Holding

Sections 47(3) and 47(4) of the Andhra Pradesh Shops and Establishments Act, 1988 are unconstitutional as they amount to a gratuity, are discriminatory and unreasonable, and conflict with the central Payment of Gratuity Act, 1972, and cannot be saved by Article 254(2).

Summary

The Union of employees of Grand Kakatiya Sheraton Hotel challenged Sections 47(3) and 47(4) of the Andhra Pradesh Shops and Establishments Act, 1988, which provided a "service compensation" after only one year of continuous service. The Supreme Court examined whether these provisions were in fact a gratuity, whether they discriminated between employees of factories and those of smaller establishments, and whether they conflicted with the central Payment of Gratuity Act, 1972. Relying on the doctrine of occupied field, the Wednesbury test of unreasonableness, and the principles of Articles 14 and 19(1)(g) of the Constitution, the Court held that the provisions were unreasonable, discriminatory and in direct conflict with the central Act, and could not be saved by Article 254(2). Consequently, the appeal was dismissed, confirming the High Court's declaration of unconstitutionality.

Issues considered

The constitutional validity of Sections 47(3) and 47(4) of the Andhra Pradesh Shops and Establishments Act, 1988.
Whether the "service compensation" under the said sections is in substance a gratuity covered by the Payment of Gratuity Act, 1972.
Whether the classification of employees (one year vs five years of service) violates Article 14 (equality before law).
Whether the provisions constitute an unreasonable restriction on the right to practice any trade or business under Article 19(1)(g).
Whether the State provisions can be saved by Article 254(2) despite a direct conflict with the central legislation.
Whether the provisions are void for being unreasonable under the Wednesbury principle.

Legislation cited

Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 254(2)
Payment of Gratuity Act, 1972s. 1(3), s. 4(1), s. 4(2)

Subjects

constitutional validitydiscriminationgratuityservice compensationArticle 14Article 19(1)(g)occupied field doctrineWednesbury unreasonablenesscentral vs state legislation

Judgment

(2009) 3 S.C.R. 668

A GRAND KAKATIYA SHERATON HOTEL & TOWERS
EMPLOYEES & WORKERS UNION
v.
•
-
SRINIVASA RESORTS LTD. & ORS.
(Civil Appeal No. 6499 of 2002)
B FEBRUARY 27, 2009
[LOKESHWAR SINGH PANTA AND
V.S. SIRPURKAR, JJ.]

c Andhra Pradesh Shops and Establishments Act, 1988 -
s. 47 (3) and (4) - Constitutional validity of - Held: The
provisions are unconstitutional, discriminatory and violative
of Articles 14 and 19 (1) (g) of the Constitution - On lifting
the veil from s. 47 (3), it is clear that the 'service compensation'
D is in fact 'gratuity' - The Act being a State Act is in conflict .
with the Central Act i.e. Payment of Gratuity Act, 1972 as both,
operate in the common field - The Act cannot be saved by
virtue of Article 254(2) unless shown that while obtaining
Presidential asset for the State Act, conflict between two Acts
E were brought to notice of the President- Constitution of India,
1950 - Article 254 (2) - Payment of Gratuity Act, 1972 - ss.
2(5), (8), (9), (10) and (21); 3, 3A, and 4 - Andhra Pradesh
Shops and Establishments Act, 1966 - s. 40.

Doctrines/Principles: (1) 'Doctrine of occupied field' -
F Applicability of.

(2) Wednesbury principle - Applicability.

High Court, in a writ petition, declared ss. 47(3) and
47 (4) of Andhra Pradesh Shops and Establishments Act,
G
1988, as unconstitutional, discriminatory and violative of
Articles 14 and 19 (1) (g) of Constitution of India, 1950.
Hence the present appeal.

Dismissing the appeal, the Court
H 668
\ GRAND KAKATIYA SHERATON HOTEL &TO\l\/ERS EMP. &WORKERS 669
UNION v. SRINIVASA RESORTS LTD .
..... ... HELD: 1.1 s. 47 (3) is nothing, but an award of A
gratuity, though it has been given a nomenclature of
"service compensation". Section 47(3), suggests that an
employee, who has to be in a continuous service of not
less than one year, becomes eligible for service
compensation. The concept of gratuity as conceived in B
the Payment of Gratuity Act and even earlier to that in
,. labour jurisprudence is that gratuity is a reward for long
and continuous service. It is for the first time by that Act,
a worker or an employee was made entitled to the gratuity
by his rendering continuous service for five years. If this
is so, then providing only one year for entitlement to get
c
the gratuity, is certainly unreasonable. [Para 13] [693:E-
H; 694-A]

~
1.2. If the court lifts the veil, then it is obvious that the
unnatural name of "service compensation" is given to D
what in fact, is a "gratuity". As if this is not sufficient, the
proviso to sub-Section (3) provides that in case of
termination of the employment due to death or
disablement, even this one year's service will not be
necessary. lnspite of the presumption of constitutionality E
of a provision, such a provision cannot be held to be
reasonable. It is undoubtedly an unreasonable inroad on
the fundamental right of the respondent under Article
19(1 )(g) of the Constitution of India. [Para 13] [695-C-E]
F
Peerless General Finance and Investment Co. Limited
and Anr. vs. Reserve Bank of India 1992 (2) SCC 343,
referred to.

1.3. The definitions of "Commercial Establishment"
and "Establishment" under the Shops Act disclose that G
there are always two sets of employees in an
establishment, being administrative or clerical and
technical employees. While the factory owner would be
required to pay the gratuity to the employee working in
the factory only on his completing five years of H
I
670 SUPREME COURT REPORTS [2009] 3 S.C.R.

A continuous service, in case of the employee working on
the administrative or clerical side of the factory or in the
office, which may be in the same premises where the
factory is situated, merely one year of service or even
lesser than that, would be sufficient and the factory
8 owners would have to pay the gratuity or the service
compensation, as the case may be, to such person. Thus,
the provision is clearly discriminatory and unreasonable.
[Para 14) [694-F-H; 696-A]

1.4. The definition oj "Commercial Establishment"
C would convince that the inclusion of an establishment of
a factory or an industrial undertaking which falls outside
the scope of Factories Act, 1948 and thereby entitling the
employees working therein for the payment of service
compensation, clearly brings out the discrimination
D between such employees and the employees working in
the factories as covered by Factories Act, 1948. [Para 14)
[695-A-B]

1.5. The definition of "Employee" is also extremely
E relevant in this behalf, and when the two provisions, viz.,
Sections 2(5) and 2(8) are read together along with
Sections 2(11) and 2(10), the position becomes crystal
clear that the provision of Section 47(3) is clearly
discriminatory and, therefore, hit by Article 14 of the
F Constitution oflndia. Therefore, it is not correct to say that
the p~ovision u/s. 47(3) is made for a classification and,
therefore, there is no discrimination as the classification
has a nexus with the object of the Act. There is no
rationale for providing a short period of one year as
compared to five year period in case of employees
G coveted under the Factories Act, 1948. [Para 14) [695-8-E]

1.6 What is seen from the impugned provisions is,
firstly, the compulsory nature· of the service
compensation and secondly, the total absence of
H guidelines. There has to be some minimum qualifying
GRAND KAKATIYA SHERATON HOTEL & TOVVERS EMP. & WORKERS 671
UNION v. SRINIVASA RESORTS LTD.
... service. To reduce the qualifying service to one year or A
even to the lesser period, would be absurd . It is not
permissible for the legislatures to prescribe a lesser
period in all the circumstances. Such provision is,
therefore, obviously, unreasonable. [Para 16] [698-A-C]
B
Bakshish Singh vs. Darshan Engineering Works and Ors.
1994 (1) sec 9 - relied on.

Express Newspapers vs. Union of India AIR 1958 SC
1 578; Mis. British Pints (India) Ltd. vs. Its workmen 1966(2)
SCR 523 and Straw Board Manufacturing Co.Ltd. vs. Its c
~~
Workmen 1977 (2) SCC 329, referred to.

2.1. Section 47(4) is per se unreasonable. Section
40(3) of A.P. Shops and Establishments Act, 1966 which
was found to be unconstitutional, is clearly comparable D
to Section 47(3) and also Section 47(4), as the last part
of that Section is identical with the wording in Section
47(4). The only difference, is that instead of word
"gratuity", the terminology of "service compensation" is
substituted. Mere cosmetic amendment could not have E
been made by way of introduction of Sections 47(3) and
47(4). It is not correct to say that in the 1988 Act, the
mischief pointed out by the High Court in earlier Section
40(3) of the 1966 Act has been remedied. [Para 17] [698-
" C-F]
F
2.2. It cannot be said that Section 47 (4) is valid piece
of legislation as it is only in the nature of procedure and
does not amount to penalty. Merely because there is a
remedy to the employer u/ss. 50 and 51 to point out
reasons for not being able to have complied with Section G
47(3), Section 47 (4) does not become a valid Section,
particularly, when the identical provision was found to be
unconstitutional in Suryapet case which judgment had
become final. This is apart from the fact that this provision
is also capable of being abused or misused by an H
672 SUPREME COURT REPORTS (2009] 3 S.C.R.

A employee, who may bring out a situation to avoid
accepting the payment of gratuity, so as to be able to
claim later the wages of the interregnum period. [Para 17]
[699-D-G]

Suryapet Market Cooperative Society vs. Munsif
8
Magistrate, Suryapet and Ors. 1972 (2) ALT 163, relied on.

3. It is not correct to say that the High Court
proceeded on to decide the constitutionality on the basis
of a comparison. Though it is true that both the laws, i.e.,
C the Shops Act and the Payment of Gratuity Act have been
passed validly under Entry 24 of List Ill of the VII
Schedule, it is incorrect to say that the High Court has
compared the two provisions. It is one thing to refer to a
provision and quite another to compare it with impugned
D provision. The High Court has actually gone into the
concept of gratuity right from its inception and has come
to the conclusion that for earning the gratuity, the
employee does not have to contribute anything, as in the
case of a provident fund. [Para 18] [700-C-E]
E
State of M.P. vs. G. C. Mandawar 1955(1) SCR 599, held
in applicable.

4. It is not correct to say that the High Court had
struck down the provisions only on the grounds of
F hardship and that was not permissible. High Court has
correctly observed that even if the law cannot be declared
ultra vires on the ground of hardship, it can be so declared
on the ground of total unreasonableness applying
Wednesbury's "unreasonableness" principles. The
G Court, specifically, has also found that this
reasonableness is apparent from the fact that the
employees falling within Sub-Sections (1) and (3),
although from different classes, had been treated equally,
giving them the same benefit. [Paras 19 and 20) [701-E;
H 703-D-F]

-
GRAND KAKATIYA SHERATON HOTEL. & TO'NERS EMP. & IMJRKERS 673
UNION v. SRINIVASARESORTS LTD.

--
' ~

Bennet Coleman and Co. Ltd. vs. Union of India AIR A
1973 SC 106 and Peerless General Finance and Investment
Co. Limited and Anr. vs. Reserve Bank of India 1992 (2) SCC
343, relied on.

Praful/a Kumar Das and Ors. vs. State of Orissa and Ors. B
2003 (11) SCC 614; R.N. Goyal vs. Ashwani Kumar Gupta
and Ors. 2004 (11) SCC 753; Government of Andhra Pradesh
vs. P. Laxmi Devi 2008 (4) SCC 720; R.N. Goyal vs. Ashwani
Kumar Gupta and Ors. 2004 (11) SCC 753 and Praful/a
Kumar Das and Ors. vs. State of Orissa and Ors. 2003 (11)
sec 614, distinguished. c
Direct Recruit Class II Engg. Officers' Assn. vs. State of
Maharashtra 1990 (2) SCC 715, referred to.
'· ... 5. There can be no doubt that both the Central Act D
and the impugned State Act operate in the same field in
as much as, the "service compensation" is nothing, but
the "gratuity", though called by different name. Under
such circumstances, unless it was shown that while
obtaining the Presidential assent for the State Act, the E
conflict between the two Acts was specifically brought to
the notice of the President, before obtaining the same, the
State could not have used the escape route provided by
..,, Article 254(2) of the Constitution. The High Court was
right in holding that the two Acts occupy the common
- field and were in conflict with each other. Article 254(2)
of the Constitution would not save the impugned
F

provisions. [Para 23] [705-A-D]

Ramachandra Mowa Lal vs. State of U.P. AIR 1987 SC
1837 and Gram Panchayat of Village Jama/pur vs. Ma/winder G
;. . Singh 1985 (3) sec 661, relied on.
Case Law Reference:
AIR 1958 SC 578 Referred to. Para 13
H
674 SUPREME COURT REPORTS [2009) 3 S.C.R.

.. ::
A 1992 (2) sec 343 Referred to. Para 13
1994 (1) sec 9 Relied on .. Para 16
1966(2) SCR 523 Referred to. Para 16

1977 (2) sec 329 Referred to. Para 16
8
1972 (2) ALT 163 Relied on. Para 17

1955 (1) SCR 599 held not applicable. Para 18

2008 (4) sec 120 Distinguished. Para 19
c
2004 (11) sec 753 Distinguished. Para 20
2003 (11) sec 614 Distinguished. Para 20

1990 (2) sec 115 Referred to. Para 20
...
D AIR 1973 SC 106 Relied on. Para 20

AIR 1987 SC 1837 Relied on. Para 22

1985 (3) sec 661 Relied on. Para 22

E CIVIL APPELLATE .JURISDICTION : Civil Appeal No.
6499 of 2002.

From the Judgment and Order dated 22.11.2001 of the
High Court Judicature, Andhra Pradesh at Hyderabad in W.P.
No. 18692 of2001.
F
WITH

C.A. No. 2746 of 2006.

Naveen R. Nath and A. Dasharatha for the Petitioner.
G
L. Nageshwar Rao, C.R. Sridharan, Rajan Narain and Raj
Rajeshwari Shukla for the Respondent.

The Judgment of the Court was delivered by
H
GRAND KAKATIYASHERATON HOTEL& TOVvERS EMP. &V'vORKERS 675
UNION v. SRINIVASA RESORTS LTD.
_,
V.S. SIRPURKAR, J.1. This appeal is directed against A
the judgment and order passed by the High Court, whereby,
Sections 47(3) and 47(4) of the Andhra Pradesh Shops &
Establishments Act, 1988 (hereinafter referred to as 'the Shops
Act') are declared unconstitutional, discriminatory and violative
of the Articles 14 and 19(1)(g) of the Constitution of India. B
Following facts would be necessary to understand the
controversy.

2. Respondent No. 1 M/s. Srinivasa Resorts Ltd. is a
company incorporated under the Companies Act, while the
respondent No. 2 is a shareholder of the said company.
c
Respondent No. 1 company is engaged in business of
managing and running hotels. They have hotel in the name and
style of "ITC Kakatiya Sheraton", which is being run by the ITC
Hotels Ltd., which is another company incorporated under the
<I
Companies Act. The said hotel is registered under the D
provisions of the Shops Act. The appellant is the Union of
employees and workers of the said hotel. Assistant Labour
Officer, respondent No. 4 herein, visited the hotel at the instance
of the appellant Union on 31.5.2001 and as required by him,
the respondent Nos. 1 & 2 furnished information regarding the E
employees, who had left the service of the hotel during last 2-
3 years, as also the amounts paid to them towards full and final
settlement of the dues. The respondent company, by letter dated
"' 6.8.2001, also furnished the receipts signed by the employees
who had left the hotel in token of the amounts received by them. F
It seems that,. thereafter, there was lot of correspondence
between the respondent No. 1 company and respondent No. 4
Assistant Labour Officer on the issue, whereby, the Assistant
Labour Officer was insisting upon the respondent Company to
furnish the final settlement statements of the employees, who G
had left the service of the hotel, in order to know whether any
service compensation had been paid to them or not in
accordance with the provisions of the Shops Act. It was pleaded
by the respondent company that no further documents except
those which were already produced, were available with them. H
676 SUPREME COURT REPORTS (2009] 3 S.C.R.

A However, the Assistant Labour Officer, by his letter dated '
7.8.2001, called upon the respondent company to show cause
as to why penal action should not be taken under Section 16(3)
of the Act for failure to furnish the required documents. It is at
this juncture that a Writ Petition came to be filed before the
B Andhra Pradesh High Court by the respondent Nos. 1 & 2
herein, whereby, constitutional validity of the provisions of
Sections 47(3) and 47(4) of the Shops Act in question, was
challenged on the ground that they are illegal, invalid,
inoperative and unsustainable in law and violative of Article 13,
c 14 and 19(1)(g) of the Constitution of India. Since the action
against the respondent company was initiated by the appellant
Grand Kakatiya Sheraton Hotel & Towers Employees &
Workers Union (hereinafter referred to as 'the Union' for short),
the said Union joined as a party, as the respondent No. 3 to
the Writ Petition. An injunction was also sought for against the ~
D
concerned authorities under the Act and more particularly, the
State Government and the Assistant Labour Officer, restraining
them from inferring the provisions of Sections 47(3) and 47(4)
of the Shops Act against the respondent company. This Writ
Petition was allowed by the High Court, whereby, the High Court
E declared the two aforementioned provisions as unconstitutional
and amounting to unreasonable discrimination and violative of
Article 14 of the Constitution of India.

3. The original respondent No. 3 Union has filed the •
F present appeal, challenging the impugned judgment.

4. There was one other appeal being Civil Appeal No.
2746 of2006, which was attached with the present Civil Appeal
No. 6499 of 2002, however, when the matter was called for
hearing on 5.11.2008, nobody remained present for arguing
G
that appeal, which was dismissed for non-prosecution with no
orders as to the costs. We are, therefore, left with Civil Appeal
No. 6499 of 2002 only.

5. Before we note and appreciate the rival contentions, it
H will be better to see the impugned provisions along with the
GRAND KAKATIYA SHERATON HOTEL & TOVVERS EMP. & \/l.ORKERS 677
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)
..... ~
~

legislative history thereof. A
;..
6. The Andhra Pradesh Shops and Establishments Act
(Act No. 15 of 1966) (hereinafter referred to as 'the 1966 Act')
came on the anvil in the year 1966. Section 40 of the 1966 Act
provided for conditions for terminating the service of an B
employee, as also the payment of gratuity to him. This provision
came to be amended in the year 1976 by reason of Act No.
53 of 1976, however, the said Act was repealed by the present
Act of 1988. The present Act of 1988 provides for conditions
of terminating the services of an employee and payment of
service compensation for termination, retirement, resignation
c
etc. In short, Section 40 of the 1966 Act and Section 47 of the
1988 Act are pari-materia Sections. It will be better to compare
the unamended Section 40, that existed from 1966 till its
.:.
amendment in 1976, secondly, the amended Section 40 of the
... D
1966 Act as amended by Act No. 53 of 1976 and Section 47
of the present 1988 Act, more particularly, sub-Sections 3, 4
and 5 thereof, as they stood on the date of petition. The
following tables would succinctly bring out the qualitative
4
changes made in the texture of the said Section. At the same
time, they would give us the idea as to how a liability was E
created via sub-Sections 3 and 4 for the payment of the service
compensation and the conditions for such payment.

.. Section 40 of A.P. Shops and Establishments Act, 1966
prior to 1976:- F
Conditions for terminating the service of an employee and
payment of gratuity:-

1 No employer shall without a reasonable cause and
except fo'. misconduct, terminate the services of an G
j; employee and payment of gratuity.

2 No employer shall without a reasonable cause and
except for misconduct, terminate the services of an
employee, who has been in his employment H
678 SUPREME COURT REPORTS (2009] 3 S.C.R.

A continuously for a period of not less than six months • ...
;
_
without giving such employee at least one month's
notice in writing or wages in lieu thereof and gratuity
..
amounting to fifteen days' average wages for each
year of continuous service.
B
3 An employee who has completed the age of sixty
years or who is physically or mentally unfit having
been declared by a medical certificate, or who
wants to retire on medical grounds or to resign his
services, may give up his employment after giving
c to his employer, notice of at least one month in the
case of an employee of sixty years of age, and
fifteen days in any other case; and every such
employee and the dependant of an employee who
i:
dies while in service, shall be entitled to receive a
D gratuity amounting to fifteen days' average wages
..
for each year of continuous employment calculated
in the manner provided in the explanation to sub-
Section (1). He shall be entitled to receive the
wages from the date of giving up the employment
E until the date on which the gratuity so payable is
actually paid subject to a maximum of wages for two
months.

Section 40 of A.P. Sho[!s and Establishments Act, 1966
F as amended by Act No. 53 of 1976:-
Conditions for terminating the service of an employee and
payment of gratuity:-

1 No employer shall without a reasonable cause and
G except for misconduct, terminate the services of an
employee, who has been in his employment ...
continuously for a period of not less than six months
without giving such employee at least one month's
notice in writing or wages in lieu thereof and in
H respect of an employee who has been in his ....
GRAND KAKATIYA SHERATON HOTEL & TOVllERS EMP. & \MJRKERS 679
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]

employment continuously for a period of not less A
than five years, a gratuity amounting to fifteen days'
average wages for each year of continuous
service.

2 An employee who has completed the age of sixty
B
years or who is physically or mentally unfit having
been declared by a medical certificate, or who
wants to retire on medical grounds or to resign his
services, may give up his employment after giving
to his employer, notice of at least one month in the C
case of an employee of sixty years of age, and
fifteen days in any other case; and every such
employee and the dependant of an employee who
dies while in service, shall be entitled to receive a
gratuity as provided in sub-Section (1). He shall be
entitled to receive the wages from the date of giving D
up the employment until the date on which the
gratuity so payable is actually paid subject to a
maximum of wages for two months amounting to
fifteen days' average wages for each year of
continuous employment calculated in the manner E
provided in the explanation to sub-Section (1 ). He
shall be entitled to receive the wages from the date
of giving up the employment until the date on which
the gratuity so payable is actually paid subject to a
maximum of wages for two months. F
Section 47(3\. (4\ and (5) of A.P. Shops and
Establishments Act. 1988:-

Conditions for terminating the service of an employee,
payment of service compensation for termination, retirement, G
resignation, disablement etc. and payment of subsistence
allowance for the period of suspension:-

1 No employer shall without a reasonable cause and
except for misconduct, terminate the services of an H
680 SUPREME COURT REPORTS (2009) 3 S.C.R.
• ;.

A employee, who has been in his employment
continuously for a period of not less than six months
without giving such employee at least one month's
notice in writing or wages in lieu thereof and in
respect of an employee who has been in his
8 employment continuously for a period of not less
than one year, a service compensation amounting
to fifteen days average wages for each year of ...
continuous employment:

provided that every termination shall be made by
c the employer in writing and a copy of such
termination order shall be furnished to the Inspector
having jurisdiction over the area within three days
of such termination.
..
D 2 The service of an employee shall not be terminated
by the employer when such employee made a
complaint to the Inspector regarding the denial of
any benefit accruing to him under any labour welfare
enactment applicable to the establishment and
E during the pendency of such complaint before the
Inspector. The services of an employee shall not
also be terminated for misconduct except for such
acts or omissions and in such manner as may be
prescribed.
F 3 Every employee who has put in a continuous
service of not less than one year, shall be eligible
for service compensation amounting to fifteen days'
average wages for each year of continuous
employment (i) on voluntary cessation of his work
G after completion of 60 years of age, (ii) on his
resignation, or (iii) on physical or mental infirmity
duly certified by a registered medical practitioner
or (iv) on his death or disablement due to accident
or disease:
H
GRAND KAKATIYA SHERATON HOTEL & TOVVERS EMP. & VVQRKERS 681
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]

provided that the completion of continuous service A
of one year shall not be necessary where the
termination of the employment of an employee is
due to death or disablement:

provided further that in case of death of an 8
employee service compensation payable to him
shall be paid to his nominee or if no nomination has
been made to his legal heir.

4 Where a service compensation is payable under
this Section to an employee, he shall be entitled to C
receive his wages from the date of termination or
cessation of his services until the date on which the
service compensation so payable is actually paid.

5 The payment of service compensation under this o
Section shall not apply in cases where the
employee is entitled to gratuity under the payment
of Gratuity Act, 1972 and gratuity has been paid
accordingly consequent on the termination or
cessation of service.
E
At this juncture, it will be necessary to see definitions in
the amended Act. Section 2 gives definitions in the Act.

2(5):' Commercial establishment' means an
establishment which carries on any trade business, F
profession or any work in connection with or
incidental or ancillary to any such trade business or
profession or which is a commercial or trading or
banking or insurance establishment and includes
an establishment under the management and G
control of a co-operative society, an establishment
of a factory or an industrial undertaking which falls
outside the scope of the Factories Act, 1948
(Central Act 63 of 1948), and such other
establishment as the Government may, by H
682 SUPREME COURT REPORTS [2009] 3 S.C.R.

A notification, declare to be a commercial
establishment for the purposes of this Act but does
not include a shop'.

2(8) 'employee' means a person wholly or principally
B employed in and in connection with any
establishment and includes an apprentice and any
clerical or other staff of a factory or an industrial
establishment who fall outside the scope of
Factories Act, 1948 (Central Act 63 of 1948); but
does not include the husband, wife, son, daughter,
c father, mother, brother or sister of an employer or
his partner, who is living with and depending upon
such employer or partner and is not in receipt of any
wages;
..
D 2(9) 'employer' means a person having charge of or
owning or having ultimate control over the affairs of
an establishment and includes the Manger, Agent
or other person acting in the management or control
of an establishment;
E
2(10) 'establishment' means a shop, restaurant, eating
house, residential hotel, lodging house, theatre or
any place of public amusement or entertainment
and includes a commercial establishment and such
other establishment as the Government may, by
F notification, declare to be an establishment for the
purpose of this Act;

2(21) 'shop' means any premises where any trade or
business is carried on where services are rendered
G to customers and includes a shop run by a co-
operative society, an office, a store-room, go-down,
warehouse or work place whether in the same
premises or otherwise, used in connection with
such trade or business and such other
H establishments, as the Government may, by
GRAND KAKATIYA SHERATON HOTEL & TOVll£RS EMP. & Vl.ORKERS 683
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]

notification, declare to be a shop for the purpose A
of this Act, but does not include a commercial
establishment.

Chapter II deals with registration of establishments.
Chapter Ill relates to shops and Chapter IV relates to
8
establishments other than shops. Chapter V relates to
employment of women, children and young persons.
Chapter VI relates to health and safety, Chapter VII relates
to leave and holidays with wages and insurance scheme
for employees. Chapter VIII deals with wages, conditions C
for termination of services, appeals, and suspension and
terminal benefits.

At this juncture, it will be better to see a few provisions of
Payment of Gratuity Act, 1972. Sub-Section (3) of Section 1
provides as under:- D

(3) It shall apply to:-

(a) every factory, mine, oil field, plantation, port and
railway company;
E
(b) every shop or establishment within the meaning of
any law for the time being in force in relation to
shops and establishments in a State, in which ten
or more persons are employed or were employed,
on any day of the preceding twelve months; F
(c) such other establishments or class of
establishments in which ten or more employees are
employed, or were employed, on any day of the
preceding twelve months, as the Central
Government, may, by notification, specify in this G
behalf.

3A. A shop or establishment to which this Act has
become applicable shall continue to be governed
by this Act, notwithstanding that the number of H
684 SUPREME COURT REPORTS (2009] 3 S.C.R.

A persons employed therein at any time after it has
become so applicable falls below ten.

4. Payment of gratuity:-

(1) Gratuity shall be payable to an employee on the
B termination of his employment after he has
rendered continuous service for not less than five
years.

(a) on his superannuation, or
c (b) on his retirement or resignation or

(c) on his death or disablement due to accident or
disease.

o provided that the completion of continuous service
of five years shall not be necessary where the termination
of the employment of any employee is due to death or
disablement.

)()()( )()()( )()()(
E
(2) For every completed year of service or part thereof
in excess of six months, the employer shall pay
gratuity to an employee at the rate of fifteen days'
wages based on the rate of wages last drawn by •
F the employee concerned

provided that in the case of a piece-rated employee,
daily wages shall be computed on the average c the total
wages received by him for a period of three months.
Immediately preceding the termination of his employment
G and for this purpose, the wages paid for any over time
work shall not be taken into account.

Section 7 of the Payment of Gratuity Act, 1972 provides
for the determination of the amount of gratuity. Under sub-
H Section (1), an eligible employee under the said Act has to
GRAND KAKATIYA SHERATON HOTEL & TOWERS EMP. & OORKERS 685
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)

41 make a written application, while sub-Section (2) makes it A
binding on the employer to determine the amount of gratuity and
specify the same to the controlling authority, even if such
application is not made. The mandate of sub-Section (3) is to
make the payment of gratuity within 30 days of the date, it
becomes payable to such eligible employee. Section 3A B
provides for the interest, where gratuity is not paid within the
prescribed period.

7. The challenge before the High Court was that the
impugned provisions of the Shops Act, viz., Sections 47(3) and
47(4) are ex-facie unreasonable, since the service c
compensation is now payable under the same even to the
employee, who has ·resigned or voluntarily left service after
attaining the age of 60 years though he had not put in long and
continuous service, as required under the Payment of Gratuity
Act. The further challenge was that the employee becomes D
" entitled to receive wages from the date of termination or
cessation of his services till the date he is actually paid the
service compensation as per sub-Section 4 of the Shops Act.
The respondent company (petitioner before the High Court)
urged that this was arbitrary, oppressive, discriminatory and E
violative of the Article 14 of the Constitution of India. It was
urged that the employer was forced to pay the service
compensation, even though cessation of service in cases of
resignation and voluntary cessation after completion of 60
years, was not on account of any act on the part of the employer. F

8. Heavy reliance was placed by the appellant/petitioner
on the judgment of this Court in Express Newspapers Vs.
Union of India reported in AIR 1958 SC 578.

9. Before the High Court, the State sought to defend the G
said provisions on the ground that the impugned provisions
were made for the payment of extra wages. It was urged that
the provisions of Sections 47(3) and 47(4) were applicable only
to those employees, who were not governed by the Payment
of Gratuity Act. It was pointed out that the provisions of Payment H
686 SUPREME COURT REPORTS [2009] 3 S.C.R.

A of Gratuity Act were applicable only to those employees, who
had completed minimum of 5 years of service, while the
provisions of the impugned sub-Sections (3) and (4) of the
Shops Act would be applicable to the employees, who had
served·even less than 5 years. According to State, this was a
B reasonable classification, having a nexus with the purpose for
which the provisions were brought into existence. It was stated
further that considering objects and reasons of the Shops Act,
it was apparent that there was no conflict between the Payment
of Gratuity Act and the Shops Act. It was also urged that since
c the number of employees in a shop, governed by the Shops
Act could be limited to one or two persons and their services
also might not continue for a long period, therefore, in order to
help such employees, a special provision was made
considering such employees as a separate class. Section
47(4) was sought to be saved on the logic that it was nothing,
0
but a concept of Section 25F of the Industrial Disputes Act,
194 7 and on that basis, the said sub-Section would be
constitutionally valid.

10. The High Court in its judgment firstly found that the
E respondent company admittedly had not complied with the
provisions of sub-Sections (3) and (4) of the Shops Act on the
basis of the Reply Affidavit filed on behalf of the appellanU
petitioner. The Court further found on comparison of the
provisions of the 1966 Act and 1988 Act that they were almost
F . identical and the payment of gratuity was replaced by the
introduction of the concept of service compensation. The only
change was to extend the minimum requirement period of six
months to one year. The High Court also found that the
establishment of the respondent company was indisputably
G covered under the Shops Act. The High Court thereafter noted
that the unamended provisions of Sections 40(1) and 40(3) of
the 1966 Act had been challenged earlier before the Division
Bench and the same were declared invalid under Article 14 of
the Constitution of India on the ground that while in factories
H which are large in size, the workers, in order to earn the gratuity,
GRAND KAKATIYA SHERATON HOTEL & TOV\£RS EMP. & 'v\ORKERS 687
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)

• would have to render long and meritorious service under a A
scheme of Payment of gratuity prior to enactment of the
Payment of Gratuity Act, 1972, however, the employees working
in the nearby office, which is much smaller in its operations,
would be entitled to such gratuity on rendering a mere six
months of unbroken service. The High Court then commented B
that even when the earlier judgment of the High Court had
attained finality, by way of the present amendment only a
... cosmetic amendment was made. The High Court then went on
to analyse Section 47 and pointed out that in contrast with sub-
Section thereof, under sub-Section (3), the amount of service c
compensation is required to be paid even if the cessation of
service is caused not by the employer, but at the instance of
the employee. It was further noted that in case of termination
of an employee due to death or disablement, even the condition
of completion of continuous service of one year was not
~ D
necessary. The onerousness of sub-Section 4 was also noted
by the High Court that the employee becomes entitled to be
paid the wages from the date of his termination or cessation
of his service right until the date of the actual payment of service
compensation. The High Court also saw the contradictions that
the Shops Act was applicable to the administrative offices of E
the factories and the employees working therein. While the
,. employee working in the factory would be eligible for gratuity
only after rendering five continuous years of meritorious service,
• the employees working in the administrative office adjacent to
the said factory, would, however, be eligible for service F
·- compensation under Section 47(3) by merely rendering one
year's service. The High Court then held that the service
compensation was nothing, but a gratuity. Considering the
meaning of the word "gratuity", the High Court found that the
service compensation was nothing, but the gratuity, which was G
payable to the employee as a gift or reward for rendering long
and continuous service. It also found that a mere service of one
year or so could not be viewed as a long and continuous
service, so as to entitle the employee to earn the service
compensation or in other words, the "gratuity". The High Court H
688 SUPREME COURT REPORTS [2009] 3 S.C.R.

A took into consideration the provisions of the Gratuity Act and •
found that the minimum period of service therein was five years,
as also for the Government servants of the State, the minimum
qualifying period for earning gratuity was 10 years of service.
Comparatively, the High Court came to the conclusion that
B limiting this period of long, continuous and satisfactory service
only to one year was unreasonable and discriminatory. The
High Court also severely commented on the provisions that in
case of death or disablement, the condition of completion of
one year of service was also not necessary. The High Court
C then relying on the judgment of Bennet Coleman & Co. Ltd.
Vs. Union of India reported in AIR 1973 SC 106, held that to
treat unequals equal, would amount to discrimination and held
that Section 47(3) had that effect. The High Court then referred
to the cases in Express Newspapers Vs. Union of India (cited
supra) and Peerless General Finance And Investment Co. Ltd.
0
Vs. R.B.I. reported in 1992 (2) SCC 343. Thereafter, the High
Court considered the scheme of payment of gratuity as required
by the Payment of Gratuity Act and observed that Section
4(1)(b) has been held to be a reasonable classification within
the meaning of Article 19(1 )(g) of the Constitution of India.
E Referring to number of other decisions, the High Court
observed:-

"It may be true that having regard to the provisions
contained in List Ill of the VII Schedule of the Constitution,
F the State can also lay down certain conditions of service.
But, the same would not mean that smaller units will be
burdened with a harsher, oppressive and more onerous
statutory obligations than their big brothers."
-
It was found that the same field was being covered by the
G Central legislation, as well as, the impugned State legislation.
The High Court, however, pointed out that merely because the
State legislation had received the Presidential assent, that, by
itself, could not save the State legislation if it was otherwise
discriminatory. This observation was made on finding that there
H
GRAND KAKATIYA SHERATON HOTEL & TOWERS EMP. & \fliQRKERS 689
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
4 existed no evidence that the possible conflict in Central Act and A
the State Act was brought to the notice of the President before
the assent was obtained. On the factual aspect, the High Court
observed that, in fact, there were number of employees, who
had left the service and thereafter, had not been heard for a
few years and as such, they could not be said to have rendered B
any work which would entitle them to receive gratuity or service
compensation. The High Court ultimately held that those, who
had abandoned their services, were not entitled to get any
benefits under the impugned provisions. Thus, the High Court
specifically found the two provisions, viz., 47(3) and 47(4) to c
be unreasonable. These provisions and more particularly,
Section 47(4) was found to be contrary to the basic principles
of service jurisprudence. The High Court ultimately allowed the
Writ Petition. It is this judgment, which has fallen for our
consideration in the present appeal. D
"'
11. The Learned Counsel for the appellant firstly pointed
out that impugned Sections 47(3) and 47(4) are constitutionally
valid and suffer from no infirmity. He secondly urged that as has
been done by the High Court, the legislation cannot be struck
down on the ground of mere hardship. His third contention was E
that the High Court had resorted to the comparisons between
.., two legislations by two different legislatures while deciding upon
the constitutionality of the aforementioned provisions, which was
; not permissible. The Learned Counsel fourthly urged that merely
because the lesser period for the purpose of grant of service F
compensation was provided, it did not impinge upon
constitutionality and it was perfectly permissible for the
legislature to prescribe lesser period. Fifthly, the Learned
Counsel urged that in the impugned judgment, it was not shown
as to how the fundamental rights of the respondent Nos. 1 & 2 G
under Article 14 and 19( 1)(g) were violated. The Learned
Counsel also suggested that the High Court erred in holding
that the Presidential assent under Article 254(2) was
inconsequential. Lastly, the Learned Counsel urged that the
decision in Suryapet Market Cooperative Society Vs. Munsif H
690 SUPREME COURT REPORTS [2009] 3 S.C.R.

A Magistrate, Suryapet and Ors. reported in 1972(2) ALT 163
was not correctly decided and could not be relied upon for
striking down Section 47(3) of the Shops Act.

12. Shri L. Nageshwar Rao, Learned Senior Counsel
appearing on behalf of the respondent company urged that the
8
High Court had not struck down concerned impugned
provisions merely on the ground of hardship. He pointed out
that the High Court had taken the overall effect of the provisions
and had come to conclusion that the provisions were
C unreasonable and hence, unconstitutional. As regards the third
contention raised by the Learned Counsel for the appellant, Shri
Rao pointed out that the Court had not made any comparisons
between two legislations by two different legislatures. On the
other hand, the Court had found that the basic concept of
"service compensation" or as the case may be, "gratuity", was
D completely abused by Section 47(3), while Section 47(4) was ..
inherently bad, as it was unreasonable and capable of misused.
The Learned Senior Counsel pointed out that the Court had also
pointed out that Section 47(3) was capable of giving different
treatment to the two sets of employees, who were similarly
E circumstanced and, therefore, it was hit by Article 14 of the
Constitution of India. As regards the fourth contention, the
Learned Senior Counsel also relied on Bakshish Singh Vs.
Darshan Engineering Works & Ors. reported in 1994 (1) SCC
9 and pointed out that the principles on which the gratuity was
F granted, were completely abused by providing a period of one
year's service or even lesser period for the entitlement of
gratuity or as the case may be, service compensation. Shri Rao
further pointed out that the Court had given good reasons
relying on the judgment of Express Newspapers Vs. Union of
G India (cited supra) and Division Bench judgment in Suryapet
Market Cooperative Society Vs. Munsif Magistrate, Suryapet
and Ors. (cited supra), as also in Bakshish Singh Vs. Darshan
Engineering Works & Ors. (cited supra) that the High Court had
properly tested the impugned provisions and showed as to how
H the fundamental rights of the respondent Nos. 1 & 2 under
GRAND KAKAllYA SHERATON HOTEL & TOVl/ERS EMP. & \h.ORKERS 691
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
' .)
Article 14 and 19(1)(g) were violated. The Learned Senior A
Counsel pointed out that the finding of the High Court was that
there was no evidence placed before it regarding the material
placed before the President for obtaining the consent. Lastly,
the Learned Senior Counsel pointed out that after decision in
case of Suryapet Market Cooperative Society Vs. Munsif B
.... Magistrate, Suryapet and Ors. (cited supra) by the Division
Bench of the High Court, striking down Section 47(3) of the
Shops Act, mere cosmetic changes were brought about in the
fresh legislation, which was impermissible for the legislature.

13. We shall collectively consider the arguments. The High c
Court has quoted from the judgment of this Court in Express
Newspapers Vs. Union of India (cited supra), more particularly,

... from paragraph 205, which is the final verdict of this Court in
that case, but before that also, in paragraph 198, it is
D
observed:-

"198. When we come, however, to the provision in regard
to the payment of gratuity to working journalists who
voluntarily resigned from service from newspaper
establishments, we find that this was a provision E
which was not at all reasonable. A gratuity is a
scheme of retirement benefit and the conditions for
its being awarded have been thus laid down in the
~
Labour Court decisions in this country."

This Court then referred to the case of Workmen F
employed under the Ahmedabad Municipal Corporation Vs.
Ahmedabad Municipal Corporation reported in 1955 Lab A
C 155, as also, the observations made in the case of Indian
Oxygen & Acetyle'le Co. Ltd. reported in 1956-1 Lab L J 435
and observed in paragraph 202 to the following effect:- G

"It will be noticed from the above that even in those cases,
where gratuity was awarded on the employee's resignation
from service, it was granted only after the completion of
15 years' continuous service and not merely on a minimum H
.....
692 SUPREME COURT REPORTS [2009] 3 S.C.R.

A of 3 years' service as in the present case. Gratuity being
a reward for good, efficient and faithful service rendered
for a considerable period (vide Indian Railway
Establishment Code, Vol. I at page 614 - Chapter XV,
Para 1503), there would be no justification for awarding
B the same when an employee voluntarily resigns and brings
about a termination of his service, except in exceptional
circumstances." ......
The Court, thereafter, quoted a passage in relation to
Journalists' Working Conditions and their Moral Rights, as also
C from the collective agreement between the Geneva Press
Association and the Geneva Union of Newspaper Publishers
and ultimately found in paragraph 205 that such provision,
providing for a payment of gratuity even to an employee who
voluntarily resigns from service after a period of only three .. •
D years, was certainly unreasonable, imposing unreasonable
restrictions on the right of the petitioner to carry on business
and was, therefore, liable to be struck down as unconstitutional.
The other judgment relied upon by Shri L. Nageshwar Rao was
Peerless General Finance and Investment Co. Limited and
E Another Vs. Reserve Bank of India reported in 1992 (2) SCC
343. Following observation from paragraph 48 from this
judgment is extremely apposite. The observation is as follows:-

"48 ..... Article 19(1 )(g) provides fundamental rights to all
citizens to carry on any occupation, trade or
F
business. Clause (6) thereof empowers the State
to make any law imposing in the interest of the
general public, reasonable restrictions on the
exercise of the said rights. Wherever a statute is
challenged as violative of the fundamental rights, its
G real effect or operation on the fundamental rights is
of primary importance. It is the duty of the Court to
be watchful to protect the constitutional rights of a
citizen as against any encroachment gradually or
stealthily thereon. When a law has imposed
H
GRAND KAKAllYA SHERATON HOTEL & TOV'v£RS EMP. & V\ORKERS 693
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
~I
restrictions on the fundamental rights, what the A
-'-- Court has to examine is the substance of the
legislation without being beguiled by the mere
appearance of the legislation. The legislature
cannot disobey the constitutional mandate by
employing an indirect method. The Court must B
consider not merely the purpose of the law, but also
..
~ the means how it is sought to be secured or how it
is to be administered. The object of the legislation
is not conclusive as to the validity of the
~
legislation ............ The Court must lift the veil of c
the form and appearance to discover the true
character and the nature of the legislation and every
endeavour should be made to have the efficacy of
. fundamental right maintained and the legislature is
not invested with unbounded power. The Court has, D
therefore, always to guard against the gradual
encroachment and strike down a restriction as soon
as it reaches that magnitude of total annihilation of
the right."

The observations are extremely relevant in the present E
context. Now, there could be no dispute that the impugned
provision 47(3) is nothing, but an award of gratuity, though it
; has been given a nomenclature of "service compensation".
When we closely examine Section 47(3), it suggests that an
~ employee, who has to be in a continuous service of not less F
than one year, becomes eligible for service compensation,
amounting to fifteen days average wages for each year of
continuous employment (i) on voluntary cessation of his work
after completion of 60 years of age or (ii) on his resignation or
(iii) on physical or men:c.I infirmity duly certified by a Registered G
Medical Practitioner or (iv) on his death or disablement due to
accident or disease. This is nothing but the provision of a
gratuity. It is already held by this Court time and again that the
concept of gratuity as conceived in the Payment of Gratuity Act
and even earlier to that in labour jurisprudence is that gratuity H
694 SUPREME COURT REPORTS [2009] 3 S.C.R.

\
A is a reward for long and continuous service. It is for the first time _....
by that Act, a worker or an employee was made entitled to the ;
gratuity by his rendering continuous service for five years. If this
is so, then providing only one year for entitlement to get the
gratuity, is certainly unreasonable. What we have to see is the
B real nature of the so-called service compensation. The service
compensation is nothing, but a gratuity and the High Court has
.,
correctly held it to be a gratuity. If we are required to lift the veil •
as per the mandate of this Court in Peerless General Finance
and Investment Co. Limited and Another Vs. Reserve Bank
c of India reported in 1992 (2) SCC 343 (cited supra), then it is ''
obvious that the unnatural name of "service compensation" is
given to what in fact, is a "gratuity". We need not dilate on this ...
subject as the High Court has given good reasons to hold it to
be a "gratuity". As if this is not sufficient, the proviso to sub-
Section (3) provides that in case of termination of the A
D
employment due to death or disablement, even this one year's
service will not be necessary. In spite of the presumption of
constitutionality of a provision, we do not think that such a
provision can be held to be reasonable. It is undoubtedly an
unreasonable inroad on the fundamental right of the respondent
E (petitioner before the High Court) under Article 19(1 )(g) of the
Constitution of India. .,....._

14. As if this is not sufficient, we find from the definitions
of "Commercial Establishment" and "Establishment" under the
F Shops Act that there are always two sets of employees in an .._
establishment, being administrative or clerical and technical
employees. While the factory owner would be required to pay
the gratuity to the employee working in the factory only on his
completing five years of continuous service, in case of the
G employee working on the administrative or clerical side of the
factory or in the office, which may be in the same premises ...
where the factory is situated, merely one year of service or even
lesser than that, would be sufficient and the factory owners
would have to pay the gratuity or the service compensation, as
H the case may be, to such person. Thus, the provision is clearly
GRAND KAKATIYA SHERATON HOTEL & TO'M:RS EMP. & VVORKERS 695
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
.J discriminatory and unreasonable. One look at the definition of A
"Commercial Establishment" would convince that the inclusion
of an establishment of a factory or an industrial undertaking
which falls outside the scope of Factories Act, 1948 and
thereby entitling the employees working therein for the payment
of service compensation, clearly brings out the discrimination B
between such employees and the employees working in the
.. factories as covered by Factories Act, 1948. The definition of
"Employee" is also extremely relevant in this behalf, and when
' the two provisions, viz., Sections 2(5) and 2(8) are read
together along with Sections 2(11) and 2(10), the position c
becomes crystal clear that the provision of Section 47(3) is
clearly discriminatory and, therefore, hit by Article 14 of the
Constitution of India. We, therefore, cannot accept the argument
of the appellant that the said provision under Section 47(3) is
' ... made for a classification and, therefore, there is no
D
discrimination as the classification has a nexus with the object
of the Act. Much debate went on the said object, which was
stated in the Statement of Objects and Reasons and was also
clear from the Preamble. We, however, do not see as to how
such discrimination is permissible in the two sets of employees
and what is the rationale for providing a short period of one year E
as compared to five year period in case of employees covered
under the Factories Act, 1948.
~
15. In our opinion, the High Court was absolutely correct
in holding that the provision of Section 47(3) is hit by Article F
14 of the Constitution of India.

16. We must, at this juncture, take stock of the argument
that it was legally permissible for the legislature to prescribe
lesser period for the purpose of grant of service compensation.
G
Our attention was invited to the oft quoted case of Bakshish
Singh Vs. Darshan Engineering Works & Ors. (cited supra).
In fact, Shri L. Nageshwar Rao, Learned Senior Counsel for the
respondents also relied on the case of Bakshish Singh Vs.
Darshan Engineering Works & Ors. (cited supra) along with
H
696 SUPREME COURT REPORTS [2009] 3 S.C.R.

\
A two other cases earlier decided, viz., Mis. British Paints (India)
Ltd. Vs. Its Workmen reported in 1966 (2) SCR 523 and Straw
Board Manufacturing Co. Ltd. Vs. Its Workmen reported in
1977 (2) SCC 329. Our attention was invited by the Learned
Counsel for the appellant, more particularly, to paragraph 16
B and 17 in case of Bakshish Singh Vs. Darshan Engineering
Works & Ors. (cited supra). The observations are, in fact,
adverse to the case put up by the appellant. In paragraph 16, I

this Court observed that the concept of gratuity had undergone '""
metamorphosis over the years. This Court further recognized
c that though "gratuity" meant payment, gift or a boon made by
the employer to employee in industrial adjudication, it was
considered as a reward for long and meritorious service and
the payment of gratuity depended upon duration and the quality
of service rendered by the employee. The Court further
observed that at a later stage in the industrial jurisprudence,
0
the gratuity came to be recognized as a retiral benefit in
consideration of the service rendered and the employees could
raise an industrial dispute for introducing the concept of gratuity
as a condition of service. The Court also went on to observe
that such payment of gratuity depended on various factors like
E financial stability and capacity of the employer, the service
conditions prevalent in the industry and the region, availability
of the other retiral benefits and the standard of other service
conditions. The Court very specifically observed that the
quantum of gratuity was determined by the said factors. The
F Court then made observations that the minimum qualifying
service for the entitlement to the gratuity or the rate at which it
was to be paid and the maximum amount payable was
determined on the basis of the aforementioned factors. In
paragraph 17, the Court observed that the industrial
G adjudicators insisted upon certain minimum years of qualifying
service before an employee could claim it whether on
superannuation or resignation or voluntary retirement, which
was inconsistent with the concept of gratuity being an earning
for the services rendered. The Court then went on to observe
H that there was no fixed concept of gratuity or of the method of
GRAND KAKATIYA SHERATON HOTEL & TO\l\IERS EMP. & 11\0RKERS 697
UNION v. SRINIVASA RESORTS LTD. (V.S. SIRPURKAR, J.]

its payment, and like all other service conditions, the gratuity A
schemes could differ from establishment to establishment
depending upon various factors mentioned earlier. One such
prominent factor was the financial capacity of the employer to
bear the burden. The Court was also not unmindful of the
distinction between the provident fund and gratuity. While in B
former, there was a contribution from the employer, in case of
... gratuity such contribution was not a necessary ingredient. The
Court then observed in paragraph 17 as under:-

"17 ........ Likewise, the gratuity schemes may also
provide differing qualifying service for entitlement to C
gratuity. It is true that in the case of gratuity, an
additional factor weighed with the industrial
adjudicators and courts, viz., that being entirely a
payment made by the employer wit,hout there being
a corresponding contribution from the employee, D
the gratuity scheme should not be so liberal as
would induce the employees to change
employment after employment after putting in the
minimum service qualifying them to earn it."
(Emphasis supplied) E

This would suggest that before introducing any such
concept of service compensation which was nothing but the
.•,
gratuity, the aforementioned factors were bound to be taken into
consideration and to be provided for. What we see from the F
impugned provisions is, firstly, the compulsory nature of the
service compensation and secondly, the total absence of
guidelines. It is not understood as to how and why in all
employments through out, such a short period of one year or
even lesser than that has been provided and what is the
rationale for the same. When we see the observations in case G
of Bakshish Singh Vs. Darshan Engineering Works & Ors.
(cited supra), it is clear that there has to be some minimum
qualifying service. To reduce the service to one year or even to
the lesser period, a qualifying service would, in our opinion, be
H
698 SUPREME COURT REPORTS (2009] 3 S.C.R.

A absurd and was rightly rejected by the High Court. Therefore,
it cannot be said that in all the circumstances, it is permissible
for the legislatures to prescribe a lesser period. We can
understand the period being a lesser, but not to the extent of
non-existent period of one year or as the case may be, six
B months, as provided in Section 47(3), which would not amount
to reasonable period for the entitlement to get the gratuity. Such
provision is, therefore, obviously, unreasonable. The contention
of the Learned Counsel for the appellant is, therefore, rejected.
.. •
17. At the same time, insofar as Section 47(4) is
C concerned, the provision is per se unreasonable. We have
already quoted Section 40(3) of the 1966 Act in the earlier part
of the judgment. We, therefore, do not reproduce the Section
here. It is to be remembered that this Section was found to be
unconstitutional in the earlier judgment of the Division Bench 4 <
D in case of Suryapet Market Cooperative Society Vs. Munsif
Magistrate, Suryapet and Ors. (cited supra) and the said
judgment had become final. The Section is clearly comparable
to Section 47(3) and also Section 47(4), as the last part of that
Section is identical with the wording in Section 47(4). The only
E difference, which we find is that instead of word "gratuity", the
terminology of "service compensation" is substituted. In our
opinion, the High Court was right in opining that a mere
cosmetic amendment could not have been made by way of
introduction of Sections 47(3) and 47(4). It was tried to be
F argued before us that in the present 1988 Act, the mischief
pointed out by the High Court in earlier Section 40(3) of the
1966 Act has been remedied. We are unable to agree with
such argument. We do not see as to how and in what manner,
the mischief has been remedied. In its judgment, the High Court
G has compared both the provisions and has found that the
period of six months, as contemplated in the 1966 Act, was
made one year. The High Court also noted that the provision
was declared ultra-vires on the ground that the workmen
working in the factory which would be large in size are eligible
H to be paid gratuity on rendering long and meritorious service
GRAND KAKATIYA SHERATON HOTEL & TOVvERS EMP. & Vl.ORKERS 699
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]

under the scheme of Payment of Gratuity by industrial A
adjudication, i.e., prior to the enactment of Payment of Gratuity
Act, 1972, whereas, the employees of a shop or an
establishment which is smaller in its operations covered under
the 1966 Act, will be entitled to such gratuity on rendering of
minimum qualifying period of only six months' unbrokli!n service. B
The High Court also noted that the provisions of Sections 47(3)
•4 and 47(4) were nothing, but a cosmetic amendment to the
earlier Section 40(3). It is, therefore, clear that no attempt has
"""'• been made, whatsoever, to point out the mischief found by the
High Court in Section 40(3) of the 1966 Act. It was tried to be c
urged that the Payment of Gratuity Act was not in existence at
the time the High Court rendered its decision in Suryapet
Market Cooperative Society Vs. Munsif Magistrate, Suryapet
and Ors. (cited supra). We do not see as to how it is relevant
~ •~ at all. On the other hand, with the advent of Payment of Gratuity
i
D
Act, the unreasonableness of the provision of Section 47(3)
would be all the more prominent. We are also not in a position
to agree that Section 47(4) is, in any manner, a valid piece of
Legislation and is only in the nature of a procedure and does
not amount to penalty. Now, merely because there is a remedy
to the employer under Sections 50 and 51 to point out reasons E
for not being able to have complied with Section 47(3), the
Section does not become a valid Section, particularly, when the
...
~
identical provision was found to be unconstitutional in case of
Suryapet Market Cooperative Society Vs. Munsif Magistrate,
Suryapet and Ors. (cited supra), which judgment had become F
final. We, therefore, cannot accept that Section 47(4) is a valid
piece of Legislation. This is apart from the fact that this
provision is also capable of being abused or misused by an
employee, who may bring out a situation to avoid accepting the
payment of gratuity, so as to be able to claim later the wages G
of the interregnum period.
"
18. It was argued by the Learned Counsel for the appellant
that there could not have been a comparison between the
provisions of Payment of Gratuity Act and the present H
700 SUPREME COURT REPORTS [2009) 3 S.C.R.

A provisions, while deciding the constitutionality. For this purpose,
'..
the Learned Counsel relied on the law laid down by this Court
in State ofM.P. Vs. G.C. Mandawarreported in 1955(1) SCR
599. The following observations in that case were relied upon:-

"Article 14 does not authorize the striking down of a law
B
of one State on the ground that in contrast with a law of
another State on the same subject, its provisions are
..'
discriminatory nor does it contemplate a law of the Centre
or of the State dealing with similar subjects being held to
.
be unconstitutional by ff process of comparative study of
c the provisions of the two enactments. The sources of
authority for the two statutes being different, Article 14 can
have no application."

D both
It may immediately be clarified that though it is true that
the laws, i.e., the Shops Act and the Payment of Gratuity
.
Act have been passed validly under Entry 24 of List Ill of the
VII Schedule, it is incorrect to say that the High Court has
compared the two provisions. It is one thing to refer to a
provision and quite another to compare it with impugned
E provision. The High Court has actually gone into the concept
of gratuity right from its inception and has come to the
conclusion that for earning the gratuity, the employee does not
have to contribute anything, as in the case of a provident fund.
Gratuity is more or less a gratuitous payment by the employer j.

F in consideration of long and faithful service by the employee.
The concept of gratuity came to be developed firstly in the
industrial jurisprudence and was crystallized by the Central
Legislation by way of an Act, where a provision of five years of
minimum service was made for an employee to be entitled for
payment of gratuity. However, as has been held in Bakshish
G
Singh Vs. Darshan Engineering Works & Ors. (cited supra),
the length of five years of service could not have been reduced
in absurd manner to a minuscule period of one year or even
less than that. The High Court, therefore, found fault that the
basic concept of gratuity was being abused by the reduction
H
GRAND KAKATIYASHERATON HOTEL& TO\M:RS EMP. &OORKERS 701
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
i'''
of the required service to an almost non-existent level. It cannot, A
therefore, be said that the High Court compared the two
provisions. This is apart from the fact that the reduction to a
period of six months was already held to be unconstitutional in
the judgment of Suryapet Market Cooperative Society Vs.
Munsif Magistrate, Suryapet and Ors. (cited supra), which B
judgment had attained finality. The High Court found that
instead of remedying the defects pointed out in the judgment
'
'4
of Suryapet Market Cooperative Society Vs. Munsif
Magistrate, Suryapet and Ors. (cited supra), a cosmetic
change was made by raising the period of six months to one c
year. We are, therefore, unable to accept the submission of the
Learned Counsel for the appellant that the High Court
proceeded on to decide the constitutionality on the basis of a
comparison. We do not, therefore, see how the aforementioned
judgment in State of M.P. Vs. G.C. Mandawar reported in D
'• 1955(1) SCR 599 (cited supra) can be of any application and
help to the present case.

19. A further criticism was leveled by the Learned Counsel
for the appellant that the High Court had struck down the
provisions only on the grounds of hardship and that was not E
permissible. Learned Counsel relied on a decision in Prafulla
Kumar Das & Ors. Vs. State of Orissa & Ors. reported in 2003
( 11) SCC 614 and our attention was invited to paragraph 45
.I
thereof. Learned Counsel also relied on another decision in
R.N. Goyal Vs. Ashwani Kumar Gupta & Ors. reported in 2004 F
(11) sec 753, particularly on the observations made in
paragraph 5, as also the decision in Government of Andhra
Pradesh Vs. P. Laxmi Devi reported in 2008 (4) SCC 720.
Insofar as the last decision is concerned, we do not see as to
how it helps the appellant, as in that decision, this Court has G
recognized the presumption of constitutional validity of a statute.
There can be no quarrel with that proposition. Our attention was
invited to paragraphs 70, 72, 73 and 78. We could not find
anything in those paragraphs, which supports the contention that
a mere hardship cannot be a ground for striking down a H
--~----- -
702 SUPREME COURT REPORTS (2009] 3 S.C.R.

A provision. This Court had only shown the presumption of
constitutionality and has cautioned against the light treatment
being given to the subject. In our opinion, that is not the case
here. The High Court's judgment proceeds on solid bedrock
of lucid reasoning and is not restricted to hardship alone.
B
20. In R.N. Goyal Vs. Ashwani Kumar Gupta & Ors.
reported in 2004 (11) sec 753 (cited supra), while repealing
the constitutional challenge to the rules, which was observed ...
by this Court that if the Rules framed under Article 309 of the
C Constitution of India were for general good, but caused hardship
to the individual, the same could not be a ground for striking
down the Rules. These observations are not apposite to the
present controversy. Here the impugned provisions have not
been struck down merely because they would cause hardship
to any individual or any class. In fact, the provisions have been
D shown to be totally unreasonable and in total contradiction with
the established norms for the concept of gratuity. Not only that,
the provisions have been shown to be discriminatory in respect
of the two sets of workers, who are similarly, if not identically
circumstanced. In case of Prafulla Kumar Das & Ors. Vs. State
E of Orissa & Ors. (cited supra) also, it was specifically observed
in paragraph 45 that the Legislature had the requisite
jurisdiction to pass appropriate Legislation, which would do
justice to its employees. The Court went on to hold that if a
balance is sought to be struck down by reason of the impugned •
F Legislation, it would not be permissible for the Court to declare
the legislation ultra vires only because it may cause some
hardships to the petitioners. These observations were made
in relation to the service jurisprudence, where, the constitutional
validity of Orissa Administrative Service, Class II (Appointment
G of Officers Validation) Amendment Act, 1992, was in challenge.
By that amendment, relative seniority was awarded to the direct
recruits for the year 1973, who were appointed in the year 1975,
over and above, the mergerists born in the said Service by
virtue of merger of their parent cadre with the Orissa
H Administrative Service, Class II. The argument was raised that
GRAND KAKATIYA SHERATON HOTEL & TOVV'ERS EMP. &IM)RKERS 703
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.)

11 such grant of seniority would amount to a hardship to the A
petitioners in the matter of seniority. The Constitution Bench of
this Court thoroughly examined the provisions of Section 2 of
the Amendment Act with reference to the earlier cases decided
on the question and came to the conclusion that it was
disinclined to temper with the settled practice, particularly, in B
.. view of the law laid down in Direct Recruit Class II Engg .
"" Officers' Assn. Vs. State of Maharashtra reported in 1990 (2)
t. sec 715. It was found that the concept of the "year of allotment"
was workable and it was within the powers of the Government
to recruit the officers from variety of sources. It was also found c
- that the seniority awarded was on the basis of a legal fiction,
which had to be given its full effect. It was in that context that
the observations regarding hardship were made. We are afraid,
the fact- situation in the present case is entirely different and
.
' l,
the observations made are not applicable to the present matter. D
We, therefore, reject the argument raised by the appellant. This
is apart from the fact that the High Court has correctly observed
that even if the law cannot be declared ultra vi res on the ground
of hardship, it can be so declared on the ground of total
unreasonableness applying Wednesbury's "unreasonableness"
E
principles. The Court, specifically, has also found that this
reasonableness is apparent from the fact that the employees
falling within Sub-Sections (1) and (3), although from different
'
. classes, had been treated equally, giving them the same
benefit. FOr this purpose, the Court also relied on the

- observations made in Bennet Coleman & Co. Ltd. Vs. Union F
of/ndia reported in AIR 1973 SC 106.

21. The High Court also referred to in this behalf, the
observations made in Peerless General Finance and
Investment Co. Limited and Another Vs. Reserve Bank of G
India (cited supra) and rightly concluded that the impugned
"' provision was totally unreasonable.

22. This takes us to the last contention raised by the
Learned Counsel for the appellant, regarding the question of
H
-•<
704 SUPREME COURT REPORTS (2009] 3 S.C.R.

\
A "Doctrine of occupied field". The High Court has observed:-

"It may be true that having regard to the provisions
contained in List Ill of VII Schedule of the Constitution, the
State can also lay down certain conditions of service. But,
the same would not mean that smaller units will be
B
burdened with a harsher, oppressive and more onerous -
J!o·

statutory obligations than their big brothers. The Payment
of Gratuity Act covers the field. Both the State Act and the •'
Central Act, in view of sub-Section (5) of Section 47 deal
with the matter relating to gratuity."
c
The High Court then referred to a decision in Ramachandra
Mowa Lal Vs. State of U.P. reported in AIR 1987 SC 1837. It
also referred to the decision in Gram Panchayat of Village
Jamalpur Vs. Ma/winder Singh reported in 1985 (3) SCC 661
D and relying on the observations made in that judgment, came •'
to the conclusion that the State could not take aid from the
provisions of Article 254(2) of the Constitution. The Court further
observed that mere assent of the President may not be
adequate and the provision in question, being directly in conflict
E with the Central Act, the same cannot be valid. Further, the
Court observed:-

"Mechanical assent given by the President may be held ,
to be an idle formality, as there does not exist any evidence •
that the possible conflict had been brought to the notice
F of the President before his assent was obtained."

The High Court then went on to hold that the instant case
-
would stand on the worse footing, as factually, it would not be
disputed that the employees had left the services and those who
G abandoned the service voluntarily, had not been heard of for a
few years. It was noted by the High Court that if the provisions
of Sections 47(3) &47(4) are held valid, then such persons who
had voluntarily abandoned the service, would be taking the
advantage of their own wrong, particularly, in relation to Section
H 47(4). The High Court also further observed that the union could
GRAND KAKATIYA SHERATON HOTEL &TO\f\i£RS EMP. &Vl.ORKERS 705
UNION v. SRINIVASA RESORTS LTD. [V.S. SIRPURKAR, J.]
,j
not have taken the cause of the persons, who had abandoned A
their services.

23. The impugned judgment is a complete answer to the
question raised regarding Article 254(2). There can be no doubt
that both the Central Act and the impugned State Act operate B
in the same field in as much as, the "service compensation" is
I
nothing, but the "gratuity", though called by different name.
' Under such circumstances, unless it was shown that while
obtaining the Presidential assent for the State Act, the conflict
between the two Acts was specifically brought to the notice of
the President, before obtaining the same, the State could not
c
have used the escape route provided by Article 254(2) of the
Constitution. We fully agree with the High Court when the High
Court held that the two Acts occupy the common field and were
~. in conflict with each other. The contention of the appellant that
Article 254(2) would save the impugned provisions is, therefore, D
rejected.

24. In the result, we concur with the judgment of the High
Court and confirm the same. The appeal has no merits and it
is dismissed, but without any order as to the costs. E
K.K.T. Appeal dismissed.
(,
~

...._