Holding

The Payment of Gratuity (Amendment) Act, 2009, including its retrospective amendment of Section 2(e) and insertion of Section 13A, is constitutionally valid and does not overrule the earlier judgment, as the legislature may amend the law to rectify defects without violating separation of powers or fundamental rights.

Summary

The Supreme Court examined the constitutional validity of the Payment of Gratuity (Amendment) Act, 2009, which amended the definition of “employee” in the Payment of Gratuity Act, 1972 and inserted Section 13A with retrospective effect from 3 April 1997 to extend gratuity benefits to teachers in private schools. The petitioners argued that the amendment overruled the Court’s earlier decision in Ahmedabad Private Primary Teachers’ Association and violated the doctrine of separation of powers, and that its retrospective operation was unreasonable and infringed Articles 14, 19(1)(g), 21 and 300‑A. The Court held that the legislature may amend a statute to cure defects and that such amendment does not overrule a prior judgment because the law itself has changed. It further found that the retrospective amendment was not arbitrary, as it was subject to the statutory gratuity cap and served a public‑interest purpose. Consequently, the amendment was upheld as constitutionally valid and the appeals were dismissed.

Issues considered

The constitutionality of the Payment of Gratuity (Amendment) Act, 2009, including its retrospective effect from 3 April 1997.
Whether the amendment overrules the Supreme Court’s decision in Ahmedabad Private Primary Teachers’ Association and violates the doctrine of separation of powers.
Whether the retrospective operation of the amendment is unreasonable, excessive, or violative of Articles 14, 19(1)(g), 21 and 300‑A of the Constitution.
Whether the amendment imposes liability on private schools for gratuity for periods prior to the effective date, infringing vested rights.
Whether the repeal of the Amendment Act by the Repealing and Amending Act, 2016 affects its operation.

Legislation cited

General Clauses Act, 1897s. 6A
Payment of Gratuity Act, 1972s. 13, s. 13A, s. 1(3)(c), s. 2(e)
Payment of Gratuity (Amendment) Act, 1994s. 2(e)
Payment of Gratuity (Amendment) Act, 2009s. 13A (inserted), s. 2(e) (amended)
Payment of Gratuity (Second Amendment) Act, 1984
Repealing and Amending Act, 2016s. 4

Subjects

gratuityretrospective amendmentseparation of powersconstitutional validityPayment of Gratuity Actprivate schoolsteachers' rightsfundamental rightslegislative competence

Judgment

776 [2022]
SUPREME COURT 13 S.C.R. 776
REPORTS [2022] 13 S.C.R.

A INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.)
v.
UNION OF INDIA AND ANOTHER
(Civil Appeal No. 8162 of 2012)
B AUGUST 29, 2022
[SANJIV KHANNA AND BELA M. TRIVEDI, JJ.]
Payment of Gratuity Act, 1972: ss.1(3)(c), 2(e), 13, 13A –
Payment of Gratuity (Amendment) Act, 2009 – Amendment to s. 2(e)
and insertion of s. 13A to the 1972 Act with retrospective effect
C from 3.04.1997 vide the Amendment Act of 2009 whereby benefit of
gratuity to the teachers of private schools who have rendered
continuous service for not less than 5 years, on their superannuation,
retirement or resignation, or on their death or disablement due to
accident or disease – Constitutional validity of – High Court
dismissed the petitions of the several private schools challenged
D the constitutional validity of the amendments – In appeal before
this Court, challenged on the ground that the Amendment Act, 2009
overrules the judicial decision in Ahmedabad Private Primary
Teachers’ Association, 2004 and violates the doctrine of separation
of powers; and that the retrospective amendments are unreasonable,
E excessive and harsh, and thus, unconstitutional – On appeal, Held:
Legislature has constitutional powers to amend the language of the
provision that was the subject matter of the court decision, and
such an amendment does not overrule the court decision –
Overruling assumes a decision based on the same law – In the instant
case, law is amended, and the defects are removed or cured, the
F law has changed, and therefore, the earlier interpretation is no
longer applicable and becomes irrelevant – Doctrine of separation
of powers demarcates the exclusive domains of the legislature, which
enacts the laws, and the courts which interpret the enacted law –
When the legislature acts within its power to usher in a valid law
G and rectify a legal error, even after a court ruling, the legislature
exercises its constitutional power to enact the law and does not
overrule an earlier court decision – As regards the challenge, that
the retrospective amendments are unreasonable there are upper-
cap limits on payment of gratuity –Though gratuity is computed
with reference to years of service, in view of upper cap limit, the
H
776
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 777
v. UNION OF INDIA AND ANOTHER

payment towards gratuity cannot exceed the specified amount, even A
if the employee would be entitled to higher amount in view of the
years of the service rendered to the employer – Hence, the
amendment is not unreasonable or harsh – The teachers were
discriminated to be denied benefit of gratuity, a terminal benefit,
which was payable to other employees of the private schools/
B
educational institutions, including those engaged in administrative
and managerial work – Amendment with retrospective effect remedies
the injustice and discrimination suffered by the teachers on account
of a legislative mistake – Amendment was necessary to ensure that
something which was due and payable to the teachers is not denied
to them due to a defect in the statute. C
Retroactive effect and retrospective operation – Distinction
between – Discussed.
Dismissing the appeals, the Court
HELD: 1.1 The first ground should not hold for long, as
D
the legislation in question rectifies the infirmities and defects
pointed out by the Court, and the amended clause (e) to Section
2, defining the word “employee” and the newly inserted Section
13A with retrospective effect from 3rd April 1997, effectuate and
catalyse the object and purpose of the Notification No. S-42013/
1/95-SS.(II). This power to legislate with retrospective effect, E
which vests in every sovereign legislature, is not taken away by
a court decision. However, a court decision cannot be overruled
by the legislature. The legislature can amend the language of the
provision that was the subject matter of the court decision, and
such an amendment does not overrule the court decision.
Overruling assumes a decision based on the same law. Where F
the law, as in the present case, has been amended, and the defects
have been removed or cured, the law changes, and therefore,
the earlier interpretation is no longer applicable and becomes
irrelevant. Doctrine of separation of powers demarcates the
exclusive domains of the legislature, which enacts the laws, and G
the courts’, which interpret the law as enacted. The earlier
decision in Ahmedabad Private Primary Teachers’ Association by
this Court had interpreted the law, that is, Section 2(e) of the
PAG Act, as it then existed in the statute. The judgment even
acknowledged and prompted the legislature to enact a legislation
H
778 SUPREME COURT REPORTS [2022] 13 S.C.R.

A granting the benefit of gratuity to teachers, who had been excluded
because of the legal flaw. When the legislature acts within its
power to usher in a valid law and rectify a legal error, even after
a court ruling, the legislature exercises its constitutional power
to enact the law and does not overrule an earlier court decision.
[Para 13][791-E-G; 792-A-B]
B
1.2 The second ground is again devoid of any merit and
substance. The legislature, vide the Amendment Act, 2009, has
given retrospective effect to the amended provision of Section
2(e) and the newly inserted Section 13A with effect from 3rd April
1997, which is also the date of the notification issued by the
C Government under Section 1(3)(c), making the PAG Act applicable
to the educational institutions with ten or more employees. The
amendment enforces and gives effect to what was intended by
the notification, but could not be achieved on account of the
technical and legal defect. The lacuna, a distortion in the language
D that had the unwitting effect of leaving out teachers, has been
rectified so as to achieve the object and purpose behind the
issuance of the notification, making the PAG Act applicable to all
educational institutions. The argument of the educational
institutions that they have been taken by surprise is incorrect
and unacceptable as the legislation had cured the inadvertent
E defect in a statute, as pointed out by this Court, through legislative
repair. Private schools, when they claim a vested right arising
from the reason of defect, should not succeed, for acceptance
would be at the expense of teachers who were denied and deprived
of the intended benefit. Marginal inconvenience in the form of
F financial outgo or difficulty is of little weight, when curing of an
inadvertent defect is made retrospectively in greater public
interest, which consideration would overrule the interest of one
or some institutions. The observations of this Court in
Ahmedabad Private Primary Teachers’ Association were sufficient
to indicate that a legislation should intervene to grant the benefit
G of gratuity to teachers. The contention that the private schools
were sure to succeed as to deny the teachers the benefit of the
Notification No. S-42013/1/95-SS.(II) dated 3rd April 1997, is
questionable and farfetched to be accepted. The challenge was
contested and had remained pending before the High Courts and
H then this Court. The private schools had relied on some
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 779
v. UNION OF INDIA AND ANOTHER

judgments of this Court, but these judgments have interpreted A
the word “employee” under other enactments. The law is subject
to uncertainty ex-ante when two or more views are possible, but
there may be certainty ex-post litigation in view of the law of
precedents, which reduces uncertainty. [Para 14][792-D-G; 793-
A-C]
B
1.3 A secondary argument on behalf of the private
educational institutions that they would be liable to pay gratuity
for a period of service prior to 3rd April 1997, and, therefore, the
amendments are unconscionable and tyrannous, is equally
fallacious for several reasons. The argument of unreasonableness
and that the amendment is financially confiscatory, predicated on C
past liability, which may pre- date the notification effective from
3rd April 1997, apart from the other reasons, is to be rejected as
there are upper-cap limits on payment of gratuity. Therefore,
though gratuity is computed with reference to the years of service,
in view of the upper-cap limit, the payment towards gratuity cannot D
exceed the specified amount, even if the employee would be
entitled to higher amount in view of the years of the service
rendered to the employer. [Para 15, 16][793-D; 795-E-F]
1.4 The provisions of the PAG Act, even post the
retrospective amendments, will apply only to those teachers who E
were in service as on 3rd April 1997, and at the time of termination
have rendered service of not less than 5 years. The period of 5
years may be partly before 3rd April 1997, as the date on which
the person was employed does not determine the applicability of
the PAG Act. The date of termination of service, in the form of
superannuation, retirement, or resignation, or death or F
disablement due to accident or disease, should be post the
enforcement date, which in the present case is 3rd April 1997.
The entire length of service, including the service period prior
to 3rd April 1997, is to be counted for the purpose of computing
the entitlement condition of 5 years of service. This is the correct G
effect of the ratio and decision in Management of Goodyear India
Limited’s case and the decisions explaining retroactive effect of
a statute. This legal position would be equally true and correct
when the PAG Act was first enforced with effect from 16th
September 1972, and when Notification No. S-42013/1/95-SS.(II)
H
780 SUPREME COURT REPORTS [2022] 13 S.C.R.

A under Section 1(3)(c) of the PAG Act was issued and enforced
with effect from 3rd April, 1997. It would be the position in case
of all notifications issued under Section 1(3)(c) of the PAG Act,
unless a contrary intention is expressed.[Para 19][800-C-F]
1.5 The schools have claimed violation of Articles 14,
B 19(1)(g), 21 and 300-A of the Constitution of India which, are not
violated as, to deny gratuity benefits to the teachers upon
enforcement of the notification No. S-42013/1/95-SS.(II) dated
3rd April 1997 was itself an anomaly w hich mandated
correction. The effect of the decision in Ahmedabad Private
Primary Teachers’ Association’s case was that although private
C educational institutions were covered under the PAG Act, gratuity
benefits could not be extended to teachers in view of the legal
flaw in the definition, consequent to which they were not treated
as employees. The teachers were discriminated to be denied
benefit of gratuity, a terminal benefit, which was payable to other
D employees of the private schools/educational institutions,
including those engaged in administrative and managerial work.
The amendment with retrospective effect remedies the injustice
and discrimination suffered by the teachers on account of a
legislative mistake, which was understood after the
pronouncement of the judgment in Ahmedabad Private Primary
E Teachers’ Association’s case. The amendment was necessary to
ensure that something which was due and payable to the teachers
is not denied to them due to a defect in the statute. Payment of
gratuity cannot be categorized as a windfall or a bounty payable
by the private schools as it is one of the minimal conditions of
F service.The argument of the private schools that they do not have
capacity and ability to pay gratuity to the teachers is unapt and
parsimonious. All establishments are bound to follow the law,
including the PAG Act. The private schools were certainly aware
of the intent of the Government that the educational institutions,
as an establishment, would be covered and must pay gratuity upon
G issue of notification No. S-42013/1/95-SS.(II) dated 3rd April 1997.
Some schools have raised an argument relying upon decision of
this Court in T.M.A. Pai Foundation and Others v. State of
Karnataka and Others, which observes that as a matter of
principle, charging of capitation fee or profiteering by educational
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 781
v. UNION OF INDIA AND ANOTHER

institutions is impermissible. However, the judgment does not A
state that the teachers should not be paid gratuity. In fact, the
judgment holds that the educational institutions are entitled to
reasonable surplus to meet the cost of expansion and
augmentation of the facilities and this does not amount to
profiteering. It is possible that in some States there are fee fixation
B
laws which will have to be complied with. But compliance with
these laws does not mean that the teachers should be deprived
and denied gratuity, which they were/ are entitled to receive as
other employees of an educational institution. Regulation of fee
is to ensure that there is no commercialisation and profiteering,
and the effect is not to prohibit a school from fixing and collecting C
“just and permissible school fee”. [Para 20][800-G-H; 801-A-B,
D-G]
1.6 The submission of the private schools was that the
judgments of this Court upholding retrospective amendments
are valid only when there is a tax implication as the Government D
has to refund the paid taxes, is unfounded and irrational.The
power to amend, which includes the power to amend the statute
with retrospective effect, is a constitutional power vested with
the legislature, which is not confined and restricted to any
particular type of statutes, namely, tax statutes. This Court would
not accept any attempt to circumscribe and limit the power vested E
with the sovereign legislature, thereby putting fetters when such
fetters are not prescribed by the Constitution. When and which
cases to exercise the power has to be left to the legislature. In
case the constitutional validity of the amendment act is challenged,
the court is entitled to examine the relevant circumstances which F
prompted the legislature to make retrospective amendment.
Judicial review, when validity of an amendment act is challenged,
is decided on the grounds of lack of legislative competence,
violation of the fundamental rights or any other provisions of the
Constitution of India. In the present case, the notification No. S-
42013/1/95-SS.(II) dated 3rd April 1997 had ensured that the G
benevolent provisions requiring payment of gratuity should be
extended to the “employees” of the educational institutions. The
amendment with retrospective effect is to make the benevolent
provisions equally applicable to teachers. The amendment seeks
to bring equality and give fair treatment to the teachers. It can H
782 SUPREME COURT REPORTS [2022] 13 S.C.R.

A hardly be categorised as an arbitrary and high-handed exercise.
[Para 22][802-D-H; 803-A]
1.7 The stay orders are vacated. The private schools would
make payment to the employees/teachers along with the interest
in accordance with the provisions of the PAG Act within a period
B of 6 weeks from today and in case of default, the employees/
teachers may move the appropriate forum to enforce payment in
accordance with the provisions of the PAG Act. [Para 26][807-B-
C]
Management of Goodyear India Limited. v. Shri K.G.
C Devessar (1985) 4 SCC 45; - Relied (Para 25)
Ahmedabad Private Primary Teachers’ Association v.
Administrative Officer and Others, (2004) 1 SCC 755 :
[2004] 1 SCR 470; A. Sundarambal v. Government of
Goa, Daman and Diu and Others (1988) 4 SCC 42 :
[1988] 1 Suppl. SCR 604; Haryana Unrecognised
D
Schools’ Association v. State of Haryana (1996) 4 SCC
225 : [1996] 1 Suppl. SCR 253; State of Tamil Nadu v.
Arooran Sugar Ltd. (1997) 1 SCC 326 : [1996] 8 Suppl.
SCR 193; State of Gujarat and Another v. Raman Lal
Keshav Lal Soni and Others (1983) 2 SCC 33; [1983]
E 2 SCR 287; T.R. Kapur and Others v. State of Haryana
and Others, (1986) Supp SCC 584. Union of India and
Others v. Tushar Ranjan Mohanty and Others (1994) 5
SCC 450 : [1994] 1 Suppl. SCR 651; Shri Prithvi Cotton
Mills Ltd. and Another v. Broach Borough Municipality
and Others (1969) 2 SCC 283 : [1970] 1 SCR 388;
F Ujagar Prints and Others (II) v. Union of India and
Others (1989) 3 SCC 488 : [1988] 3 Suppl. SCR 770;
National Agricultural Cooperative Marking Federation
of India Ltd. and Another v. Union of India and Others
(2003) 5 SCC 23 : [2003] 3 SCR 1; Shanti Conductors
G Private Limited and Another v. Assam State Electricity
Board and Others (2019) 19 SCC 529; Vineeta Sharma
v. Rakesh Sharma and Others (2020) 9 SCC 1: [2020]
10 SCR 135; Darshan Singh v. Ram Pal Singh and
Another 1992 Supp. (1) SCC 191 Bakshish Singh v. M/
s Darshan Engineering Works and Others, (1994) 1
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 783
v. UNION OF INDIA AND ANOTHER

SCC 9 : [1993] 3 Suppl. SCR 178; T.M.A. Pai A
Foundation and Others v. State of Karnataka and Others
(2002) 8 SCC 481 : [2002] 3 Suppl. SCR 587; Indian
School, Jodhpur and Another v. State of Rajasthan and
Others. (2021) 10 SCC 517 : 2021 (5) JT 432; Lohia
Machines Ltd. and Another v. Union of India and Others
B
(1985) 2 SCC 197 : [1985] 2 SCR 686; JethanandBetab
v. State of Delhi (1960) 1 SCR 755; Secretary of State
for India in Council v. Hindusthan Co-operative
Insurance Society, Ltd. 1931 SCC OnLine PC 37;
KhudaBux v. Manager, Caledonian Press 1954 SCC
OnLine Cal 132; - Referred to. C
Case Law Reference
[2004] 1 SCR 470 referred to Para 7
[1988] 1 Suppl. SCR 604 referred to Para 7
[1996] 1 Suppl. SCR 253 referred to Para 7 D
[1996] 8 Suppl. SCR 193 referred to Para 12
[1983] 2 SCR 287 referred to Para 12
[1994] 1 Suppl. SCR 651 referred to Para 12
[1970] 1 SCR 388 referred to Para 13
E
[1988] 3 Suppl. SCR 770 referred to Para 13
[2003] 3 SCR 1 referred to Para 13
[2020] 10 SCR 135 referred to Para 18
[1993] 3 Suppl. SCR 178 referred to Para 20
F
[2002] 3 Suppl. SCR 587 referred to Para 20
[1985] 2 SCR 686 referred to Para 21
(2019) 19 SCC 529 referred to Para 17
[2020] 10 SCR 135 referred to Para 18
[1990] 3 Suppl. SCR 212 referred to Para 18 G

[1993] 3 Suppl. SCR 178 referred to Para 20
[2002] 3 Suppl. SCR 587 referred to Para 20
[1985] 2 SCR 686 referred to Para 20
(1985) 2 SCC 197 referred to Para 21 H
784 SUPREME COURT REPORTS [2022] 13 S.C.R.

A [1960] 1 SCR 755 referred to Para 24
(1985) 4 SCC 45 relied/followed on Para 25
CIVIL APPELLATE JURISDICTION : Civil Appeal No.8162
of 2012.
From the Judgment and Order dated 02.12.2011 of the High Court
B of Delhi at New Delhi in Writ Petition (C) No.6168 of 2010.
With
Civil Appeal Nos.8684 Of 2012, 2229, 9406 of 2013, 6316-6329,
6330-6331 Of 2017, 3870, 7457, 7458, 7459, 7460, 7461, 7462 of 2018,
SLP (C) Nos.12535 Of 2014, 15069 Of 2015, 19930 of 2017, 3293 of
C 2019 2235 of 2020, Writ Petition (Civil) No.44 Of 2016, Writ Petition
(Civil) No.1158 of 2019 And Transfer Case (Civil) No.104 of 2015.
Vikramjeet Banerjee, AAG, S. K. Gupta, Bhuvan Kapoor, Ms.
Alka Agrawal, Ms. Swati Ghildiyal, Siddhartha Sinha, Ms. Shruti Agarwal,
Shivam Singhania, Nring Chamwibe Zeliang, Prashant Rawat, Ms. Janhvi
D Prakash, Gurmeet Singh Makker, Navanjay Mahapatra, Tathagat Sharma,
Aditya Mishra, Raman Yadav, Amrish Kumar, Avi Singh, Manohar Pratap,
Karan Dhalla, Aditya Purohit, Mizba Dhebak, Ranjan Kumar Pandey,
Amol Nirmalkumar Suryawanshi, R. P. Gupta, Ashok Mathur, Ashwani
Kumar, Mishra Saurabh, Ms. Shobha Gupta, Nishant Bahuguna, Shubham
Jalan, Ms. Prachi Sharma, Ms. Sakshi Tiwari, Ms. Kamini Jaiswal,
E Nachiketa Joshi, Ms. Sucheta Joshi, Ms. Himadri Haksar, Ms. Medhavi
Mishra, Niraj Sharma, Ankit Goel, Kunal Verma, Parmanand Gaur, Ajit
Pravin Wagh, Sudhanshu S. Choudhari, Amrik Singh, Shreekant Neelappa
Terdal, Sumeer Sodhi, Dhruv Wadhwa, Ms. Deepanwita Priyanka, Ms.
Ruchi Kohli, Ms. Srishti Mishra, Ms. Ranjeeta Rohatgi, Ms. Samten
F Doma, Naresh Kumar, Rajesh Imandar, Shashwat Solanki, Ms. Revanta
Solanki, Wasim L. Shaikh, Rauf Rahim, Mrs. Anil Katiyar, Advs. for the
appearing parties.
The Judgment of the Court was delivered by
SANJIV KHANNA, J.
G Leave granted in the special leave petitions.
2. The civil appeals by way of special leave, which impugn the
judgements of the High Court of Allahabad- Lucknow Bench1, the High
1
City Montessori School and Another v. Union of India and Others., Miscellaneous
Bench No. 3075/2015; and City Montessari School v. Appellate Authority, Misc. Single
H No. 4583/2017.
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 785
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

Court of Gujarat2, the High Court of Delhi3, the High Court of Bombay- A
Aurangabad Bench4, the High Court of Punjab and Haryana5, the High
Court of Chhattisgarh- Bilaspur Bench6 and the High Court of Madhya
Pradesh,-Indore Bench7, as well as a batch of writ petitions under Article
32 of the Constitution of India, were heard together as they involve a
common question – constitutional validity of the amendment to Section
B
2(e) and insertion of Section 13A to the Payment of Gratuity Act, 19728,
with retrospective effect from 3rd April 1997 vide the Payment of Gratuity
(Amendment) Act, 20099.
3. The PAG Act enacted and enforced with effect from 16th
September 1972, requires payment of gratuity to an employee after he
has rendered continuous service for not less than 5 years, on his C
superannuation, retirement or resignation or on his death or disablement
due to accident or disease.10 However, sub-section (3) to Section 1 of
the PAG Act restricts its applicability to the following establishments :
“1. Short title, extent, application and commencement. –
D
xx xx xx
(3) It shall apply to –

2
Saraswati Vidya Mandal v. Ashaben Vinubhai Majmudar and Another, S.C.A. No.
17839/ 2011 and 11 other cases; Jain Citizens Education Society, Surendranagar and
Another v. Union of India and Others, S.C.A. No. 9022/2011 and 1 other Case; and E
Nalanda Kelavani Mandal v. Shri Amrutbhai Nathudas Patel and Another, S.C.A. No.
18772/2015, and 5 other cases.
3
Independent Schools’ Federation of India (Regd.) v. Union of India & Anr., W.P. (C)
No. 6168/2010; and Maharishi Shiksha Sansthan Registered Society v. Union of India
and Another., W.P(C) 4696/2012.
4
Saint Xaviers High School v. Shailaja Vishnu Deshpande., Writ Petition No. 15344/
2017; and Saint Xaviers High School v. Jayashree Shamal Ghosh, Writ Petition No. F
15282/2019.
5
The Sonipat Hindu Educational & Charitable Society v. Union of India and Another,
C.W.P. No. 17643/2010 (O&M); Maharishi Dayanand Education Society and others v.
Union of India and Others, C.W.P.16884/2012; and Independent Schools Association,
Chandigarh v. Union of India and Others, C.W.P. No. 23489/2011.
6
The Secretary, Board of Secondary Education and Others v. Union of India and
Others, W.P.L. No. 138/2012 and 1 other case. G
7
Bal Niketan Sangh through Smt. Meena Phadke v. State of Madhya Pradesh & Others.,
Writ Petition No. 5508/ 2014.
8
For short, “PAG Act”.
9
For short, “Amendment Act, 2009”.
10
Section 4 of the PAG Act.
H
786 SUPREME COURT REPORTS [2022] 13 S.C.R.

A (a) every factory, mine, oilfield, plantation, port and railway
company;
(b) every shop or establishment within the meaning of any law for
the time being in force in relation to shops and establishments in a
State, in which ten or more persons are employed, or were
B employed, on any day of the preceding twelve months;
(c) such other establishments or class of establishments, in which
ten or more employees are employed, or were employed, on any
day of the preceding twelve months, as the Central Government
may, by notification, specify in this behalf.”
C In the present case, we are only concerned with clause (c) and
not clauses (a) and (b) to sub-section (3) to Section 1 of the PAG Act.
As per clause (c), the PAG Act applies to an establishment or a class of
establishments in which ten or more employees are employed, as the
Central Government may, by notification, specify on this behalf. 11
D 4. In exercise of powers conferred by clause (c) to Section 1(3)
of PAG Act vide notification No. S.O. 239, the provisions of the PAG
Act were made applicable to the “local bodies” in which ten or more
persons are employed, as a class of establishments, with effect from 8th
January 1982. As a result, the schools under the local bodies with ten or
E more employees became liable to pay gratuity to their employees.
However, the notification did not apply to private schools.
5. By Notification No. S-42013/1/95-SS.(II) issued by the Ministry
of Labour and Employment, Government of India on 3rd April, 1997, the
provisions of the PAG Act have been made applicable to the educational
F institutions with ten or more employees. The private schools being
educational institutions, in which ten or more persons are employed,
became liable to pay gratuity to their employees as per the provisions of
the PAG Act.
6. However, some private schools raised a dispute claiming that
the teachers in educational institutions or schools are not “employee” as
G
defined in Section 2(e) of the PAG Act. The expression “employee” in
11
Sub-section 3A to Section 1, inserted by the Payment of Gratuity (Second Amendment)
Act, 1984 with effect from 18 th May 1984, states that a shop or establishment to which
the PAG Act applies, shall continue to be governed by the enactment, notwithstanding
the number of persons employed therein, at any time after the PAG Act has become
H applicable, falls below ten.
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 787
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

clause (e) to Section 2, post the Payment of Gratuity (Amendment) Act, A
1994, which came into effect from 24th May 1994, at that time, read
thus:
“2. Definitions. –
xx xx xx
(e) employee means any person (other than apprentice) employed B
on wages, in any establishment, factory, mine, oilfield, plantation,
port, railway company or shop, to do any skilled, semi-skilled, or
unskilled, manual, supervisory, technical or clerical work, whether
the terms of such employment are express or implied, and whether
or nor such person is employed in a managerial or administrative C
capacity, but does not include any such person who holds a post
under the Central Government or a State Government and is
governed by any other Act or by any rules providing for payment
of gratuity.”
The contention that the teachers did not fulfil the description of D
the employees, who are skilled, semi-skilled or unskilled persons employed
on wages, was accepted by the Full Bench of the High Court of Gujarat
vide judgment dated 4th May 200112. Thus, the teachers were denied
the benefit of gratuity, but other employees of the private schools, were
entitled to the benefit of gratuity.
E
7. This decision of the High Court of Gujarat was impugned by an
association of teachers – Ahmedabad Private Primary Teachers’
Association, before this Court, but their challenge was rejected vide
judgment dated 13th January 200413. Applying the doctrine of pari
materia, this Court held that the expression “employee”, as defined vide
clause (e) to Section 2, is restrictive and not expansive. Relying on F
decisions in A. Sundarambalv. Government of Goa, Daman and Diu
and Others14 and Haryana Unrecognised Schools’ Associationv. State
of Haryana15, while interpreting the definition of an “employee” under
the Minimum Wages Act, 1948, and the Payment of Bonus Act, 1965, as
also the definition of “workmen” under the Industrial Disputes Act, 1947, G
12
Shantiben L. Christian v. Administrative Officer, Ahmedabad Municipal School
Board,Special Civil Application No. 5272 of 1987.
13
Ahmedabad Private Primary Teachers’ Association v. Administrative Officer and
Others, (2004) 1 SCC 755.
14
(1988) 4 SCC 42.
15
(1996) 4 SCC 225. H
788 SUPREME COURT REPORTS [2022] 13 S.C.R.

A this Court pointed to the difference in the definition of word “employee”
in the Employees’ Provident Fund and Miscellaneous Provisions Act,
1952. Accordingly, teachers who impart education to students were held
not to be an “employee” under Section 2(e) of the PAG Act as they do
not perform any kind of skilled, unskilled, semi-skilled, manual, supervisory,
managerial, administrative, technical or clerical work. Reasoning in
B
Ahmedabad Private Primary Teachers’ Association (supra) is
crystalized in paragraph 25 of the judgment, which reads:
“25. The legislature was alive to various kinds of definitions of
the word “employee” contained in various previous labour
enactments when the Act was passed in 1972. If it intended to
C cover in the definition of “employee” all kinds of employees, it
could have as well used such wide language as is contained in
Section 2(f) of the Employees’ Provident Funds Act, 1952 which
defines “employee” to mean “any person who is employed for
wages in any kind of work, manual or otherwise, in or in
D connection with the work of an establishment …”. Non-use
of such wide language in the definition of “employee” in Section
2(e) of the Act of 1972 reinforces our conclusion that teachers
are clearly not covered in the definition.”
Nevertheless, being conscious that the teachers would be thereby
E deprived of the benefit of gratuity, the Court had observed and clarified:
“26. Our conclusion should not be misunderstood that teachers
although engaged in a very noble profession of educating our young
generation should not be given any gratuity benefit. There are
already in several States separate statutes, rules and regulations
F granting gratuity benefits to teachers in educational institutions
which are more or less beneficial than the gratuity benefits provided
under the Act. It is for the legislature to take cognizance of situation
of such teachers in various establishments where gratuity benefits
are not available and think of a separate legislation for them in
this regard. That is the subject-matter solely of the legislature to
G consider and decide.”
8. On 26th November 2007, the Payment of Gratuity (Amendment)
Bill, 2007, was introduced in the Parliament seeking to amend the definition
of the word “employee” and thereby rectify the error or lacuna identified
by this Court in Ahmedabad Private Primary Teachers’ Association
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 789
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

(supra). The object and reasons, as stated and obvious, were to extend A
the benefit of gratuity to teachers of private educational institutions. The
bill was referred to the Standing Committee on 10th December 2007.
After due deliberations and in-depth consideration, the Standing
Committee deemed it appropriate to suggest changes vide the 26th
Standing Committee Report. The report, on the aspect of grant of gratuity
B
to teachers with effect from 3rd April, 1997 states:
“36…The Committee feel that implementing the law from the
year 2004 will cause irreparable loss to a large number of teachers
of the country, particularly to those who have already retired. The
Committee, therefore, call upon the Government to make the law
applicable with retrospective effect, i.e. from the date of C
notification in the year 1997. This will provide the needed succour
as well as justice to all those affected persons who were denied
their rightful benefits due to some technical flaw/legal lacuna in
the definition of the term ‘employee’ as contained in Section 2 (e)
of the Payment of Gratuity Act, 1972.” D
9. Accepting the said recommendation of the 26th Standing
Committee Report, the Payment of Gratuity (Amendment) Bill, 2009
was introduced in the Parliament on 24th February 2009 and was passed
on 31st December 2009. Clause (e) to Section 2 of the PAG Act was
amended with retrospective effect from 3rd April, 1997, and reads: E
“2. Definitions. –
xx xx xx
(e) “employee”means any person (other than an apprentice)
who is employed for wages, whether the terms of such employment
are express or implied, in any kind of work, manual or otherwise, F
in or in connection with the work of a factory, mine, oilfield,
plantation, port, railway company, shop or other establishment to
which this Act applies, but does not include any such person who
holds a post under the Central Government or a State Government
and is governed by any other Act or by any rules providing for G
payment of gratuity;”
Further, Section 13A was inserted also with effect from 3rd April
1997 and reads :
“13A. Validation of payment of gratuity.–Notwithstanding
anything contained in any judgement, decree or order of any court, H
790 SUPREME COURT REPORTS [2022] 13 S.C.R.

A for the period commencing on and from the 3rd day of April, 1997
and ending on the day on which the Payment of Gratuity
(Amendment) Act, 2009, receives the assent of the President, the
gratuity shall be payable to an employee in pursuance of the
notification of the Government of India in the Ministry of Labour
and Employment vide number S.O. 1080, dated the 3rd day of
B
April, 1997 and the said notification shall be valid and shall be
deemed always to have been valid as if the Payment of Gratuity
(Amendment) Act, 2009 had been in force at all material times
and the gratuity shall be payable accordingly:
Provided that nothing contained in this section shall extend, or
C be construed to extend, to affect any person with any punishment
or penalty whatsoever by reason of the non-payment by him of
the gratuity during the period specified in this section which shall
become due in pursuance of the said notification.”
10. The object and reasons for the Amendment Act, 2009 refers
D to the judgment in Ahmedabad Private Primary Teachers’ Association
(supra), and states that the legislature, to cover the definition of
“employee” to all kinds of employees, has used language similar to the
wide language of clause (f) of Section 2 of the Employees’ Provident
Funds and Miscellaneous Provisions Act, 1952. It is also crystal clear
E that the Parliament has passed and enacted the Amendment Act, 2009
to confer, with retrospective effect from the date of the notification on
3rd April 1997, benefit of gratuity to the teachers who have rendered
continuous service for not less than 5 years, on their superannuation,
retirement or resignation, or on their death or disablement due to accident
or disease.
F
11. Several private schools challenged the constitutional validity
of the amendments, which writ petitions have been dismissed by seven
High Courts, as mentioned in the first paragraph of this judgment. These
appeals by way of special leave impugn these judgments. Some private
schools have also filed writ petitions under Article 32 of the Constitution
G of India before us.
12. The power of the Parliament and State Legislatures under
Articles 245, 246 and 248 of the Constitution of India, as held by this
Court in State of Tamil Nadu v. Arooran Sugar Ltd.16 and several
16
(1997) 1 SCC 326.
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 791
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

other decisions of this Court, includingState of Gujarat and Another v. A
Raman Lal Keshav Lal Soni and Others17, T.R. Kapur and Othersv.
State of Haryana and Others18and Union of India and Othersv.
Tushar Ranjan Mohanty and Others19, to legislate, embraces the power
to amend, delete or obliterate the statute or enact a statute prospectively
or retrospectively. To be fair, the appellants and the writ petitioners do
B
not contest the competency, and that the legislature has the power to
amend an already enacted law or enact a new law with retrospective
effect. They also do not dispute that the amendment to Section 2(e), and
the insertion of Section 13A have been given retrospective effect. The
two main grounds of challenge raised and required to be considered in
nutshell can be summarised as: C
(a) The legislation vide the Amendment Act 2009 overrules the
judicial decision in Ahmedabad Private Primary Teachers’
Association (supra) and violates the doctrine of separation of
powers.
(b) The retrospective amendments are unreasonable, excessive D
and harsh, and therefore, unconstitutional.
13. The first ground should not hold us for long, as the legislation
in question rectifies the infirmities and defects pointed out by the Court,
and the amended clause (e) to Section 2, defining the word “employee”
and the newly inserted Section 13A with retrospective effect from 3rd E
April 1997, effectuate and catalyse the object and purpose of the
Notification No. S-42013/1/95-SS.(II). This power to legislate with
retrospective effect, which vests in every sovereign legislature, is not
taken away by a court decision. However, a court decision cannot be
overruled by the legislature. The legislature can amend the language of F
the provision that was the subject matter of the court decision, and such
an amendment does not overrule the court decision. Overruling assumes
a decision based on the same law. Where the law, as in the present case,
has been amended, and the defects have been removed or cured, the
law changes, and therefore, the earlier interpretation is no longer
applicable and becomes irrelevant. Doctrine of separation of powers G
demarcates the exclusive domains of the legislature, which enacts the
laws, and the courts’, which interpret the law as enacted. The earlier
17
(1983) 2 SCC 33.
18
(1986) Supp SCC 584.
19
(1994) 5 SCC 450. H
792 SUPREME COURT REPORTS [2022] 13 S.C.R.

A decision in Ahmedabad Private Primary Teachers’ Association (supra)
by this Court had interpreted the law, that is, Section 2(e) of the PAG
Act, as it then existed in the statute. The judgment even acknowledged
and prompted the legislature to enact a legislation granting the benefit of
gratuity to teachers, who had been excluded because of the legal flaw.
When the legislature acts within its power to usher in a valid law and
B
rectify a legal error, even after a court ruling, the legislature exercises
its constitutional power to enact the law and does not overrule an earlier
court decision. This principle is too well settled to require elaborate
quotations, albeit reference can be made amongst other cases to Shri
Prithvi Cotton Mills Ltd. and Another v. Broach Borough
C Municipality and Others20, Ujagar Prints and Others (II) v. Union
of India and Others 21 and National Agricultural Cooperative
Marking Federation of India Ltd. and Anotherv. Union of India
and Others22.
14. The second ground is again devoid of any merit and substance.
D The legislature, vide the Amendment Act, 2009, has given retrospective
effect to the amended provision of Section 2(e) and the newly inserted
Section 13A with effect from 3rd April 1997, which is also the date of the
notification issued by the Government under Section 1(3)(c), making the
PAG Act applicable to the educational institutions with ten or more
employees. The amendment enforces and gives effect to what was
E intended by the notification, but could not be achieved on account of the
technical and legal defect. The lacuna, a distortion in the language that
had the unwitting effect of leaving out teachers, has been rectified so as
to achieve the object and purpose behind the issuance of the notification,
making the PAG Act applicable to all educational institutions. The
F argument of the educational institutions that they have been taken by
surprise is incorrect and unacceptable as the legislation had cured the
inadvertent defect in a statute, as pointed out by this Court, through
legislative repair. Private schools, when they claim a vested right arising
from the reason of defect, should not succeed, for acceptance would be
at the expense of teachers who were denied and deprived of the intended
G benefit. Marginal inconvenience in the form of financial outgo or difficulty
is of little weight, when curing of an inadvertent defect is made
retrospectively in greater public interest, which consideration will overrule
20
(1969) 2 SCC 283
21
(1989) 3 SCC 488.
22
H (2003) 5 SCC 23.
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 793
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

the interest of one or some institutions.23 We find little merit in this A
argument also for the reason, that the observations of this Court in
Ahmedabad Private Primary Teachers’ Association (supra) in
paragraph 26 were sufficient to indicate that a legislation should intervene
to grant the benefit of gratuity to teachers. The contention that the private
schools were sure to succeed as to deny the teachers the benefit of the
B
Notification No. S-42013/1/95-SS.(II) dated 3rd April 1997, is questionable
and farfetched to be accepted. The challenge was contested and had
remained pending before the High Courts and then this Court. The private
schools had relied on some judgments of this Court, but these judgments
have interpreted the word “employee” under other enactments. The
law is subject to uncertainty ex-ante when two or more views are C
possible, but there may be certainty ex-post litigation in view of the law
of precedents, which reduces uncertainty.
15. A secondary argument on behalf of the private educational
institutions that they would be liable to pay gratuity for a period of service
prior to 3rd April 1997, and, therefore, the amendments are unconscionable D
and tyrannous, is equally fallacious for several reasons. A somewhat
similar controversy had arisen in the case of Management of Goodyear
India Limited. v. Shri K.G. Devessar24, wherein the employee was in
service from 24 th January 1961 to 31 st December 1974. On 16 th
September 1972, the date when the PAG Act came into effect, he was
drawing a salary of more than Rs. 1,000/- per month and hence, in terms E
of the then definition of the word “employee” under the PAG Act, which
excluded those drawing salary of more than Rs. 1,000/- per month, as
per the employer- management, the employee was not entitled to gratuity.
Rejecting the contention, this Court held that the gratuity is payable to an
employee as per the mandate of Section 425 of the PAG Act, after he F
23
See paragraph 69 in Ujagar Prints andOthers (II) v. Union of India and Others,
(1989) 3 SCC 488.
24
(1985) 4 SCC 45.
25
4. Payment of gratuity.––(1) Gratuity shall be payable to an employee on the
termination of his employment after he has rendered continuous service for not less
than five years,–– G
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be
necessary where the termination of the employment of any employee is due to death or
disablement:
H
794 SUPREME COURT REPORTS [2022] 13 S.C.R.

A has rendered continuous service for not less than 5 years on his
superannuation, retirement or resignation or on his death or disablement
Provided further that in the case of death of the employee, gratuity payable to
him shall be paid to his nominee or, if no nomination has been made, to his heirs, and
where any such nominees or heirs is a minor, the share of such minor, shall be deposited
with the controlling authority who shall invest the same for the benefit of such minor
B in such bank or other financial institution, as may be prescribed, until such minor
attains majority.
Explanation.–– For the purposes of this section, disablement means such
disablement as incapacitates an employee for the work which he was capable of
performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months,
the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based
C on the rate of wages last drawn by the employee concerned:
Provided that in the case of a piece-rated employee, daily wages shall be
computed on the average of the total wages received by him for a period of three
months immediately preceding the termination of his employment, and, for this purpose,
the wages paid for any overtime work shall not be taken into account:
Provided further that in the case of an employee who is employed in a seasonal
establishment and who is not so employed throughout the year, the employer shall pay
D the gratuity at the rate of seven days’ wages for each season.
Explanation.–– In the case of a monthly rated employee, the fifteen days’
wages shall be calculated by dividing the monthly rate of wages last drawn by him by
twenty-six and multiplying the quotient by fifteen.
(3) The amount of gratuity payable to an employee shall not exceed such
amount as may be notified by the Central Government from time to time.
(4) For the purpose of computing the gratuity payable to an employee who is
E employed, after his disablement, on reduced wages, his wages for the period preceding
his disablement shall be taken to be the wages received by him during that period, and
his wages for the period subsequent to his disablement shall be taken to be the wages as
so reduced.
(5) Nothing in this section shall affect the right of an employee to receive
better terms of gratuity under any award or agreement or contract with the employer.
(6) Notwithstanding anything contained in sub-section (1),––
F (a) the gratuity of an employee, whose services have been terminated
for any act, wilful omission or negligence causing any damage or loss to,
or destruction of, property belonging to the employer shall be forfeited
to the extent of the damage or loss so caused;
(b) the gratuity payable to an employee may be wholly or partially
forfeited
G (i) if the services of such employee have been terminated for his
riotous or disorderly conduct or any other act of violence on his
part, or
(ii) if the services of such employee have been terminated for any
act which constitutes an offence involving moral turpitude, provided
that such offence is committed by him in the course of his
employment.
H (7). *********
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 795
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

due to accident or disease, when such event has occurred post the A
enforcement of the PAG Act. The Court rejected the submission on
behalf of the employer-management that an employee is entitled to gratuity
only when, both on the date when the PAG Act came into force, and on
the date when the employee retired, he/she was drawing wages not
exceeding Rs.1,000/- per month. The Court observed that to approve
the submission of the employer-management would render a whole class B
of workers, who were during the course of their employment drawing
salary less than Rs. 1,000/- per month but on the eve of their retirement
were getting wages of Rs. 1,000/- per month, without the benefit of
gratuity. This could not have been the intention of the Parliament. The
reasonable way to construe Section 4 in the light of Section 2(e) of the C
PAG Act would be to hold that when the employees’ services are
terminated for any reason mentioned in Section 4 after coming into force
of the PAG Act, the employee would be entitled to the payment of gratuity
if he has rendered continuous service for not less than 5 years and for
that period during which he satisfied the definition of “employee” under
Section 2(e). It does not matter whether that period comes before the D
commencement of the PAG Act. Once that condition is satisfied, the
next and only question would be regarding the amount of gratuity payable.
16. The argument of unreasonableness and that the amendment
is financially confiscatory, predicated on past liability, which may pre-
date the notification effective from 3rd April 1997, apart from the other E
reasons, is to be rejected as there are upper-cap limits on payment of
gratuity. Therefore, though gratuity is computed with reference to the
years of service, in view of the upper-cap limit, the payment towards
gratuity cannot exceed the specified amount, even if the employee would
be entitled to higher amount in view of the years of the service rendered
to the employer. F
17. In the context of applicability of an enactment, the courts
have drawn difference between retroactive effect and retrospective
operation. Shanti Conductors Private Limited and Another v. Assam
State Electricity Board and Others26 refers to earlier case law and
elucidates: G
“64. The opinion of Gowda, J. dated 31-8-2016 although holds
that the Act is not retrospective but he holds the Act retroactive.
The word “retroactive” has been defined in Black’s Law
Dictionary in the following words:
26
(2019) 19 SCC 529. H
796 SUPREME COURT REPORTS [2022] 13 S.C.R.

A “Retroactive, adj.(17c) (Of a statute, ruling, etc.) extending in
scope or effect to matters that have occurred in the past. —
Also termed retrospective. Cf. Prospective (1).–retroact, vb.”
65. The two-Judge Bench of this Court in State Bank’s Staff
Union (Madras Circle) v. Union of India, had occasion to
B examine the concept of retroactive and retrospective. In paras 20
and 21 of the judgment the following has been laid down: (SCC p.
593)
“20. Judicial Dictionary (13th Edn.) by K.J. Aiyar,
Butterworth, p. 857, states that the word “retrospective” when
C used with reference to an enactment may mean (i) affecting
an existing contract; or (ii) reopening up of past, closed and
completed transaction; or (iii) affecting accrued rights and
remedies; or (iv) affecting procedure. Words and Phrases,
Permanent Edn., Vol. 37-A, pp. 224-25, defines a “retrospective
or retroactive law” as one which takes away or impairs vested
D or accrued rights acquired under existing laws. A retroactive
law takes away or impairs vested rights acquired under existing
laws, or creates a new obligation, imposes a new duty, or
attaches a new disability, in respect to transactions or
considerations already past.
E 21. In Advanced Law Lexicon by P. Ramanatha Aiyar (3rd Edn.,
2005) the expressions “retroactive” and “retrospective” have been
defined as follows at p. 4124, Vol. 4:
‘Retroactive.—Acting backward; affecting what is past.

F (Of a statute, ruling, etc.) extending in scope or effect to matters
that have occurred in the past. —Also termed retrospective.
(Black’s Law Dictionary, 7th Edn., 1999)
“Retroactivity” is a term often used by lawyers but rarely defined.
On analysis it soon becomes apparent, moreover, that it is used to
cover at least two distinct concepts. The first, which may be called
G
“true retroactivity”, consists in the application of a new rule of
law to an act or transaction which was completed before the rule
was promulgated. The second concept, which will be referred to
as “quasi-retroactivity”, occurs when a new rule of law is applied
to an act or transaction in the process of completion … The
H foundation of these concepts is the distinction between completed
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 797
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

and pending transactions … [T.C. Hartley, The Foundations of A
European Community Law, p. 129 (1981)].
xx xx xx
Retrospective.—Looking back; contemplating what is past.
Having operation from a past time.
B
“Retrospective” is somewhat ambiguous and that good deal of
confusion has been caused by the fact that it is used in more
senses than one. In general, however, the courts regard as
retrospective any statute which operates on cases or facts
coming into existence before its commencement in the sense
that it affects, even if for the future only, the character or C
consequences of transactions previously entered into or of other
past conduct. Thus, a statute is not retrospective merely
because it affects existing rights; nor is it retrospective merely
because a part of the requisite for its action is drawn from a
time antecedent to its passing.’ (Vol. 44, Halsbury’s Laws of D
England, 4th Edn., p. 570, para 921.)”
66. Further in Jay Mahakali Rolling Mills v. Union of India,
explaining retroactive and retrospective the following has been
laid down: (SCC p. 200, para 8)
“8. “Retrospective” means looking backward, contemplating E
what is past, having reference to a statute or things existing
before the statute in question. Retrospective law means a law
which looks backward or contemplates the past; one, which is
made to affect acts or facts occurring, or rights occurring,
before it comes into force. Retroactive statute means a statute, F
which creates a new obligation on transactions or considerations
or destroys or impairs vested rights.”
67. Retroactivity in the context of the statute consists of application
of new rule of law to an act or transaction which has been
completed before the rule was promulgated.” G
18. Vineeta Sharma v. Rakesh Sharma and Others27observes
that retrospective statute operates backwards and takes away vested
rights accrued under law. The retroactive statute does not operate
retrospectively, but it operates in future, albeit it does not become
27
(2020) 9 SCC 1. H
798 SUPREME COURT REPORTS [2022] 13 S.C.R.

A retrospective in operation when the operation is based on the character
and status that arose earlier. Character or event which has happened in
past or requisites which have been drawn from antecedent events cannot
be necessarily construed as having retrospective effect. A retrospective
statute means a statute which creates a new obligation on transactions
or considerations already past or destroyed or impaired vested rights on
B
and from the retrospective date.28 The judgment in Vineeta Sharma
(supra) relies on and quotes from an earlier decision in Darshan Singh
v. Ram Pal Singh and Another,29 which portion we would also like to
quote:
“35. Mr Sachar relies on Gokal Chand v. Parvin Kumari,
C Garikapati Veeraya v. N. Subbiah Choudhry , Jose Da Costa
v. Bascora Sadasiva Sinai Narcornim , Govind Das v. CIT ,
Henshall v. Porter , United Provinces v. Atiqa Begum, in support
of his submission that the Amendment Act was not made
retrospective by the legislature either expressly or by necessary
D implication as the Act itself expressly provided that it shall be
deemed to have come into force on 23-1-1973; and therefore
there would be no justification to giving it retrospective operation.
The vested right to contest which was created on the alienation
having taken place and which had been litigated in the court, argues
Mr Sachar, could not be taken away. In other words, the vested
E right to contest in appeal was not affected by the Amendment
Act. However, to appreciate this argument we have to analyse
and distinguish between the two rights involved, namely, the right
to contest and the right to appeal against the lower court’s decision.
Of these two rights, while the right to contest is a customary right,
F the right to appeal is always a creature of statute. The change of
the forum for appeal by enactment may not affect the right of
appeal itself. In the instant case we are concerned with the right
to contest and not with the right to appeal as such. There is also
no dispute as to the propositions of law regarding vested rights
being not taken away by an enactment which is ex facie or by
G implication not retrospective. But merely because an Act envisages
a past act or event in the sweep of its operation, it may not
necessarily be said to be retrospective. Retrospective, according
28
In the present case, the constitutional mandate of Article 20(1) is not required to be
examined and considered.
29
1992 Supp. (1) SCC 191.
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 799
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

to Black’s Law Dictionary, means looking backward; A
contemplating what is past; having reference to a statute or things
existing before the Act in question. Retrospective law, according
to the same dictionary, means a law which looks backwards or
contemplates the past; one which is made to affect acts or facts
occurring, or rights occurring, before it came into force. Every
B
statute which takes away or impairs vested rights acquired under
existing laws, or creates a new obligation, imposes a new duty, or
attaches a new disability in respect to transactions or considerations
already past. Retroactive statute means a statute which creates a
new obligation on transactions or considerations already past or
destroys or impairs vested rights. C
36. In Halsbury’s Laws of England (4th Edn., Vol. 44, at para
921) we find:
“921. Meaning of “retrospective”.—It has been said that
“retrospective” is somewhat ambiguous and that a good deal
of confusion has been caused by the fact that it is used in more D
senses than one. In general, however, the courts regard as
retrospective any statute which operates on cases or facts
coming into existence before its commencement in the sense
that it affects, even if for the future only, the character or
consequences of transactions previously entered into or of other E
past conduct. Thus a statute is not retrospective merely because
it affects existing rights; or is it retrospective merely because
a part of the requisites for its action is drawn from a time
antecedent to its passing.’
37. We are inclined to take the view that in the instant case the F
legislature looked back to 23-1-1973 and not beyond to put an end
to the custom and merely because on that cut-off date some
contests were brought to abrupt end would not make the
Amendment Act retrospective. In other words, it would not be
retrospective merely because a part of the requisites for its action
was drawn from a time antecedent to the Amendment Act coming G
into force. We are also of the view that while providing that “no
person shall contest any alienation of immovable property whether
ancestral or non-ancestral or any appointment of an heir to such
property”, without preserving any right to contest such alienations
or appointments as were made after the coming into force of the H
800 SUPREME COURT REPORTS [2022] 13 S.C.R.

A Principal Act and before the coming into force of the Amendment
Act, the intention of the legislature was to cut off even the vested
right; and that it was so by implication as well. There is no dispute
as to the proposition that retrospective effect is not to be given to
an Act unless, the legislature made it so by express words or
necessary implication. But in the instant case it appears that this
B
was the intention of the legislature. Similarly courts will construe
a provision as conferring power to act retroactively when clear
words are used. We find both the intention and language of the
Amendment Act clear in these respects.”
19. The provisions of the PAG Act, even post the retrospective
C amendments, will apply only to those teachers who were in service as
on 3rd April 1997, and at the time of termination have rendered service
of not less than 5 years. The period of 5 years may be partly before 3 rd
April 1997, as the date on which the person was employed does not
determine the applicability of the PAG Act. The date of termination of
D service, in the form of superannuation, retirement, or resignation, or death
or disablement due to accident or disease, should be post the enforcement
date, which in the present case is 3rd April 1997. The entire length of
service, including the service period prior to 3rd April 1997, is to be counted
for the purpose of computing the entitlement condition of 5 years of
service. This is the correct effect of the ratio and decision in Management
E of Goodyear India Limited. (supra) and the decisions explaining
retroactive effect of a statute. This legal position would be equally true
and correct when the PAG Act was first enforced with effect from 16th
September 1972, and when Notification No. S-42013/1/95-SS.(II) under
Section 1(3)(c) of the PAG Act was issued and enforced with effect
F from 3rd April, 1997. It would be the position in case of all notifications
issued under Section 1(3)(c) of the PAG Act, unless a contrary intention
is expressed, which is not the situation in the present case and thus need
not be examined.
20. The schools have claimed violation of Articles 14, 19(1)(g), 21
G and 300-A of the Constitution of India which, in our opinion, are not
violated as, to deny gratuity benefits to the teachers upon enforcement
of the notification No. S-42013/1/95-SS.(II) dated 3 rd April 1997 was
itself an anomaly which mandated correction. The effect of the decision
in Ahmedabad Private Primary Teachers’ Association (supra) was
that although private educational institutions were covered under the
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 801
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

PAG Act, gratuity benefits could not be extended to teachers in view of A
the legal flaw in the definition, consequent to which they were not treated
as employees. The teachers were discriminated to be denied benefit of
gratuity, a terminal benefit, which was payable to other employees of
the private schools/educational institutions, including those engaged in
administrative and managerial work. The amendment with retrospective
effect remedies the injustice and discrimination suffered by the teachers B
on account of a legislative mistake, which was understood after the
pronouncement of the judgment in Ahmedabad Private Primary
Teachers’ Association (supra). The amendment was necessary to
ensure that something which was due and payable to the teachers is not
denied to them due to a defect in the statute. Payment of gratuity cannot C
be categorized as a windfall or a bounty payable by the private schools
as it is one of the minimal conditions of service.30 In this background, the
argument of the private schools that they do not have capacity and ability
to pay gratuity to the teachers is unapt and parsimonious. All
establishments are bound to follow the law, including the PAG Act. As
observed earlier, the private schools were certainly aware of the intent D
of the Government that the educational institutions, as an establishment,
would be covered and must pay gratuity upon issue of notification No.
S-42013/1/95-SS.(II) dated 3rd April 1997. Some schools have raised an
argument relying upon decision of this Court in T.M.A. Pai Foundation
and Others v. State of Karnataka and Others31, which observes that E
as a matter of principle, charging of capitation fee or profiteering by
educational institutions is impermissible. However, the judgment does
not state that the teachers should not be paid gratuity. In fact, the judgment
holds that the educational institutions are entitled to reasonable surplus
to meet the cost of expansion and augmentation of the facilities and this
does not amount to profiteering. It is possible that in some States there F
are fee fixation laws which will have to be complied with. But compliance
with these laws does not mean that the teachers should be deprived and
denied gratuity, which they were/ are entitled to receive as other
employees of an educational institution. Regulation of fee is to ensure
that there is no commercialisation and profiteering, and the effect is not
G
to prohibit a school from fixing and collecting “just and permissible school
fee”, as has been held by this Court in Indian School, Jodhpur and
Anotherv. State of Rajasthan and Others.32
30
See Bakshish Singh v. M/s Darshan Engineering Works and Others, (1994) 1 SCC 9.
31
(2002) 8 SCC 481.
32
(2021) 10 SCC 517. H
802 SUPREME COURT REPORTS [2022] 13 S.C.R.

A 21. Reliance placed on the dissenting opinion of Amarendra Nath
Sen, J. in Lohia Machines Ltd. and Another v. Union of India and
Others33 is misplaced. The majority opinion of the Constitution Bench
Judgment of Five Judges, authored by P.N. Bhagwati, J., had upheld the
constitutional validity of Rule 19-A of the Income Tax Rules, 1962, enacted
vide Finance Act (No.2 of 1980) with retrospective effect from 1st
B
April 1972, thereby restricting the deduction available under Section 80-
J of the Income Tax Act, 1961. In paragraph 78, Amarendra Nath Sen,
J., in his dissenting opinion, has observed that a validating act validating
any fiscal provision with retrospective operation is usually held not to be
unreasonable and arbitrary, as they are generally made to clarify an
C ambiguity or rectify some flaw or defect. Such validating act should not
be construed as having the effect to impose fresh tax with retrospective
effect. Thereafter, Amarendra Nath Sen, J., in the context of the
amendment, observed that it had the effect of withdrawal of benefit,
unequivocally granted by the main provision, which reason has not been
accepted and did not find favour with the majority judgment. In the present
D
case, there is no withdrawal of benefit unequivocally granted.
22. A supplementary submission of the private schools was that
the judgments of this Court upholding retrospective amendments are
valid only when there is a tax implication as the Government has to
refund the paid taxes, is unfounded and irrational. The power to amend,
E which includes the power to amend the statute with retrospective effect,
is a constitutional power vested with the legislature, which is not confined
and restricted to any particular type of statutes, namely, tax statutes. We
would not accept any attempt to circumscribe and limit the power vested
with the sovereign legislature, thereby putting fetters when such fetters
F are not prescribed by the Constitution. When and which cases to exercise
the power has to be left to the legislature. In case the constitutional
validity of the amendment act is challenged, the court is entitled to examine
the relevant circumstances which prompted the legislature to make
retrospective amendment. Judicial review, when validity of an amendment
act is challenged, is decided on the grounds of lack of legislative
G competence, violation of the fundamental rights or any other provisions
of the Constitution of India. In the present case, the notification No. S-
42013/1/95-SS.(II) dated 3rd April 1997 had ensured that the benevolent
provisions requiring payment of gratuity should be extended to the
“employees” of the educational institutions. The amendment with
33
H (1985) 2 SCC 197.
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 803
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

retrospective effect is to make the benevolent provisions equally applicable A
to teachers. The amendment seeks to bring equality and give fair
treatment to the teachers. It can hardly be categorised as an arbitrary
and high-handed exercise.
23. The last contention raised by the private schools and writ
petitioners is predicated on the enactment of the Repealing and Amending B
Act 201634,by virtue of which the Amendment Act 2009 was repealed.
The argument, in our opinion, overlooks Section 6A of the General Clauses
Act, 1897 and Section 4 of the Repealing and Amendment Act, which
read thus:
“Section 6A of The General Clauses Act, 1897 C
6A. Repeal of Act making textual amendment in Act or
Regulation.–– Where any Central Act or Regulation made after
the commencement of this Act repeals any enactment by which
the text of any Central Act or Regulation was amended by the
express omission, insertion or substitution of any matter, then,
D
unless a different intention appears, the repeal shall not affect the
continuance of any such amendment made by the enactment so
repealed and in operation at the time of such repeal.
xx xx xx
Section 4 of The Repealing and Amendment Act, 2016
E
4. Savings.–– The repeal by this Act of any enactment shall not
affect any other enactment in which the repealed enactment has
been applied, incorporated or referred to,
and this Act shall not affect the validity, invalidity, effect or
consequences of anything already done or suffered, or any right,
F
title, obligation or liability already acquired, accrued or incurred,
or any remedy or proceeding in respect thereof, or any release or
discharge of or from any debt, penalty, obligation, liability, claim or
demand, or any indemnity already granted, or the proof of any
past act or thing;
nor shall this Act affect any principle or rule of law, or established G
jurisdiction, form or course of pleading, practice or procedure, or
existing usage, custom, privilege, restriction, exemption, office or
appointment, notwithstanding that the same respectively may have
34
For short, “Repealing and Amendment Act”.
H
804 SUPREME COURT REPORTS [2022] 13 S.C.R.

A been in any manner affirmed or recognised or derived by, in or
from any enactment hereby repealed;
nor shall the repeal by this Act of any enactment revive or restore
any jurisdiction, office, custom, liability, right, title, privilege,
restriction, exemption, usage, practice, procedure or other matter
B or thing not now existing or in force.”
24. Section 4 of the Repealing and Amendment Act states that
the repeal shall not affect any of the enactment in which the repealed
enactment has been applied, incorporated or referred to. It also states
that the Repealing Act shall not affect the validity, invalidity, effect or
consequences of anything already done or suffered, or any right, title,
C obligation or liability already acquired, accrued or incurred etc. This Court
in Jethanand Betab v. State of Delhi35 had examined a similar provision
of the Repealing and Amendment Act, 1952, whereby the Indian Wireless
Telegraph (Amendment) Act, 1949 was repealed in its entirety. Reference
was made to the decision of the Judicial Committee in Secretary of
D State for India in Council v. Hindusthan Co-operative Insurance
Society, Ltd.36 and the principle that, where the repealing act states that
the enactment thereof shall not affect any act in which the enactment
has been applied, incorporated or referred to, means that there is an
independent existence of the two acts and, therefore, even on the death
of the amending act, its offspring survives in the incorporating act. This
E Court also referred to Halsbury’s Law of England on the said aspect
and the decision of the Calcutta High Court in Khuda Buxv. Manager,
Caledonian Press37. Relevant extract from the judgment in Jethanand
Betab (supra) reads thus:
“6. The general object of a repealing and amending Act is stated
F in Halsbury’s Laws of England, 2nd Edn., Vol. 31, at p. 563,
thus:
“A statute Law Revision Act does not alter the law, but simply
strikes out certain enactments which have become
unnecessary. It invariably contains elaborate provisos.”
G In Khuda Bux v. Manager, Caledonian Press, Chakravartti, C.J.,
neatly brings out the purpose and scope of such Acts. The learned
Chief Justice says at p. 486:
35
(1960) 1 SCR 755.
36
1931 SCC OnLine PC 37.
37
1954 SCC OnLine Cal 132.
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 805
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

“Such Acts have no Legislative effect, but are designed for A
editorial revision, being intended only to excise dead matter
from the statute book and to reduce its volume. Mostly, they
expurgate amending Acts, because having imparted the
amendments to the main Acts, those Acts have served their
purpose and have no further reason for their existence. At
B
times, inconsistencies are also removed by repealing and
amending Acts. The only object of such Acts, which in England
are called Statute Law Revision Acts, is legislative spring-
cleaning and they are not intended to make any change in the
law. Even so, they are guarded by saving clauses drawn with
elaborate care,….” C
It is, therefore, clear that the main object of the 1952 Act was
only to strike out the unnecessary Acts and excise dead matter
from the statute book in order to lighten the burden of ever
increasing spate of legislation and to remove confusion from the
public mind. The object of the Repealing and Amending Act of D
1952 was only to expurgate the amending Act of 1949, along with
similar Acts, which had served its purpose.
7. The next question is whether Section 4 of the Act of 1952
saved the operation of the amendments that had been inserted in
the Act of 1933 by the repealed Act. The relevant part of Section E
4 only saved other enactments in which the repealed enactments
have been applied, incorporated or referred to. Can it be said that
the amendments are covered by the language of the crucial words
in Section 4 of the Act of 1952, namely, “applied, incorporated or
referred to”. We think not. Section 4 of the said Act is designed to
provide for a different situation, namely, the repeal of an earlier F
Act which has been applied, incorporated or referred to in a later
Act. Under that section the repeal of the earlier Act does not
affect the subsequent Act. The said principle has been succinctly
stated in Maxwell on Interpretation of Statutes, 10th Edn., p.
406: G
“Where the provisions of one statute are, by reference,
incorporated in another and the earlier statute is afterwards
repealed the provisions so incorporated obviously continue in
force so far as they form part of the second enactment.”
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806 SUPREME COURT REPORTS [2022] 13 S.C.R.

A So too, in Craies on Statute Law, 3rd Edn., the sama idea is
expressed in the following words, at p. 349:
“Sometimes an Act of Parliament, instead of expressly repeating
the words of a section contained in a former Act, merely refers
to it, and by relation applies its provisions to some new state of
B things created by the subsequent Act. In such a case the rule
of construction is that where a statute is incorporated by
reference into a second statute, the repeal of the first statute
by a third does not affect the second”.
The Judicial Committee in Secretary of State for India in Council
C v. Hindusthan Co-operative Insurance Society, Ltd. endorsed
the said principle and restated the same, at p. 267, thus:
“This doctrine finds expression in a common-form section which
regularly appears in the amending and repealing Acts which
are passed from time to time in India. The section runs: “The
D repeal by this Act of any enactment shall not affect any Act….
in which such enactment has been applied, incorporated or
referred to”. The independent existence of the two Acts is
therefore recognized; despite the death of the parent Act, its
offspring survives in the incorporating Act. Though no such
saving clause appears in the General clauses Act, Their
E Lordships think that the principle involved is as applicable in
India as it is in this country.”
It is, therefore, manifest that Section 4 of the 1952 Act has no
application to a case of a later amending Act inserting new
provisions in an earlier Act, for, where an earlier Act is amended
F by a later Act, it cannot be said that the earlier Act applies,
incorporates or refers to the amending Act. The earlier Act cannot
incorporate the later Act, but can only be amended by it. We
cannot, therefore, agree with the view expressed by the Punjab
High Court in Mohinder Singh v. Mst. Harbhajan Kaur and
G Darbara Singh v. Shrimati Karnail Kaur that Section 4 of the
Repealing and Amending Act of 1952 applies to a case of repeal
of an amending Act.
25. In most cases, the prayer for stay, as in Civil Appeal No. 8162
of 2012, was not accepted, albeit in some cases, stay has been granted
for payment of gratuity for the period prior to 3rd April 1997. As explained
H
INDEPENDENT SCHOOLS’ FEDERATION OF INDIA (REGD.) 807
v. UNION OF INDIA AND ANOTHER [SANJIV KHANNA, J.]

above and applying the principle of retroactivity and as also following A
the judgment of this Court in Management of Goodyear India Limited.
(supra), this argument raised on behalf of the private schools should fail
and is rejected. The partial stay order dated 31st January 2020 passed in
SLP (C) No. 2235 of 2020, titled Saint Xaviers High Schoolv. Jayashree
Shamal Ghosh, or in any other case, is vacated.
B
26. For the reasons mentioned above, the aforesaid appeals,
transfer case and the writ petitions are dismissed. The stay orders, as
stated above, are vacated. The private schools would make payment to
the employees/teachers along with the interest in accordance with the
provisions of the PAG Act within a period of 6 weeks from today and in
case of default, the employees/teachers may move the appropriate forum C
to enforce payment in accordance with the provisions of the PAG Act.
In the facts of the case, there will be no orders as to costs.

Nidhi Jain Appeals dismissed.
(Assisted by : Shashwat Jain, LCRA) D

E

F

G

H