Holding

A High Court cannot direct prospective operation of a statute, and a direction to "consider" must be clear and specific; the direction in this case was not a positive order and therefore invalid.

Summary

The Union of Employees of a Government undertaking challenged a notification that enhanced employee and employer contributions under the Employees State Insurance Act, claiming it did not apply to them. A Rajasthan High Court dismissed the writ as non‑maintainable but directed the ESIC to "consider" waiving the contribution for the period in question, without making any positive finding. The Corporation appealed, arguing that the High Court had exceeded its jurisdiction by effectively directing prospective operation of the statute. The Supreme Court held that a High Court cannot order a statute to operate prospectively and that a direction to "consider" must be clear, specific, and either contain findings or be a mere procedural instruction. In this case, the direction was not a substantive order, so the High Court’s direction was invalid. Consequently, the appeals were disposed of without any order as to costs.

Issues considered

The jurisdiction of a High Court under Article 226 to direct that a statute shall operate prospectively.
The legal effect and required clarity of a court's direction to an authority to "consider" a matter.
Whether the High Court's direction in the present case amounted to a positive direction or merely a procedural instruction.

Legislation cited

Subjects

Judicial reviewArticle 226Direction to considerProspective operation of statuteEmployees State InsuranceHigh Court jurisdictionWrit petitionAdministrative law

Judgment

EMPLOYEES STATE INSURANCE CORPORATION A
v.
ALL INDIA I.T.D.C. EMPLOYEES UNION AND ORS.

MARCH 24, 2006

[ARIJIT PASA YAT AND TARUN CHA lTERJEE, JJ.] B

Judicial Review-Powers of High Court-Court's Direction to an
Authority to 'Consider-Constitution of India-Article 226-Notification

- enhancing employees contribution to ES/. challenged by the respondents-
High Court while dismissing the petition directing ES! corporation to consider
the case of respondents-Direction challenged by the ESJC-Held, Power to
C

direct that statute shall operate prospectively is no longer res integra-On
facts, Held, the High Court only directed for consideration by the corporation
and did not give a positive direction.
D
Judicial review of Administrative Actions-Scope of-General practice
of High Courts to dispose of writ petition with a direction to authority to
'consider '-Import of such direction-Held, the High Court should make
clear and specific direction-Further, the order should clearly indicate
whether the Court is recording any finding about the entitlement of the
petitioner to the relief or the petition is disposed of without examining the E '
claim on merits.

Government issued a notification enhancing employees contribution to
-- ESI. Employees' Union filed a writ petition challenging the employer's notice
on the ground that notification has no application to them as their employer
was a Government of India undertaking. Single judge issued an interim order F
staying operation of notification to petitioners. Finally court dismissed the
petition as not maintainable in view of the alternative remedy available.
However, the court made a direction to ESIC to consider that since the
petitioners have not availed the facility of ESI from them they should waive
the realization of contribution for this period from the petitioner. Corporation G
appealed to this court challenging the said direction.

Disposing of the appeals, the Court

HELD: I. The question relating to the jurisdiction of the High Court to
direct that statute shall operate prospectively is no longer res integra. When
361 H
362 SUPREME COURT REPORTS [2006] 3 S.C.R.

A a court directs an authority to 'consider', it requires the authority to apply
its mind to the facts and circumstances of the case and then take a decision
thereon in accordance with law. [366-D; 369-G-H]

2. Where an order or action of the State or an authority is found to be
illegal, or in contravention of prescribed procedure, or in breach of the rules
B of natural justice, or arbitrary/unreasonable/irrational, or promoted by ma/a
}ides or extraneous consideration, or the result of abuse of power, such action
is open to judicial review. When the High Court finds that the order or action
requires interference and exercises the power of judicial review, thereby
resulting in the actio11/order of the state or authority being quashed, the High
C Court will not proceed to substitute its own decision in the matter, as that
will amount to exercising appellate power, but require the authority to
'consider' and decide the matter again. The power of judicial review under
Article 226 concentrates and lays emphasis on the decision making process,
rather than the decision itself. [370-B-q

D 3. The High Courts also direct authority to 'consider', in a different
category of cases. Where an authority vested with the power to decide a
matter, fails to do so in spite of a request, the person aggrieved approaches
the High Court, which in exercise of power of judicial review, directs the
authority to 'consider' and decide the matter. The High Court may also
direct the authority to 'consider' afresh, where the authority had decided
E a matter without consideFing the relevant facts and circumstances, or by
taking extraneous or irrelevant matters into consideration. In such cases
also, High Court may not examine the validity or tenability of the claim
on merits, but require the authority to do so. [3'10-D-F]

F 4. Where the High Court finds the decision-making process erroneous
and records its findings as to the manner in which the decision should be
made, and then directs the authority to 'consider' the matter, the authority
will have to consider and decide the matter in the light of findings or
observations of the Court. But where the High Court without recording any
findings, or without expressing any view, merely directs the authority to
G 'consider' the matter, the authority will have to consider the matter in
accordance with law, with reference to the facts and circumstances of the case,
its power not being circumscribed by any observations or findings of Court.
(370-G-HI

5. Sometimes the High Courts dispose of matter merely with a direction
H
-t
EMPLOYEES STATE INSURANCE CORPN. ''·ALL INDIA ITD.C. EMPLOYEES UNION 363

to the authority to 'consider' the matter without examining the issue raised A
even though the facts necessary to decide the correctness of the order·are
available. Neither pressure of work nor the complexity of the issue can be a
reason for the Court, to avoid deciding the issue which requires to be decided,
and disposing of the matter with a direction to 'consider' the matter afresh.
(371-A-B] B
6. While disposing of writ petitions with a direction to 'consider', there
is need for the High Court to make the direction clear and specific. The order
should clearly indicate whether the High Court is recording any finding about
the entitlement of the petitioner to the relief or whether the petition is being
disposed of without examining the claim on merits. In the present case, the C
order of the High court did not give a positive direction. Single Judge left the
matter to be decided by the Corporation. The direction was to 'consider' and
in that sense there was no positive direction. In that view of the matter the
Corporation shall now give opportunity to the concerned parties in each case
to present their respective stand before the Corporation so that after D
consideration necessary order can be passed in accordance with law.
1371-F-G; H; 372-A-BI

Kanoria Chemicals and Industries Ltd v. UP. State Electricity Board,
11997] 5 SCC 772; Shree Chamundi Mopeds Ltd v. Church of South India
Trust Assn, 11992] 3 SCC 1; Union of India v. Murugan Talkies, 11996] 1 E
SCC 504; Employees State Insurance Corp. v. Kera/a State Hand!oom
Development Corp. Employees Union (CITU), Kannur, (1994] 1 SCC 268;
UP. State Sugar Corporation v. Mahalchand M Kothari, (2005] 1 SCC 348
and A.P.SR. T.C and Ors. v. G. Srinivas Reddy and Ors., AIR (2006) SCW 1108,
held not applicable.
WITH
F
CA No. 315 of2005.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 313/2005.

From the Final Judgment and Order dated 20. 11.200 I of the Rajas than
High Court in D.B. Civil Special Appeal No. 1005of1999. G
Mr. CS. Rajan, V.J. Francis, Anupam Mishra, C.M. Jayakumar and Jenis
for the Appellant

Mr. Parveen Jain, Sudhir Nandrajog, Abhishek Agarwal, Ms. Shweta
Chadha, Ms. Meha Kiran, Ms. Nina Gupta, Ms. Bina Gupta Rakesh K. Khanna, H
Dr. Rashmi Khanna and Surya Kant for the Respondents.
364 SUPREME COURT REPORTS [2006) 3 S.C.R.

A The Judgment of the Court was delivered by

ARIJIT PASAYAT, J. These two appeals are inter-linked and are,
therefore, taken up for disposal together. Challenge in these appeals is to the
legality of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur confirming the order passed by a learned Single Judge, who
B while dismissing the writ petition filed by the respondent no. I (hereinafter
referred to as the 'Union') in Civil Appeal No.313 of 2005 gave certain
directions. The judgments in the said case were followed in the connected
Civil Appeal No.313 of 2005.

c Background facts in a nutshell are as follows :

Pursuant to the amendment made in the provisions of the Employees'
State Insurance (Central) Rules, 1950 (in short the 'R.ules') framed under
Employees State Insurance Act, 1948 (in short the 'Act') vide Notification
dated 23.12.1996 which became effective with effect from the date 01.01.1997,
D the employees who were drawing monthly salary of Rs.6,500/- which limit
was earlier Rs. 3,000 were required to make contributions at the enhanced rate
of I. 75% in place of the earlier figure of 1.5%. The employers contribution was
increased from 4% to 4.75%. In view of the Notification those employees who
were drawing salary upto Rs.6,500 were required to secure new insurance
E cards after filing requisite declaration. The concerned employer notified the
employees accordingly. The Union challenged the employer's notice on the
ground that in view of proviso to Section 1(4) of the Act, the amendment as
brought in by the Notification had no application to the concerned employees.
However, prayer in the writ petition was to grant exemption. In the case of
!TDC which were subsequently taken over by Laxmi Vilas Palace Hotel,
F Udaipur, stand was that the employer-hotel was a Government of India
undertaking and is State within the meaning of Article 12 of the Constitution·
oflndia (in short the 'Constitution'). According to the Union, the applicability
of the Act cannot be extended to the employees of the said establishment.
Therefore, the demand for payment for contribution from the concerned
G employees to be deducted from their salaries is not warranted. The Employees
State Insurance Corporation (in short the 'Corporation') raised preliminary
objections as regards the maintainability of the writ petition. It was pointed
out that since the Notification in question was issued by the Union of India,
without making the Union of India as a party the petition was not maintainable.
A further plea was taken that in view of the alternative remedy available under
H the Industrial Disputes Act, 1947 (in sho11 the 'ID Act') the writ petition was
EMPLOYEES STATE INSURANCE CORPN. '·ALL INDIA I.T.D.C. EMPLOYEES UNION [PASAYAT !.] 365

not maintainable. Learned Single Judge found the writ petition to be not A
maintainable in view of the alternative remedy provided. It, however, gave
following direction:

"It would be appropriate to direct the E.S.I. Corporation to consider
that since the petitioners have not availed the facility of E.S.I. from
then they should waive the realization of the contribution for this B
period from the petitioners in the aforesaid circumstances and the
necessary orders in this regard would be issued by the E.S.I.
Corporation."

(Underlined for emphasis) C
This direction was given on the basis that operation of the Notification
was stayed by order dated 26.2.1996 in the writ petition. Both the Corporation
and the Union filed appeals before the Division Bench. By the impugned
judgment the Division Bench gave the following directions:
D
"I. The deduction of the employees' contribution will be made by the
employer and along with the employees' contribution, employer's
contribution shall be deposited with the ESI Corporation.

, 2. Such deposits shall be kept in separate account by the ESI
Corporation for a period of three months. E
3. If within the said period of three months, any dispute is raised
about the applicability of the Act to the establishment in question by
the employer or employees before the appropriate forum, the said
arrangement of regular deposits of the contribution and maintenance
of the separate account by the Corporation shall continue until the F
adjudication of that dispute by the said forum.

4. However, if no such application is made within three months, the
amount of contribution of the employee's and the employer's so
deposited with the corporation shall be appropriated to the nonnal
fund in accordance with the law. G
5. If any such dispute is raised and the petitioners succeed, the refund
of the amount can appropriately be ordered at the end of such
adjudication."

H
366 SUPREME COURT REPORTS [2006] 3 S. C.R.

A In the appeal filed by the Corporation the aforesaid directions were
given, while the appeal filed by the Union was dismissed. In the connected
case the writ petitioner was the J.K. White Cement Mazdoor Sangh (in short
the 'Sangh') and the decision which forms the challenge in the Civil Appeal
No.313 of 2005 was followed.

B Mr. C.S. Rajan, learned counsel for the appellant submitted that merely
because of the order of stay was granted, there was no bar on the Corporation
recovering the amounts. The High Court's order virtually means that the
Notification has to operate prospectively. Such a direction cannot be given
by the High Court.
c Learned counsel for the respondents i.e. Union and the concerned
employers supported the order. It was their stand that because of the stay
order, recovery was not made and, therefore, the direction given by the High
Court needs no interference.

D The question relating to the jurisdiction of the High Court to direct that
statute shall operate prospectively is no longer res integra. A few decisions
of this Court can be noted by way of illustration.

In Kanoria Chemicals and Industries Ltd and Ors. v. U.P. State
~
Electricity Board and Ors .. [1997] 5 SCC 772, it was observed :
E
"I !.. ..... it is equally well settled that an order of stay granted pending
disposal of a writ petition/~uit or other proceeding, comes to an end
with the dismissal of the substantive proceeding and that it is the duty
of the court in such a case to put the parties in the same position they
would have been but for the interim orders of the court. Any other
F view would result in the act or order of the court prejudicing a party
(Board in this case) for no fault of its and would also mean rewarding
a writ petitioner in spite of his failure. We do not think that any such
unjust consequence can be countenanced by the courts. As a matter
of fact, the contention of the consumers herein, extended logically
G should mean that even the enhanced rates are also not payable for the
period covered by the order of stay because the operation of the very
notification revising/enhancing the tariff rates was stayed. Mercifully,
no such argument.was urged by the appellants. It is ununderstandable
how the enhanced rates can be said to be payable but not the late
payment surcharge thereon, when both the enhancement and the late
H
EMPLOYEES STATE INSURANCE CORPN. "· ALL INDIA I.T.D.C. EMPLOYEES UNION [PASAYAT I.] 367
payment surcharge are provided by the same notification-the operation A
of which was stayed.

12. As has been pointed out by S. C. Agrawal, J., speaking for a three-
Judge Bench in Shree Chamundi Mopeds Ltd. v. Church of South
India Trust Assn., [1992] 3 SCC 1 : (SCC p. 9, para 10)
B
"While considering the effect of an interim order staying
the operation of the order under challenge, a distinction has to be
made between quashing of an order and stay of operation of an
order. Quashing of an order results in the restoration of the
position as it stood on the date of the passing of the order which C
has been quashed. The stay of operation of an order does not,
however, lead to such a result. It only means that the order
which has been stayed would not be operative from the date of
the passing of the stay order and it does not mean that the said
order has been wiped out from existence."
D
In Union ofIndia and Anr. v. Murugan Talkies, [1996] l SCC 504 it was
observed as follows:

"3. It is contended for the respondents that the High Court has
granted the relief taking into consideration that some workmen had
retired and it would be inequitable to deduct from the meager wages E
of existing employees with retrospective period. Therefore, the High
Court directed deduction of their share from the date of the judgment.
It is needless to mention that since some of the workmen have already
retired and from some existing workmen deduction from date of
enforcement of the notification would cause great hardship to them, F
so it cannot be made to bear the burden of their contribution with
retrospective effect from the date of the notification towards their
share of contribution.

4. To that extent, the order of the High Court is upheld. As regards
the liability of the owners of the theaters who approached the High G
Court, the operation of the notification had stayed at their instance.
We find that the High Court was wholly unjustified in granting the
same relief to these owners/licensees. After their writ petitions were
dismissed, they were .to bear the liability from the date of the
enforcement of the notification as held by this Court. It is, therefore, H
368 SUPREME COURT REPORTS [2006) 3 S.C.R.

A necessary that from the date on which the respective owners of the
theaters or the licensees, who had filed the writ petition in the High
Court, are made liable to deposit their share of contribution towards
provident fund account under the scheme."

In Employees' State Insurance Corpn. v. Kera/a State Handloom
B Development Corpn. Employees Union (CITU), Kannur, Dist. Kannur, Kera/a
and Ors., [1994] I SCC 268 it was observed as follows :

"3. We are of the view that the High Court fell into patent error in
postponing the date of the operation of the notification. The
c notification, amending the Rules, was legislative act. The amendment
of the Rules being a delegated legislation, the High Could could not
have interfered with the date of operation of the notification."

In U.P. State Sugar Corporation and Anr. v. Mahalchand M. Kothari
and Ors., [2005] I SCC 348 it was observed in paras 35, 36 & 37 as follows:
D
H35. xxx xxx xxx

During course of the writ petition filed by the owner of the sugar mill
in which the constitutional validity of the Ordinance/Act was
challenged, a stay order, on the limited tenns and conditions, was
E passed on 9.7. 1971. The terms and conditions of the order reproduced
above, restored the de Jure possession of the sugar mill to the erstwhile
owner but de facto possession and management of the sugar mill was
allowed to remain undisturbed with the Receiver although with limited
powers to him. The Receiver was specifically allowed in accordance
with Tenn 3 of the stay order to sell sugar, molasses and other waste
F
products. By virtue of the order of stay passed by the High Court,
during pendency of the writ petition, the Receiver appointed under
the Act of 1950, continued to manage the sugar mill subject to the
ultimate result of the writ petition. The writ petition ultimately came
to be dismissed on 3.5.1979 and the stay order containing the terms
G and conditions passed on 9.7.1971 stood automatically vacated. The
natural consequence was restoration of full operation of the provisions
of the Ordinance/Act as was originally passed. In accordance with
Section 3 of the Act. the sugar mill stood transferred and vested in
the Corporation from the appointed date 3.7.1971. On vacation of the
stay order with effect from the appointed day 3.7.1971, the operation
H
EMPLOYEES STATE INSURANCECORPN. v. ALL INDIA l.T.D.C. EMPLOYEES UN!ON[PASAYAT !.) 369
...
of the Ordinance/Act was revived. The liability arising from breach of A
contract committed by the Receiver was not of the Corporation. It was
an obligation attached to the property of the sugar mill which was
under the management of the Receiver, initially under the 1950 Act
and continued under the order of stay passed by the High Court.
Since the liability towards breach of contract was attached to the B
sugar mill under the management of the Receiver, the Corporation in
whom title of the sugar mill stands vested under Section 3 of the Act
cannot avoid the liability-it being a burden on the said property and
recoverable from it.

36. It is of no importance or consequence that actual or de facto C
possession of the property was received by the Corporation under a
formal order of the Collector, Deoria on 23.5.1979, only afteraismissal
of the writ petition on 3.5.1979 and consequent discharge of the
Receiver.

37. The Ordinance was stayed by the High Court to restore status quo D
ante existing on 2.7.1971, that is, a day prior to the appointed date
3.7.1971. But on the dismissal of the writ petition and automatic
vacation of the stay order of the High Court, the operation of the
Ordinance/Act with all legal consequences flowing from the said law
stood restored from the appointed date. The trial court and the High E
Court are perfectly right in holding in their judgments that the order
of stay passed in the writ petition could have no effect ofpostponing
the "appointed day" statutorily fixed under Section 3 of the Ordinance/
Act."

But it is really unnecessary to go into said question because the order F
of the High Court really did not give a positive direction. Relevant portion
of the learned single Judge's order which has been extracted above, clearly
goes to show that the learned Single Judge left the matter to be decided by
the Corporation. The direction was to "consider" and in that sense there was
no positive direction.
G
We may, in this context, examine the significance and meaning of a
direction given by the Court to "consider" a case. When a court directs an
authority to 'consider', it requires the authority to apply its mind to the facts
and circumstances of the case and then take a decision thereon in accordance
with law. There is a reason for a large number of writ petitions filed in High H
370 SUPREME COURT REPORTS [2006] 3 S.C.R.

A Courts being disposed of with a direction to "consider" the claim/case/
representation of the petitioner(s) in the writ petitions.

Where an order or action of the State or an authority is found to be
illegal, or in contravention of prescribed procedure, or in breach of the rules
of natural justice, or arbitraryiunreasonable/irrational, or prompted by mala
B tides or extraneous consideration, or the result of abuse of power, such action
is open to judicial review. When the High Court finds that the order or action
requires interference and exercises the power of judicial review, thereby
resulting in the action/order of the State or authority being quashed, the High
Court will not proceed to substitute its own decision in the matter, as that will
C amount to exercising appellate power, but require the authority to 'consider'
and decide the matter again. The power of judicial review under Article 226
concentrates and lays emphasis on the decision making process, rather than
the decision itself

The High Courts also direct authorities to 'consider', in a different
D category of cases. Where an authority vested with the power to decide a
matter, fails to do so in spite of a request, the person aggrieved approaches
the High Court, which in exercise of power of judicial review, directs the
authority to 'consider' and decide the matter. In such cases. while exercising
the power of judicial review, the High Court directs 'consideration' without
E examining the facts or the legal question(s) involved and without recording
any findings on the issues. The High Court may also direct the authority to
'consider' afresh, where the authority had decided a matter without considering
the relevant facts and circumstances, or by taking extraneous or irrelevant
matters into consideration. In such cases also, High Court may not examine
the validity or tenability of the claim on merits, but require the authority to
F do so.

Where the High Court finds the decision-making process erroneous and
records its findings as to the manner in which the decision should be made,
and then directs the authority to ·consider' the matter, the authority will have
to consider and decide the matter in the light of findings or observations of
G the Court. But where the High Court without recording any findings, or
without expressing any view, merely directs the authority to 'consider' the
matter, the authority will have to consider the matter in accordance with law,
with reference to the facts and circumstances of the case, its power not being
circumscribed by any observations or findings of the Court.
H
EMPLOYEES STATE INSURANCE CORPN. v. ALL INDIA l.T.0.C. EMPLOYEES UNION [PASA YAT J.] 371
- We may also note that sometimes the High Courts dispose of matter A
merely with a direction to the authority to 'consider' the matter without
examining the issue raised even though the facts necessary to decide the
correctness of the order are available. Neither pressure of work nor the
complexity of the issue can be a reason for the Court, to avoid deciding the
issue which requires to be decided, and disposing of the matter with a direction
to 'consider' the matter afresh. B

There are also several instances where unscrupulous petitioners with
the connivance of 'pliable' authorities have misused the direction 'to consider'
issued by court. We may illustrate by an example. A claim, which is stale,
time-barred or untenable, is put forth in the form of a representation. On the
ground that the authority has not disposed of the representation within a
c
reasonable time the person making the representation approaches the High
Court with an innocuous prayer to direct the authority to 'consider' and
dispose of the representation. When the Court disposes of the petition with
a direction to 'consider', the authority grants the relief, taking shelter under
the order of the Court directing it to 'consider'. Instances ~re also not wanting D
where authorities, unfamiliar with the process and practice relating to writ
proceedings and the nuances of judicial review, have interpreted or understood
the order 'to consider' as directing grant of relief sought in the representation
and consequently granting reliefs which otherwise could not have been
granted. Thus, action of the authorities granting undeserving relief, in
E
pursuance of orders to 'consider', may be on account of ignorance, or on
account of bona fide belief that they should grant relief in view of Court's
direction to 'consider' the claim or on account of collusion/connivance between
the person making the representation and the authority deciding it.

Therefore, while disposing of writ petitions with a direction to 'consider', F
there is a need for the High Court to make the direction clear and specific.
The order should clearly indicate whether the High Court is recording any
finding about the entitlement of the petitioner to the relief or whether the
petition is being disposed of without examining the claim on merits.

The aforesaid aspects were highlighted recently in A.P.S.R.T.C. & Ors. G
v. G. Srinivas Reddy and Ors., AIR (2006) SCW I 108.

It is true as contended by learned counsel for the Corporation that the

- use of the expression "should" gives a scope for entertaining a doubt that
there was a positive direction. It is, therefore, necessary to clarify that what
H
372 SUPREME COURT REPORTS [2006] 3 S.C.R.

A learned Single Judge in the direction said was only consideration by the
Corporation and there was no positive direction. In that view of the matter
the Corporation shall now give opportunity to the concerned parties i.e.
respondents I, 2 and 3 in each case to present their respective stand before
the Corporation so that after consideration necessary order can be passed in
B accordance with law. We express no opinion on that aspect. The appeals are
disposed of accordingly with no order as to costs.

K.G. Appeals disposed of.

-