Holding

The Life Insurance Corporation (Amendment) Act 1981 and the 1981 Rules are valid only prospectively and cannot retrospectively nullify the 1974 settlement bonus obligations or the Supreme Court's earlier writ.

Summary

The Supreme Court examined the constitutional validity of the Life Insurance Corporation (Amendment) Act 1981, the accompanying Ordinance and the Bonus and Dearness Allowance Rules, which sought to retrospectively nullify the 1974 settlements granting cash bonuses to Class III and IV employees of the Life Insurance Corporation (LIC). The petitioners argued that the Act violated Articles 14, 19(1)(g) and 21 of the Constitution, involved excessive delegation of legislative power, and attempted to override a Supreme Court writ ordering LIC to honour the settlements. The Court held that the Act and Rules could operate only prospectively and could not defeat the earlier writ, as retrospective nullification of accrued bonus rights was impermissible. It found no unconstitutional discrimination under Article 14 and concluded that the delegation of rule‑making power was accompanied by sufficient policy guidance, thus not excessive. Consequently, the petitions were allowed only to the extent that the legislation operates prospectively from its date of publication.

Issues considered

Whether the Life Insurance Corporation (Amendment) Act 1981 and the 1981 Rules violate Articles 14, 19(1)(g) and 21 of the Constitution.
Whether the Act entails an excessive delegation of legislative authority in violation of the basic structure doctrine.
Whether the retrospective operation of Rule 3 can override a Supreme Court writ directing enforcement of the 1974 settlements.
Whether the Act and Rules can nullify the effect of the judgment in Life Insurance Corporation of India v. D.J. Bahadur.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 21, s. Article 31(2), s. Article 32
Industrial Disputes Act, 1947
Life Insurance Corporation Act, 1956s. 11(2), s. 48(2), s. 48(2A), s. 48(2B), s. 48(2C), s. 49
Life Insurance Corporation (Amendment) Act, 1981
Life Insurance Corporation (Amendment) Ordinance, 1981
Payment of Bonus (Amendment) Act, 1976

Subjects

Constitutional lawDelegation of legislative powerRetrospective legislationIndustrial disputesBonus entitlementLife Insurance CorporationArticle 14Article 19(1)(g)Article 21Article 31(2)Article 32Fundamental rights

Judgment

246

A.V. NACHANE & ANOTHER
v.
UNION OF INDIA & ANOTHER

December 28, 1981

(A. C. GUPTA, R. S. PATHAK AND
0. CHINNAPPA RBDDY, JJ.]
Life Insurance Corporation (Amendment) Act 1981, Life lnsurance Cor- r.
poration (Ordinance) 1981, and Life Insurance Corporation of India Class III and
Class IV Employees (Bonus and Dean1ess) Allowance Rules.
c

-
Act and Ordinance whether ultra vires Articles 19(1)(g) and 21 of the
Constitution-Act whether suffers from excessive delegation of powers.

Rule 3 of the Rules-Cannot make the writ is.1Ued by the Supreme Court
nugatory-Can operate only prospectively.

0 Constitution of India 1950 :

Article 14-Hostile discrimination-Burden of proof-On whom lies.

Article 21-'life'-Whether includes 'livelihood'

Article 32-Claim based on industrial settlement-Whether a fundamental
right and enforceable.

Administrative Law-Delegated legislation-Statutory rule over-tiding existing ,_
/aw-Validity of.

The Life Insurance Corporation was constituted under the Life Insurance

F
Corporation Act 1956, to provide for the nationalisation of life insurance business
in India by transferring all such business to the Life Insuranc'' Corporation
of India. Under Section II (I) of the Act the services of the employees of the
-
insurers whose business had vested in the Corporation were transferred to the
Corporation. Section 49(1) empowered the Life Insurance Corporation of India
to make regulations for the purpose of giving effect to the provisions of the Act.

Two settlements were reached on January 24, 1974 and February 6, 1974
G between the Life Insurance Corporation and its Class III and Class JV employees.
These settlements covered a large ground including the claim for bonus. These
were settlements under section 18 read with section 2(p) of the Indus1:rial Disputes
Act 1947. Under clause 12 of the settlements, the settlements were to be~effective
from 1st April, 1973 for a period of four years that is, from !st April, 1973 to
31st March, 1977. In 1975, the Payment of Bonus (Amendment) 0.rdinance was ·>·
H promulgated which was subsequently replaced by the Payrne:ot of Bonus
(Amendment) Act 1976. The Central Government decided that the employees
of establishments not covered by the Payment of Bonus Act would 1001 be liable
A.V. NACHANE v. UNiON 247
to get bonus and cx-gratia payment in lieu of bonus. Payment of Bonus for the A
year 1975-1976 to the employees of the Corporation was stopped under instruc-
·t tions from the Central Government.

A writ petition filed by the employees of the Corporation in the Calcutta
High Court was allowed, and the Corporation was directed to act in accordance
with the terms of the settlement. In Madan Mohan Pathak v. Union of India and
Ors. [1978] 3 SCR 334, the Supreme Court held that the 1976 Act offended Article
31(2) of the Constitution and was void, and directed the Union of India and the
B
Life Insurance Corporation to forbear from implementing or enforcing the provi-
sions of the 1976 Act and to pay annual cash bonus for the years 1st April, 1975
to 31st March, 1976 and 1st April 1976 to 31st March, 1977, to Class III and Class
IV employees in accordance with the settlements.

On March 31, 1978, the Corporation issued a notice under section 19(2) of
the Industrial Disputes Act declaring its int,;ntion to terminate th~ settlements on c
the expiry of two months from the date of notice. On the same day another
r.otice was also issued by the Corporation under section 9A of the Industrial
Disputes Act stating that it proposed to effect a change in the conditions of
service applicable to the workn,en. These notices were followed by a notifica-
tion issned by the Corporation under section 49 of the Life Insurance Corpora-
tion Act on May 26, 1978 substituting a new regulation for the existing
regulation No. 58 of the Staff Regulations. Simultaneously the Life Insurance D
Corporation \Alteration of Remuner;;tion and other Terms and Conditions of
Service of Employees) Order, 1957, was amended by the Central Government,
substituting a new clause (9) for the original clause concerning bonus, to take
effect from June 1, 1978, to provide that the employees of the Corporation shall
not be entitled to profit-sharing bonus.

The validity of the aforesaid two notices and the notification issued for the E
purpose of nullifying any further claim to annual cash bonus was challenged by
the workmen in a writ petition in the Allahabad High Court. The High Court
allowed the writ petition. In .the appeal by the Corporation to this Court the
Life Insurance Corporation of India v. D.J. Bahadur [1981] 1 SCR 1083 and th~
writ petition filed in the Calcutta High Court transferred to this Court,

- Chandrasekher Bose and others v. Union of lndia and Ors. [1960] 3 SCR 499, a
writ was issued !o the Corporation directing it "to give effect to the terms of
the settlements of 1974 relating to bonus until superseded by a fresh settlement,
F
an industrial award or relevant Jegisla lion".

On January 31, 1981, the Lire Insurance Corporation (Amendment)
Ordinance, 1981 was promulgated. A new sub-clause (c) was inserted witb
' retrospective effect from June 20, 1979 in sub-section (2) of section 48 of the
·t Principal Act. Three new sub-sections (2A), (2B) and (2C) were a<so added to G
section 48. Sub-section (2A) provided that the regulations and other provisions
with respect to the terms and conditions of service of the employees and agents
of the Corporation at the commencement of the Ordinance shall be deemed. to be
rules made under clause (cc) of sub-section (2). Sub-section r(2B) provided that
the power to make rules under clause (cc) of sub-section (2) shall include (i) the
power to give retrospective effect to such rules, and (ii) the power to amrnd by H
way of addition, variation or repeal the regulations and other provisions referred
to in sub-section (2A) with retrospective effect, but not from a date earlier than

/
248 SiJPREMB cotJirr REPORTS (1982j 2 s.c.it.
A June 20. 1979. Sub-section (2C) provided that provisions of clause (cc)
of sub-rection (2) and sub-section (2B) and any rule made under cla.use (cc)
shall have effect, notwithstanding any judgment, decree, or order of any
court, tribunal or other authority, the Industrial Disputes Act 1947, any
agreement, settlement, award or other instrument.

The Central Government by a notification dated February 2, 1981 made
the Life Insurance Corporation of India Class Ill and Class IV Employees
(Bonus and Dearness Allowance) Rules 1981. Rule 3 which had been given
retrospective operation with effect from July 1, 1979 provided by sub-rule {1)
that : "No Class III or Class IV employee of the Corporation shall be entitled to
the payment of any profit sharing bonus or any other kind of cash bonus", and
sub-rule(2) of rule 3 provided that notwithstanding sub-rule (1), every Class III
and Class IV employee shall be entitled to a payment in lieu of bonus (a) for
c the period commencing from July 1, 1979 and ending on March 31, 1980 at the
rate of 15 per cent of his salary, and (b) thereafter for every year commencing
from lst April and ending on the 31st day of the March of the following year
at such rate and subject to conditions which the Central Government may
determine. Sub-rule (3) of rule 3 .rescinded regulation 58 of the Staff Regula-
tions and all other provisions relating to the payment of bonus to the extent
they were inconsistent with rule J,

D The petitioners in their writ petitions to this Court challenged the validity
of the Life Insurance Corporatio.n (Amendment) Ordinance, 1981, th•: Life
Insurance Corporation {Amendment) Act, 1981 and the Life Insurance Corpora-
tion of India, Class III and Class IV Employees (Bonus and Dearness Allowance)
Rules, 1981 contending that: (1) the Act and the Rules were violative of Articles
14, 19(l)(g) and 21(2) of the Constitution: (2) the Act was invalid on the
ground of excessive delegation of legislative functions; (3) sub-section (2C) of.
E section 48 was invalid to the extent it permitted restrospective operation to rule 3
to over-ride the order of this Court in D.J. Bahadur's case; (4) Attlcle 14 was
infringed beca!!Se the provisions of sub-section (2C) of section 48 provided that
any rule under Clause (cc) of sub-section (2) of that section touching the terms
•
and conditions of service of the employees of the Corporation shall have effect
notwithstanding anything contained in the Industrial Disputes Act, 1947; (5) sub-

F
section (2C) added to section 48 of the Life Insurance Corporation Act, 1956
by the Amendment Act of 1981 was invalid because of excessive delegation of
legislative functions and if sub-section (2C) which was an integral part of the
-
Amendment Act was ultra vires, the entire Amendment Act would be unconstitu-
tional. and (6) the provisions of the Amendment Act of 1981 could not nullify
the effect of the writ issued by this Court in D.J. Bahadur's case.

The writ petitions were contested on behalf of the Union of India and the
G Life Insurance Corporation by contending that remuneration that was being paid I-
to Class III and Class IV employees of the Corporation was far in excess of what
was paid t~ similarly situated employees in other establishments in the public
sectqr, and that the problem of the mounting cost of administration led to the
making of the Ordinance and the Amendment Act As no improvement in the
situation was possible by the process of adjudication, a policy decision was taken
H that in the circumstances the proper course was legislation and that was why the
Amendment Act was passed and the Rules framed. The Life Jnsurance Corpora-
tion Act as amended and the Rules made after amendment placed the Corporation
A.V. NACHANE v. UNION 249
in the same position as other undertakings, that the advantages being enjoyed by A
the employees of the Corporation which were not available to similarly situated
employees of other undertakings had been taken away removing the discrimina-
tion in favour of the employees of the Life Insurance Corporation. Repealing a
Jaw was an essential legislative function which had been delegated to the Central
Government and the delegation was not excessive. It is not the Rules framed
by the Central Government in exercise of the delegated authority that over-ride
the Industrial Disputes Act or any other existing law, but the power of abro- B
gating the existing Jaw is in sub-section (2CJ of section 48 which was enacted by
Parliaruent itself.

Allowing the writ petitions in part
+
' HELD : [By the Court]

The Life Insurance Corporation (Amendment) Act 1981 can operate but
c

- prospectively in so far as it seeks to nullify the terms of the 1974 settlemc:nts in
regard to payment of bonus. [269 A-C, 271 A-BJ

[Per Gupta & Pathak, JJ]

I. (i) Rule 3 operating retrospectively cannot nullify the effect of the D
writ issued in D. J. Bahadur's case which directed the Life Insurance Corporation
to give effect to the terms of the 1974 settlements relating to bonus until super-
seeded by a fresh settlement, an Industrial award or relevant legislation. [269 A]

(ii) The Life Insurance Corporation (Amendment) Act 1981 and the Life
Insurance Corporation of India Class III and Class IV employees (Bonus and
Dearness Allowance) Rules, 1981 are relevant legislation. In view of the decision
in Madan Mohan Pathak's case these rules in so far as they seek to abrogate the E
terms of 1974 settlements relating to bonus, can operate only prospectively, that
is, from February 2, 1981 the date of publication of the Rules. [269 B-C)

(iii) A claim based on the 1974 settlements is not a fundamental right that
could be enforced through this Court. (259 CJ

- 2. The burden of establishing hostile discrimination was on the petitioners
who challenged the Amendment Act and the rules. It was for them to show
that the employees of the Life Insurance Corporation and the employees of
the other establishments to whom the provisions of the Industrial Disputes
F

Act were applicable were similarly circumstanced to justify the contention
that by excluding the employees of the Corporation from the purview of the
Industrial Disputes Act they had been discriminated against. There is no
material on the basis of which it can be held that the Amendment Act of 1981
and the rules made on February 2, 1981 infringe Article 14. (260 F-G] G
Express Newspapers (Private) Limited and another v. Union of India, [1959]
SCR 12 and Moti Ram Deka etc. v. General Manager, N.E.F. Railways, Maligao11.
Panda etc. (1964] 5 SCR 683, held inapplicable.
t
In the instant case section 48(2C) read with section 48(2) (cc) authorises the H
Central Government to make rules to carry out the purposes _of the Act notwith-
standing the Industrial Disputes Act or any other law. This means that in
250 SUPREME COURT REPORTS [1982] 2 s.c.R.
A respect of the matters covered by the rules, the provisions of the Industrial Dis-
putes Act or any other law will not be operative. [262 A·B]

3. The policy as stated in the preamble of the Amendment Act is that "for
securing the interest of the Life Insurance Corporation of India and policy-
holders and to control the cost of administration, it is necessary that revision of
the terms and conditions of service applicable to the employees and the agents
B of the Corporation should be undertaken expeditiously." The policy offers
sufficient guidance to the Central Government in exercising its powers under
that Act. [265 B-C]

4. Clause (cc) of section 48(2) empowers the Central Governm~nt to make
rules with regard to the terms and conditions of service of the employees and
.'
c agents ofthe Corporation. Sub-section 2(B) of section 48 says that the power to
make rules conferred by clause (cc) of sub-section (2) shall include the power to
add, vary or repeal the regulations and other "provisions" referred to in sub-
section (2A) with retrospective effect from a date not earlier than June 20, '1979_
A writ issued by this Court is not a regulation nor can it be described as 'other
provisions' which expression includes circulars and administrativ·~ directions.
Sub-section (2CJ of se~tion 48 however provided that any rule made in clause
-
(cc) with retrospective effect from any date shall be deemed to have had effect
D from that date notwithstanding any judgment, decree or order of any Court,
Tribunal or other authority. Rule 3 of the rules relating to the subject. of bonus
cannot make the writ issued by this Court nugatory in view of the decision of
this Court in Madan Mohan Pathuk v. Union of India. [265 H-266; H 267 A]

5. It is not really the rules framed by the Central Government that over-
ride the Industrial Disputes Act or any other existing law, but the power of
E abrogating the existing laws is in sub-section (2C) of section 48 enacted by
Parliament itself. [264 Fl
.,
Hari Shankar Bag/a and another v. State of Madhya Pradesh, [1955] I SCR
3 80, referred to.

F [Per Chinnappa Reddy J.] ....
The effect of the two judgments in Madan Mohan Pathak's cas.1 and D. J.
Bahadur's case was clear : the settlements of 1974, in so far as they related to
bonus, could only be superseeded by a fresh settlement, an industrial award or
relevant legislation. But any such supersession could only have future effect,
but not retrospective effect so as to disentitle the Class III and Class IV em-
G ployees of Life Insurance Corporation from receiving the cash bonm which had
been earned by them, day by day, and which the Life Insurance Corporation of
India was under an obligation to pay in terms of the writ issued in D. J.
Bahadur's case. The present attempt made by the 1981 amending Act and the
rules thereunder to scuttle the payment of bonus with effect from a date anterior
to the date of the enactment must, therefore, fail. The employee; are entitled
H to be paid the bonus earned by them before the date of publication of the Life
Insurance Corporation of India Class III and Class IV employees i; Bonus and
Dearness Allowance) Rules, 1981. [270H-271 BJ
A.V. NACHANE v. UNION (Gupta, J.) 251

ORIGINAL J1m1sDICTION : .writ Petition Nos. 501, 643-44, 645, A
649 and 1866 of 1981.

(Under article 32 of the Constitution of India)

R. K. Garg, V. J. Francis, Sunil Kumar Jain and D. K. Garg for
the Petitioners in WP. 501/81. B
M. K. Ramamurthi, J. Rarnamurthi and Miss R. Vagai for the
Petitioners in WPs. 643-44/81.
t
Vimal Dave and Miss Kai/ash Mehta for the Petitioners in WP.
No. 645/81. C
A. K. Goel for the Petitioners in WP. 649/81.

Dalveer Bhandari and H. M. Singh for the Petitioners in WP.
1866/81.
D
L. N. Sinha, Attorney General, M. K. Banerjee, Soliciter
General, Miss A. Subhashini and R P. Singh for Respondent No. 1
in all the matters.

L. N. Sinha, Attorney General, 0. C. Mathur and Sri Narain,
for Respondent No. 2 in all the matters. E
}

P.H. Parekh for the Intervener in WP. 501/81.

-
Somnath Chaterjee, J. Ramamurthi and Miss R. Vaigai for the
Intervener Ajoy Kumar Banerjee-in WPs. 643-44/81.
F
The following Judgments were delivered

GUPTA, J. The validity of the provisions of the Life Insurance
Corporation (Amendment) Act, 1981 and the Life Insurance Cor-
poration (Amendment) Ordinance, 1981 which preceded it is G
challenged in this batch of writ petitions. The writ petitions have
a history behind them which can be conveniently divided into three
chapters. However, it will be easier to follow this history if we
referred to some of the provisions of the Life Insurance Corporation
Act, 1955 first. The Life Insurance Corporation was constituted H
under the Life Insurance Corporation Act, 1956 to provide for the
nationalisation of life insurance business in India '.by transferring all
252 SUPiHiE COURT REPORTS (1982] 2 S.C.R

A such business to the Life Insurance Corporation of India. Under
section J l (I) of the Act the services of the employees of insurers
whose business has vested in the Corporation are transferred to the
Corporation. Sub-section (2) of section I 1 provides :

"Where the Central Government is satisfied that for
B the purpose of securing uniformity in the scales of remu -
neration and the other terms and conditions of service
applicable to employees of insurers whose controlled busi-
ness has been transferred to, and vested in, the Corpora-
tion, it is necessary so to do, or that, in the interests of the
Corporation and its policy-holders, a reduction in th'e
c 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, not-
withstanding anything contained in sub-section (!), or in
the Industrial Disputes Act, 1947, or in any other law
for the time being in force, or in any award, settlement
0 or agreement for the time being in force, alter (whether by
way of reduction or otherwise) the remuneration and th1:
other terms and conditions of service to such 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
E three months' remuneration unless the contract of service
with such employee provides for a shorter notice of termi··
nation."

There is an explanation to this sub-section which is not relevant for
the present purpose. Section 48 of the Act empowers the Central .....
F Government to make rules to carry out the purposes of the Act.
Sub-section (2) of section 48 in clauses (a) to (m) specifies some of
the matters that the rules may provide for. Sub-section (3) of
section 48 states :

G "Every rule made by the Central Government under
this Act shall be laid, as soon as may be after it is made,
before each House of Parliament while it is in session, for
a total period of thirty days which may be comprised in
one session or in two or more successive sessions, and if,
H before the expiry of the session immediately following the
session or the successive sessions aforesaid, both Houses
agree in making any modification in the rule or both Houses
A.v. NACHANE v. UNION (Gupta, J) 253

agree that the rule should not be made, the rule shall A
thereafter have effect only in such modified form or be of
no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to
the validity of anything previously done under that rule."

Section 49(1) empowers the Life Insurance Corporation of India to B
make regulations to provide for all matters for which provision is
expedient for the purpose ot giving effect to the provisions of the
Act. Clauses (a) to (m) of sub-section (21 of section 40 specify
f some of the matters the regulations may provide for. The
matter referred to in clause (b) of sub-section (2) is "the method
of recruitment of employees and agents of the Corporation
c

- and the terms and conditions of service of such employees or
agents." Clause (bb) speaks of the terms and conditions of service
of persons who have become employees of the Corporation under
sub-section (I) of section 11.
D
Turning now to the history of the litigation, the first chapter
begins with two settlements reached on January 24, 1974 and
February 6, 1974 between the Life Insurance Corporation and its
class III and class IV employees. These were 'settlements under
section 18 read with section 2(p) of the Industrial Disputes Act,
1947. The settlements were identical in terms; four of the five E
unions of workmen subscribed to the first settlement while the
remaining union ·.was a signatory to the second. The settlements
cover a large ground including the claim for bonus. Clause 8 of
each of the settlements was as follows :

- "BONUS:
F

(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 Ill and IV G
employees.

(ii) An annual cash bonus will be paid to all Class III and
Class IV employees at the rate of 15% of the annual H
salary (i.e. basic pay inclusive of special pay, if any,
and dearness l!ilow;m<;e and additional dearness allow-
254 SUPREME COURT REPORTS (1982) 2 S.C.R.

A ance) 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 bonu>
shall be as laid down in the settlement on bonus dated
B the 26th June, 1972."

Clause 12 of the settlements inter alia provides : "This settlement
shall be effective from I st April, 1973 and shall be for a period of
four years. i.e. from !st April 1973 to 31st March 1977." In 1975
an ordinance was promulgated called the Payment of Bonus (Amend-
c ment) Ordinance which was subsequently replaced by the Payment of
Bonus (Amendment) Act, 1976. The reference to this Ordinance and
the Act would not have been relevant because section 32 (i) of the
original Payment of Bonus Act, 1965 made the said Act not applicable
to the employees of the Life Insurance Corporation, but the Central
-
Government appears to have decided also that the employeei; of
D establishments not covered by the Payment of B0nus Act would not
be eligible to get bonus and ex-gratia cash payment in lieu of bonus
would be made. Accordingly payment of bonus for
the year
1975-76 to the employees of the Corporation was stopped under
instructions from the Central Governnient. On a writ petition
filed by the empl0yees of the Corporation in the Calcutta High
E Court, a single Judge of that court issued a writ of mandamus
directing the Corporation to act in accordance with the terms of the
settlement. Thereafter the Life Insurance Corporation (Modification
of Settlement) Act, 1976 was passed. Some of the employee1; of
Corporation challenged the constitutional validity of the Act by
filing writ petition in this Court. In Madan Mohan Pathak v. Union
F of India and Ors.( 1 ) this Court held that the 1976 Act offended
Article 31 (2) of the Constitution and was as such void and issued a
writ of mandamus directing the Union of India and the Life Insu-
rance Corporation to forebear from implementing or enforcing the
provisions of the I 976 Act and to pay annual cash bonus for the
G years !st April, 1975 to 31st March, 1976 and !st April, 1976 to
31st March, 1977 to Class III and Class IV employees in accordance
with the terms of the settlements.

The second chapter began on Mareh 31, 1978 when the Cor-
l! · poration issued a notice under section 19(2) of the Industrial Dis-

(l) [1978] 3 SCR 334.
A.V. NACHANE v. UNION (Gupta, J.) 255

putes Act declaring its intention to terminate the settlements on the A
expiry of the period of two months from the date the notice was
served. On the same day another notice was issued by the Cor-
poration under section 9A of the Industrial Disputes Act stating
that it proposed to effect a change in the conditions of service
applicable to the workmen. The change proposed was set out in
the annexure fo the notice which reads : B

"AND WHEREAS for economic and other reasons it
would not be possible for the Life Insurance Corporation
.. of India to continue to pay bonus on the aforesaid basis;

Now, therefore, it is our intention to pay bonus to c
the employees of the Corporation in terms reproduced

- hereunder:

"No employee of the Corporation shall be entitled
to profit sharing bonus. However, the Corporation
may, having regard to the financial condition of the D
Corporation in respect of any year and subject to the
previous approval of the Central Government, grant
non-profit sharing bonus to its employees in respect
of that year at such rate as the Corporation may think
fit and on such terms and conditions as it may specify
as regards the eligibility of such bonus.'; E

These notices were followed by a notification issued by the Cor-
poration under section 49 of the Life Insurance Corporation Act
on May 26, 1978 substituting a new regulation for the existing

- regulation No. 58 of the Staff Regulations. Simultaneously the
Life Insurance Corporation (Alteration of Remuneration and other
Terms and Conditions of Service of Employees) Order, 1957, called
the Standardisation Order, made by the Central Government in
F

exercise of the powers conferred on it by section 11 (2) of the Life
Insurance Corporation Act was amended with effect from June I,
G
1978 substituting a new clause (9) for the original clause concerning
bonus. Clause (9) of the Standardisation Order and Regulation
58 of the Staff Regulations after amendment read as follows :

"No employee of the Corporation shall be entitled to
H
profit-sharing bonus. However, the Corporation may,
having regard to the financial condition of the Corporation
jn respect of any year and subject to the previous approv~I
256 SUPREME COURT REPORTS (1982] 2 S.C.R.

A of the Central Government, grant non-profit sharing bonus
to its employees in respect of that year at such rate as the
Corporation may think fit and on such terms and conditions
as it may specify as regards the eligibility for such bonus."

The validity of the said two notices and the notification issued for
B the purpose of nullifying any further claim of the wo:rkmen to
annual cash bonus in tern;s of the Settlements of 1974 was challeng-
ed by the workmen by filing a writ petition in the Allahabad High
Court. The High Court allowed the writ petition and the Corpora· t
ti on preferred an appeal to this Court. Another writ petition which
c had been filed in the Calcutta High Court challenging the said
notices and the notification was transferred to this court, and the
appeal and this writ petition were heard and disposed of by a
common judgment. The two cases were Civil Appeal No. 2275 of
1978, (The Life Insurance Corporation of India v. D.J. Balwdur and
-
others)(1) and Transfer case No. 1 of 1979 (Chandrashekhar Bose and
D others v. Union of India and Ors.)(2). By a majority the appeal pre-
ferred by the Corporation was dismissed and the transfer petition
was allowed and a writ was issued by this Court to the Life Insu-
rance Corporation directing it "to give effect to the terms of the
settlements of 1974 relating to bonus until superseded by a fresh
settlement, an industrial award or relevant legislation." The second i
r
E chapter closed with this decision. '·

The third chapter begins with the promulgation of the Life
Insurance Corporation (Amendment) Ordir.ance, 1981 on January
31, 1981. The following changes made in the principal Act by the

F
Ordinance are material. In sub-section (2) of section 48 of the
principal Act a new sub-clause (cc) was inserted with retrospective
effect from June 20, 1979. Clause (cc) relates to "the terms and
--
conditions of service of the employees and agents of the Corporation,
including those who became employees and agents of the Corpora·
tion on the appointed day under this Act." Three new sub-sections ~ ..
(2A), (2B) and (2C) were added to section 48. Sub-section (2A)
G says that the regulations and other provisions as in force immedia-
tely before the commencement of the Ordinance with respect to the
terms and conditions of service of the employees and agents of the
Corporation shall be deemed to be rules made under clause (cc) of

H
(1) (1981] I SR 1083.
(2) [1960] 3 SCR 499.
A.V. NACHANE v. UNION (Gupta, J.) 257

sub-section (2). Sub-section (2B) provides that the power to make A
rules under clause (cc) of sub-section (2) shall include (i) the power
to give retrospective effect to such rules, and (ii) the power to amend
by way of addition , variation or repeal the regulations and other
provisions referred to in sub-section (2A) with retrospective effect,
but not from a date earlier than June 20, 1979. Sub-section (2C)
reads as follows : B

"'The provisions of clause (cc) of sub-section (2) and
.
'
sub-section (2B) and any rules made under the said clause
(cc) shall have effect, and any such rule made with retros-
pective effect from any date shall also be deemed to have
had effect from that date, notwithstanding any judgment,
c

- decree or order of any court, tribunal or other authority
and notwithstanding anything contained in the Industrial
Disputes Act, 1947 or any other law or any agreement,
settlement, award or other instrument for the time being
in force."
D
Certain consequential changes were also made in section 49 of
the Act. In clause (b) of section 49(2) which has been quoted
above, the words "and the terms and conditions of service of such
employees or agents" were omitted. This was necessary because
the terms and conditions of service of the employees and the agents E
with regard to which the Corporation was empowered to make
• regulations by section 49(1) of the principal Act is now a matter
included in clause (cc) of section 48(2) as one of the matters covered
by .the rule making authority of the Central Government under
section 48(1) of the Act. The Ordinance also omits clause (bb)
from section 49(2). Clause (bb) also quoted earlier included the F
terms and conditions of the service of the persons who had become
employees of the Corporation under section 11 (I) of the Act. The
terms and conditions of service of such persons are now included in
the new clause (cc) of section 48(2).

G
By notification dated February 2, J981 the Central Govern-
ment in exercise of the powers conferred by section 48 of the Life
Insurance Corporation Act, 1956 made the rules called the Life
Insurance Corporation of India Class III and IV employees (Bonus
and Dearness Allowance) Rules, 1981. The relevant rule is rule 3 H
which has been given retrospective operation from July 1, 1979.
Suh-.rule {I) of rule 3 prQv\~c;r_ "No. Cla~s Ill or <;:las$ l v em~lo¥et;
258 SUPRl'ME COURT REPORTS (1982) 2 S.C.R

A of the Corporation shall be entitled to the payment of any profit
sharing bonus or any other kind of cash bonus." Sub-rule (2)
of rule 3 states that notwithstanding what sub-rule (I) provides every
Class JU and Class IV employee shall be entitled to a payment in
lieu;of bonus-(a) for the period commencing from July I, 1979
and ending on March 3 I, 1980 at the rate of I 5 per cent of his
B salary; and (b) thereafter for every year commencing on the I st
April and ending on the 31st day of March of the following year,
at such rate and subject to such conditions as the Central Govern-
ment may determine having regard to the wage level, the financial
circumstances and other relevant factors. There is a proviso to
this sub-rule which says that (i) no payment in lieu of bonus shall
c be made to any employee drawing a salary exceeding Rs. 1600 per
•
month; and (ii) where the salary of an employee exceeds Rs. 750 per
month but does not exceed Rs. 1600 per month, the maximum pay- ...
ment to him in lieu of bonus shall be calculated as if his salary were
Rs. 750 per month. For the purposes of this sub-rule, "salary" was
explained as meaning basic pay, special pay, if any, and dearness
D allowance. Sub-rule (3) of rule· 3 rescinds regulation 58 of the
Staff Regulations and all other provisions relating to the payment
of bonus to the employee to the extent they are inconsistent with
rule 3.

Writ petition No. 501 of 1981 under Article 32 of the Consti-
E
tution was filed in this Court on February 5, 1981 by Shri A.V.
Nachane and the All India Life Insurance Corporation Employees •
•
Federation, Bombay, challenging the validity of the Ordina1~ce and
the aforesaid rules. Similar writ petitions by other associations of
l
the employees of the Corporation followed. In the meantiime the
F Ordinancewasrepealed and replaced on March 17, 1981 bythe.
Life Insurance Corporation (Amendment) Act, 1981 which received
the assent of the President of India on the same day. The writ
-
. ~

petitions were suitably amended after the Amendment Act came
into force. The provisions of the Act are similar t<' thosti of the
Ordinance except that the Amendment Act adds a new sub-.section,
--- ~ --
G sub-section {3). to section 49 of the principal Act. The new sub-
section (3) which provides that the regulations made under section
49 shall be laid before each House of Parliament are similar in terms
to sub-section (3) of section 48 requiring the rules made by the
Central Government under the Act to be laid before each House of
H Parliament. Section 4 of the Amendment Act repeals the Ordinance
but provides that "notwithstanding such repeal, anything done or
?ny action t~k~n und\')r the principal Act as amended by the said
A.V. NACHANE v. UNION (Gupta, J.) 259

Ordinance shall be deemed to have been done or taken under the A
principal Act as amended by this Act.

The validity of the Amendment Act and the Life Insurance
Corporation of India Class TII and Class IV Employees (Bonus and
Dearness Allowance) Rules, 1981 have been challenged on several B
grounds. It was argued that the Act and the rules were violative
of Article 14, 19(1) (g) and 21 of the Constitution. It was further
contended that the said Act was invalid on the ground of excessive
delegation of legislative functions. Another contention raised was
that in any event sub-section (2C) of section 48 was invalid to the
extent it permitted retrospective operation to rule 3 to override c
the order of this Court disposing of D. J. Bahadur's case. The
challenge based on Article 19(1)(g) and Article 21 does not appear
to have any substance. Apart from anything else, a claim based
on the 1974 settlements is certainly not a fundmental right that
could be enforced through this Court. As regards Article 21, the
first premise of the argument that the word 'life' in that Article D
includes livelihood was considered and rejected in In re: Sant Ram.

The contention that Article 14 is infringed arises on the pro-
vision of sub-section (2C) of section 48 that any rule made under
clause (cc) of sub-section (2) of that section touching the terms and
E
conditions of service of the employees of the Corporation shall
have effect notwithstanding anything contained in the Industrial
Disputes Act, 1947. It is true that after rules are made regarding
the terms and conditions of service, the right to raise an industrial

- dispute in respect of matters dealt with by the rules will be taken
away and to that extent the provisions of the Industrial Disputes
Act will cease to be applicable. It was argued that there was no
basis on which the employees of the Corporation could be said to
F

form a separate class for denying to them the protection of the
Industrial Disputes Act. The reply on behalf of the Union of India
and the Life Insurance Corporation was that the remuneration that
was being paid to class III and class IV employees of the Corpora- G
tion was far in excess of what was paid to similarly situated emp-
loyees in other establishments in the public sector. Some material
was also furnished to support this claim though they were certainly
not conclusive. The need for amending the Life Insurance Corpora-
tion Act, 1956 as appearing from the preamble of t_he Amendment H
Act and the Ordinance is as follows : " ... for securing the interests of
the Life Insurance CorporatioQ Qf lndi?; \l!Jcl its i;><;>l\1!¥-110\de~s 1;\Qq
260 SUPREME COURT REPOTS [1982) 2 s.c.R.

A to control the cost of administration, it is necessary that revision
of the terms and conditions of se.rvice applicable to the f:mployees
and agents of the Corporation should be undertaken expeditiously."
Referring to the preamble of the Act the Attorney-General appearing
for the Union of India and the Corporation submitted that the
problem of mounting cost of administration led to the makini~ of
L the impugned law. He added that it was felt that no improvement
in the situation was possible by the process of adjudication and a
policy decision was taken that in the circumstances the proper
course was legislation and that is why the Amendment Act was
passed and the impugned rules were framed. The learned Attorney
General submitted that it was for Parliament to decide whether the
c situation was remediable by adjudication or required le,gislation.
According to him the Life Insurance Corporation Act as amended
and the rules made after amendment placed the Corporation in the
....
same position as other undertakings, that the advantages being
enjoyed by the employees of the Corporation which were not
available to similarly situated employees of other undertakings have
D been taken away removing what he described as discrimiuation in
favour of the employees of the Life Insurance Corporation. We
have already said that the material produced on behalf of the
Union of India and the Corporation to show that the t(:rms and
conditions of service of the employees in several other undertakings
in the public sector compared unfavourably to those of th c Corpo-
E ration employees was not conclusive. But the burden of establishing
hostile discrimination was on the petitioners who challenged the
Amendment Act and the rules. It was for them to show that the em-
ployees of the Life Insurance Corporation and the employee:; of the
other esrablishments to whom the provisions of the Industrial Disputes
F
Act were applicable were similarly circumstanced to justify 1the con- ...
tention that by excluding the employees of the Corporation from the
purview of the Industrial Disputes Act they had been discriminated
against. There is no material before us on the basis of which we
can hold that the Amendment Act of 198 I and the rules made on ..:
February 2, 1981 infringe Article 14. We do not think that on the
facts of this Case Express Newspapers (Private) Limited and another
G
v. Union of Jndia,(1) Moti Ram Deka etc. v. General Manager N.E.P.
Railways, Maligaon, Pandu etc.,(2 ) relied on by the petitioner.s, havi;
any application.

(I ) [ 1959] SCR I 2.
m [1964] 5 SCR 683.
A. \I. NACHANE v. UNION (Gupta, J.) 261

It was contended that sub-section (2C) added to section 48 of A
the Life Insurance Corporation Act, 1956 by the Amendment Act
of 1981 was invalid because of excessive delegation of legislative
functions and that if sub-section (2C) which is an integral part of
the Amendment Act was ultra vires, the entire Amendment Act
would be unconstitutional. The Amendment Act introduced clause
(cc) in section 48(2) authorising the Central Government to make B
rules in respect of the terms and conditions of service of the emp-
loyees and agents of the Corporation. Sub-section (2C) of section
48 provides inter alia that rules made under clause (cc) shall have
effect notwithstanding anything contained in the lndnstrial Disputes
Act, 1947 or any other law for the time being in force. The argu-
ment is that the rules made under section 48(2) (cc) can virtually c

-
repeal the Industrial Disputes Act and other laws to the extent they
are inconsistent with these rules. Repealing a law, it was submitted
on the authority of Jn re Delhi Laws Act,(1) was an essential legis-
lative function which had been delegated to the Central Government
and that the delegation was therefore excessive. It is now well
settled that it is competent for the legislature to delegate to other
D
authorities the power to frame rules to carry out the purposes of
the law made by it (see In re the Delhi Laws Act,(') Raj Narain S ngh
v. The Chairman, Patna Administration Committee, Patna and an-
other,(2) and D.S. Garewal v. State of Punjab and another( 3 ) but the
essential legislative functions cannot be delegated. What is essential
E
legislative function has been explained by Mukerjea., J. in the Delhi
Laws case as follows :

"The essential legislative function consists in the
determination or choosing of the legislative policy and of
- formally enacting that policy into a binding rule of con-
duct. It is open to the legislature to formulate the policy
F
as broadly and with as little or as much details as it thinks
proper and it may delegate the rest of the legislative work
to a subordinate authority who will work out the details
within the framework of that policy."
G
In Raj Narain Singh v. The Chairman, Patna Administration Com-
mittee, Patna, and another(2) a bench of five Judges of this Court held

- (I) [1951) SCR 747.
(2) [1955) SCR 290.
H
(3) (1959] 1 Suppl. SCR 792.
262 sui>RilMil COURT REPORTS [ 19821 2 s.c.R.

A that an executive authority can be empowered by a statute to modify
either existing or future laws but not in any essential feature. In
the instant case section 48(2C) read with section 48(2) (cc) autho-
rises the Central Government to make rules to carry out the pur·
poses of the Act notwithstanding the Industrial Disputes Act or any
other law. This means that in respect of the matters covered by
B the rules the provisions of the Industrial Disputes Act or any other
law will not be operative. The argument is that sub-section (2C)
or any other provision introduced in the principal Act by the
Amendment Act does not lay down any legislative policy nor supply
any guidelines as to the extent to which the rule-making authority
would be competent to override the provisions of the Industrial Dis-
putes Act or other laws. Reference was made to Municipal Corpo-
'·
c ration af Delhi v. Bir/a Cotton Spinning and Weaving Mills, De/ht and
another,( 1 ) Gwalior Rayon Silk Manufacturing (Weaving) Company
Limited v. Assistant Commissioner of Sales-tax and others,(2) for the
proposition that unlimited right of delegation is not inher,~nt in the
-
legislative power itself.
D
The question therefore is, does the Amendment Act of 1981
lay down no legislative policy or furnish no guidance to indicate the
nature and extent of the modifications that the rules wiU be per-
mitted to make in the existing laws to carry out the purposes of
E the Life Insurance Corporation Act, 1956 as amended in 1981 'I
Learned Attorney General relied on the decision of this Court in
Harishanker Bag/a and another v. State of Madhya Pradesh (3) This
was a case under the Essential' Supplies (Temporary Powers) Act,
1946. Section 3( I) of that Act says that the Central Govmunent
for maintaining or increasing supplies of any essential commodity,
F or for securing their equitable distribution and availability at fair
prices, may by order provide for regulating or prohibiting the pro-
duction, supply and distribution thereof and trade and commerce
-
therein. Sub-section (2) of section 3 states that without prejudice
to the generality of the powers conferred by sub-section (1), such
an order may provide inter alia for regulating by licences or permits
G or otherwise the production or manufacture and transport, distri-
bution, disposal, acquisition; use or coµsumption of any es.sential
commodity. Section 6 of that Act provides inter alia that any
order made under section 3 shall have effect notwithstanding any-

H (!) (1968) 3 SCR 251.
(2) [1974) 2 SCR 879..
(3) [1955) 1 SCR 380.
A.t. NACHANE v. i:JNiON (Gupta, J,j 263
thing inconsistent therewith contained in any enactment other than A
,. that Act. In exercise of the powers conferred by section 3 of that
Act the Central Government made the Cotton Textiles (Control of
Movement) Order, 1948. Clause 3 of the said Order requires a
person to take a permit from the Textile Commis~ioner to enable
him to transport cotton textiles. One of the question that arose in
Harishankar Bag/a' s case was whether section 6 of the Essential B
Supplies (Temporary Powers) Act permitted rules to be made by the
Central Government repealing by implication an existing law,
which was an essential legislative function and could not validly be
1 delegated. Mahajan C.J., speaking for the court said :
"
c
"Section 6 does not either expressly or by implication
repeal any of the provisions of pre-existing laws, neither
does not abrogate them. Those laws remain untouched
and unaffected so far as the statute book is concerned. The
repeal of a statute means as if the repealed statute was
never on the statute book. It is wiped out from the statute D
book. The effect of section 6 certainly is not to repeal any
one of those laws or abrogate them. Its object is simply
to by-pass them where they are inconsistent with the pro-
visions of the Essential Supplies (Temporary Powers) Act,
1946, or the orders made thereunder. In other words, the
orders made under section 3 would be operative in regard E
to the essential commodity covered by the Textile Control
Order wherever there is repugnancy in this Order with the
existing laws and to that extent the existing laws with
regard to those commodities will not operate. By-passing a
certain law does not necessarily amount to repeal or abroga-
tion of that law. That law remains unrepealed but during F
the continuance of the Order made under section 3 it does
not operate in that field for the time being."

We think the Attorney-General was right in his submission that
what has been said of section 6 of the Essential Supplies (Temporary G
Powers) Act should hold good for sub-section (2C) of section 48 of
the Life Insurance Corporation Act which is similar in terms in so
far as it authorises the Central Government to make rules by-
passing the existing laws. Mahajan C.J., also holds that assuming
that the rules framed under the Act had the effect of repealing the ll
existing laws, the power to repeal is exercised nvt by the delegate
but by the Act itself. This is what he says on this point :

'
264 StJPREMll COuRT lU!PORtS [I 982j 2 s.c.k.

A "Conceding, however, for the sake of argument that
to the extent of a repugnancy between an order made under
section 3 and the provisions of an existing law, to the extent
of the repugnancy, the existing law stands repealed
by implication, it seems to us that the repeal is not by
any Act of the delegate, but the repeal is by the legisl'ative
8 Act of the Parliament itself. By enacting section 6 Parlia-
ment itself has declared that an order made under section
3 shall have effect notwithstanding any inconsistency in
this order with any enactment other than this Act. This is
not a declaration made by the delegate but the Legislature
itself has declared its will that way in section 6. The abro-
c gation or the implied repeal is by force of the legislative
declaration contained in section 6 and is not by force> of
the order made by the delegate under section 3. The
power of the delegate is only to make an order under si:c-
tion 3. Once the delegate has made that order its power
D is exhausted. Section 6 then steps in wherein the Parlia-
ment has declared that as soon as such an order com1:s
into being that will have effect notwithstanding any incon-
sistency therewith contained in any enactment other than
this Act. Parliament being supreme, it certainly could
make a law abrogating or repealing by implication provi-
sions of any pre-existing law and no exception could be
E taken on the grour.d of excessive delegation to the Act of
the Parliament itself."

The Attorney General relied strongly on these observations in sub-
mitting that it is not really the rules framed by the Central Govern-
ment in exercise of the delegated authority that override the
F Industrial Disputes Act or any other existing law but the power of
abrogating the existing laws is in sub-section (2C) of section 48
enacted by Parliament itself. The observations quoted above from
Harishankar Bag/a's case which was decided by a bench of five
Judges appear to support the Attorney General's contention.

G The question howtwer remains to be answered, does the Lifo
Insurance Corporation Act, 1956 as amended in 1981 state any
policy to guide the rule-making authority ? We have earlier referred
to the observations of Mukerjea J., in the Delhi Laws case that the
legislature can formulate a policy as broadly and with as little or as
much details as it thinks proper and may delegate the rest of the
H legislative work to a subordinate authority who will work out the
details within the framework of the policy. In Harishanker Bagla's
A.c. NAcHANB v. UNION (Gupta, J.) 265
case one of the questions for decision was whether section 3 of the A
Essential Supplies (Temporary Powers) Act, 1946 :.amounts to dele-
gation of legislative power outside the permissible limits. It was
held that legislature had laid down a legislative principle which was
"maintaining or increasing supplies of any essential commodity,"
and "securing their equitable distribution and availability at fair
prices." That statement was held as offering sufficient guidance to 8
the Central Government in exercising its powers under section 3.
In the instant case the policy as stated in the preamble of the
Amendment Act is that "for securing the interests of the Life
Insurance Corporation of India and its policy-holders and to control
the cost of administration, it is necessary that revision of the terms
and conditions of service applicable to the employees and agents c
of the Corporation should be undertaken expeditiously". The policy
stated here is at I east as clear as the one held in Harishanker Bag/a' s
case offering sufficient guidance to the Central Government in exer-
cising its powers under that Act, We have referred to section 48(3)
of the Life Insurance Corporation Act which requires that every
rule made by the Central Government under this Act shall be laid 0
before each House of Parliament and that if both Houses agree in
making any modification in the rule or both Houses agree that the
rule should not be made, the rule shall thereafter have effect only
in such modified form or be of no effect, as the case may be. This
Court in D.S. Grewal v. State of Punjab and another(supra) observed
as follows in respect of a similar provision requiring the rules made E
by the delegated authority to be laid on the table of Parliament and
making the rules subject to modification, whether by way of repeal
or amendment on a motion made by Parliament:

"This makes it perfectly clear that Parliament has in
no way abdicated its authority, but is keeping strict vigi- F
lance and control over its delegate."

In view of what has been held in Harishanker Bag/a and D. S.
Grewal, both of which were decided by a larger bench, we do not
find it possible to accept the contention that the Act is invalid on
G
the ground of excessive delegation of legislative functions.

It was contended on behalf of the petitioners that in any event
the provisions of the Amendment Act of 1981 could not nullify the

l
effect of the writ issued by this Court in D. J. Bahadur's case. In H
our opinion this contention has substance. Clause (cc) of section
48(2) empowers the Central Government to make rules with regard
266 SUPREME COURT REPORTS t1982] 2 s.c.R.

A to the terms and conditions of service of the employees and agents
of the Corporation. Sub-section (2A) of section 48 provides that ..
the regulations made under section 49 of the Act and "other provi-
sions' as in force before the commencement of the Amendment Act
with resoect to the said terms and conditions are to be deemed as
rules m~de under clause (cc) of section 48(2). Sub-section (2B)
B of section 48 says that the power to make rules conferred by clause
(cc) of sub-section (2) shall include the powet to add, vary or
repeal the regulations and "other provisions" referred to in sub-
section (2A) with retrospective effect from a date not earlier than
June 20, 1979. Clearly a writ issued by this Court is not a regula-
tion nor can it be described as 'other provision' which expression
c possibly includes circulars and administrative directions. Sub-section •.
(2C) of section 48 however provides inter alia that any rules made
under clause (cc) with retrospective effect from any date shall be
deemed to have had effect from that date notwithstanding any
judgment, .decree or order of any court, tribunal or other authority.
The order disposing of D. J. Bahadur's case, made on November
D IO, 1980 reads :

"In view of the opinion expressed by the majority, the
appeal is dismissed with costs to the first, second and third
respondents, and the Transfer Petition No. 1 of 1979 stands
allowed insofar that a writ will issue to the Life Insu-
E rance Corporation directing it to give effec:t to the terms of
the settlements of 1974 relating to bonus until superseded
by a fresh settlement, an industrial award or relevant
legislation. Costs in respect of the Transfer Petition will be
paid to the petitioners by the second respondent."

F The Life Insurance Corporation of India Class III and Class IV
Employees (Bonus and Dearness Allowance) Rules, 1981 were made
by the Central Government on February 2, 19'81 in exercise of the
powers conferred by section 48 of the Life Jnsurance Corporation
Act, 1956 as amended by the Life Insurance Corporation (Amend-
ment) Ordinance, 198 I. Rule 3 of these rules relates to the subject
G of bonus concerning class III and class IV employees of the Cor-
poration. The substance of this rule has been set out earlier in
this judgment. Clearly rule 3 seeks to supersr~de the terms of the
1974 settlements relating to bonus. By virtue of rule I (2), rule 3
''shall be deemed to have come into force on the lst day of July,
H 1979'". The question is, can rule 3 read with rule I (2) nullify the
effect of the writ issued by this Court on November 10, 1980 in
D. J. Bahadur' s case ? In seems to us rule 3 c:annot make the writ
A.C. NACHANE v. UNION (Gupta, J.) 267

issued by this Court nugatory in view of the decision of the majority A
in Madan Mohan Pathak v. Union of India & ors. etc.(supra) to which
reference has been made earlier. In Mada11 Mohan Pathak's case it
was contended that since the Calcutta High Court had by its j udg-
ment dated May 21, 1976 issued a writ of mandamus directing the
Life Insurance Corporation to pay annual cash bonus to class Ill and
class IV employees for the year April I, 1975 to March 31, 1976 as B
provided by the 1974 settlements and this judgment had become final,
the Life Insurance Corporation was bound to obey the writ of manda-
mus and pay as ordered by the High Court. The court was dealing
l with the Life Insurance Corporation( Modification of Settlement) Act,
1976 in that case. Section 3 of that Act provided that the terms
of the settlements in so far as they related to the payment of annual c
cash bonus to class III and class IV employees would not have any
force or effect and be deemed not to have had any force or effect
from April 1, 1975 Bhagwati J., speaking also for Iyer and Desai.,
JJ., observed :
I

D
"Here, the judgment given by the Calcutta High Court,
which is relied upon by the petitioners, is not a mere
declaratory judgment holding an impost or tax to
be 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 E
is a judgment giving effect to the right of the petitioners 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 retrospec-
tive alteration of the factual or legal situation, the judgment
is rendered erroneous, the remedy may be by way of appeal F
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 lnsurnnce Corporation
is bound to obey the writ of Mandamus issued by the G
Calcutta High Court ... "

Beg. C.J. who delivered a separate but concurring judgment, after
pointing out the "hurdle in the way" of the petitioner's claim based H
on Article 19(I)(f) of the Constitution, which was that the Act Life
Insurance Corporation (Modification of Settlement) Act, 1976) was
268 SUPREME COURT REPORTS [ i 982) i s.c.R.

A passed during the emergency, observed :

"Tbe object of the Act was, in effect, to take away the
force of the judgment of the Calcutta High Court recog-
nising the settlements in favour of Class III and Class IV
employees of the Corporation. Rights under that judg-
ment could be said to arise independently of Article 19 of
the Constitution. I find myself in complete agreement with
my learned brother Bhagwati that to give effect to the
judgment of the Calculla High Court is not the same thing
as enforcing a right under Article 19 of the Constitut on.
It may be that a right under Article 19 of the Constitution
c becomes linked up with the enforceability of the judgment.
Nevertheless, the two could be viewed as separable sets of
rights. If the right conferred by the judgment indepen-
dently is sought to be set aside, section 3 of the Act. would
in my opinion, be invalid for trenchiJg upo.1 the judicial
power.
D
I may, however, observe that even though the real
object of the Act may be to set aside th(: result of the
mandamus issued by the Calcutta High Court, yet, the
section does not mention this object at all. Probably thi>
was so because the jurisdiction of a High Court and the
E effectiveness of its orders derived their force from Article
226 of tbe Constitution itself. These could not be touched
by an ordinary act of Parliament. Even if siection 3 of the
Act seeks to take away the basis of the ju1dgment of the
Calcutta High Court, without mentioning it, by enactiug
what may appear to be a law, yet, I think that where the
F 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 which had passed into those embodied in a
judgment and became the basis of a Mandamus from the
High Court could not be taken away in this indirect
G fashion.·'

The Attorney General referred to a number or earlier decisions
of this Court wanting us to infer that the observations quoted above
H from the judgment in Madan Mohan Pathak's case did not state the
correct law in view of the said decisions. But these observations
expressed the majority view of a bench of seven Judges bearing
A.c. NACHANE v. UNION (Chinnappa Reddy, J.) 269

directly on the point that arises for decision in the instant case and A
are binding on us. We therefore hold that rule 3 operating retros-
pectively cannot nullify the effect of the writ issued in D. J. Bahadur' s
case which directed the Life Insurance Corporation to give effect to
the terms of the 1974 settlements relating to bonus until superseded
by a fresh settlement, an industrial award or relevant legislation.
The Life Insurance Corporation (Amendment) Act, 1981 and the B
Life Insurance Corporatiou of- India Class III and Class IV Emp-
loyees (Bonus and Dearness Allowance) Rules, 1981 are relevant
legislation. However in view of the decision in Madan Mohan
Pathak's case, these rules, in so fu as they seek to abrogate the
terms of the 1974 settlements relating to bonus, can operate only
prospectively, that is, from Feburary 2, 1981, the date of publication c
of the rules. The petitions are allowed to this extent only.

In the circumstances of the case we make no order as to costs.

CHJNNAPPA REDDY, J. I have had the advantage of perusing
the opinion of my brother Gupta J., I agree with his conclusion that
D
the Life Insurance Corporation (Amendment) Act I of 1981 can
operate but prospectively in so far as it seeks to nullify the terms of
the 1974 settlements in regard to the payment of bonus. On some
of the other questions I have certain reservations. I do not, how-
ever, desire to express any opinion on those questions as my brother
E
Pathak J., has indicated that he is incljned to agree with Gupta J.,
on those questions. Perhaps I will do well to add a few words of
my own on the question of retrospectivity. I am spared the neces-
sity of stating the facts as those that are necessary have been stated

-
by my brother Gupta J.

The 1974 settlement~ provided, among various other matters, F
for the payment of a1111ual cash bonus (not a profit sharing bonus)

- to their Class III and Class IV employees at the rate of 15 per cent
of the annual ;alary. The settkments were to be opera1ive from lst
April 1973 10 31st March 1977. That the settlements were to be
operative from 1st April 1973 to 31st March 1977 did not mean G
' that the settlements would crnsc to be effective peremptorily from
' 1-4-1977 and, therefore, the annual cash bonus stipulated under the
settlements would cease 10 be payable from that date onwards. The
settlements would continue to be binding even after 31-3-1977 and
would not be liable to be terminated by the issuance of a unilateral H
notice by the employer purporting to terminate the settlements. The
settlements wonld cease to bi:i effective only when they were replaced
270 SUPREME COURT REPORTS (1982] 2 S.C.R.
A by 'a fresh settlement, an indmtrial award or n!levant legislation'.
This is the law and this was what the law was prnnounced to be in
Life Insurance Corporation of India v. D. J Bahadur(1 ) on a considera-
tion of the relevant provisions and precedents.

The attempt made to supersede the settlements, in so far as
B they related to the payment nf bonus, by enacting the Life Insurance
Corporation (Modification of Settlement) Act 1976 failed, firstly
because the-Aet was held to violate the provisions of Article 31(2)
of the Constitution and secondly because the A<~t could not have
retrospective effect so as to absolve the Life Insurance Corporation
from obeying the writ of mandamus issued by the Calcutta High
c Court, which had become final and binding on the parties. This
wa~ the decision of this Court in Mad'm Mahan Pathak v. Union
of India( 2 ), all the seven judges who constituted the Bench agreeing
that the Act violated the provisions of Article 31(21 and four out of
the seven judges, namely, Beg C. J., Bhagwati, Krishna Iyer and
Desai JJ., taking the view that the Act did not have the effect of
D nullifying the writ of mandmus isst1ed by the C1lcutta High Court
and the other three Judges, Chandrachud, Faz:il Ali and Shinghal
JJ., preferring not to express any view on that question.
The second attempt to nullify the 1974 -settlements in regard to
payment of bonus, by issuing notices under section 19(2) and Section
E 9-A of the Industrial Disputes Act and by amending the Standardisa-
tion Order and the Staff Regulations, was frustrated by ihe judgment
of this Court in Life Insurance Corporation of India v. D.J. Bahadur,
the Court taking the view that the two settlements could only be
.
superseded by 'a fresh settlement, an industrial award or relevant

F
legislation'. In this case, the Court issued a writ to the Life Insu-
rance Corporation "to give effect to the terms of the settlements of
1974 relating to bonus. until superseded by a fresh settlement, an
industrial award or relevant legislation".
-
G
The
1
effect of the two judgments in Madan Mohan
Pathak s case and D.J, Bahadhur's case was clear: the settle-
ments of 1974, in so far as they related to bonus, <:ould only he
superseded by a fresh settlement. an industrial award or relevant
-
legislation. But any such supersession could only have future
effect, but not retrospective effect so as to disentitle the Class III
and Class IV employees of the Life Insurance Corporation from
receiving the cash bonus which had been earned by them, day by
H
(1) A.LR. 1980 s.c. 2181.
(2) [1978) 3 ~.C.R,. 3H,
A.V. NACHANB v. UNION (Chinnappa Reddy, J.) 271

day and which the Life Insurance Corporation of India was under A
an obligation to pay in terms of the writ issued in D. J. Bahadur's
case. The present attempt made by the 1981 amending Act and the
rules thereunder to scuttle the payment of bonus with effect from
a date anterior to the date of the enactment must, therefore, fail.
The employees are entitled to be paid the bonus earned by them
before the date of publication of the Life Insurance Corporation of B
India Class III and Class IV Employees (Bonus and Dearness
Allowance) Rules, 19 81.

N.V.K . Petitions partly allowed.

.J
'