enacted, Class III and Class IV employees had no absolute right to receive 'annual cash bonus' either for the year 1st April, 1975 to 31st March, 1976 or for the year 1st April, 1976 to 31st March, 1977 and there was, therefore, no property which could be compulsorily acquired under the impugned Act.

The argument of the Life Insurance Corporation was that the Life Insurance Corporation (Staff) Regulations, 1960 which laid down the terms' and conditions of services inter alia of Class III and Class IV employees did not contain any provision for payment of bonns except Regulation 58 and since under this Regulation, grant of annual cash bonus by the Life Insurance Corporation ws subject to such directions as the Central Government might issue, the right of Class HI and Class IV employees to receive annual cash bonus could not be said to be an absolute right. It was a right which was liable to be set at naught by any directions that might be issued by the Central Government and in fact the Central Government did issue a direction to the Life Insurance Corporation not to make payment of bonus to the employees "without getting the same cleared by the Government" and consequently, Class III and Class IV employees had no absolute right to claim bonus. The result, according to the Life Insurance Corporation, also followed on a proper interpretation of clauses 8(i) and 8(ii) of the Settlement, for it was clear on a proper reading of these two clauses that annual cash bonus payable to Class III and Class IV employBes under clause 8(ii) was, by reason of clause 8 (i), subject to such directions as the Central Government might issue from time to time and the Central Government having directed that no further payment of bonus should be made to the employees, Class III and Class JV

emplo)es were not entitled to claim annual cash bonus from the Life Insurance Corporation.

This argument of the Life Insurance Corporation is plainly erroneous and it is not possible to accept it. Regulation 58 undoul1tedly says that non-profit sharing bonus may be granted by

the Life Insurance Corporation to its employees, subject to such directions as the Central Government may issue and, foerefore, if the Central Government issues a direction to the contrary, non-profit sharing bonus cannot be granted by the Life Insurance Corporation to any class of employees.

But here, in the present case, grant of annual cash bonus by the Life Insurance Corporation to Class III and Class lV employees under clause 8(ii) of the Settlement was approved by the Central Government as provided in clause 12 and the 'direction' contemplated by Regulation 58 was given by the Central Government that annual cash bonus may be granted as provided in clause 8(ii) of the Settlement.

It was not competent to the Central Government thereafier to issue another contrary direction which would have the effect of compelling the Life Insurance Corporation to commit a breach of its obligation under section 18, suj)-section (1) of the Industrial Disputes Act, 194 7 to pay annual cash bonus in terms of clause S(ii) of the Settlement.

Turning to clause 8(i) of the Settlement, it is true that under this clause non-profit sharing bonus could be granted by the Life Insurance Corporation 'subject to such directions as the Central Government may issue from time to time', but these words giving overriding power to the Central Government to issue directions from time to time are conspicuously absent in cfause 8(ii) and it is difficult to see how they could be projected or read into that clause.

Clauses 8(i) and 8(ff) are distinct and independent clauses and while clause 8(i) enacts a general provision that non-profit sharing bonus may be paid by the Life Insurance Corporation to Class III and Class IV employees subject to such directions as the Central Government might issue from time to time, clause 8(ii) picks out one kind of non-profit sharing bonus and specifically provided thtt annual cash bonus shall be paid to all Class III and Class IV employees at the rate of 15 per cent of the annual salary and this specific provision in regard to payment of annual cash bonus is made subject to only the approval of the Central Government which was admittedly obtained. It is, therefore, clear that Class III and Class JV employees had absolute right to receive annual cash bonus from the Life Insurance Corporation in terms of clause 8(ii) of the Settlement and it was not competent to the Central Government to issue any directions to the Life Insurance Corporation to refuse or withhold payment of the same.

It is true that under clause 8(ii) of the Settlement the annual cash bonus for a particular year was payable at the rate of 15 per cent. of the annual salary actually drawn by the employee in respect of the financial year to which the bonus related and it would, therefore, seem that the bonus was payable at the end of the year and not before, but it was not disputed on behalf of the Life Insurance Corporation that even an employee who retired or resigned before t11e expiration of the year, as also the heirs of a deceased employee who died during the currency of the year, were entitled to receive proportionate bonus and the Life Insurance Corporation in fact recognised this to be the correct position in its administrative instructions dated 29th March, 1974 and actually paid proportionate bonus to the retiring or resigning employee and the heirs• of the deceased employee; The annual cash bonus payable under clause 8(ii) of the Settlement, therefore, accrued

SUPREME CORUT REPORTS [1978] 3 s.c.R.

from day-to-day, though payable in case of retirement, resignation or death, on the happening of that contingency and otherwise, on the expiration of the year to which the bonus related.

There was thus plainly and unquestionably a debt in respect of annual cash bonus accruing to each Class III or Class IV employees from day-to-day and consequently, on the expiration of the year 1st April, 1975 to 31st March, 1976, the annual cash bonus payable under clause 8 (ii) of the Settlement was a debt due and owing from the Life Insurance Corporation to each Class HI or Class IV employee and so also at the date when the impugned Act came into force, each Class III or Class IV employee was entitled to a debt due and owing to him from the Life Jnsurance Corporation in respect of the annual cash bonus from 1st April, 1976 upto that date. The question is whether these debts due and owing from the Life Insurance Corporation were property of Class III and Class JV employees within the meaning of Article 31 (2). So also, was the right of each Class III and Class IV employee to receive annual cash bonus for the period from the date of commencement of the impugned Act upto 31st March, 1977 property for the purpose of Article 31 (2) ? These questions we shall now proceed to consider, for on the answer to them depends the applicability of Article 31 (2).

It fa clear from the scheme of fundamental rights embodied in Part III of the Constitution that the guarantee of the right to property is contained in Article 19(l)(f) and clauses (I) and (2) of Article 31.

It stands to reason that 'property' cannot have one meaning in Article 19(1) (f), another in Article 31 clause (!) and still another in Article .31, clause (2). 'Property' must have the same connotation in all the three Articles and since these are conStitutional provisions intended to secure a fundamental right, they must receive the widest interpretation and must be held to refer to property of every kind.

While discussing the scope and content of Entry 42 in List III of the

Seventh Schedule to the Constitution, which confers power on Parliament and the State Legislatures to legislate with respect to "acquisition and requisitioning of property", it was pointed out by Shah, J., speaking on behalf of the majority in R. C. Cooper v. Union. of India('') that property which can be compulsorily acquired by legislation under this Entry means the "highest right a man can have to anything, being that right which one has to lands or tenements, goods or chattels which does not depend on another's courtesy : it includes ownership, estates and interests in corporeal things, and also rights such as trade-marks, copyrights, patents and even rights in person.am capable of transfer or transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to transfer or succession, and to their capacity of being injured". It would, therefore, seem that, according; to the decision of the majority in R. C. Cooper'~ case, debts and other rights in personam capable of transfer or transmission are property which can form the subject-matter of compulsory acquisition.

And this wonld seem to be unquestionable on principle, since en jurisprudentially debts and other rights of action are property and there is no


• !

reason why they should be excluded from the protection of the con- A stitutional guarantee.

Hidayatullah, C.J., had occasion to consider the true nature of debt in H. H. Maharaiudhiraja Madhav Rao Jiwajl Rao Scindia Bahadur & Ors. v. Union of lndia(1) where the question was whether the Privy Purse payable to the Ruler was property of which he could be said to be deprived by the Order olE the President withdrawing his recognition as Ruler.

The learned Chief Justice, making a very penetrating analysis of the jural relationship involved B in a debt, pointed out that "--a debt or a liability to pay money passes through four stages.

First there is a debt not yet due.

The debt has not yet become a part of the obliger's 'things' because no net liability has yet arisen.

The Second stage is when the liability may have arisen but is not either ascertained or admitted.

Here again the amount due has not become a part of the obligor's things, The third stage is reached when the liability is both ascertained and C admitted.

Then it is property proper of the debtor in the creditor's hands.

The law begins to recognise such property in insolvency, in dealing with it in fraud of creditors, fraudulent preference of one creditor against another, subrogation, equitable esteppel, stoppage intransitu etc.

A credit-debt is then a debt fully provable and which is fixed and absolutely owing.

The last stage is when the debt becomes a judgment debt by reason of a decree of a Court." and apply- D ing this test, concluded that the Privy Purse would be property and proceeded to add : "As soon as an Appropriation Act is passed there is established a credit-debt and the outstanding Priv<y Purse becomes the proper! y of the Ruler in the hands of Government. It is also a sum certain and absolutely payable." Since the effect of the Order

of the President was to deprive the Ruler of his Privy Purse which was his property the learned Chief Justice held that there was E infringement of the fundamental right of the Ruler under Article 31 (2).

Hegde, J., also pointed out in a separate but concurring judgment that since the right to get the Privy Purse was a legal right "enforceable throngli the courts'', it was undoubtedly property and its deprivation was sufficient to found a petition based on contravention of Article 31 (2). It was a1o held by this Court in State of Madhya Pradesh v. Ranajirao Shinde & Anr.(2) that a right to receive cash F grant annually from the State was property within the meaning of that expression in Article 19(1) (f) and clause (2) of Article 31.

The right to pension was also regarded as property for tli:e purpose of Article 19(1) (f) by the decisions of this Court in Deokinanda Prasad v. State of Bihar(') and State of Puniab v. K. R. Erry &

Sobhag Rai Mehta('). This Court adopted the same line of reasoning when it said in State of Guiarat and Anr. v. Shri Ambica Mills . G Ltd., Ahmedabad(') that "unpaid accumulations represent the obligation of the employers to the employees and they are the property of

the employees". Mathew, J., speaking on behalf of the Court, obser- d that the obligation t<; i the employees owned by the employers was

(l) [lp7113 S.C.R. 9.


(3) [11971] Supp. S.C.R. 634.


A "property from the standpoint of the employees". It would, therefore, be seen that property within the meaning of Article 19(1) (f) and. claus~ (2) .of Article 31 comprises every form of property, tangibl~ or mtangible, mcludmg debts and choses in action, such as unp>aid

accumulaion of wages, pension, cash grant and constitutionally protected Pnvy Purse. The debts due and owing from the Life Insurance Corporation in respect of annual cash bonus were, therefore, clearly B propey of Class III and Class IV employees within the meaning of Article 31, clause (2). And so also was their right to receive annual cash bonus for the period from the date of commencement of the impugned Act upto 31st March, 1977, for that was a legal right enforceable through a court of law by issue of a writ of Mandamus, Vide the observation of Hegde, J., at page 194 in the Privy Purse case. c

But a question was raised on behalf of the Respondents whether debts and choses in action, though undoubtedly property, could form the subject-matter of compulsory acquisition so as to attract the applicability of Article 31, clause (2). There is divergence of opinion amongst jurists in the United States of America on this question and though in the earlier decisions of the American courts, it was said that the power of eminent domain cannot be exercised in respect of money and choses in action, the modern trend, as pointed by Nicholas on Eminent Domain, Vol. 1, page 99, para 2, seems to be that the right of eminent domain can be exercised on choses in action.

But even if the preponderant view in the United States were that choses in action cannot come within the power of eminent domain, it would not be right to allow us to be unduly influenced by this view in the E inter pi etation of the scope and ambit of clause (2) of Article 31. We must interpret Article. 31, clause (2) on its own terms without any preconceived notions borrowed from the law in the United States on the subject of eminent domain.

Let us see how this interpretative exercise has been perfonned by this iCourt in the decisions that have been rendered so far and what light they throw on the question as

to whether choses in action an be compulsorily acquired under clanse

(2) of Article 31. We shall confine our attention only to the question of compulsory acquisition of choses in action and not say anything in regard to compulsory acquisition of money, for in these appeals the question arises' only in regard to choses im action and it is not necessary to consider whether money can form the subject-matter or compulsory acquisition.

This question came to be considered by a constitution Bench of this Court in State of Bihar ;<, Kameshwar Singh('). Section 4(b) of the Bihar Land Reforms Act, 1950, which provided for vesting in the State of arrears of rent due to the proprietors or tenure holders for the period prior to the date of vesting of the estates or tenures held by them, on payment of only 50 per cent of the amonnt as compensation, was challenged as constitutionally i11valid on the ground that there was no public purpose for which such acquisition could be said to have been made. The necessity for existence of public purpose was not sought to be spelt out from Article 31, clause (2), because even if there were violation of that

(I) [1952] S.C.R. 889.

clause, it would be protected by Article 3 IA and the Ninth A Schedule read with Article 31-B, the Act being :included as Item I in the Ninth Schedule, but it was said that public purpose was an essential element in the very nature of the power of acquisition and even apart from Article 31, clause (2), no acquisition could be made save for a public purpose.

It was in the context of this argument that Mahajan, J., observed that money and choses in action could not be taken under the power of compulsory acquisition, since the B only purpose which such taking would serve . would be to augment the revenues of the State and that would clearly not be a public purpose.

The learned judge pointed out at pages 942-944 of the Report :

"It is a well accepted proposition of law that property of individuals cannot be appropriated by the State under C the power of compulsory acquisition for the mere purposes of adding to the revenues of the State--no instance is known in which it has been taken for the mere purpose of raising a revenue by sale or otherwise-- Taking money under the right of eminent domain, when it must be compensated in money afterwards is nothing more or less than a forced loan Money or that which in D ordinary use passes as such and which the Government may reach by taxation--and also rights in action which can only be available when made to produce money, cannot be tqken under this power".

for the taking would not be for a public purpose, and proceeded to and that the only purpose to support the acquisition of the arrears E of rent was "to raise revenue to pay compensation to some of the zamindars whose estates are being taken" and this purpose did not fall within any definition, however, wide, of the phrase 'public purpose' and the law was, therefore, to this extent unconstitutional.

Mukherjea, 'J., came to the same conclusion and observed at page 961 of the Report :

"Money as such and also rights in action are ordinarily excluded from this List by American jurists and for good reasons.

There could be no possible necessity for taking either of them under the power of eminent domain.

Money in the hands of a citizen can be reached by the exercise of the power of taxation, it may be confiscated as a penalty under judicial order--But, as Cooley has pointed out, taking money under the right of eminent domain when it must be compensated by money afterwards could be nothing more or less than a forced loan and it is difficult to say that it comes under the head of acquisitionand is embraced within its ordinary connotation."

Chandrasekhara Aiyer, J., also took the same view and held that money and choses in action were exempt from compulsory acquisition "not on the ground that they are movable property, but on the ground that generally speaking there could be no public purpose in their

acquisition''.

Patanjali Sastri, C.J., and Das, J., on the other hand held that the arrears of rent constituted a debt due by the tenants.

It was nothing but an actionable' claim against the tenants which was undoubtedly a species of 'property' which was assignable and, therefore, it could equally be acquired by the State as a species of 'property'.

These two rival views were referred to by Venkatarama Aiyer, J. speaking on behalf of the Court in Bombay Dyeing & Manufacturing Co. Ltd. v. The State of Bombay & Ors.(1) but the learned Judge did not treat the majority view as finally settling the law on the subject. It appears that in the subsequent case of State of Madhya Pradesh v. Ranajirao Shinde (supra) Hegde, J., delivering the judgment of the Court observed that the majority view in Kameshwar Singh's case was followed by this Court in Bombay Dyeing & Manufactur111g Co.'s case, but we do not think that this observation correctly represents what was decided in Bombay Dyeing & Manufacturing Co's case.

Venkatarama Aiyer, J., rested his decision in Bombay Dyeing & Manufacturing Co's, case on alternative grounds : i€ the impugned section provided for the acquisition of money, and if money could not be acquired, then the section was void under Article 19(1) (f) as imposing ail unreasonable restriction on the right to hold property.

If, on the other hand, money could be acquired, the section was void as offending Article 31, clause (2) since the section did not provide for payment of compensation.

The decision in Bombay Dyeing & Manufacturing Co.'s case did not, therefore, lay down that money and choses in action could not be acquired. under Article 31, clause, (2).

But i'n State of Madhya Pradesh v. Ranojirao Shinde (supra) this Court did hold that money and choses in action could not form the subject-matter of acquisition under Article 31, clause (2) and the reason it gave for taking this view was the same as that which prevailed with the majority judges in Kameshwar Singh's case.

This Court held that the power of cumpulsory acquisition conferred under Article 31, clause (2) could not be utilised for enriching the coffersi of the State; that power could be exercised only for a public purpcse ahd augmenting the resources of the State could not be regarded as public purpose.

Hegde, J., speaking on behalf of the Court, pointed out that if it were otherwise, "it would be permissible for the legislatures to enact laws acquiring all public debts due from the State,

annuity deposits returnable by it and provident fund payable by it by providing for the payment of some nominal compensation to the persons whose rights are acquired, as the acquisitions i11 question would augment the resources of the State", but nothing so bad could be mid lo be within the contemplation of clause (2) of Article 31.

Let. us first examine on principles whether this reasoning qua choses in acbon is sound and commends itself for our acceptance.

This premise o'n which this reasoning is based is that the only purpose for which choses in action may be acquired is augmenting the revenues of the State and there can be no other purpose for such

(I) [1958]$.C.R. 1122.

I )

' ,

acquisition.

But this premise is plainly incorrec~ and so is the reasoning based upon it.

Why can choses in action not be acquired for a public purpose other tha"n mere adding to the revemres of the State ?

There may be debts due and owing by poor and deprived tillers, ntisans

and landless labourers to moneylenders and the State may acquire such debts with a view to relieving the weak and exploited debtors from the harassment and oppression to which they might be subjected by their economically powerful creditors.

The purpose of the acquisition in such a case would not be to eurich the coffers of the State.

In fact, the coffers of the State would not be enriched by such acquisition, because having Pogard to the financial condition of the debtors, it may not be possible for the State to recover much, or perhaps anything at all, from the impoverished debtors.

The purpose of such acquisition being relief of the distress of the poor and helpless debtors would be

clearly a public purpose.

We have taken one example by way of illustration, but in a modern welfare State, dedicated to a socialist pattern, of society, myriad situations may arise where it may be necessary to acquire choses in action for achieving a public purpose. It is not correct to say that in every ease where choses in aetion may be acquired, the purpose of acquisition would necessarily and always be augmenting of the revenues of the State and nothing else.

Even the theory of forced loan may break down in case of acquisitio11 of choses in action.

There is a fundamental difference between chose in action and money, in that the former has no~ the same mobility and liquidity as the latter and its values is not measured by the amount ; ecoverable under it, but it depends on a variety of factors such as the financial condition of th~ person liable, the speed and effectiveness of the litigative process and the eventual uncertainty as to when and to what extent it mayl be possible to realise the chose in action.

Eve!li after the chose in action is acquired, the State may 'not be able to recover the amount due under it and there may even be c8ses where the chose in action may be relea~ by the State.

Where money is given as compensation for taking of money, the theory of forced loan may apply, but it is difficult to "ee how it can be applicable where chose in action is taken and money Popresenting its value, which in a large majority of cases would be Jess than the amount recoverable under it, is given as compensation.

Moreover, the theory of forced loan stands considerably eroded after the amendment of Article 31, clause

(2) by the Constitution (Twenty-fifth Amendment) Act, 1971, becausel under the amended clause, even if an amount Jess than the just equivalent is given as compensation for acquisition of property, it would not be violative of the constitutional guarantee.

It is true, and this 1hought was also expressed by Krishna Iyer, J., and myself in our separate but co"ncurring judgment in the State of Kera/a v. The Gwalior Rayon Silk

Manufacturing (Wvg.) Co. Ltd.(') that, notwithstanding the amended clause (2) of Article 31, the legislature would be expected, save in exceptional socio-historical setting to provide just compensation for acquisition of property, but if for any reason the legislature provides a lesser amount than the just equivalent, it would not be open to chalknge on the ground of infringement of clause (2) of Article

(1) [1974] I S.C.R. 671.

31..

Ten, ho.w can the theory of forced Joan apply when chose in action 1s acqmred and what is paid for it is not the just equivalent but a much lesser amount, which is of course not illusory. Moreover, there is also one other fallacy underlying the argument that there can be no public purpose in the acquisition of choses in action and that is based on the assumption that the public purpose contemplated by A_rticle 31, clause (2) lies in the use to which the property acqmred IS to be put as for example, where land or building or other movable property is acquired for being used for a public purpose.

But this assmnption is not justified by the language of Article 31, clause (2), because all that this clause requires is that the purpose for which the acquisition is made must be a public purpose, or, in other words, the acquisitions must be made to achieve a public purpose.

Article 31, clause (2) does not require that the property acqui, red must itself be used for a public purpose. So Jong as the acquisition subserves a public purpose, it would satisfy the requirement of clause (2) of Article 31 and, therefore, if it can be showu that the acquisition of choses in action is for subserving a public purpose, it would be coustitutionally valid. Hegde, J., expressed an apprehension in State of Madhya Pradesh v. Ranojirao Shinde

(supra) that ff this view were accepted, it wonld be permissible for the legislature to enact Jaws acqniring the public debts due from the State, the annuity deposits returnable by it and the provident fund payable by it by providing for payment of some nominal compensation to the persons whose rights were acquired.

We do not think this apprehension is well founded.

It is difficult to see what public purposes can possibly justify a law acquiring the public debts due to the State or the annuity deposits returnable by it or the provident fund payable by it.

If the legislature enacts a law acquiring any of these choses in action, it could only be for the purpose of augmenting the revenues of the State or reducing State expenditure and that would clearly not be a public purpose and the legislation would plainly be violative of the constitutional guarantee embodied in Article 31, clause (2). We would, therefore, prefer the minority view of Das, J., -in Kameshwar Singh's case (supra) as against the majority view of Mahajan, J., Mukherjea, J. and Cbandrasekhara Aiyer, J.

So much on principle.

Turning now to the authorities, we find that, apart from the view of the majority judges in Kameshwar Singh's case and the decision ; n the State of Madhya Pradesh v. Ranojirao Shinde (supra), there is no other decision of this Court which has taken the view that choses in action cannot be compulsorily acquired under Article 31, clause (2). There are in fact subsequent decisions which clearly seem to suggest the contrary. We have already referred to R. C. Cooper's case.

The majority judgment of Shah, J., in that case gives the widest meaning to 'property' which can be compulsorily acquired and includes within it "rights in personam capable of transfer or transmission, such as debts".

The majority view in Kameshwar Singh's case (supra) and the decision in State of Madhya Pradesh v.

Ranojirao Shinde (supra) on this point can no longer be regarded as good law in view of this statement of the law in the majority judgment of Shah, J.

Then again, in the Privy Pu, rse case (supra),

/ I )

Hidayatullah, C.J., held that the Privy Purse payable to a RUier was A a credit-debt owned by him and sinC6 he was deprived of it by the Order of the President, there was violation of his fundamental right under Article 31, clause (2). The learned Chief Justice.thus clearly recognised that debt or chose in action could form the subject matter of compulsory acquisition under Artiele 31, clause (2). Hegde, J., also took the same view in his separate but concurring judgment i11 the Priviy Purse case. It will, therefore, be seen that the trend of the B recent decisions has been to regard debt or chose in action as property which can be compulsorily acquired under clause (2) of Article 31.

We are accordingly of the view that the debts due and owing from the Life Insurance Corporation to Class [Il and Class IV em ployees in respect of annual cash bonus were 'property' within the meaning of Article 31, clause (2) and they could be compulsorily acquired under that clause.

The question, however, still remains whether by the impugned Act there was compulsory acquisition of the debt due and owing from the Life Insurance Corporation to Class III and Class IV employees in respect of annual cash bonus. It was not disputed on behalf of the Life Insurance Corporation that if the impugned Act had the affect of D compulsorily acquiring these debts belonging to Class III and Class IV employees, it would be void as offending Article 31, clause (2), since it admittedly did not provide for payment of any compcnrntion. The Statement of Objects and Reasons undoubtedly said that the provisions of the Settlement in regard to payment of annual cash bonus were being set aside with effect from 1st April, 1975 with a view to enabling the Life Insurance Corporation to make ex-gratia payment to the em]'loyecs E "at the rates determined on the basis of the general Government policy for maki11g ex-gratia payments to the employees of non-competing public sector undertakings".

But the impugned Act did not contain any provision to that effect and Class III and Class IV employees were deprived of the debts due and owing to them, without any provisio11 in the statute for payment of compensation.

The learned Attorney- General on behalf of the Lifo Insurance Corporation. however.

F strenuously contended that there was no compulsory acquisition of the

debts due and owing to Class III and Class IV employees under the impugned Act, but all that. the impugned Act did was to extinguish those debts by annihilating the provisions of the Settlement in regard to payment of annual cash bonus with effect from 1st April, 1975. The debts due and owing from the Life Insurance Corporation to Class Ill and Class IV employees, said the learned Attorney-General, were extin- G guished and not compulsorily acquired and hence there was no contravention of Article 31, clause (2). Now, prior to the Constitution (Fourth Amendment) Act. 1955, which introduced clauses (2A) and (2B) in Article 31. there was considerable controversy as to the inter-relation he tween cla'uses ( l) and (2) and that coloured the interpretation of the words "taken posseSsion of or acquired" in clause, (2) as it stood nrior to the amendment.

The maioritv view in The State of West II Re11!ial v. Subodh Gopal Bose & Ors. (1) and Dwarkadas Shrinivas of

rn [1954] S.CR, 587, 6-277SCl/78

Bombay v. The Sholapur Spi11ning & Weaving Co. Ltd. & Ors.(') was that clauses (1) and (2) of Article 31 were not mutually exclusive but they dealt with same topic aud the deprivation contemplated in clause ( 1) was no other than the compulsory acquisition or taking possession of property' referred to in clause (2) and hence where the deprivation was so substantial as to amount to compulsory acquisition or taking possession, Article 31 was ttracted. The introduction of cbuse (2AJ in Article 31 snapped the link between clauses (I) and (2) and brought about a dichotomy between these two clauses.

Thereafter, claus_e (2) alone dealt with compulsory acquisition or requisitioning of property by the State and clause (1) dealt with deprivation of property in other ways and what should be regarded as compulsory acquisition or requisiiioning of property for the purpose of clause (2) was defined in clause (2A). It was as if clause (2A) supplied the dictionary for the meaning of 'compulsory acquisition and requisitioning of property' in clause ( 2).

Clause (2A) declared that a law shall not be deemed to provide for the compulsory acquisition or requisitioning of property, if it does not provide for the transfer of the ownership or right to possession of the property to the State or to a corporation owned or controlled by the State. It is only where a law provides for the transfer of ownership or right to possession of any property to the State or to a corporation owned or controlled by the State that it would have to meet the challenge of clause (2) of Article 31 as a law providing for compulsory acquisition or requisitioning of property.

Whenever, therefore, the constitutional validity of a law is challenged on the ground of infraction of Article 31, clause (2), the question has to be asked whether the law provides for the transfer of ownership or right to possession of any property to the State or to a corporation owned or controlled by the State.

Here, the Life Insurance Corporation is a corporation owned by the State as its entire capital has been provided by the Central Government. The debts due and owing to Class III and Class JV employees from the Life Insurance Corporation are cancelled or extinguished by the impugned Act.

Does that amonnt to transfer of ownership of any property to the Life Insurance Corporation within the meaning of clause (2A) of Article 31 ? If it does, Article 31, clause (2) would be attracted, but not otherwise.

That depends on the trne interpretation of Article 31, clause (2A).

Now, whilst interpreting Article 31, clause (2A), it must be remembered that the interpretation we place upon it will determine the scope and ambit of the constitutional guarantee under clause (2) of Article G

31. We must not, therefore, construe clause (2A) in a narrow pedantic manner nor adopt a doctrinaire or legalistic approach.

Our interpretation must be guided by the substance of the matter and not by lex scripts.

When clause (2A) says that in order to attract the applicability of clause

(2) the law must provide for the transfer of ownership of property to the State or to a corporation owned or controlled by the State, it is not necessary that the law should in so many words provide for such H transfer.

No particular verbal formula need be adopted. It is not a ritualistic mantra which .jg required to be repeated in the law.

What

(I) [1954] S.C.R. 674.

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has to be considered is the substance of the law and not its form. The question that is to be asked is : does the law in substance provide for transfer of ownership of property, whatever be the linguistic formula employed ? What is the _effect of the law : does it bring about transfer ol ownership of property? Now, 'transfer of ownership' is also a term of wide inlport and it comprises every mode by which ownership may be transferred from one person to another. The mode of transfer may vary from one kind of property to another 1 it would depend on the nature of the property to be transferred. And moreover, the court would have to look to the substance of the transaction in order to detennine whether there is transfer of ownership involved in what has been brought abou, t by the law.

There is no doubt that in the present case the impugned Act extinguished or put an end to the debts due and owing from the Life InsuranceJ. Corporation to Class! Ill and Class IV employees.

That w&s the direct effect of the impugned Act and it can, therefore, be legitimately

said that in substance the impugned Act provided for extinguishment of these debts, though it did not say so in so many words. This much D indeed was not disputed on behalf of the Life Insurance Corporation and t11e controversy between t11e parties only centred round the question whether the extinguishment of these debts involved any transfer of ownership of property to the Life Insurance Corporation. The learned

Attorney General on behalf of the Life Insurance Corporation sought to make a distinction between extinguishment and transfer of ownership of a debt and contended that when ownership of a debt is transferred, it continues to exist as a debt in the hands of the transferee. but when a debt is extinguished it ceases to exist as a debt and it is not possible! to E say that the debtor has bectome the owner of the debt. There can be no transfer of ownership of a debt, said the learned Attomey'General, unless tlle debt continues to exist as such in the hands of the transferee, and, therefore, extinguisbment of a debt does not involve transfer of ownership of the debt to' the debtor.

This contention of the learned Attorney-General, though attractive at first blush, is, in our opinion not well founded. It is not correct to say that there can be no transfer of F ownership of a right or interest unless such right or interest continues to have a separate identifiable existence in the hands of the transferee .

It is not difficult to find instances where ownership of a right or' interest may be transferred from one person to, another by extinguishment. Take for example, a case where the lessor terminates the lease granted by him ta the. lessee by exercising his right of forfeiture or the lessee surrenders the !e<iseinfavour of the lessor. The lease would in such a case come to G an end and tlle interest of the lessee would be extinguished Md correspondingly, the reversion of the lessor would be enlarged into full ownership by the return of the leasehold interest.

There would clearly be transfer of the leasC:..hold interest from the lessee to the lessor as a result of the detennination of the lease and the extinguishment of the interest of the lessee. The same would be the position where a: law provides for cancellation. of the Jease and in such a case, if the lessor is the State H or a corporation owned or controlled by the Sfate, it would amount" to compulsory acquisition of the leasehold interest of the lessees within meaning of clause (2A) of Article 31. It was in fact to held by this

SUPREME COUR1 RF.PORTS [1978) 3 s.c.R.

Court aJld in our opinion rightly in, Aiit Singh v. State of Punjab(') where Sikri, J., speaking on behalf of the majority, pointed out at page 149 that if "the State is the landlord of an estate and there is a lease. of that property and a law provides for the extinguishment of leases held in an estate-it would p_roperly fall under the category of acquisition by the State because the beneficiary of extinguishment would be the State".

Where by reason of extinguishrnent of a right or interest of a person, dtriment is suffered by him, and a corresponding benefit accrues to the State, there would be transfer of ownership of such right or interest to the State. The question would always be : who is the beneficiary of the exti.nguishrnent of the right or interest e[ectuated by the Jaw ? If it is the State, then there would be transfer of ownership of the right or interest to the State, because what the owner of the right or interest would have lost by reason of the extinguishment would be the .C benefit accrued to the State. This was precisely the reason why Hegde, J., speaking on behalf of the Court observed in the State of Madhya Pradesh v. Ranojirao Shinde (supra) that it was possible to view the abolition of cash grants under the Madhya Pradesh law impugned in that case "as a statutory transfer of rights of the grantees to the State".

It was pointed out in that case that there was no difference between

D taking by the State of money that is in the hands of others and the abrogation of the liability of the State to make pa}ment to others, for in the former ca'se the State would be compulsorily taking others' property, while in the latter it would be seeking to appropriate to itself the property of others which is in its hands. It is, therefore, clear that when a debt due and owing by the State or a corporation owned or controlled by the State is extinguished by law, there is transfer of ownership of the money representing the debt from the creditor to the !E State or the State owned/ controlled corporation. So long as the debt is due and owing to the creditor, the State or the State owned/ controlled corporation is under a liability to pay the amount of the debt to the creditor and, therefore, if the amount of the debt is X, the total wealth of the creditor would be A plus X, while that of the State or State owned/controlled corporation would be B minus X.

But if the debt jq extinguished, the total wealth of the creditor would be reduced by X F and that of the State or State owned/ controlled corporation augmented

by the same a.mount. Would this not be in substance and effect of transfer of X from the creditor to the State or State owned/ controlled corporation ? The extinguishment of the debt of the creditor with corresponding benefit to the State or State owned/controlled corporation would plainly and indubitably involve transfer of ownership of the amount representing the debt fr0111 the former to the latter. This is the G real effect of extinguishment of the debt and by garbing it in the form of extinguishment, the State or State owned/controlled corporation cannot obtain benefit at the cost of the creditor and yet avoid the applicability of Article 31, clause (2). The verbal vcil constructed by employing the device of extinguishment of debt cannot be permitted to conceal or hide the real nature of the transaction. It is necessarv to remember that we are dealing here -with a case where a constitutionallv guaranteed fight is sought to be enforced and the protection of such right should not be allowed to be defeated or rendered illusory by Jegis-


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MADAN ~·!OHAN PATHAK v . . UNION (Bhagwati, J.) 369

lative stratcgems.

TL~ co!L:; s should be ready to rip open such strate- A gems and devices and find out whether in effect and substance the legislation trenches upon any fundamental rights. The encroachments on fundamental rights are often subtle and sophisticated and they are disguised in language which apparently seems to steer clear of the constitutional inhibitions. The need for a perspective and alert Bar is, therefore, very great and the courts tvo have to adopt a bold and dynamic approach, if the fundamental rights are to be protected against B dilution or erosion. -· -- ·

In the light of this discussion, the conclusion is inevitable that the direct effect of the impugned Act was to transfer ownership of the debts due and owing to Class III and Class IV employees in respect of annual cash bonus to the Life Insurance Corporation a"d sir>ce the Life Insurance Corporation is a corporation owned by the State, the Impugned Act was a law providing tor compu!Sory ac4u1'•t1v11 .,1 tnese debts by the State within the meaning of clause (2A) of Article 31.- If that be so; the impugned Act must be held to be violative of Article 31, clause

(2) since it did not prv!e for payment of any. compensation at all for the compulsory acqumt10n of these debts. - _ .

Re : Ground (B)

Since the impugned Act has been held void as offending Article 31, clause (2) under Ground (A), it is unnecessary to consider Ground (B) based on infraction of Article 19 (I)( f) . It is the settled practice of this Court to decide no more than what is absolutely necessary for the decision of a case. Moreover, once it is held that the impugned Act fallSI within Article 31, clause (2), its_ \alidity cannot be tested by reference to Article 19(1) (f) by reason of clause (2B) of Article 31.

Hence we do not propose to discuss the very interesting arguments advanced before us in regard to Article 19(1 )(f).

We accordingly allow the writ petitions and declare th<i Life Insurance Corporation (Modification of Settlement) Act, 1976 void as offending Article 31, clause (2) of the Constitution and issue a writ of Mandamus directing the Union of India and the Life Insurance Corporation to forebear from implementing or enforcing the provisions of that

- Act and to pay annual cash bonus for the years 1st April, 1975 to

31t March, 1976 and 1st April, 1976 to 31st March, 1977 to Class III and Class IV employees in accordance witlr the terms of clause 8 (ii) of the Settlement dated 24th January, 1974. The respondents will pay the costs of the writ petitions to the petitioners. ·

ORDER

We agree with the conclusion of Brother Bhagwati but prefer to rest our decision on the ground that the impugned Act violates the provisions of Article 31 (2) and is, therefore, void.

We consider it unnecessary to express any opinion on the effect of the judgment of the Calcutta High Court in W.P. No. 371 of 1976.

P.B.R.

Petitions allowed.