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

Case Number: Civil Appeal No. 167 of 1954

Decision Date: 20 December 1957

Coram: Natwarlal H. Bhagwati, S.K. Das, A.K. Sarkar, T.L. Venkatarama Aiyyar

In the matter titled Bombay Dyeing & Manufacturing Co., Ltd. versus the State of Bombay and others, the Supreme Court of India delivered its judgment on 20 December 1957. The bench hearing the case comprised Justice Natwarlal H. Bhagwati, Justice S. K. Das and Justice A. K. Sarkar. The petition was filed by Bombay Dyeing & Manufacturing Co., Ltd. challenging the constitutional validity of the Bombay Labour Welfare Fund Act of 1953, specifically sections 3(1) and 3(2)(a) and (b), on the ground that they infringed Articles 31(2) and 19(1)(f) of the Constitution of India. The citation for the decision appears in the 1958 All India Reports at page 328 and in the 1958 Supreme Court Reports at page 1122.

The 1953 Act was enacted by the State Legislature with the purpose of creating a fund to finance welfare activities for labour. Section 3(1) of the Act provided, “There shall be constituted a fund called the Bombay Labour Welfare Fund and, notwithstanding anything contained in any other law for the time being in force, the sums specified in subsection (2) shall be paid into the Fund.” Section 3(2) further defined the composition 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 authority of the Welfare Commissioner appointed by the Act, notices were served on the appellant’s company as well as on other similarly situated companies, requiring them to remit to the Commissioner the fines and the unpaid wage accumulations that they held in their custody.

The appellant responded by questioning the validity of the Act, contending that the mandatory transfer of unpaid wage accumulations to the fund violated Article 31(2) of the Constitution. Consequently, the appellant filed a writ petition, which gave rise to the present appeal that the parties agreed to treat as a test case. The Division Bench that initially heard the writ petition held that the impugned Act was intra ves, albeit on differing grounds, and dismissed the petition. The sole issue before the Supreme Court on appeal was whether section 3(1) together with sub‑clauses (a) and (b) of section 3(2) were void for contravening Article 31(2).

The Court held that the unpaid accumulation of wages remaining with the appellant’s company constituted the company’s own property. Accordingly, the directive in section 3(1) that required payment of that unpaid accumulation under sub‑clause 3(2)(b) was in conflict with Article 31(2) and therefore must be declared invalid. The Court further observed that Article 31(2A) of the Constitution had no retrospective effect and could not be applied; consequently the matter had to be decided according to the law as it stood on the date of the writ petition. In reaching its decision, the Court applied the precedents of State of West Bengal v. Subodh Gopal Bose, (1954) SCR 587 and Dwarkadas Shrinivas of Bombay v. Sholapur Spinning and Weaving Co. Ltd., (1954) SCR 674. Assuming that money did not constitute “property” within the meaning of Article 31(2), the Court found that Article 19(1)(f) was applicable.

In this case the Court observed that the provision of the Act could not be justified under Article 19 (5) of the Constitution, and that the authority cited in Commonwealth of Australia v. Bank of New South Wales, [1950] A.C. 235, was not applicable. The Court also considered the decision in State of Bihar v. Mahayajadhiraja Sir Kameshwar Singh of Darbhanga, [1952] S.C.R. 889. It held that the impugned 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 definition of “unpaid accumulation” in the Act displayed a legislative intent to allow the State to take only those wages that had become time‑barred, the Court pointed out that the law of limitation merely bars the remedy and does not extinguish the underlying debt. Consequently, sections 3 (I), 5 (2) and 17 of the Act were interpreted as effecting a transfer of the debts owed by the appellant to its employees free of the limitation bar. The Court noted that such a transfer could be valid only if it gave the employer a complete discharge of those debts; in the absence of such a discharge the Act would infringe Article 19 (1)(f) of the Constitution. Because the Act contained no provision granting a discharge to the debtor, the limitation bar imposed by section 15 of the Payment of Wages Act (Act IV of 1936), Article 102 of the Limitation Act, or section 56 of the Contract Act—assuming they were applicable—could not provide the required discharge. The Court further explained that where a statute deals with rights arising out of a contract and interferes with the rights of one contracting party, it must also affect the rights of the other party. Accordingly, the Court concluded that the impugned Act, by taking over the employees’ rights to wages without compensation, violated either Article 19 (1)(f) or Article 31 (2) of the Constitution and was therefore unconstitutional with respect to the appellant as well. The Court added that legislation concerning abandoned property must first protect the property in the interest of the true owner and only then, in the absence of any claim, permit the State to take it. Since the Act vested the property absolutely in the State without regard to the claims of the true owner, it could not be deemed a law relating to abandoned property. The Court referred to 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 its 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, having no beneficial interest in the fund created by the Act, and therefore sections 3 (I) and 3 (2)(a) could not be said to violate Article 31 (2) or Article 19 (1)(f).

In this case the Court examined whether the provisions of the Bombay Labour Welfare Fund Act were consistent with the Constitution. The Court concluded that the Act did not violate constitutional protection of property or the rights of employees, because extending the class of beneficiaries did not infringe on the rights of the appellant’s workers. Consequently, the sections under challenge were held to be constitutionally valid. The matter arose on appeal designated Civil Appeal No 167 of 1954, taken 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 appeared on behalf of the company, while counsel for the State of Bombay and counsel for the respondents represented the opposing parties. The judgment was delivered on 20 December 1957 by Justice Venkatramana Aiyar. The appellant was identified as a limited company incorporated under the Indian Companies Act, 1879, engaged in the manufacture of textiles. It owned three factories—Spring Mills, Textile Mills and Bombay Dye Works—situated in Bombay. In its 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 sum represented wages earned by workmen in the factories but left undrawn, and it consisted of accumulations that had built up year after year since the company’s formation, which the company estimated to have occurred around 1880. The principal dispute in the appeal concerned the legality and treatment of this amount of unclaimed wages.

In 1953 the Legislature of the State of Bombay enacted the Bombay Labour Welfare Fund Act (Bombay XL of 1953), which came into force on 4 June 1953. At this stage the Court referred to the relevant provisions of the Act because the central issue for determination was the statutory validity of those provisions. The preamble to the Act states that “It is expedient to constitute a Fund for the financing of activities to promote welfare of labour in the State of Bombay and for conducting such activities.” Section 2 of the Act contains the definitions. Sub‑section (2) defines “employee” as “any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in an establishment.” Sub‑section (3) defines “employer” as “any person who employs either directly or through another person either on behalf of himself or any other person, one or more employees in an establishment and includes‑in a factory any person named under s. 7(i)(f) of the Factories Act, 1948, as the manager.” Sub‑section (10) defines “unpaid accumulations” as “all payments due to the employees but not made to them within a period of three years from the date on which they became due whether before or after the commencement of this Act including the wages and gratuity legally payable.” Sub‑section (11) defines “wages” as “all remuneration capable of being expressed in terms of money which would…”. These definitions were examined by the Court in assessing whether the Act’s provisions were compatible with constitutional guarantees.

In the Act, it is provided that when the terms of an employment contract, whether expressly stated or implied, have been fulfilled, any amount that is payable to a person because of his employment or work performed in that employment becomes due. Section 3 then establishes the Bombay Labour Welfare Fund. Sub‑section (1) of that section declares the creation of the Fund and commands that, notwithstanding any other law that is then in force, the amounts specified in sub‑section (2) must be deposited into the Fund. Sub‑section (2) sets out the composition of the Fund, stating that it shall consist of: (a) all fines realised from the employees; (b) all unpaid accumulations; (c) any voluntary donations; (d) any fund transferred under sub‑section (5) of section 7; and (e) any sum borrowed under section 3. The same sub‑section further requires that the sums mentioned be collected by the designated agencies in the manner prescribed, and that the Fund’s accounts be kept and audited according to the prescribed rules.

Section 7(1) provides that the Fund shall vest in, be held by, and be applied by the Board as Trustees, subject to the provisions and purposes of the Act. The material sub‑section (2) of section 7 explains that, without limiting the generality of sub‑section (1), the Board may use the monies in the Fund to meet expenditures on a variety of objects, including community and social education centres such as reading rooms and libraries, community necessities, games and sports, excursions, tours and holiday homes, entertainment and other recreations, home industries and subsidiary occupations for women and the unemployed, corporate activities of a social nature, the cost of administering the Act including salaries and allowances of appointed staff, and any other objects that, in the opinion of the State Government, would improve the standard of living and ameliorate the social conditions of labour. However, the Fund may not be used to finance any measure that an employer is already required by any existing law to carry out. Additionally, unpaid accumulations and fines must be paid to the Board and may be expended by it under this Act, notwithstanding any provisions of the Payment of Wages Act, 1936 or any other law in force. Section 11 deals with the appointment, powers and duties of the Welfare Commissioner. Section 17 declares that any sum payable into the Fund may, without prejudice to other recovery methods, be recovered on behalf of the Board as an arrear of land revenue. Section 19 authorises 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 the provisions of the Bombay Labour Welfare Fund Act, 1953 to all relevant factories and establishments.

The Bombay Labour Welfare Fund Act, 1953 (Bombay XL of 1953) required that any realisations made by an establishment to which the Act applied be paid into the Fund created under the Act. In order to give effect to this statutory mandate, the State of Bombay exercised the authority conferred by section 19 of the Act and framed subordinate legislation, which was published on 30 June 1953. The two substantive rules that were issued are numbered 3 and 4. Rule 3 deals with the payment of fines and of unpaid accumulations by an employer. It provides that within fifteen days of the date on which the Act becomes operative in any area, each employer in that area must remit, by cheque, money order or cash, to the Welfare Commissioner (i) all fines that have been realised from the employees before that date but which remain unutilised, and (ii) all unpaid accumulations that the employer is holding on that date. The employer must also submit, together with the payment, a statement giving full particulars of the amounts paid. Rule 3 further stipulates that for each subsequent quarter ending on 31 March, 30 June, 30 September and 31 December, the employer must make similar payments of all fines realised from employees and all unpaid accumulations for that quarter. These payments must be made to the Welfare Commissioner on or before 15 April, 15 July, 15 October and 15 January respectively, and must be accompanied by a statement detailing the amounts paid. Rule 4 empowers the Welfare Commissioner, after conducting any investigations he deems necessary and, if required, obtaining a report from an Inspector, to serve a notice on any employer who has failed to pay any portion of fines or unpaid accumulations in accordance with Rule 3. The employer is required to comply with such a notice within fourteen days of receipt.

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. In the notice the Commissioner drew the companies’ attention to the relevant provisions of the Act and to Rules 3 and 4, and demanded that they remit the fines and unpaid accumulations that remained in their possession in compliance with the directions contained in the rules. The appellant responded on the same day, challenging the validity of the Act on the ground that it violated Article 31(2) of the Constitution. The appellant then instituted a writ petition, which gave rise to the present appeal; the parties agreed that the case would be treated as a test case. The petition was heard by Chief Justice Chagla and Justice Tendulkar. Both judges concluded that the Act was within the legislative competence of the State, although they arrived at that conclusion on different bases. Chief Justice Chagla expressed the view that, when properly interpreted, the Act merely replaced the employees with the Board as a creditor, and therefore did not amount to a taking of property prohibited by Article 31(2).

The judges observed that the action did not involve a taking of property, and therefore it did not offend Article 31 (2). Justice Tendolkar held that the “unpaid wages” were unmistakably monies that belonged to the employer and that the employer was being deprived of those monies, yet there was no taking of possession or acquisition of property within the meaning of Article 31 (2) of the Constitution. He explained that what occurred was only a deprivation of money, and because the deprivation was carried out under the authority of law, it fell within the protection of Article 31 (1). Consequently, the petition was dismissed. Nevertheless, the judges granted a certificate under Article 132, which allowed the present appeal to be heard. The only question for determination in the appeal was whether Section 3 (1) and the sub‑clauses (a) and (b) of Section 3 (2) of the Act were void for contravening the Constitution. To reach a decision, the Court needed to consider a number of questions that had been raised in the arguments presented before it.

The Court decided to treat the two matters regulated by the Act—fines realized from employees under Section 3 (2) (a) and unpaid accumulations under Section 3 (2) (b)—separately, because the issues affecting their validity were different. Turning first to unpaid accumulations under Section 3 (2) (b), counsel for the appellant, Mr Kolah, contended that Section 3 (1) was repugnant to Article 31 (2) because it deprived employers of monies that belonged to them without providing any compensation, merely on the ground that those monies represented wages due to employees. Money, he argued, is unquestionably property, and ownership of money does not cease simply because the owner owes a debt that may need to be satisfied from that money. Until a creditor obtains a legal decree that extinguishes the debtor’s title, the debtor retains ownership. Accordingly, Mr Kolah asserted that the employer’s liability to pay wages did not automatically extinguish its title to the money, and that Section 3 (1) effectively took money belonging to the employer. The Court then had to decide whether this provision amounted to an acquisition or taking of property for a public purpose without payment of compensation, which would bring it within Article 31 (2). Both parties agreed that the taking was for a public purpose, but the dispute centered on whether the operation of Section 3 amounted to an acquisition or a mere taking of possession within the meaning of Article 31 (2). Justice Tendolkar answered the question against the appellant, holding that Article 31 (2) would apply only if there was a transfer of title or a beneficial interest in the amounts to the State.

In its earlier reasoning, the Court held that section 3(1) of the impugned Act did not transfer title to the money belonging to the employer, although it did deprive the employer of that money. The Court classified this deprivation as falling within Article 31(1) of the Constitution rather than Article 31(2). Because the action was undertaken under the authority of law, the Court said it could not be questioned. Subsequently, the Court examined the precise scope of Article 31(2) in relation to Article 31(1) in two earlier cases, namely 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 West Bengal case, the majority of the learned judges concluded that Articles 31(1) and 31(2) were not mutually exclusive. They held that a transfer of title to the State was not an essential requirement for acquisition under Article 31(2); merely depriving a person of property or substantially abridging the owner’s rights also fell within Article 31(2). Accordingly, any law producing such results had to satisfy the constitutional conditions laid down in that article. Justice Das, however, dissented, asserting that the two provisions addressed distinct powers: Article 31(1) related to the State’s police power, whereas Article 31(2) dealt with the power of eminent domain. In the Dwarkadas case, the majority reaffirmed the view expressed in the West Bengal decision, stating that both articles covered the same ground and that substantial interference with property rights would invoke Article 31(2). From these precedents the Court inferred that section 3 of the challenged Act was unconstitutional because it deprived the appellant of its money without providing any compensation, thereby infringing Article 31(2). The appellant’s counsel, however, opposed this contention by relying on Article 31(2A), introduced by the Constitution (Fourth Amendment) Act, 1955. Article 31(2A) provides that a law which does not transfer ownership or possession of property to the State or a State‑controlled corporation shall not be deemed to effect compulsory acquisition, even if it deprives a person of property. The argument advanced was that the earlier theory—that acquisition under Article 31(2) is not limited to transfer of ownership and that mere deprivation also falls within it, as adopted in the West Bengal and Dwarkadas decisions—could no longer be sustained in light of Article 31(2A). Consequently, those earlier decisions required reconsideration under the new constitutional provision.

In examining the effect of the constitutional amendment that introduced Article 31 (2A), the Court observed that the amendment could not be given retrospective operation and therefore could not be applied to matters that arose before its enactment. Consequently, the Court held that the rights of the parties must be determined according to the law that was in force on the date the writ of certificatory relief was filed. Accordingly, the Court applied the constitutional provisions as they stood on that date and as they had been interpreted in the earlier authorities of The State of West Bengal v. Subodh Gopal Bose and Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. Ltd. Under those interpretations, Section 3(1) of the impugned Act would be repugnant to Article 31 (2). The Court noted that this observation appeared sufficient to resolve the controversy in favour of the appellant. Nevertheless, the respondents contended that Section 3(1) did not fall within the prohibition of Article 31 (2) because the provision operated solely on money, and they maintained that money was not “property” for the purposes of that article. To support this position, the respondents relied upon a substantial body of American authority which held that the power of eminent domain did not extend to the taking of money. The underlying rationale in those authorities was that compensation for the taking of money could only be paid in money, thereby rendering the taking in substance a forced loan. The Court cited The State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga, where the view that eminent domain could not be used to seize money was adopted by Mahajan, Mukherjea and Chandrasekhara Aiyar. The respondents argued that Article 31 (2) mirrored the American position because the provision required that either the amount of compensation be fixed or the principles and manner of fixing compensation be specified, implying that what was taken could not be money.

In contrast, the appellant urged that recent American decisions had moved away from the earlier view that money and choses in action were outside the reach of eminent domain. The appellant referred to observations made by Das J. in The State of Bihar case (pages 984‑985), which indicated a departure from earlier authorities and suggested that money could be subject to a taking if proper compensation were provided. Moreover, the appellant submitted that foreign legal principles should not be imported to interpret the provisions of the Indian Constitution, as the Constitution must be read in its own context. The Court then turned to the implication of accepting the respondents’ contention. If Section 3(1) could lawfully deprive a person of his money, the question arose as to what constitutional protection remained for a person’s monetary holdings. Counsel for the appellant, Mr. Seervai, argued that such protection could be found in Article 19 (1)(f). He contended that the term “property” in Article 19 (1)(f) possessed a broader meaning than the term in Article 31 (2) and therefore encompassed money, granting citizens the right to hold money subject only to the reasonable restrictions permissible under Article 19 (5).

The appellant argued that the impugned legislation might be saved by the exception contained in Article 19(5) of the Constitution. To support this argument, counsel relied upon the decision in Bijay Cotton Mills Ltd. v. State of Ajmer (2) [1955] 1 S.C.R. 752, where the Court applied Article 19(6) while examining the validity of the Minimum Wages Act of 1948. That Act required employers to pay wages at a rate not less than a rate fixed by the Government. Assuming that the respondents’ view represented the correct legal position, the Court still needed to decide whether the impugned Act could be justified under Article 19(5). A discussion arose before the Court concerning the scope of the phrase “imposing reasonable restriction” in Article 19(5). The central issue was whether “reasonable restriction” could include legislation that not only regulated the exercise of the right protected by Article 19(1)(f) but also wholly extinguished that right. The Court also examined whether a law that deprived an owner of his property could be brought within the protection of Article 19(5). One argument submitted was that a statute authorising the State to seize and destroy diseased cattle, noxious drugs, and similar items (1) [1952] S.C.R. 889, could not fall within Article 19(5) if the word “restriction” were given a narrow meaning. The same argument suggested that, in appropriate cases, the power to restrict must be understood to include the power to prohibit the exercise of a constitutional right. This viewpoint found support in the observations of Lord Porter in Commonwealth of Australia v. Bank of New South Wales (1). Nevertheless, the present legislation could not be sustained even under that broader interpretation, because Section 3(1) of the Act dealt with money. Money could not be compared with diseased cattle or noxious drugs for the purpose of invoking police power under Article 19(5). The Court concluded that whether the analysis was based on Article 31(2) or on Article 19(5), the impugned Act could not be upheld. Consequently, the Act must be struck down unless the alternative contentions raised by the respondents were accepted.

The respondents advanced two principal contentions in support of the Act’s validity, which the Court needed to examine. The first contention was that the Act merely substituted the Board for the employees as creditors, and that Sections 3 and 17 only prescribed the mode in which the obligation was to be enforced. That view had formed the basis of Chief Justice Chagla’s earlier judgment, which had upheld the Act. The second contention asserted that the legislation dealt with abandoned property, and therefore it could not be attacked as violating either Article 19(1)(f) or Article 31(2). The Court now needed to consider those contentions in detail before reaching a final decision. Regarding the first contention, the issue was whether, upon a fair construction of the provisions of the impugned Act, a substitution of creditors could be discerned. When an employee had performed his work, the wages earned by him became a debt owed by the employer, and that debt constituted property which could

The Court observed that a debt owed by an employer to an employee may be assigned under the law, and if the employee were to assign that debt to the Board established by the Act, the Board would acquire the right to recover the sum from the employer. The Court explained that a transfer which could be effected by agreement of the parties may also be accomplished by legislation, and therefore the issue was whether the statutory provisions could be interpreted as creating a statutory transfer of the wages earned by the workman to the Board. Section 5 of the Act vests in the Board the amounts referred to in section 3(2), while section 3(1) directs that those amounts be paid by the employer to the Board. The appellant’s counsel argued that the Act contains no express words indicating a transfer of the debts to the Board and that it merely provides for payment of the amounts. The Court rejected this narrow construction and, after examining the substance of the provisions, held that sections 3(1) and 5(1) together operate to transfer the debts due to employees to the Board. The Court noted that the definition of “unpaid accumulations” includes only those payments due to employees that remain unpaid for a period of three years after they become due, indicating that the legislature intended that timely claims be enforceable by the employees in the ordinary course of law, while time‑barred and otherwise unusable claims should be taken over by the State. Consequently, the Court considered whether a debt that has become time‑barred could be the subject of such a transfer and, if so, how the Board might benefit if the debt could not be realised through legal process. The Court affirmed the settled principle that a statute of limitation bars the remedy but does not extinguish the debt itself. While section 28 of the Limitation Act extinguishes a right to possession of property after the limitation period, authorities have correctly held that this provision does not apply to debts, which are incapable of possession, and that the mere lapse of time does not extinguish a person’s right to a debt. Under section 25(3) of the Contract Act, a barred debt constitutes good consideration for a fresh promise to pay, and when a debtor makes a payment without specifying its allocation, the creditor may appropriate it to discharge a barred debt, as provided by section 60 of the Contract Act. Moreover, it has been held that a creditor may recover the debt from a surety even though a suit against the principal debtor is barred.

The Court referred to the authorities Mahant Singh v. U Ba Yi (1), Subramania Aiyar v. Gopala Aiyar (2) and Dil Muhammad v. Sain Das (3), and it observed that when a creditor possesses a lien over goods as security for a loan, the creditor may enforce that lien to obtain satisfaction of the debt even though any action on the lien would be barred by limitation, citing Narendra Lal Khan v. Tarubala Dasi (4). The Court further noted that the same principle was recognized in English law, referring to Halsbury’s Laws of England (Hailsham’s Edition), vol. 20, page 602, paragraph 756, and to the observations of Lindley L.J. in Carter v. White (5) and of Cotton L.J. in Curwen v. Milburn (6). The Court then quoted American Jurisprudence, vol. 34, page 314, which stated that a majority of courts hold that a statute of limitations, unlike a statute prescribing conditions precedent to a cause of action, limits only the remedy and does not affect the substance of the right; it does not extinguish the debt or preclude its enforcement unless the debtor elects to rely on the defence and pleads it specially. The quotation further explained that an indebtedness remains a valid consideration for a promise to pay and gives the creditor an insurable interest. In addition, the Court cited Corpus Juris Secundum, vol. 53, page 922, which declared that the general rule with respect to debts or money demands is that a statute of limitation bars the remedy but does not discharge the debt or extinguish or impair the right, obligation, or cause of action. Consequently, the Court affirmed that under law a debt continues to exist notwithstanding that its recovery is barred by limitation, and it observed that the appellant had not advanced any argument that the transfer of such a debt was invalid; indeed, such a transfer could not be invalid in view of the provisions of the impugned Act, which release debts owed by employees from the bar of limitation. Section 3(1) of that Act directed that payment shall be made of the amounts specified in sub‑clause (2) “notwithstanding anything contained in any other law for the time being in force.” A similar provision appeared in the second proviso to sub‑section (2) of section 5, stating 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.” One of those other laws is the law of limitation, and the effect of these provisions was to suspend limitation with respect to the claims to which section 3(2) relates. To dispel any doubt as to whether it

The Court observed that the power to amend the provisions of the Limitation Act lay with the Legislature of Bombay State because limitation is listed in the Concurrent List as Entry 13 in List III of the Seventh Schedule to the Constitution. Under Article 254(2) a State Legislature may enact a law that modifies a Central law, provided the amendment is reserved for the President’s consideration and receives his assent. The Court noted that this procedure had been duly followed in the present legislation.

The Court then turned to another relevant provision of the impugned Act, namely Section 17, which states that, without prejudice to other modes of recovery, the sums payable to the fund under Section 3 may be recovered as arrears of land revenue. It remarked that such a provision is generally inserted when amounts are due to the State. The Court recorded that Mr Kolah conceded that, if the impugned law were otherwise valid, this provision could not render the law invalid.

On the basis of the foregoing analysis, the Court concluded that the operative effect of the pertinent provisions of the Act was to transfer to the Board the debts owed by the appellant to its employees, and that this transfer occurred free from the bar of limitation. The remaining issue, the Court said, was whether this transfer amounted to a substitution of creditors. A substitution, the Court explained, would occur only if the employee’s claim were extinguished and, in its place, a claim in favour of the Board were created. If, however, the employer remained liable to the employee, Section 3(1) merely created a statutory creditor in the Board in addition to the existing contractual creditor, and no substitution took place.

The Court noted that Mr Seervai agreed that, were the Act not to discharge the employer’s obligations to the employees, the statute would have to be struck down as unconstitutional for violating Article 19(1)(f). In that circumstance, the argument that the Act’s effect was merely to appropriate the employer’s property in satisfaction of its liabilities could not be sustained. Consequently, the pivotal question was whether payment of the amounts under Section 3(1) discharged the appellant’s liability for wages owed to its workers. The Court observed that the Act contained no clause to that effect, and the appellant had heavily relied on this omission to demonstrate that no intention of creditor substitution existed.

In response, Mr Seervai put forward two submissions. First, he contended that although the Act did not expressly provide for the discharge of the appellant’s obligations upon payment under Section 3(1), such a discharge was the result of the provisions of the Payment of Wages Act, 1936 (referred to as the Wages Act). Second, he argued that the effect of Section 3(1) itself...

The Court observed that the operative provision of the impugned Act was intended to render the contract of employment void pursuant to section 56 of the Contract Act, thereby releasing the appellant from the obligations arising under that contract. The Court then set out to consider the two submissions raised by the parties. In order to assess the first submission, the Court found it necessary to examine the relevant sections of the Payment of Wages Act. Section 2(vi) of that Act defined “wages” in a manner that embraced everything that fell within the definition of the same term in section 2(11) of the impugned Act. Section 3 imposed upon the employer the duty of paying wages to every person employed by him. Section 4 prescribed the fixing of wage periods, which could not exceed one month. According to section 5, wages had to be paid before the expiry of ten days after the last day of the wage period for employees who remained in service, and, for those whose employment had been terminated, wages had to be paid by the second working day following termination. Section 15 provided that where an unauthorised deduction had been made from an employee’s wages or where payment of wages had been delayed, the employee could apply to the authority designated under the Act for a direction to pay the deducted amount or the delayed wages, as the case might be, together with compensation. The statute required that such an application be filed within six months of the date on which the deduction was made or the date on which the wages became due; however, by Act No. 62 of 1953 of the Bombay Legislature, this period had been extended to one year. The provision also contained a proviso allowing an application to be filed after the prescribed period if the applicant satisfied the authority that he had sufficient cause for not making the application within the time limit. Section 22(d) of the Act further stipulated that no court would entertain any suit for the recovery of wages or any deduction from wages where the amount claimed could have been recovered by an application under section 15. The respondents argued that, under those provisions, an employee was required to pursue a claim for unpaid wages before the authority within the time limit set by section 15 of the Wages Act, which was one year in the State of Bombay, and that failure to do so rendered the claim unenforceable and barred any subsequent suit under the general law. They contended that, given the definition of “unpaid accumulations” as all sums due to employees but not paid within three years, the employer faced no risk of being required to pay the employee the amount already paid to the Board under section 3(1) of the impugned Act, and consequently that a payment made under the impugned Act effectively discharged the employer’s liability for practical purposes.

In this case the Court observed that the argument presented by the respondents presumes that, concerning unpaid wages, the operation of the Wages Act is identical to the operation of the impugned Act, and the Court found that presumption to be erroneous. It is true that the definition of “wages” in the Wages Act would include whatever wages are covered by the impugned Act, but section 1(6) of the Wages Act expressly limits the application of that Act to wages that are below rupees two hundred for a wage period. Where wages are rupees two hundred or more, the general law applies, and the limitation period is not the one‑year period prescribed by section 15 of the Wages Act but the three‑year period prescribed by article 102 of the Limitation Act. That three‑year period may be extended beyond three years under the provisions of the Limitation Act, which go beyond the three‑year limitation mentioned in section 2(10) of the impugned Act. Moreover, the proviso to section 15(1) of the Wages Act gives the adjudicating authority the power to admit a petition after the prescribed period if the petitioner shows sufficient cause. The respondents replied that sections 3(1) and the second proviso to section 5(2) of the impugned Act are intended to operate “notwithstanding anything contained in the Wages Act or any other law,” and therefore they override the power conferred by the proviso to section 15(1) of the Wages Act as well as the provisions of the Limitation Act. The Court then considered section 22 of the Wages Act and noted that judicial opinion is divided on its true scope. In Simpalax Manufacturing Co. Ltd. v. Alla‑Ud‑Din (1) the Court held that a bona‑fide dispute as to the amount payable does not bar the civil court’s jurisdiction under section 22. Conversely, in Bhagwat Rai v. Union of India (2) the Court held that the civil court’s jurisdiction is barred even when a bona‑fide dispute exists, characterising the bar under section 22(d) as absolute, and it relied on observations in Modern Mills Ltd. v. Mangalvedhekar (3) and A. B. Sarin v. B. C. Patil (4) to support that view. Even assuming that Mr Seervai’s contention is correct that Bhagwat Rai’s ruling accurately reflects the law and that the Simpalax decision is wrong, the Court emphasized that claims for unpaid wages that fall within the ambit of the impugned Act must, in view of section 1(6) of the Wages Act, at least partially lie outside the scope of the Wages Act. Consequently, the protection afforded by section 15 of the Wages Act cannot be invoked with respect to those claims. The respondents further contended that even if the impugned Act does not protect the employer with respect to unpaid wages that fall outside the Wages Act, the Act should still be upheld for the portion of unpaid wages that remain within the Wages Act, because the limitation bar under section 15 of that Act provides a sufficient safeguard to the employer against liability for wages already paid to the Board.

In the appeal, the respondents argued that the statutory provision which required all unpaid wage accumulations to be paid to the Board should continue to operate insofar as it dealt with claims that fell within the scope of the Wages Act. They maintained that the limitation bar contained in section 15 of the Wages Act already gave the employer sufficient protection against any liability that might arise from employees seeking wages that had already been paid to the Board. Moreover, the respondents contended that even for those wage claims that lay outside the Wages Act, the impugned legislation ought to remain valid if such claims were barred by the Limitation Act. In effect, they submitted that the Act could be upheld for the portion of unpaid wages whose recovery by employees was barred by either section 15 of the Wages Act or by the provisions of the Limitation Act. The respondents pointed out that the impugned Act simply stipulated that all unpaid wage accumulations must be paid to the Board and made no distinction between claims that were time‑barred and those that were not. They further argued that when a law contains several distinct subject‑matters, some of which are unconstitutional, the law may still be upheld with respect to the remaining valid categories, provided those categories constitute a separate and identifiable class. This principle, they asserted, applied not only when the statute expressly created separate classes but also when such a classification existed in fact. The doctrine of severability, they noted, was well settled in Indian jurisprudence, citing authorities such as 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 referencing the principles articulated in Chamarbaugwalla’s Case. Assuming, on the basis of those authorities, that the operation of the impugned Act could be limited to the wage claims barred by limitation, the respondents then raised the further question of whether the Act consequently discharged the employer of liability for those claims.

The Court observed that the essential issue to be decided was whether the mere existence of a limitation bar operated to release the employer from liability to the employees. It reiterated that a debt that becomes time‑barred does not cease to exist; rather, it remains subsisting but becomes unenforceable in a court of law. On that basis, the Court explained that a statutory transfer of the employees’ debt to the Board could occur, thereby giving the Board title to the unpaid amounts. However, the Court cautioned that the continuation of the debt after it is barred by limitation does not, by itself, discharge the employer from the underlying obligation. The discharge of an employer’s liability must arise from a distinct legal mechanism, and the bar of limitation is not recognised as one of the modes by which a contractual obligation is discharged. Consequently, even if the limitation period has expired, the employer remains liable in law, and the statutory transfer to the Board does not amount to a substitution of creditors unless the employer obtains an actual discharge of his obligations to the employees. The Court therefore concluded that the effect of the limitation bar could not be treated as a complete release of the employer’s responsibility for the unpaid wages.

After a claim becomes barred by limitation, the employer does not obtain a legal discharge from the obligation. The ways in which a contractual duty may be terminated are clearly defined, and the limitation bar is not among those methods. The authority cited from Anson’s Law of Contract, nineteenth edition, page 383, explains the principle: at common law the passage of time does not affect the existence of contractual rights, which are permanent and indestructible unless the contract itself or its terms limit them in duration. Although the right remains permanent, the remedies for its breach are withdrawn after a prescribed period; the remedies are barred, although the right itself is not extinguished. Consequently, if the law requires a debtor to obtain a discharge before being compelled to pay, merely informing the debtor that, under ordinary circumstances, he is unlikely to face action by the creditor does not satisfy that requirement. This distinction is not merely academic but has practical importance, especially when the provisions of the Industrial Disputes Act are considered. The Industrial Disputes Act does not prescribe any limitation period for referring a dispute to a tribunal. Therefore, even if a wage claim falls within the ambit of the Wages Act and an application under section 15 of that Act would be barred, the claim can still give rise to an industrial dispute that may be pursued under the Industrial Disputes Act. The Federal Court, in Shamnagore Jute Factory Co. Ltd. v. S. M. Modak, held that section 22(d) of the Wages Act did not remove the authority of the tribunal established under the Industrial Disputes Act to consider a claim that could be made under the Wages Act, because that section applied only to suits and did not exclude other statutory proceedings for enforcement of payment. If such a tribunal can order an employer to pay wages, it follows that the bar under section 15 of the Wages Act does not provide absolute protection to the employer, and the same principle must apply when the limitation bar arises under the Limitation Act. Accordingly, when an employer makes a payment under section 3(1) of the impugned Act, he does not acquire a discharge from his liability to the employees, even though enforcement of the claim is barred by limitation. The argument relying on the Wages Act therefore fails, and the counsel for the petitioner turns to section 56 of the Contract Act as a basis for claiming that the employer is discharged. Section 56(2) states that a contract to do an act which, after the contract is made, becomes impossible, or which, by reason of an event beyond the promisor’s control, becomes unlawful, becomes void when the act becomes impossible or unlawful.

In this matter the Court considered the operation of section 56 of the Indian Contract Act, which declares a contract void when, after its formation, the act becomes impossible or unlawful. The argument presented was that, because of section 3 of the impugned Act, the employer could no longer perform the contract of service, and therefore the contract had become void. The citation for the proposition that a contract becomes void on impossibility or unlawfulness was noted as “contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.” The respondent relied on the authority cited in [1949] F.C.R. 365 to support this contention.

Section 56, the Court observed, deals with the doctrine of frustration of contracts. The true scope of this doctrine had been examined by this Court in Satyabrata Ghose v. Mugneeram Bangur and Co. The learned judge, Mukherjea J., had explained that in most cases the doctrine is applied not because the parties have inserted an implied term releasing them from performance, but because a later event makes the whole purpose of the contract impossible to achieve. He stated that the relief is granted when an unexpected event or change of circumstances, beyond the contemplation of the parties at the time of contracting, frustrates the contract’s basis. According to Mukherjea J., there is no need to discover an implied term offering a discharge, since the parties did not think about, nor could they have intended, such an eventuality. When an event is so fundamental that it strikes at the root of the contract, the court may pronounce the contract frustrated and terminated. The court must examine both the contract and the circumstances of its formation, using the parties’ belief, knowledge and intention as evidence, but ultimately forming its own conclusion on whether the changed circumstances have destroyed the contract’s underlying object. He emphasized that this approach is a rule of positive law that falls within section 56 of the Contract Act, rather than a rule merely giving effect to the parties’ intentions.

Counsel for the respondents relied on these observations and argued that, when the contract of service was entered into, the parties could not have foreseen that the Legislature would later require the employer to pay wage arrears to the Board. The respondents contended that such legislative intervention created a supervening impossibility that invoked section 56 and rendered the contract void. They cited the authority [1954] S.C.R. 310,323 in support of this view.

The Court, however, expressed that it was not convinced that the performance of the contract of service had become impossible solely because of section 3(1) of the impugned Act. Nevertheless, the Court stipulated that, assuming the performance were indeed impossible, the analysis would then proceed on the basis that the contract had become void under section 56.

The Court explained that the next step would be to apply section 65 of the Contract Act, which states that when a contract is declared void, any person who has received any advantage under that agreement must restore the advantage or compensate the person from whom it was received. Under this provision, the employer becomes liable to compensate the employee for the work performed, and this liability remains enforceable even though the employer has already paid the unclaimed wages to the Board under section 3(1) of the impugned Act.

The Court further expressed the view that, even assuming the matter were governed by section 56 of the Contract Act, the employer would not be discharged of liability any more than he would be discharged by the operation of the limitation bar in section 15 of the Wages Act or by the provisions of the Limitation Act. Consequently, the Court held that the provisions of the impugned Act are 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 even if the impugned Act did not infringe any constitutional right of the appellant, it nevertheless violated the employees’ rights by depriving them of wages they had earned; therefore the Act was void against the employees on the ground of contravention of Article 31(2), and a statute void against the employees must also be void against the appellant.

The respondents argued that the Act could not be said to infringe Article 31(2) as regards the employees, because a chose in action together with money falls outside the operation of that article. They relied on observations made in The State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga, specifically the passages on pages 942, 960‑961 and 1015‑1018.

Nevertheless, the Court observed that the Act effectively appropriates the employees’ rights to wages due to them without providing any mechanism for compensation, and on that basis the Act must be held unconstitutional at least to that extent, whether the violation is characterised as contravening Article 19(1)(f) or Article 31(2); the Court deemed it unnecessary to decide between the two provisions.

It was then argued that the objection could be raised only by the employees and that the appellant had no standing to complain. The Court acknowledged that a question of constitutionality may ordinarily be raised only by a person who is aggrieved, but noted that the statute in question governs rights arising out of a contract, which necessarily involves at least two parties with reciprocal rights and obligations. Accordingly, the Court found it difficult to accept a position where interference with the rights of one contracting party would leave the rights of the other party untouched.

The Court considered a hypothetical situation in which the appellant paid the Board under section 3(1) of the impugned Act, asserting that the statute was not unconstitutional as applied to him. The Court pointed out that nothing would prevent an employee from filing a suit to recover that same amount from the appellant on the basis that the Act is unconstitutional. The Court explained that it would be ineffective for the appellant to defend himself by stating that he had already remitted the sum to the Board, because a statute that governs a contract must inevitably impact the rights of every party to that contract. Consequently, if the statute is defective with respect to one party, it must be regarded as defective with respect to the other parties as well. Since the Court had already determined that the Act is unconstitutional even in relation to the appellant, it found it unnecessary to explore the issue further.

The discussion then turned to the respondents’ argument that the impugned legislation, in substance, deals with abandoned property and therefore, by its very nature, cannot infringe any person’s rights under Article 19(1)(f) or Article 31(2). The Court observed that this contention would be correct only if the legislation truly possessed the character claimed by the respondents. Only a person who has an interest in property can complain that legislation infringes that interest under either constitutional provision. If the property in question is genuinely abandoned, there is, by definition, no person who holds any interest in it. The Court therefore asked whether the Act can properly be classified as legislation concerning abandoned property. To answer this, it became necessary to examine the fundamental principles that underpin statutes dealing with abandoned property and to determine whether those principles are the very ones on which the Act was based.

The Court explained that the term “abandoned property,” or the more familiar Latin phrase “bona vacantia,” refers to two distinct categories of property: property that comes to the State by escheat and property over which no one can lay claim. Referring to the third edition of Halsbury’s Laws of England, volume 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.” It further clarified that a distinction exists between these two classes: when a person dies intestate, the State becomes the owner of the deceased’s estate as the ultimate heir, whereas in the case of abandoned property the State merely takes possession of the property. At common law, abandoned personal property could not be subjected to escheat; instead, it could only be appropriated by the sovereign as bona vacantia, as noted in Holdsworth’s History of English Law, second edition, volume 7, pages 495‑496. The Court also cited the decision in Connecticut Mutual Life Insurance Company v. Moore, in which the principle was articulated that “the State may, more properly, be custodian and beneficiary of abandoned property than any other person.” This principle, the Court said, illustrates the essential features of legislation that deals with abandoned property, namely that the law first provides for the State to conserve and safeguard such property for the benefit of the true owners for a reasonable period, and then, if no claim is made within the stipulated time, the property vests absolutely in the State.

The Court observed that the State could be regarded as a more proper custodian and beneficiary of abandoned property than any private individual. In keeping with this observation, statutes that deal with abandoned property normally contain two principal components. First, they require the State to conserve and protect the property for the benefit of the true owners during a specified and reasonable period during which no claim is made. Second, they provide that if the true owners fail to assert any claim within that limited time, the property would vest absolutely in the State. The Court noted that many American states have enacted statutes dealing with abandoned property and that the validity of those statutes has been examined repeatedly by the United States Supreme Court. In the case of Anderson National Bank v. Luckett, the statute concerned bank deposits. It stipulated that money deposited in a bank that 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, could be presumed abandoned. Under the statute the bank was required to transfer such funds to the State. Persons who believed they had a right to the deposits could present a claim to the Commissioner of Revenue, who would decide on the claim’s validity, and that decision could be reviewed by the courts. The validity of the statute was challenged on the ground that depositors had not been afforded a sufficient opportunity to claim the money and that, because the law could be attacked as unconstitutional, the bank would not obtain protection by simply paying the funds to the State. In rejecting that contention, the Supreme Court held that the statute did not deprive depositors of any of their rights because they were given ample opportunity to establish those rights, and that the statute merely substituted the State for the bank as the debtor. The Court further declared that the State possessed constitutional authority to safeguard depositors’ interests from the hazards associated with long‑neglected accounts by taking such accounts into custody when they appeared presumptively abandoned. In Connecticut Mutual Life Insurance Co. v. Moore, the statute dealt with sums payable under mature life‑insurance policies. It required that if such sums remained unclaimed for a period of seven years, the insurance companies must publish notice in the manner prescribed by the statute, and if no claim was thereafter made, the sums were to be transferred to the State Comptroller for safekeeping. The Court upheld that statute, commenting that it provided ample notice to beneficiaries, afforded administrative and judicial hearing of claims, and that no beneficiary could be injured by the procedure. The Court’s reasoning in Standard Oil Company v. New Jersey, which involved shares and unpaid dividends, was consistent with the earlier decisions, affirming the validity of statutes that allowed the State to take over unclaimed property after a reasonable period of inactivity.

In the case under consideration, the Court discussed a statutory provision that dealt with dividends that remained unclaimed for a period of fourteen years, and which authorised the State to take those dividends into its custody. The statute also required that notice to the unknown owners be given by way of advertisement. The Court noted that, following the earlier decision in Connecticut Mutual Life Insurance Company v. Moore, the law that mandated such a procedure had been held to be valid. After reviewing that precedent, the Court concluded that there was no reasonable doubt that the Act being challenged could not be characterised as legislation concerning abandoned property. The three‑year period mentioned in section 2(10) of the Act, the Court explained, is merely the limitation period prescribed in Article 102 of the Limitation Act. Even if the argument advanced by counsel for the respondents—that the class of persons whose claims fall within the Act justified treating the three‑year term as sufficient to raise a presumption of abandonment—the Court found that the term was not adequate to create such a presumption. The Court then identified a more serious deficiency in characterising the legislation as dealing with abandoned claims. It observed that the Act contains no mechanism for investigating the claims of employees, nor does it provide for payment of amounts that employees might establish as due to them. The primary purpose of legislation on abandoned property, the Court said, is to protect the property for the benefit of its true owner and to permit the State to assume custody only when no legitimate claim exists. A law that transfers ownership absolutely to the State without regard to the rights of the true owners therefore cannot be said to address abandoned property. Accordingly, the Court rejected the respondents’ contention on this point. Consequently, the Court held that section 3(1), insofar as it relates to unpaid accumulations referred to in section 3(2)(b), is unconstitutional and void. The Court then turned to the remaining provisions, namely section 3(1) and section 3(2)(a), which require employers to remit to the Board the fines collected from employees. On this issue, the Court observed that the position of employers with respect to fines is entirely different from their position regarding unpaid accumulations, citing precedent (341 U.S. 428; 1950 95 L.Ed. 1078). Section 8 of the Wages Act, the Court noted, governs the imposition of fines by an employer. That provision mandates that such fines be entered in a separate register and applied for the benefit of the employees. The appellant did not dispute that, under section 8, the fines constitute a trust fund and that the employers act as bare trustees of that fund. The appellant’s grievance, however, was that the impugned Act removed the trustees’ rights and vested them in the Board, and that, while the beneficiaries under section 8 are the employer’s own employees, section 5(2) of the challenged Act expands the class of beneficiaries to include other persons. The Court recognised that there might be some substance in the claim that the appellant was deprived of its trustee rights, if it had been deprived of such rights.

In this case, the Court noted that the appellant possessed no beneficial interest in the fund. Because the appellant clearly lacked any beneficial interest, the Court found it difficult to conclude that a substantial deprivation of property had occurred that would offend Article 31(2), as interpreted in the decisions of The State of West Bengal v. Subodh Gopal Bose and Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning and Weaving Co. Ltd. (supra). The Court also observed that no unreasonable interference with property rights sufficient to infringe Article 19(1)(f) was demonstrated. The appellant argued, with particular emphasis, that by expanding the class of beneficiaries, the Act had encroached upon the rights of its employees. However, the Court explained that the trust in question was not created by the appellant but by the Legislature, which conferred on the employees certain rights that previously did not exist. The Legislature retained the power to amend, rescind or modify those rights, and the Court did not perceive any injury to the employers arising from that legislative power. Consequently, the Court concluded that there were no valid grounds 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, the Court modified the order of the lower Court, declaring that the provisions of the impugned Act relating to “unpaid accumulations” were unconstitutional and void, while the provisions relating to “fines” were upheld as valid. An appropriate writ was directed to be issued against the respondents in the terms previously stated. The appeal was allowed in part; because “unpaid accumulations” constituted the larger portion of the claim, the Court ordered the respondents to bear half of the costs incurred by the appellant both in this Court and in the lower Court.