A.V Nachane v. Union of India

Name of the CaseA.V Nachane & Ors. v. Union of India & Others
Citations1982 AIR 1126, 1982 SCR (2) 246
CourtSupreme Court of India
BenchA.C Gupta, R.S Pathak & O.C Reddy
PetitionerA.V Nachane & Ors.
RespondentUnion of India & Others
Acts ReferredLife Insurance Corporation (Amendment) Act, 1981, Life Insurance Corporation (Amendment) Ordinance, 1981 & Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness) Allowance Rules, 1981

Introduction

A democratic government manages the country with the help of its 3 organs i.e. the legislature, executive & the judiciary. In India, the powers have been specifically mentioned in the constitution. Since India is a huge country the legislature makes the principle laws & leaves the application & procedural part with the administration in most cases which highlights the importance of administrative law in India.

After Independence, the Indian leadership nationalised most of the organisations & industries intending to secure the welfare of all the citizens by managing the equal distribution of resources. Subsequently, settlements were made with the employees & stakeholders to secure their interests however, later many changes were brought as per the need of the hour to secure the interests of the citizens & our country.

The case of A.V. Nachane & Another v. Union of India & Another is concerned with both the administrative law & the changes made after the settlement, challenging the constitutional validity & applicability of the rules made under delegated legislation. The rules were challenged on the basis of excessive delegation, violation of the right to equality & the retrospective applicability of the rules.

Background

  • The life Insurance businesses in India were transferred to the Life Insurance Corporation of India which was constituted under the Life Insurance Corporation Act 1956 to provide for the nationalisation of life insurance business in India & subsequently, the services of their employees of such insurers were transferred to the Corporation under Section 11(1) of the Act & Section 49(1) empowered the Life Insurance Corporation of India to make regulations to give effect to the Act.
  • In 1974, on 24th January & 6th February respectively, the Class III & Class IV employees reached on two settlements with the Life Insurance Corporation which included the claim of bonus. These settlements were made under Section 18 of the Life Insurance Corporation Act read with section 2(p) of the Industrial Disputes Act, 1947 & were to be effective from 1st April 1973 for four years till 31st March 1977 as per clause 12of the settlements. Clause 8 of the settlement dealt with the provisions for a bonus.
  • However, after the promulgation of Payment of Bonus (Amendment) ordinance in 1975 & its subsequent placement by the Payment of Bonus (Amendment)Act, 1976, the Central Government decided of not giving bonus & ex gratia payment instead of a bonus to the employees of such establishments which were not covered by the Payment of Bonus Act. Accordingly, the Payment of Bonus for the financial year 1975-1976 to the employees of the Corporation was stopped.
  • A writ petition was filed by the employees of the Corporation in the Calcutta High Court & the Court directed the corporation to act following the terms of the settlement.
  • In another case i.e. the Madan Mohan Pathak v. Union of India and Ors. , the Supreme Court directed the Union of India and the Life Insurance Corporation to pay an annual cash bonus to Class III and Class IV employees following the settlements & to forbear from implementing or enforcing the provisions of the 1976 Act.
  • After this the Corporation issued two separate notices under the Industrial Disputes Act on March 31, 1978, one under section 19(2) declaring its intention to terminate the settlements on the expiry of two months from notice & the other under section 9A stating its proposal to effect a change in the conditions of service applicable to the workmen.
  • Moreover, the corporation substituted Regulation no. 58 of Staff Regulations with 2 new regulations by issuing a notification under section 49 of the Life Insurance Corporation Act on May 26, 1978, & simultaneously, the Central Government amended the Life Insurance Corporation(Alteration of Remuneration and other Terms and Conditions of Service of Employees) order, 1957 by substituting a new clause (9) for the original clause concerning bonus, which was to take effect from June 1, 1978. This was done to ensure that the employees of the Corporation shall not be entitled to any profit-sharing bonus & payment of any non-profit bonus to the employees was to be decided by the corporation after giving due consideration to the financial condition of the corporation & subject to the previous approval of the Central Government.
  • A writ petition was filed in The Allahabad High Court challenging the validity of the aforesaid two notices and the notification issued to nullify any further claim to annual cash bonus by the workmen. The High Court allowed the writ petition & an appeal was made by the Corporation in the Supreme court. The supreme court heard the appeal in this case along with the transferred case of Chandrasekhar Bose and others v. Union of India and Ors. from Calcutta High Court to this Court & a writ was issued directing the corporation “to give effect to the terms of the settlements of 1974 relating to bonus until superseded by afresh settlement, an industrial award or relevant legislation”.
  • Later, The Life Insurance Corporation (Amendment) ordinance 1981 was promulgated on January 31, 1981, & several changes were made to the principal act related to the rules & regulations of terms of service which were to be given retrospective effect. Additionally, the Central Government made the Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness Allowance) Rules, 1981 by a notification dated 2nd February 2, 1981, & certain rules were made which included provisions related to payment of bonus.
  • The Life Insurance Corporation (Amendment) Ordinance was later replaced by the Life Insurance Corporation (Amendment) Act 1981 with the addition of a clause related to the laying procedure before the 2 houses of the parliament.

These changes were challenged by the petitioners Mr. A.V. Nachane & others. They challenged the Life Insurance Corporation (Amendment) ordinance, the Life Insurance Corporation (Amendment) Act,1981 and the Life Insurance Corporation ofIndia. Class III and Class IV Employees (Bonus and DearnessAllowance) Rules,1981contending that the Act and the Rules were violative of Articles 14, 19(1)(g) and 21(2) of the Constitution& alleged that the amendment act was unconstitutional due to excessive delegation. They also contended that the provision which permitted retrospective operation to rule 3 over-riding the order of this Courtin D.J. Bahadur’s case was invalid to that extent.

The Union of India and the Life Insurance Corporation contested the writ petition & contended that The Life Insurance Corporation Act as amended and the Rules made after amendment placed the Corporation in the same position as other undertakings & no discrimination was done rather a discrimination was removed.They clarified that the amendments & subsequent framing of rules was done in order to solve the problem of mounting cost of administration.

Regarding the question of excessive delegation of powers which was alleged on the basis of the rules that over-ride the Industrial Disputes Act or any other existing law it was clarified that the power of abrogating the existing law is in Section 48 (2) (c) which was enacted by Parliament itself.

Legal Issues Involved

  • Whether the Life Insurance Corporation (Amendment) Act, 1981 Act and ordinance was unconstitutional
  • Whether a Claim based on industrial settlement is a fundamental right and can it be enforced
  • Whether a rule having retrospective effect made under the act can make the writ issued by the Supreme Court Nugatory
  • Whether the provision allowing abrogation of law excessive delegation of legislative powers

Related Provisions

  • Section 49(1) which states “The Corporation may, with the previous approval of the Central Government, by notification in the Gazette of India, make regulations not inconsistent with this Act and the rules made thereunder to provide for all matters for which provision is expedient for the purpose of giving effect to the provisions of this Act.”
  • Section 48 (3) which states “Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule”.
  • The following provisions were added under Section 48 by The Life Insurance Corporation (Amendment) ordinance, 1981:
    • Sub-clause(c) was inserted in sub-section 2 with retrospective effect from 20thJune 1979.
    • Sub-section 2A which states“the regulations and other provisions with respect to the terms and conditions of service of the employees and agents of the Corporation at      the commencement of the ordinance shall be deemed to be rules made under clause (cc) of sub-section 2”.
    • Sub-section 2B which states“the power to make rules under clause (c) (c) of sub-section 2 shall include-
    • the power to give retrospective effect to such rules, and
    • the power to amend by way of addition, variation or repeal the regulations and other provisions referred           to insub-section 2A with retrospective effect, but not from a date earlier than 20thJune 1979”.
    • Sub-section 2C which states“provisions of clause (cc) of sub-section 2 and sub-section 2B and any rule  made  under  clause  (cc)  shall  have  effect notwithstanding any judgment, decree, or order of any court tribunal or other authority, the Industrial Disputes Act, 1947, any agreement, settlement, award or other instrument”.
  • The following rules were framed under the Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness Allowance) Rules 1981:
    • Rule 3(1)which states “No Class Ill orClass IV employee of the Corporation shall be entitled to the payment of any profit sharing bonus or any other kind of cash bonus”,
    • Rule 3(2)which states“notwithstanding sub-rule(1), every Class III and Class IV employee shall be entitled to a payment in lieu of bonus:
  • for the period commencing from July 1, 1979, and ending on March 31, 1980, at the rate of 15 per cent of his salary, and
  • thereafter for every year commencing from 1st April and ending on the 31st day of the March of the following year at such rate and subject to conditions which the Central Government may determine”.
  • Rule 3(3) which “rescinded regulation 58 of the Staff Regulations and all other provisions relating to the payment of bonus to the extent they were inconsistent with rule 3”.
  • The following provision was added under Section 49 by The Life Insurance Corporation (Amendment) Act, 1981:
    • Sub-section 3 which provided that the regulations made under section 49 shall be laid before each House of Parliament.

Judgment

In light of the facts present before the apex court, it was held by the 3-judge bench that the changes made via the amendments i.e. the rules made subsequent to the amendment cannot supersede the settlements retrospectively & can only have prospective effect from the date of publication of the Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness Allowance) Rules, 1981. The decision clearly mentioned that the employees are entitled to be paid the bonus earned by them & the Life Insurance Corporation of India was under an obligation to pay the bonus in terms of the writ issued in D. J. Bahadur’s case.

Justice Gupta delivered the main judgement wherein he clarified that the act was not in violation of any fundamental right as according to him firstly, as a claim based on settlements is not a fundamental right& secondly the burden of establishing hostile discrimination is on the person who complains for that & the petitioners in this case were not able to substantiate their claim by providing any material fact. He also observed that there was no excessive delegation of legislative functions since the preamble of the amending act stated a policy for such necessary changes in order to secure the interests of the Life Insurance Corporation of India and its policy-holders and to control the cost of administration & the fact that Section 48 (3) requires the laying of such rules before both the houses of parliament clarifies that the legislative has not absolved itself from its responsibilities.

Reference was given to the case of D.S. Grewal v. State of Punjab and another, wherein the Supreme Court observed that the parliament by including the provisions requiring the laying of rules made by the delegated authority before itself and making the rules subject to modification by parliament, whether by way of repeal or amendment, “makes it perfectly clear that Parliament has in no way abdicated its authority, but is keeping strict vigilance and control over its delegate.”

They also referred to the case of Harishankar Bagla and another v. State of Madhya Pradesh, wherein the Supreme Court observed that “the power to repeal an act is exercised not by the delegate but by the Act itself which is made by the Parliament.”

The Court further went on to state that The Life insurance Corporation (Amendment) Act, 1981 and the Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness Allowance) Rules, 1981 are relevant legislation but rule 3 operating retrospectively cannot nullify the effect of the writ issued in D. J. Bahadur’s case.

Analysis

The case was related to the issue of bonus which was decided mutually by the Life Insurance Corporation & its Class III & Class IV Employees through settlements. However, time & again the Life Insurance Corporation & the Union of India made attempts to stop the payment of bonus unilaterally through various amendment acts but the judiciary always secured the interests of the workmen. They took the view that settlements could not be terminated by a unilateral decision of the employer i.e. the Life Insurance Corporation but can cease to have effect only if a fresh settlement is reached upon, by passing of an industrial award or relevant legislation.

Similarly, the decision of the Supreme Court in this case was a well-reasonedone & the honourable judges tried to answer all the questions put before it with an astute legal sense. The judgement clearly specified that this was not a case of excessive delegation & that the amendments were constitutionally valid. However, the honourable judges also specified that a writ issued by the respective courts is not a rule but a binding order which cannot be nullified by a future legislation.

It can be concluded that the judiciary justified its role in securing the rights of citizens by upholding the decision of the apex court in the case of D.J. Bahadur. Moreover, it was also highlighted that merely because a rule made under delegated legislation has the effect of repealing or eclipsing an existing law it does not automatically make it excessive delegation & it has to be decided by carefully analysing all the related provisions.


References

  1. https://indiankanoon.org/doc/1617498/
  2. The Life Insurance Corporation Act, 1956
  3. The Industrial Disputes Act, 1947
  4. The Constitution of India
  5. Life Insurance Corporation of India vs. D.J. Bahadur, [1981]1SCR1083

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