Bombay Dyeing and Manufacturing Co., Ltd vs The State of Bombay and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 167 of 1954

Decision Date: 20 December, 1957

Coram: Natwarlal H. Bhagwati, S.K. Das, A.K. Sarkar, Venkatarama AIyar

In the matter titled Bombay Dyeing & Manufacturing Co., Ltd. versus The State of Bombay and others, the Supreme Court delivered its judgment on 20 December 1957. The bench that heard the appeal comprised Justices Natwarlal H. Bhagwati, S. K. Das and A. K. Sarkar, together with Justices Aiyyar, T. L. Venkatarama. The case is reported in 1958 AIR 328 and 1958 S.C.R. 1122. The dispute concerned the Bombay Labour Welfare Fund Act, popularly known as the Bombay XL of 1953, specifically sections 3(1) and 3(2)(a) and (b). The constitutional provisions examined were Articles 31(2) and 19(1)(f) of the Constitution of India.

The Bombay Labour Welfare Fund Act was enacted by the State Legislature with the purpose of creating a fund intended to finance activities for the welfare of labour. Section 3(1) of the Act provided that a fund called the Bombay Labour Welfare Fund would be constituted and, notwithstanding any other law then in force, the sums specified in subsection (2) must be paid into the fund. Section 3(2) listed the components of the fund, stating that it would consist of (a) all fines realised from the employees and (b) all unpaid accumulation of wages.

Under the Act the Welfare Commissioner, who was appointed pursuant to its provisions, served notices on the appellant’s company as well as on other companies in similar circumstances. The notices required those companies to remit to the Commissioner the fines realised from their employees and the unpaid accumulation of wages that they held in custody. The appellant company challenged the validity of the Act, contending that its provisions conflicted with Article 31(2) of the Constitution. Consequently, the appellant filed a writ petition, which was subsequently treated by consent of the parties as a test case for the constitutional issue.

The division bench that originally heard the writ petition held that the impugned Act was intra vires, although each judge reached that conclusion on different grounds, and the petition was dismissed. On appeal, the sole question for determination was whether Section 3(1) together with sub‑clauses (a) and (b) of Section 3(2) were void for being violative of Article 31(2). The Court held that the unpaid accumulation of wages remaining with the appellant company constituted its own property. Accordingly, the direction in Section 3(1) that such amounts should be paid into the fund under the authority of sub‑clause (b) of Section 3(2) was found to be in conflict with Article 31(2) and therefore must be declared invalid. The Court further observed that Article 31(2A) of the Constitution has no retrospective effect and could not be applied to the present dispute; consequently, the matter had to be decided according to the law as it stood on the date of the writ petition.

The Court relied upon precedents such as State of West Bengal v. Subodh Gopal Bose, reported in [1954] S.C.R. 587, and Dwarkadas Shrinivas of Bombay v. Sholapur Spinning and Weaving Co. Ltd., reported in [1954] S.C.R. 674. Assuming that money was not property within the meaning of Article 31(2), the Court applied Article 19(1)(f) to the facts of the case.

The Court observed that the constitutional provision also could not assist the respondent because the impugned Act could not be sustained under Article 19(5) of the Constitution. The authority Commonwealth of Australia v. Bank of New South Wales, [1950] A.C. 235, was held to be inapplicable to the present situation. The Court also referred to The State of Bihar v. Mahayajadhiraja Sir Kameshwar Singh of Darbhanga, [1952] S.C.R. 889, in its analysis. It was noted that the Act did not replace the Board as the creditor in place of the employee, nor could it be described as legislation dealing with abandoned property. Although the Legislature, by defining “unpaid accumulation,” clearly intended that only those wages of employees which were time‑barred should be taken over by the State, the law of limitation is well settled to bar a remedy without extinguishing the underlying debt. Accordingly, Sections 3(I), 5(2) and 17 of the Act were held to have the effect of transferring to the Board the debts owed by the appellant to its employees, and to do so free from the operation of any limitation period. Such a transfer could be valid only if it discharged the employer completely from the liability. In the absence of any provision in the Act that gave a full discharge to the debtor, the Court concluded that the Act infringed Article 19(1)(f) of the Constitution. The limitation bars prescribed either by Section 15 of the Payment of Wages Act (Act IV of 1936), by Article 102 of the Limitation Act, or by the provisions of Section 56 of the Contract Act, assuming their applicability, could not provide such a discharge. The Court explained that where a statute deals with rights arising from a contract and interferes with the rights of one contracting party, it must also affect the rights of the other party. Consequently, the impugned Act, by taking over the employees’ rights to wages without providing any compensation, was held to be unconstitutional because it contravened Article 19(1)(f) as well as Article 31(2) of the Constitution, and therefore it was also unconstitutional as applied to the appellant. The Court further observed that legislation relating to abandoned property must first aim to protect the property in the interest of the true owner and only thereafter, in the absence of any claim, allow the State to take it over. Because the Act vested the property absolutely in the State without regard to the true owner’s claims, it could not be characterised as a law dealing with abandoned property. The Court cited Connecticut Mutul Life Insurance Company v. Moore, 333 U.S. 541, Anderson National Bank v. Luckett, 321 U.S. 233 and Standard Oil Company v. New Jersey, 341 U.S. 428, in support of this reasoning. Regarding the fines mentioned in Section 3(2)(a) of the Act, the Court held that the appellant was a bare trustee under Section 8 of the Wages Act and had no beneficial interest in the fund created by the Act; consequently, Sections 3(I) and 3(2)(a) of the Act could not be said to contravene Article 31(2) or Article 19(1)(f) of the Constitution.

The Court concluded that the impugned legislation could not be held unconstitutional, because extending the class of beneficiaries did not interfere with the rights of the appellant’s employees, and therefore the contested sections were to be regarded as constitutionally valid. The matter was presented before the Civil Appellate Jurisdiction as Civil Appeal No 167 of 1954, arising from the judgment and decree dated 14 September 1953 delivered by the Bombay High Court in Miscellaneous Application No 267 of 1953. Counsel for the appellants comprised three practitioners, while the State of Bombay was represented by the Advocate General and the respondents were represented by a senior counsel. The decision was pronounced on 20 December 1957, and the judgment was authored by Justice Venkatarama Aiyar.

The appellant in this case was a limited company incorporated under the Indian Companies Act 1879, engaged in textile manufacturing and owning three factories—Spring Mills, Textile Mills, and Bombay Dye Works—situated in Bombay. In the balance sheet for the financial year 1951, the company disclosed a liability of Rs 1,65,731‑1‑0 under the heading “Unclaimed wages.” This liability represented wages that had been earned by factory work‑men but had remained undrawn, and the sum reflected accumulations that had built up from year to year since the company’s formation around 1880. The principal dispute before this Court concerned the legal character and disposition of that unclaimed wage amount.

In 1953, the Legislature of the State of Bombay enacted the Bombay Labour Welfare Fund Act (1953) (referred to as “the Act”), which came into force on 4 June 1953. The Court indicated that, for the purpose of determining the appeal, it would refer to the relevant provisions of the Act, because the primary issue was the constitutional validity of those provisions. The preamble to the Act declared that it was expedient to constitute a fund for financing activities intended to promote the welfare of labour in the State of Bombay and for conducting such activities. Section 2 of the Act contains definitions; sub‑section (2) defines “employee” as any person employed for hire or reward to perform any work, whether skilled or unskilled, manual or clerical, in an establishment. Sub‑section (3) defines “employer” as any person who employs, directly or through another, one or more employees in an establishment, and it includes in a factory any person named under section 7(i)(f) of the Factories Act 1948 as manager. Sub‑section (10) defines “unpaid accumulations” as all payments due to employees but not made to them within three years from the date such payments became due, irrespective of whether such liability arose before or after the commencement of the Act, and this definition expressly covers wages and gratuities legally payable. Sub‑section (11) defines “wages” as all remuneration capable of being expressed in monetary terms that would be payable to a person employed in relation to his employment or work performed under that employment.

In the Act, a provision states that any amount that is due to a worker under the terms of his employment contract—whether those terms are expressed expressly or impliedly—shall be payable to the employee for the work he has performed. Following this introductory clause, section 3 is set out. Sub‑section (1) of section 3 declares that a fund named the Bombay Labour Welfare Fund shall be established, and that, notwithstanding any other law then in force, the amounts specified in sub‑section (2) must be paid into that fund. Sub‑section (2) then describes the composition of the fund. It provides that the fund shall consist of (a) all fines realised from employees, (b) all unpaid accumulations, (c) any voluntary donations, (d) any sum transferred under sub‑section (5) of section 7, and (e) any sum borrowed under section 3. The provision further requires that the sums mentioned in sub‑section (2) be collected by the appropriate agencies in the manner prescribed, and that the accounts of the fund be kept and audited according to the procedures that may be prescribed by the regulations.

Section 7(1) of the legislation states that the fund shall vest in, be held by, and be applied by the Board acting as trustees, subject to the provisions and purposes of the Act. Sub‑section (2) of section 7 is particularly important because it enumerates the objects for which the Board may utilise the money in the fund. It permits the Board to defray expenditure on (a) community and social education centres, including reading rooms and libraries; (b) community necessities; (c) games and sports; (d) excursions, tours and holiday homes; (e) entertainment and other forms of recreation; (f) home industries and subsidiary occupations for women and unemployed persons; (g) corporate activities of a social nature; (h) the cost of administering the Act, including salaries and allowances of staff appointed for the purposes of the Act; and (i) any other objects that, in the opinion of the State Government, would improve the standard of living and ameliorate the social conditions of labour. The provision adds two safeguards: first, the fund shall not be used to finance any measure that an employer is already required to carry out under any existing law; second, unpaid accumulations and fines shall be paid to the Board and may be expended by it under this Act, irrespective of any provisions of the Payment of Wages Act, 1936 or any other law then in force. Section 11 provides for the appointment of a Welfare Commissioner and defines his powers and duties. Section 17 declares that any sum payable into the fund may, without prejudice to any other mode of recovery, be recovered on behalf of the Board as an arrear of land revenue. Section 19 empowers the State Government to make rules for carrying out the purposes of the Act. Finally, section 23 amends section 8 of the Payment of Wages Act, 1936 by inserting a new sub‑section (8) before the explanation, thereby extending certain provisions of that Act to factories or establishments to which the Bombay Labour Welfare Fund Act, 1953 applies.

The Bombay Labour Welfare Fund Act, 1953 applied to each establishment that fell within its territorial scope, and any amounts realised under the Act were required to be paid into the fund created by the legislation. In exercise of the authority granted by section 19 of the Act, the State of Bombay framed rules to give effect to its provisions, and these rules were formally published on 30 June 1953. The two principal rules that concerned the payment of fines and unpaid accumulations were numbered 3 and 4. Rule 3 dealt with the payment of fines and unpaid accumulations by an employer. It stipulated that, within fifteen days after the date on which the Act became operative in a particular area, every employer in that area had to remit, by cheque, money order or cash, to the Welfare Commissioner (a) all fines that had been realised from employees before that date and that remained unutilised, and (b) all unpaid accumulations that were in the employer’s possession on that date. The employer was also required to submit, together with the payment, a detailed statement showing the full particulars of the amounts paid. Subsequently, for each quarter ending on 31 March, 30 June, 30 September and 31 December, the employer had to pay to the Welfare Commissioner, in the same manner, all fines realised from employees and all unpaid accumulations for that quarter, on or before the 15th day of April, July, October and January respectively. A statement of particulars of the amounts paid had to accompany each such payment. Rule 4 authorised the Welfare Commissioner, after making any enquiries he deemed necessary and, if required, after obtaining a report from an inspector, to serve a notice on any employer who had failed to make payment as required by Rule 3. The notice demanded payment of any portion of fines or unpaid accumulations that remained unpaid, and the employer was required to comply with the notice within fourteen days of receiving it.

On 7 July 1953, the Welfare Commissioner of Bombay, who had been appointed under section 11 of the impugned Act, issued a notice to the appellant and to other similarly situated companies. The notice drew the employers’ attention to the relevant provisions of the Act and the rules and demanded that they remit the fines and unpaid accumulations that were still in their possession in accordance with the directions contained in the rules. On the same day, the appellant responded with a written reply objecting to the validity of the Act, asserting that it violated the provisions of Article 31 (2) of the Constitution. The appellant then proceeded to file a writ petition, which gave rise to the present appeal and was, by agreement of the parties, treated as a test case. The petition was heard by Chief Justice Chagla and Justice Tendolkar. Both judges concluded that the Act was constitutionally valid, although they arrived at that conclusion on different grounds. Chief Justice Chagla expressed the view that, when properly construed, the Act merely replaced the employees with the Board as the creditor, and therefore did not constitute a taking of property that would fall foul of Article 31 (2). Justice Tendolkar, for his part, held that the amounts referred to as “unpaid wages” were monies that belonged to the employer, and although the employer was being deprived of them, there was no acquisition of property within the meaning of Article 31 (2); the deprivation was carried out under legal authority and therefore fell within the protection of Article 31 (1).

In the earlier decision, the Court observed that the Board’s function was merely to act as a creditor in place of the employees, and therefore no taking of property occurred, which meant that Article 31(2) of the Constitution was not violated. Justice Tendulkar held that “unpaid wages” were undoubtedly money belonging to the employer and that the employer was being deprived of that money; however, there was no taking of possession or acquisition of property within the meaning of Article 31(2). He reasoned that the deprivation of money was carried out under lawful authority and consequently fell within the protection of Article 31(1). As a result, the petition was dismissed. Nevertheless, the learned judges granted a Certificate of Appeal under Article 132, and that certificate gave rise to the present appeal. The sole issue to be resolved on appeal was whether Section 3(1) together with sub‑clauses (a) and (b) of Section 3(2) of the Act were void for being inconsistent with the Constitution. To answer that question, the Court noted that several questions raised during the arguments had to be examined. For clarity, the Court proposed to treat the two matters separately: the fines that could be realised from the employees under Section 3(2)(a) and the unpaid accumulations under Section 3(2)(b), because the legal issues affecting the validity of each provision were distinct. Focusing first on the unpaid accumulations, Section 3(2)(b), counsel for the appellant, Mr Kolah, contended that Section 3(1) conflicted with Article 31(2) because it deprived employers of money that belonged to them without providing any compensation, merely on the ground that such money represented wages due to the employees. The Court observed that money is unquestionably property and that ownership of money does not cease simply because the owner owes a debt that may require the money’s application. Until a creditor obtains a judgment and the debtor’s title is extinguished through lawful proceedings, the title to the money remains with the debtor. Accordingly, the Court agreed that the appellant’s liability to pay wages did not automatically extinguish its title to the money, and that Section 3(1) therefore amounted to taking away money that belonged to the employer.

The next question before the Court was whether the provision fell foul of Article 31(2) on the basis that it constituted an acquisition or taking of property for a public purpose without payment of compensation. All parties accepted that the taking was intended for a public purpose. The dispute centered on whether the operation contemplated by Section 3 amounted to an acquisition or a taking of property within the meaning of Article 31(2). Justice Tendulkar answered this question against the appellant, holding that Article 31(2) would apply only if there was a transfer of title to, or a beneficial interest in, the amounts to the State, that

The Court observed that section 3(1) of the impugned Act did not transfer title to the employers’ moneys, but it nevertheless deprived the employers of those funds; the provision fell within Article 31(1) rather than Article 31(2), and because it was exercised under lawful authority it could not be challenged. After this pronouncement, the Court later examined the true scope of Article 31(2) in relation to Article 31(1) by referring to the decisions in The State of West Bengal v. Subodh Gopal Bose (1) and Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. Ltd. (2). In The State of West Bengal v. Subodh Gopal Bose (1), the majority of the learned judges held that Articles 31(1) and 31(2) were not mutually exclusive, that a transfer of title to the State was not an essential condition for acquisition under Article 31(2), and that deprivation of property or a substantial abridge‑ment of the owner’s rights also fell within Article 31(2). Consequently, any law producing such effects must satisfy the conditions laid down in that article to be valid. Justice Das, however, expressed a differing view, contending that the two provisions were distinct: Article 31(1) related to the police power of the State, whereas Article 31(2) dealt with the power of eminent domain. In Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. (2), the majority again endorsed the view expressed in the West Bengal case, stating that Articles 31(1) and 31(2) covered the same ground and that substantial interference with property rights invoked Article 31(2). On the basis of these decisions, the Court indicated that section 3 of the challenged Act should be regarded as invalid for infringing Article 31(2), because it deprived the appellant of its moneys without providing any compensation. Counsel for the appellant, however, countered this contention by invoking Article 31(2A), introduced by the Constitution (Fourth Amendment) Act, 1955. Article 31(2A) reads: “Where a law does not provide for the transfer of the ownership or right to possession of any property to the State or to a corporation owned or controlled by the State, it shall not be deemed to provide for the compulsory acquisition or requisitioning of property, notwithstanding that it deprives any person of his property.” The argument advanced was that the theory, supported by the West Bengal and Sholapur decisions, that acquisition under Article 31(2) is not limited to a transfer of ownership to the State and that deprivation of property also falls within its ambit, must be reconsidered in light of the newly added Article 31(2A).

In regard to the amendment introducing article 31 (2A), the Court observed that the earlier decisions could no longer be said to be correct and therefore had to be reconsidered in light of the new provision. However, the Court also noted that article 31 (2A) was not intended to operate retrospectively. Consequently, the rights of the parties must be determined according to the law that was applicable on the date the writ was filed and according to the constitutional provisions as they stood on that date. Applying the interpretation given in The State of West Bengal v Subodh Gopal Bose and Dwarkadas Shrinivas of Bombay v the Sholapur Spinning and Weaving Co Ltd, the Court found that section 3 (1) of the impugned Act would be inconsistent with article 31 (2). This finding was sufficient to decide the question in favour of the appellant. Nevertheless, the respondents argued that section 3 (1) did not fall within the prohibition of article 31 (2) because it dealt only with money, and that money was not “property” for the purposes of that article.

The respondents relied on a considerable body of American authority which holds that the power of eminent domain does not extend to the taking of money. They explained that compensation for money can only be paid in money, which in effect makes the taking a forced loan. The view that the taking of money is outside the scope of eminent domain was adopted in The State of Bihar v Maharajadhiraja Sir Kameshwar Singh of Darbhanga, where Mahajan J. expressed the opinion on pages 943‑944, Mukherjea J. on page 961, and Chandrasekhara Aiyar J. on pages 1015‑1018. The respondents contended that article 31 (2) should be interpreted in the same way as the American rule, because the provision requires that either the amount of compensation be fixed or the principles and manner of determining compensation be specified, which they argued indicates that what is taken is not money.

In response, counsel for the appellant pointed to more recent developments in American law. He cited observations of Das J. in The State of Bihar v Maharajadhiraja Sir Kameshwar Singh of Darbhanga, where, on pages 984‑985, a departure from earlier authorities was noted. Those newer authorities accepted that money and choses in‑action could be subject to eminent domain. Nevertheless, the appellant argued that American principles should not be employed to interpret the provisions of the Indian Constitution. If the respondents’ position were accepted, the Court noted, a new question would arise: what protection does a person have over his money if legislation can deprive him of it? Counsel for the appellant answered that such protection is found in article 19 (1)(f). He explained that the term “property” in article 19 (1)(f) has a broader meaning than that in article 31 (2) and expressly includes money, thereby guaranteeing citizens the right to hold money subject only to the limitations provided in article 19 (5).

The Court observed that the right to acquire and hold property is protected by Article 19(5), which preserves any law that imposes a reasonable restriction on that right. To support this view, the Court referred to the decision in Bijay Cotton Mills Ltd. v. the State of Ajmer, where it applied Article 19(6) in assessing the constitutionality of the Minimum Wages Act (XI of 1948), which required employers to pay wages at a rate fixed by the Government. Assuming, for the sake of argument, that the respondents’ position is correct, the Court noted that the remaining issue was whether the impugned Act could be justified under Article 19(5).

The Court explained that there had been considerable discussion about the scope of Article 19(5). The central question in that debate was whether the phrase “imposing reasonable restriction” covered legislation that did more than merely regulate the exercise of the right guaranteed by Article 19(1)(f); specifically, whether it could also encompass a law that completely extinguished that right. The argument presented by counsel for the respondents was that a statute authorising the State to seize and destroy diseased cattle, noxious drugs and similar items could not fall within Article 19(5) if the word “restriction” were given a narrow meaning. They further contended that, in appropriate cases, the power to restrict must be understood to include the power to prohibit the exercise of the right altogether. The Court noted that this perspective found support in the observations of Lord Porter in Commonwealth of Australia v. Bank of New South Wales.

However, the Court held that even under this broader interpretation of “restriction,” the present legislation could not be sustained. Section 3(1) of the impugned Act dealt with money, and the Court reasoned that money could not be compared with diseased cattle or noxious drugs in a manner that would bring the statute within the police power contemplated by Article 19(5). Consequently, whether the analysis were based on Article 31(2) or on Article 19(5), the Court concluded that the impugned Act could not be upheld and should be struck down, unless the Court were to accept the alternative arguments advanced by the respondents in support of the Act’s validity.

The respondents advanced two principal arguments. First, they asserted that the Act merely substituted the Board as the creditor in place of the employees, and that Sections 3 and 17 simply prescribed the manner in which the obligation was to be enforced; this reasoning had formed the basis of the judgment of Chief Justice Chagla. Second, they contended that the legislation dealt with abandoned property and therefore could not be attacked as violating either Article 19(1)(f) or Article 31(2). The Court indicated that these arguments now required consideration. Regarding the first argument, the Court asked whether, on a fair construction of the provisions of the impugned Act, it was possible to interpret the statute as effecting a substitution of creditors. The Court noted that when an employee has performed his work, the wages earned become a debt owed to him by the employer, and that debt represents property that could, in principle, be assigned under the law.

In this case the Court examined whether the statute could be interpreted as effecting a statutory transfer of wages earned by a workman to the Board established under the Act. The Court first noted that a wage earned by an employee becomes a debt owed by the employer and that such a debt is a form of property that may be assigned under law. If an employee were to assign that debt to the Board, the Board would acquire the right to recover the amount from the employer. The Court observed that what may be accomplished by agreement of the parties may also be achieved by legislation, and therefore it was necessary to determine whether the provisions of the Act could be said to create a statutory transfer of the wages to the Board.

The Court pointed out that Section 5 of the Act places in the Board the amounts referred to in Section 3(2), and that Section 3(1) requires the employer to pay those amounts to the Board. The appellant’s counsel argued that the Act contains no explicit language of transfer of debts to the Board and merely provides for payment of the amounts. The Court rejected this narrow construction, stating that a broader reading of the provisions reveals that Section 3(1) together with Section 5(1) operates to transfer the debts due to the employees to the Board.

The Court then turned to the definition of “unpaid accumulations,” which limits the reference to payments due to employees that remain unpaid for a period of three years after they become due. It was apparent that the Legislature intended that claims of employees that are still within the prescribed period should be enforced by the employees themselves in the ordinary course of law, and that only when such claims become time‑barred and ineffective should the State intervene and take them over. This raised the question whether a debt that is time‑barred could be transferred, and if so, how the Board could benefit from taking over a debt that could not be realised through legal process.

The Court clarified the settled law on the effect of limitation periods. It explained that the statute of limitations merely bars the remedy, not the existence of the debt. Section 28 of the Limitation Act provides that when the period for instituting a suit for possession of property expires, the right to that property is extinguished; however, authorities have held that this provision does not apply to a debt, which is not capable of possession, and that lapse of time does not extinguish a person’s right to the debt. Under Section 25(3) of the Contract Act a barred debt remains good consideration for a fresh promise to pay, and when a debtor makes a payment without direction, the creditor may appropriate it towards a barred debt pursuant to Section 60 of the Contract Act. Furthermore, it has been held that a creditor may recover a debt from a surety even though a suit against the principal debtor is barred. These principles support the view that a time‑barred debt can be transferred to the Board and that the Board may enforce or recover the debt despite the limitation on the employee’s own remedy.

The Court cited Mahant Singh v. U Ba Yi (1), Subramania Aiyar v. Gopala Aiyar (2) and Dil Muhammad v. Sain Das (3) as authorities supporting the principle that a limitation period bars a remedy but does not extinguish a debt. The Court further observed that when a creditor possesses a lien over goods as security for a loan, the creditor may enforce that lien to satisfy the debt even though any legal action to enforce the lien would be barred by limitation, referring to Narendra Lal Khan v. Tarubala Dasi (4). The Court noted that the same rule applies in English law, citing Halsbury’s Laws of England (Hailsham’s Edition), vol. 20, page 602, paragraph 756, and the comments of Lindley L.J. in Carter v. White (5) and Cotton L.J. in Curwen v. Milburn (6). The Court then turned to American jurisprudence, quoting American Jurisprudence, vol. 34, page 314, which states that a statute of limitations limits only the remedy and does not affect the substance of the right; the debt is not extinguished or barred from enforcement unless the debtor elects to raise the defence expressly. The passage further explains that a barred indebtedness remains valid consideration for a promise to pay and gives the creditor an insurable interest. The Court also quoted Corpus Juris Secundum, vol. 53, page 922, which declares that the general rule for debts or monetary claims is that the limitation statute runs only against the remedy and does not discharge the debt or impair the right, obligation or cause of action. Consequently, the Court held that a debt continues to exist even when its recovery is time‑barred, and observed that the appellant had not argued that the transfer of such a debt is invalid. The Court added that the impugned Act contains provisions that release debts, rendering any claim that the transfer is void untenable. The Court listed the cited cases as follows: (1) (1939) L.R. 66 1 A 198; (2) (1910) I.L.R. 33 Mad. 308; (3) A.I.R. 1927 Lah. 396; (4) (1921) I.L.R. 48 Cal. 817, 823; (5) (1883) 25 Ch. D. 666, 672; (6) (1889) 42 Ch. D. 424, 434. The Court then explained that Section 3(1) of the impugned Act mandates payment of amounts specified in sub‑clause (2) “notwithstanding anything contained in any other law for the time being in force.” A similar provision appears in the second proviso to sub‑section (2) of Section 5, which provides that unpaid accumulations and fines shall be paid to the Board “notwithstanding anything contained in the Payment of Wages Act, 1936, or any other law for the time being in force.” Since the law of limitation is one of those other laws, the effect of these clauses is to suspend the operation of the limitation period with respect to the claims referred to in Section 3(2). The Court concluded that any doubt as to the competence of the legislature to modify the Limitation Act should be dispelled.

In this case, the Court observed that the Bombay State Legislature possessed the authority to amend the provisions of the Limitation Act because limitation falls under Entry 13 of List III in the Seventh Schedule of the Constitution; under Article 254(2), a State Legislature may enact a law that modifies a Central Act provided the amendment is reserved for Presidential consideration and receives the President’s assent, which the Court noted had indeed occurred in the present matter.

The Court then turned to the contested statute and identified another provision requiring attention. Section 17 of the Act stipulates that, without prejudice to other methods of recovery, sums payable to the fund under Section 3 may be recovered as arrears of land revenue, a clause typically applied when amounts are due to the State. The Court recorded that the counsel for the appellant conceded that, assuming the remainder of the Act is valid, this particular section could not render the Act invalid.

Having examined the relevant sections, the Court concluded that the operative effect of the Act’s provisions is to transfer to the Board the debts owed by the appellant to its employees, and that this transfer occurs free from the operation of the limitation bar. The Court emphasized that the critical issue remaining was whether this transfer amounted to a substitution of creditors, an outcome that would require the employee’s debt to be discharged and replaced by a debt in favor of the Board.

The Court explained that if the employer is not released from his liability to the employee, then Section 3(1) merely creates a statutory creditor in the Board in addition to the existing contractual creditor, and no substitution of creditors can be said to have taken place. The counsel for the appellant agreed that, should the Act fail to discharge the employer’s obligations to the employees concerning wages due, the provision would be unconstitutional as it would infringe Article 19(1)(f); the counsel further argued that the contention that the Act merely appropriated the employer’s property to satisfy obligations could not be sustained under such circumstances.

Consequently, the Court identified the decisive question as whether payment of the amounts specified in Section 3(1) discharges the appellant’s obligations to the employees for wages due. The Court noted that the Act contains no clause expressly providing for such a discharge, and that the appellant had heavily relied on this omission to demonstrate that the legislature had not intended a substitution of creditors.

In response, the counsel for the appellant advanced two principal arguments. First, the counsel contended that although the Act does not expressly state that the appellant is discharged upon payment under Section 3(1), this result follows from the provisions of the Payment of Wages Act (Act IV of 1936), hereinafter referred to as the Wages Act. Second, the counsel asserted that the effect of Section 3(1) is to render the contract of employment void under Section 56 of the Contract Act, thereby freeing the appellant from his contractual obligations. The Court indicated that it would now examine both of these contentions.

In this case the Court observed that one of the submissions advanced was that the effect of the impugned Act was to render the contract of employment void under section 56 of the Contract Act, thereby releasing the appellant from any further obligations to the employees. The Court stated that it would now consider both of the contentions raised. To understand the first contention it was necessary to examine the relevant provisions of the Payment of Wages Act. Section 2(vi) of that Act defines “wages” in a manner that includes everything covered by the definition of the same term in section 2(11) of the impugned Act. Section 3 places upon the employer the duty of paying wages to every person employed by him. Section 4 provides that the wage period may be fixed by the employer but it must not exceed one month. Under section 5 the employer is required to pay the wages before the expiry of ten days after the last day of the wage period when the employee continues in service, and, in the case of a terminated employee, the wages must be paid on or before the second working day following the termination. Section 15 deals with situations where an unauthorised deduction has been made from wages or the payment of wages has been delayed; it allows the aggrieved employee to apply to the authority appointed under the Act for a direction to pay the amount deducted or delayed, together with an order for compensation. The application must ordinarily be filed within six months of the date on which the deduction was made or the wage became due. By virtue of Act No. 62 of 1953 of the Bombay Legislature that period was extended to one year. The provision also contains a proviso permitting an application to be made after the prescribed period if the applicant can satisfy the authority that there was sufficient cause for the delay. Section 22(d) of the Act further provides that no court shall entertain any suit for the recovery of wages or any deduction from wages insofar as the amount claimed could have been recovered by an application under section 15. The respondents argued that, on the basis of these provisions, an employee must pursue his claim for unpaid wages before the authority within the time limit set by section 15 of the Wages Act, which is one year in the State of Bombay. If the employee fails to do so, his claim becomes unenforceable and a suit under the general law is likewise barred. Consequently, the respondents contended that, given the definition of “unpaid accumulations” as all payments due to employees but not made to them within a period of three years, the employer bears no risk of being required to pay the employee the amount that has already been paid to the Board under section 3(1) of the impugned Act. In their view, a payment made under the impugned Act therefore provides the employer with, for all practical purposes, a complete discharge of his liability.

In this case, the Court observed that the argument presented by the respondents was based on the mistaken premise that, for unpaid wages, the operation of the Wages Act coincided completely with that of the impugned Act. The Court explained that although the definition of wages in the Wages Act would encompass any wages that fall within the scope of the impugned Act, section 1(6) of the Wages Act expressly limits the application of that Act to wages that are below Rs 200 for a wage period. For wages that are Rs 200 or more, the general law governs, and the limitation period is not the one‑year term prescribed by section 15 of the Wages Act. Instead, the limitation period is three years under Article 102 of the Limitation Act, a period that can be extended beyond the three years mentioned in section 2(10) of the impugned Act. The Court also noted that the proviso to section 15(1) empowers the authority to admit a petition even after the prescribed period if sufficient cause is shown. The respondents replied that, on the terms of section 3(1) and the second proviso to section 5(2), the provisions of the impugned Act are to take effect notwithstanding anything contained in the Wages Act or any other law, thereby overriding the authority’s power under the proviso to section 15(1) and the provisions of the Limitation Act. The Court then turned to the divergent judicial opinions on the true scope of section 22 of the Wages Act. In Simpalax Manufacturing Co. Ltd. v. Alla‑Ud‑Din, it was held that a bona‑fide dispute over the amount payable does not bar the jurisdiction of the Civil Court under section 22. Conversely, in Bhagwat Rai v. Union of India, the Court held that the jurisdiction of the Civil Court is barred even in the presence of a bona‑fide dispute, describing the bar under section 22(d) as absolute, and relying on observations in Modern Mills Ltd. v. Mangalvedhekar and A. B. Sarin v. B. C. Patil in support of that view. Even if counsel for the respondents was correct in asserting that the law follows the position expressed in Bhagwat Rai and that the decision in Simpalax Manufacturing is erroneous, the Court stressed that claims for unpaid wages to which the impugned Act applies must, by virtue of section 1(6) of the Wages Act, fall at least in part outside the reach of that Act. Consequently, the protection provided by section 15 of the Wages Act will not be available with respect to those claims. The Court further indicated that it was next contended that even if the impugned Act does not protect the employer concerning unpaid wages that fall

It was submitted that the impugned Act should remain in force insofar as it deals with claims that fall within the scope of the Wages Act, because the limitation bar provided by section 15 of that Act already offers sufficient protection to the employer against liability for wages that have already been paid to the Board. The same contention further argued that, even for claims of unpaid wages that lie outside the Wages Act, the Act should be deemed valid if those claims are barred by the provisions of the Limitation Act. In other words, the parties asserted that the legislation ought to be upheld for the portion of unpaid wages whose recovery by the employees is barred by limitation, whether the bar arises under section 15 of the Wages Act or under the Limitation Act. The judgment noted that the impugned Act simply provides that all unpaid accumulations are to be paid to the Board and makes no distinction between those claims that are barred by limitation and those that are not. The respondents argued that when a statute embraces distinct matters, some of which may be unconstitutional, the statute can still be sustained with respect to the remaining distinct category, and that this principle applies not only when such a classification appears on the face of the statute but also when it exists in fact.

The doctrine of severability, which the Court recognized as well‑established in Indian law, was cited with reference to The State of Bombay v. F. N. Balsara ( [1951] S.C.R. 682 ), The State of Bombay v. The United Motors (India) Ltd. ( [1953] S.C.R. 1069 ), and R. M. D. Chamarbaugwalla v. Union of India ( [1957] S.C.R. 930 ), and the relevant principles were said to be fully set out in the Chamarbaugwalla case. Assuming, based on those authorities, that the operation of the impugned Act could be limited to unpaid‑wage claims that are barred by limitation, the remaining question was whether the Act actually discharges the employer with respect to those claims. The Court observed that the protection of Article 19(1)(f) can be avoided only if a substitution of creditors is established, which in turn requires that the employer obtains a discharge from his obligations to the employees. Consequently, the issue to be decided was whether the effect of a limitation bar is to free the employer from liability to the employees. It was already noted that when a debt becomes time‑barred, it does not cease to exist but merely becomes unenforceable in a court of law. On that basis, a statutory transfer of the employees’ debts to the Board is possible, and it is precisely this mechanism that gives the Board title to those debts. If a debt continues to exist even after it is barred, the employer does not automatically receive a legal discharge.

After a claim is barred by limitation, the employer does not, in law, obtain a discharge from that claim. The ways in which an obligation under a contract may be discharged are clearly defined, and a limitation bar is not among them. The Court cited passages from Anson’s Law of Contract, nineteenth edition, page three hundred eighty‑three, which are directly applicable to this point: “At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration.” “But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicae ut sit finis litium. The remedies are barred, though the right is not extinguished.” The Court observed that if law requires a debtor to obtain a discharge before being compelled to pay, such a requirement is not met merely by informing the debtor that, under ordinary circumstances, the creditor is unlikely to bring an action. The Court emphasized that this distinction is not merely academic but has practical significance, as illustrated by the provisions of the Industrial Disputes Act. The Industrial Disputes Act does not prescribe any limitation period for referring a dispute to a tribunal for adjudication. Consequently, even when a wages claim falls within the Wages Act and an application under section fifteen of that Act would be time‑barred, the claim may still give rise to an industrial dispute. That industrial dispute can be pursued under the provisions of the Industrial Disputes Act. The Federal Court, in Shamnagore Jute Factory Co. Ltd. v. S. M. Modak, held that section twenty‑two (d) of the Wages Act did not remove the authority of officials to refer to a tribunal established under the Industrial Disputes Act a claim that could be made under the Wages Act. The Court explained that section twenty‑two (d) applied only to suits and did not exclude other legal proceedings permitted for the enforcement of payment. If a tribunal created under the Industrial Disputes Act can order an employer to pay wages, then the bar created by section fifteen of the Wages Act does not give the employer absolute protection. The same principle must also apply when a limitation bar arises under the Limitation Act. Accordingly, when an employer makes a payment under section three (1) of the Act, he does not obtain a discharge from his liability to the employees, even though enforcement of the claim may be barred by limitation. Because the argument based on the Wages Act provisions fails, counsel for the petitioner turned to section fifty‑six of the Contract Act as a basis for claiming that the employer is discharged. Paragraph two of section fifty‑six states that a contract to do an act which, after the contract is made, becomes impossible, or by reason of an event which the promisor could not prevent, unlawful, becomes void. Thus, the contract is considered void at the point when the required act becomes impossible or unlawful.

In this matter, the Court examined the provision of section 56 of the Indian Contract Act, which provides that a contract which, after being made, becomes impossible to perform, or which becomes unlawful because of an event which the promisor could not prevent, becomes void when the act becomes impossible or unlawful. The petitioner argued that, by virtue of section 3 of the impugned Act, the employer’s ability to perform the service contract had become impossible, and consequently the contract had become void, citing the authority [1949] F.C.R. 365. Section 56, which deals with the doctrine of frustration, was previously interpreted by this Court in the case of Satyabrata Ghose v. Mugneeram Bangur and Co. In that decision, Justice Mukherjea explained that the frustration doctrine is rarely invoked on the basis of an implied term agreed by the parties to release them from performance. Instead, it is applied when the whole purpose or foundation of a contract is frustrated by an unexpected event or a change in circumstances that was beyond what the parties contemplated at the time of making the agreement. He emphasized that no implied term releasing the parties is to be inferred, because the parties did not think about, nor could they have intended, such a circumstance. When an event occurs that is so fundamental that it strikes at the root of the contract, the court alone may declare the contract frustrated and terminated. The court must examine the contract and the surrounding circumstances; the beliefs, knowledge and intentions of the parties constitute evidence, but the court forms its own conclusion as to whether the changed circumstances have destroyed the basis of the venture and its underlying object. Mukherjea noted that this approach is a rule of construction by English judges, not a principle aimed at giving effect to the parties’ intentions, and that it constitutes a rule of positive law falling within the scope of section 56.

Counsel for the respondents relied upon these observations and argued that when the employment contract was entered into, the parties could not have foreseen that the Legislature would later intervene and require the employer to pay the arrears of wages to the Board. They treated that legislative intervention as a supervening impossibility that invokes section 56 and renders the contract void. The Court, however, was not persuaded that the performance of the service contract had been made impossible by operation of section 3(1) of the impugned Act. Nevertheless, the Court qualified its analysis by stating that, assuming the performance had indeed become impossible, the consequences would follow as discussed in the subsequent portion of this judgment.

The Court observed that once a contract is held to be void, the governing provision becomes section 65 of the Contract Act, which mandates that any person who has received any advantage under a void agreement must restore that advantage or compensate the person from whom it was received. Accordingly, the Court stated that the employer remains liable to compensate the employee for the work performed, and that this liability persists even though the employer has already paid the unclaimed wages to the Board pursuant to section 3(1) of the impugned Act. The Court further expressed the view that, even if section 56 of the Contract Act were applicable, the employer would not be discharged from liability merely because the limitation bar under section 15 of the Wages Act or the general limitation provisions had taken effect. In this regard, the Court concluded that the provisions of the impugned Act must be declared unconstitutional because they deprive the appellant of property in violation of either article 19(1)(f) or article 31(2) of the Constitution.

On behalf of the appellant, it was contended that, irrespective of any breach of the appellant’s own constitutional rights, the Act clearly infringes the employees’ rights by stripping them of wages they have earned, thereby rendering the statute void against the employees under article 31(2) and, consequently, void against the appellant as well. The respondents countered that the Act does not infringe article 31(2) with respect to the employees because a chose‑in‑action, like a money claim, falls outside the operation of that article, relying on observations made in The State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga. The Court noted that, since the Act appropriates the employees’ rights to wages without providing any compensation, it must at least be held unconstitutional to the extent that it contravenes article 19(1)(f) or article 31(2), rendering a detailed decision on which provision is violated unnecessary. It was further argued that only employees could raise this objection and that the appellant had no standing to complain. While acknowledging that a challenge to a statute’s constitutionality may be brought only by an aggrieved person, the Court emphasized that the statute affects contractual rights involving at least two parties with reciprocal obligations, making it difficult to accept a situation where interference with one party’s rights leaves the other party’s rights untouched.

In this case, the Court examined the hypothetical scenario in which the appellant paid the Board under section 3 (1) of the impugned Act, asserting that the law was not unconstitutional as applied to him. The Court asked what would prevent an employee from suing the appellant to recover the same amount on the ground that the Act was unconstitutional. It held that the appellant’s argument that he had already paid the amount to the Board would not defeat the employee’s claim. The Court explained that a statute which operates upon a contract must affect the rights of all parties to that contract, and if the statute is invalid as regards one party, it must be considered invalid as regards the other parties as well. Since the Court had already held that the Act was unconstitutional with respect to the appellant, it found it unnecessary to pursue the employee’s claim further.

The Court then turned to the respondents’ contention that the impugned legislation was, in substance, legislation dealing with abandoned property, and that by its very nature it could not infringe any person’s rights under Article 19 (1) (f) or Article 31 (2). The Court observed that this position would be correct only if the legislation truly concerned abandoned property, because only a person who has an interest in property can complain that a law infringes that interest under the cited constitutional provisions. If the property were truly abandoned, no one would have an interest in it, and consequently no grievance could arise. The Court therefore asked whether the Act could indeed be characterized as legislation concerning abandoned property. To answer this, it stated that it was necessary to examine the basic principles underlying legislation on abandoned property and to determine whether those principles formed the foundation of the Act. The Court explained that the term “abandoned property,” also known as “bona vacantia,” comprises two different kinds of property: property that comes to the State by escheat and property over which no one can claim a right. Referring to Halsbury’s Laws of England, Third Edition, Vol. 7, page 536, paragraph 1152, the Court quoted that “the term bona vacantia is applied to things in which no one can claim a property and includes the residuary estate of persons dying intestate.” The Court noted a distinction between these two classes: while the State becomes the owner of the estate of a person who dies intestate as the ultimate heir, it merely takes possession of property that has been abandoned. At common law, abandoned personal property could not be subject to escheat; it could only be appropriated by the Sovereign as bona vacantia, as stated in Holdsworth’s History of English Law, Second Edition, Vol. 7, pages 495‑496. The Court then cited the case of Connecticut Mutual Life Insurance Company v. Moore(1), where the principle behind the law was expressed as follows:

In this case the Court observed that the State is more properly regarded as the custodian and eventual beneficiary of property that has been abandoned than any other person. Consequently, a statute dealing with abandoned property typically contains two principal sets of provisions. First, it obliges the State to conserve and safeguard such property for the benefit of the true owners during a specified and reasonable period in which no claim is made. Second, it provides that if the true owners fail to present a claim within that limited time, the property will vest in the State absolutely. The United States has enacted a considerable number of statutes on abandoned property, and the validity of those statutes has been the subject of numerous decisions of the United States Supreme Court. For example, in Anderson National Bank v. Luckett (1) the law related to bank deposits. That statute provided that where money in deposit had not been demanded or otherwise acted upon for ten years in the case of demand deposits, or for twenty‑five years in the case of non‑demand deposits, the money might be presumed abandoned and the bank was required to transfer the funds to the State. Any person asserting a claim to the deposits could apply to the Commissioner of Revenue, who was authorized to determine the validity of the claim, and whose decision was subject to review by the courts.

The validity of the Anderson statute was challenged on the ground that depositors had not been given a sufficient opportunity to claim the deposits and that, because the law could be attacked as unconstitutional, the bank received no protection by paying the funds to the State. In rejecting this contention the Supreme Court observed that the Act did not deprive depositors of any of their rights, because they were afforded ample opportunity to establish those rights, and that the statute merely substituted the State in the place of the bank as their debtor. The Court further held that it was “within the Constitutional power of the State to protect the interests of depositors from the risks which attend long‑neglected accounts, by taking them into custody when they have been inactive so long as to be presumptively abandoned.”

The Court also considered Connecticut Mutual Life Insurance Co. v. Moore (supra), a case involving monies payable on matured life‑insurance policies. That law provided that if the amounts remained unclaimed for a period of seven years, the insurance companies were required to advertise the unclaimed monies in the manner prescribed by the statute. If, after such advertisement, no claim was preferred, the amounts were to be paid to the State Comptroller for care and custody. In holding the law valid the Court noted that there was ample provision for notice to beneficiaries and for administrative and judicial hearing of their claims, and that no possible injury could be shown to any beneficiary. (I) 333 U.S. 541, 546; (1947) 92 L.Ed. 863, 869.

The judgment noted that the legislation provided that dividends which remained unclaimed for a period of fourteen years could be taken over by the State. The statute required that notice to unknown owners be given by advertisement. Relying on Connecticut Mutual Life Insurance Company v. Moore, the Court affirmed that such a law was valid. In light of this discussion, the Court concluded that there could be no reasonable doubt that the challenged Act could not be characterised as relating to abandoned property. The three‑year period mentioned in section 2(10) of the Act was identified as merely the limitation period prescribed in Article 102 of the Limitation Act, and even if the class of persons whose claims were dealt with in the Act were considered, that period could not be deemed sufficient to raise a presumption of abandonment. A more serious objection to treating the legislation as one concerning abandoned claims was that the Act contained no provision for investigating employees’ claims or for paying the amounts due to them should they establish their claims. The purpose of legislation dealing with abandoned property, the Court explained, was first to safeguard the property for the benefit of the true owner, with the State assuming ownership only in the absence of such claims. A law that vested the property absolutely in the State without regard to the claims of the true owners could therefore not be regarded as legislation on abandoned property. The Court rejected the respondents’ contention to the contrary and held that section 3(1), insofar as it related to unpaid accumulations in section 3(2)(b), was unconstitutional and void.

The Court then turned to the question of the validity of sections 3(1) and 3(2)(a) of the Act, which required employers to hand over to the Board the fines realised from the employees. It observed that the position of the employers with respect to this item was entirely different from their position regarding unpaid accumulations. Section 8 of the Wages Act dealt with fines that could be imposed by an employer, mandating that such fines be entered in a separate register and applied for the benefit of the employees. The appellant did not deny that under this provision the fines constituted a trust fund and that the employers were bare trustees of that fund. The appellant’s grievance was that the Act deprived it of its trustee rights and vested those rights in the Board, and further that while the beneficiaries under section 8 of the Wages Act were its own employees, section 5(2) of the impugned Act extended the class of beneficiaries to other persons as well. Although there might have been substance in the complaint that the appellant had been deprived of its rights as a trustee if it had a beneficial interest in the fund, the Court noted that the appellant admittedly had no such interest. Consequently, it was difficult to hold that there had been a substantial deprivation of property that would offend Article 31(2) or constitute an unreasonable interference with property rights under Article 19(1)(f). The Court observed that the argument that the Act’s enlargement of the beneficiary circle encroached on the rights of the appellant’s employees did not succeed, because the trust was created by the Legislature, not by the appellant, and the Legislature could both confer and modify rights. Accordingly, the Court found no valid grounds on which sections 3(1) and 3(2)(a) of the impugned Act could be attacked as unconstitutional.

In this case the Court observed that the appellant possessed no beneficial interest in the fund, and therefore it was difficult to conclude that a substantial deprivation of property had occurred that would offend Article 31(2) in light of the precedents set in The State of West Bengal v. Subodh Gopal Bose and Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. Ltd. The Court further noted that no unreasonable interference with property rights appeared to arise that would violate Article 19(1)(f). It was submitted with some emphasis that by expanding the class of beneficiaries the statute had impinged upon the rights of the appellant’s employees. However, the Court pointed out that the trust in question was not created by the appellant but by the Legislature, which had granted certain rights to the employees that did not exist previously; the Legislature also retained the authority to modify or withdraw those rights, and consequently the Court did not perceive a grievance on the part of the employers. The Court concluded that no valid basis existed on which sections 3(1) and 3(2)(a) of the impugned Act could be challenged as unconstitutional, and therefore those provisions were held to be valid. Accordingly, modifying the order of the lower court, the Court declared that the provisions of the impugned Act were unconstitutional and void insofar as they dealt with “unpaid accumulations,” while the provisions relating to “fines” were upheld as valid, and an appropriate writ was to be issued against the respondents in the terms previously stated. The appeal was therefore allowed in part; because “unpaid accumulations” constituted the larger portion of the claim, the Court directed the respondents to bear half of the costs incurred by the appellant both in the present and the lower proceedings.