State of Uttar Pradesh and Others vs Basti Sugar Mills Co., Ltd

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 790 of 1957

Decision Date: 11 November 1960

Coram: J.R. Mudholkar, P.B. Gajendragadkar, A.K. Sarkar, K.N. Wanchoo

The Supreme Court of India delivered its judgment on 11 November 1960 in the matter of State of Uttar Pradesh and Others versus Basti Sugar Mills Co., Ltd. The bench hearing the case consisted of Justice J. R. Mudholkar together with Justices P. B. Gajendragadkar, A. K. Sarkar and K. N. Wanchoo. The decision is reported in 1961 AIR 420 and 1961 SCR (2) 330, and it also appears in later citator references. The dispute arose under the United Provinces Industrial Disputes Act, 1947 (U. P. 28 of 1947), specifically sections 3(b) and 3(d), and involved considerations of the Constitution of India, notably Article 19(1)(f). The Government of Uttar Pradesh had appointed a Court of enquiry pursuant to sections 6 and 10 of the same Act to investigate an industrial question concerning bonus payments. The enquiry reported its findings to the State Government, which subsequently issued a notification in July 1950 directing all sugar factories in the state to pay a bonus to their workmen for the financial year 1948‑49 and also to pay certain bonus amounts for the year 1947‑48. Basti Sugar Mills Co., Ltd. contested the notification before the High Court, seeking to restrain the Government from enforcing it. The State Government appealed the High Court order, arguing that clause (b) of section 3 gave it sufficient authority to issue such a direction because the direction would merely impose a future condition of employment on the employer. The respondents advanced several points of contention: (i) that clause (b) does not operate retrospectively; (ii) that a bonus can be a term of employment only by agreement and cannot be imposed by statute; (iii) that where an industrial dispute exists, clause (d) of section 3, not clause (b), ought to apply; and (iv) that even if clause (b) were applicable, it would be ultra vires, discriminatory, violative of Article 14 of the Constitution and also infringe Article 19(i) by conferring arbitrary powers on the State Government.

In its analysis, the Court held that although clause (b) of section 3 of the United Provinces Industrial Disputes Act, 1947, cannot be given retrospective effect, there is nothing in that clause that prevents the State Government from issuing a direction concerning the payment of bonus. The Court observed that by issuing the direction the Government was not retroactively applying the provisions of clause (b) nor introducing a new term or condition for a period that had already elapsed; rather, it merely required the employer to pay an additional sum of money to employees as a term and condition of future employment. The Court further noted that, although wages are ordinarily a term of contract, they can be made a condition of employment by statute, and the State Government was therefore within its authority under clause (b) to make the payment of bonus a future condition of employment. The judgment stopped at this point, leaving the remaining analysis to be addressed in subsequent portions of the opinion.

It was held that a bonus could be made a condition of employment by means of a statute, and that the State Government was authorised under clause (b) of section 3 to declare that the payment of bonus to workmen would become a condition of their future employment. The Court observed that where employees had bargained collectively, the fact that the factory personnel in place at the time the Government issued the order for bonus payment were not the same as those who were employed during the period to which the dispute related did not diminish the Government’s authority. The order was limited to those employees who actually worked in the relevant period and did not extend to newly hired workers. The Court further noted that the usual method of resolving an industrial dispute is judicial adjudication rather than resort to executive action; however, clause (b) of section 3 furnishes the Government with the power to act swiftly in an emergency and supplies additional authority to manage such an emergency in the public interest. When the Government exercised an executive or peremptory power under clause (b) of section 3 on the ground of public interest, the aggrieved party retained the right to request that the Government refer the industrial dispute to conciliation or adjudication under the same clause. The Court explained that the provisions of clause (b) of section 3 are not in any way an alternative to those of clause (d); the former may be invoked by the State only during an emergency and as a temporary measure. Accordingly, the right of either employer or employee to demand that the dispute be referred for conciliation or adjudication remained intact and could be exercised by taking the appropriate steps. Moreover, clause (b) of section 3 of the Act was found not to violate Article 19(1)(g) of the Constitution because it authorises Government action only in an emergency and in the public interest. The restriction imposed on the employer is temporary and, being justified on public‑interest grounds, falls within the permissible limitation under clause (6) of Article 19. The Court approved the decision in Ram Nath Koeri and Anr. v. Lakshmi Devi Sugar Mills and Ors., (1956) 11 L.L.J. 11, and overruled the earlier authority L. D. Mills v. U.P. Government, A.I.R. 1954 All. 705.

The judgment was rendered in a civil appellate jurisdiction, identified as Civil Appeal No. 790 of 1957, which arose from the judgment and decree dated 10 February 1954 of the Allahabad High Court in Civil Miscellaneous Writ No. 280 of 1950. Counsel for the appellants consisted of lawyers representing the State of Uttar Pradesh, while counsel for respondent No. 1 represented the opposing side. The appeal was decided on 11 November 1960, and the opinion was delivered by Justice Mudholkar. The matter before the Court was an appeal by the State of Uttar Pradesh against the decision of the Full Bench of the Allahabad High Court in the writ petition, wherein the respondents had challenged certain orders made by the Government of Uttar Pradesh under section 3, clause (b) of the United Provinces Industrial Disputes Act, 1947. The issues centered on the validity and constitutional propriety of those orders, including the requirement for payment of bonus and retaining allowances to workers, and the Court’s analysis addressed the statutory powers, emergency provisions, and constitutional limits applicable to the Government’s actions.

In this case the Government of Uttar Pradesh had issued orders under section 3, clause (b) of the United Provinces Industrial Disputes Act, 1947 (Act XXVIII of 1947) that required the respondents, who were sugar factories, to pay bonuses to their workers at specific rates for the financial years 1947‑48 and 1948‑49. The orders also directed the payment of retaining allowances to skilled seasonal workmen and to clerical staff. The background to those orders began on 15 December 1949 when the Indian National Sugar Mills Workers’ Federation, Lucknow, served notices on a number of sugar factories in Uttar Pradesh stating six separate demands. Only one of those demands was the subject of the present appeal; that demand sought the payment of bonus for the year 1948‑49 and the restoration of a reduction that had been made to the bonus for the preceding year. By the same notice the Federation warned that, if the sugar factories did not accede to the demand, a strike would be launched in the industry effective 16 January 1960. Because the threat created an industrial dispute, the Government of Uttar Pradesh invoked the powers granted to it by sections 6 and 10 of the Industrial Disputes Act, 1947 (Act XIV of 1947) and appointed a Court of Inquiry to investigate the matter. The notification that created the Court of Inquiry listed the points to be examined; it was subsequently amended twice, although those amendments did not affect the substantive issues.

The Court of Inquiry conducted a full hearing in which representatives of both the employers and the employees were present, and each side submitted material evidence. After completing its examination, the Court of Inquiry submitted its report to the Government on 15 April 1950. Pursuant to section 17 of the Industrial Disputes Act, 1947, the Government published the report in the Uttar Pradesh Gazette on 8 May 1950. Exercising the authority conferred by section 3(b) of the Uttar Pradesh Industrial Disputes Act, 1947, the Government then issued a notification on 5 July 1950 directing the various sugar factories to pay the stipulated bonuses for the year 1948‑49 and to make certain bonus payments for the year 1947‑48. The same notification also ordered the payment of retaining allowances to skilled seasonal workmen and clerical staff, to take effect from the off‑season in 1950. In response, the Indian Sugar Millers Association, an organisation of sugar factories registered under the Trade Union Act, filed a petition before the Allahabad High Court under article 226 of the Constitution, seeking a writ that would prohibit the Government from enforcing the notification. The High Court dismissed the petition on 14 September 1950, holding that the Association did not possess a legal interest in the matter. Following that decision, several individual sugar mills filed separate writ petitions, the respondents in this appeal being among those petitioners.

The petitioners had filed writ petitions before the High Court of Allahabad, one of the respondents being among those petitioners. The petitioners raised as many as fourteen grounds in their writ applications. However, the Court limited its consideration to three of those grounds, the arguments on which were presented by counsel for the respondents, Mr G S Pathak. Before addressing those three grounds, the Court first completed the factual narration. The Allahabad High Court allowed the writ petitions insofar as the issue of payment of bonus was concerned, although Justice Sapru, a member of the Full Bench, expressed doubt about the correctness of the view that the State Government’s order on bonus payment was invalid. Following the High Court’s decision, the State of Uttar Pradesh applied for a certificate of fitment under Articles 133(1)(b) and 133(1)(c) of the Constitution. The High Court granted that certificate, and consequently the present appeal was brought before this Court for determination.

To understand the points raised by counsel Mr G S Pathak, it was necessary to set out the relevant provisions of Section 3 of the Uttar Pradesh Industrial Disputes Act, 1947. The section provides that, if in the opinion of the State Government it is necessary or expedient to secure public safety, convenience, public order, essential supplies and services, or to maintain employment, the Government may, by a general or special order, make provisions for various matters. Clause (a) authorises the Government to prohibit, subject to the terms of the order, strikes or lock‑outs generally, or a specific strike or lock‑out in connection with any industrial dispute. Clause (b) empowers the Government to require employers, workmen, or both to observe, for a period specified in the order, such terms and conditions of employment as may be determined in accordance with the order. Clause (c) allows for the appointment of industrial courts. Clause (cc) provides for the appointment of committees representing both employers and workmen to promote amity, good relations, and the settlement of industrial disputes through conciliation, as well as to give consultation and advice on matters relating to production, organisation, welfare and efficiency. Clause (d) authorises the Government to refer any industrial dispute for conciliation or adjudication in the manner prescribed by the order. Clause (e) empowers the Government to require any public utility service or subsidiary undertaking not to close or remain closed and to continue to work under conditions specified in the order. Clause (f) enables the Government to exercise control over any public utility service or subsidiary undertaking by authorising an “authorised controller” to perform, with respect to the service or undertaking or part thereof, such functions of control as may be specified in the order. The order, once made, binds the service, undertaking or part thereof for as long as it is carried on in accordance with any directions issued by the authorised controller.

The order stated that it would remain in force as long as it was carried out in accordance with any directions issued by the authorised controller under the provisions of the order, and that every person possessing any management functions over the service, undertaking or part thereof must comply with such directions. The order further authorised the State Government to deal with any incidental or supplementary matters that it considered necessary or expedient for the purposes of the order. A proviso was attached to the order stating that no order made under clause (b) (i) could require an employer to observe terms and conditions of employment that were less favourable to the workmen than those that had been applicable to them at any time within the three months preceding the date of the order. The proviso also provided that if an industrial dispute was referred for adjudication under clause (d), the order would be enforced only after the decision of the adjudicating authority was announced or with the consent of the State Government.

The High Court had held that clause (b) of section 3 of the Uttar Pradesh Industrial Disputes Act, 1947, operated prospectively, meaning that the State Government could only ask an employer or employee to observe a term or condition of employment in the future, and therefore it could not compel an employer to pay bonus for a period of employment that had already elapsed. The State challenged that view before this Court, arguing that the provisions of the cited clause were sufficiently wide to permit the State Government to issue such a direction to the employer, because the direction merely imposed a condition of employment to be observed in the future. In response, counsel for the State, Mr Pathak, raised three separate points. First, he contended that clause (b) of section 3 did not have retrospective effect and must be construed as having only prospective operation. Second, he argued that the clause did not apply at all where an industrial dispute had arisen, and that the appropriate provision for State action in such a situation was clause (d). Third, he submitted that if clause (b) were interpreted as applicable even after an industrial dispute had arisen, it would be ultra vires because it would enable the State Government to discriminate between one industry or industrial unit and another, or between one workman and another, by referring some cases for adjudication under clause (d) while issuing an executive order in respect of others. He further maintained that the provisions of clause (b) violated Article 14 of the Constitution, and also contravened Article 19(1)(g) of the Constitution by granting the State Government an arbitrary power to require an employer to pay whatever amount it deemed fit to an employee, thereby imposing an unreasonable restriction on the employer’s right to conduct his business.

In this case the Court agreed with the Allahabad High Court that clause (b) of section 3 could not be given a retrospective operation, and therefore it could not impose an unreasonable restriction on the employer’s right to carry on his business. Nevertheless the Court was not prepared to accept the view that the State Government, by directing employers to pay bonus for the years in dispute, had attempted to give a retrospective effect to that clause. The order issued by the State Government concerning the bonus stipulated that the bonus should be paid for the year 1947‑48 to those persons who had worked during that year and for the year 1948‑49 to those persons who had worked in that year. The order further required that the payment be made within six weeks of the issuance of the order. By issuing this direction the State Government merely attached a condition to the employment of workmen in the sugar factories for the year 1950‑51, which were the factories affected by the order. Apart from that, the order made no other substantive change to the employment relationship.

Mr Pathak argued that bonus possessed certain attributes of wage and that wage, being a matter of contract, could only arise from an agreement between employer and employee and could not be imposed as a condition of employment by statute or by a Government acting under statute. The Court accepted that wage is normally a term of contract, but it rejected the proposition that a wage or bonus could not be made a condition of employment. It noted that the Minimum Wages Act already makes a statutory minimum wage a condition of employment for specified categories of work, illustrating that a wage can indeed be imposed as a condition. Accordingly, the Court held that section 3 clearly empowered the State Government to require employers, workmen, or both to observe any term or condition of employment for a specified period. Since the legislation allowed the State Government to impose a term, it was evident that the legislature did not intend a restrictive interpretation of the word “term”. Consequently, the Court could not accept the argument that clause (b) barred the State Government from making the payment of bonus a condition of future employment and thereby augmenting past wages. Mr Pathak then quoted a passage from the judgment of Bhargava J., which stated that it was impossible to require anyone to observe, for a future period, terms and conditions of employment that had already been effective and performed. According to Mr Pathak, the effect of the Government’s order was to add a new term or condition concerning employment for a period that had already elapsed. The Court, however, found that interpretation to be inaccurate.

The Court again observed that the order of the Government was not intended to create a new term of employment retroactively, but solely to require the employer to pay an additional sum of money to his employees as a condition of future work. Counsel for the respondent argued that such a requirement would inevitably oblige the payment of bonus to newly hired workers who had not participated in generating the profits on which the bonus was based, and that this consequence would contradict the very concept of a profit‑sharing bonus. The Court refuted that contention by stating that, under the Government’s order, the bonus was payable only to those workers who were actually employed during the specific years in question and not to any employees who joined after those years. The Court further noted that the dispute involved collective bargaining by the employees, and therefore the question of whether the persons employed in July 1950, when the order was issued, were the same individuals who worked in the years 1947‑48 and 1948‑49 was irrelevant to the resolution of the dispute. Referring to the observations of Justice Sapru, the Court quoted that the employees could reasonably maintain that the payment of bonus for the years 1947‑48 and 1948‑49, to workers who were employed in those years, was viewed by future employees as a preliminary and essential condition not only for settling the industrial dispute then pending but also for ensuring the continuity of their own employment in the sugar factories. The Court agreed with the learned judge that the State Government was not issuing a retrospectively applicable order; rather, the order was designed to secure the cooperation of workers employed in 1950 by assuring them of satisfactory conditions. It was emphasized that the industrial dispute was alive at the time the impugned order was made, even though its origins lay in earlier years, and that the order’s purpose was to extinguish the dispute by eliminating its underlying cause. Counsel for the respondent then relied on the observations of Justice Bhargava in L. D. Sugar Mills v. U. P. Government, wherein it was held that the phrase “to observe for such period as may be specified, such terms and conditions of employment as may be determined” indicates that clause (b) of section 3 of the Uttar Pradesh Industrial Disputes Act, 1947, empowers the Government to prescribe future terms and conditions of employment, not to dictate the operation of an already existing term. The Court noted, however, that Justice Bhargava’s decision was later overturned by the division bench of the Allahabad High Court in the Letters Patent Appeal in Ram Nath Koeri and Another v. Lakshmi Devi Sugar Mills and Others.

In the present case the Court agreed with the view taken by the Appellate Bench and held that clause (b) of section 3 of the Uttar Pradesh Industrial Disputes Act, 1947 did not prohibit the State Government from issuing a direction to sugar factories concerning the payment of bonus for the financial years 1947‑48 and 1948‑49 in the order dated 7 July 1950. The Court further observed that by issuing such a direction the Government was not giving retrospective effect to the provisions of that clause. The Court noted that any direction regarding the payment of bonus necessarily had to be based on the surplus that was actually available, and that surplus could be ascertained only after the close of a particular year. Consequently, the impugned (1) order purports to require the employers to pay specified amounts in the future, although those amounts were fixed by reference to the profits made in the two preceding years. Because the direction was to be applied to future payments and was based on profits already determined, it could not be characterised as retrospective. The Court then turned to the argument presented by counsel for the petitioner, which at first glance appeared more difficult. Counsel pointed out that an industrial dispute had indeed arisen, and that it was on that basis that the State Government had appointed a Court of Inquiry. Consequently, counsel argued that the State Government should have resorted only to the special provisions of clause (d) of section 3, and not to the more general provisions of clause (b). In other words, where an industrial dispute existed, the appropriate procedure under the Act was to refer the matter to conciliation or adjudication under clause (d), rather than to resolve it through an executive order as had been done in this case. Counsel further cited another passage from the judgment of Bhargava,, which stated that the language of the provision indicated that it was not intended to deal with individual disputes arising from the application of an existing term or condition of employment, and that no power was conferred on the State Government to sit as an adjudicator to decide such disputes. The provision was intended to enable the State Government to vary agreed terms and conditions of employment for purposes specified in clause (a) of the Act, when pressing necessities or expediency justified such action. The Court fully agreed with counsel that the normal method of dealing with an industrial dispute under the Act was to refer it to a judicial process, either by conciliation or adjudication, and that such a judicial process could not be bypassed by resorting to executive action.

The Court explained that the purpose of a judicial proceeding cannot be avoided by using executive power. A proceeding before a conciliator or an adjudicator is, in effect, a judicial proceeding because it gives both parties the chance to be heard and to present the relevant material to the decision‑maker. Nevertheless, the Court recognized that an emergency may arise in which the Government must act swiftly to protect public safety, convenience, public order, essential supplies and services, or to preserve employment. For such situations, the legislature introduced clause (b) of section 3 to give the State additional authority. An order issued under clause (b) is intended to be temporary or interim, as shown by the phrase “for such period as may be specified” and by the second proviso to section 3. That proviso further provides that when an industrial dispute is referred for adjudication under clause (d), any order made under clause (b) cannot be enforced after the adjudicating authority has delivered its decision, unless the State Government consents to its enforcement.

Consequently, the Court held that when the Government issues an executive order under clause (b) on the ground of public interest, the aggrieved party may request that the dispute be referred for conciliation or adjudication under clause (d). Although counsel for the petitioner argued that the State retains discretion to refer or not refer a dispute under clause (d), the Court found that once the State has acted under clause (b), it may not refuse to refer the matter under clause (d). The State’s representative accepted this position and added that, should the State refuse, the High Court could compel it to act by issuing a writ of mandamus under Article 226 of the Constitution. The Court also addressed the contention that clause (b) is not limited to emergencies. It observed that the very opening words of section 3 indicate that its provisions are meant for emergency situations. Even a reference to an arbitrator or conciliator is permissible only when an emergency exists, but an acute emergency may demand the use of the powers under clause (b), and merely resorting to clause (d) might be insufficient to meet the exigency.

The Court observed that relying solely on the provisions of clause (d) might be insufficient to address the circumstances before it, and therefore the decision to invoke either clause must be based on the State Government’s subjective satisfaction, since the legislature has entrusted it with the authority to act under section three. The Court acknowledged that this conclusion required a specific interpretation of the statutory language, but it maintained that such an interpretation was appropriate and justified. The counsel, having made submissions on behalf of the respondent, argued that a statute should be interpreted, wherever possible, in a manner that avoids internal conflict among its provisions and that ensures the statute or any part of it remains consistent with the Constitution. Accordingly, the Court agreed that limiting the operation of clause (b) to situations of emergency did not contravene the legislature’s wording. Moreover, the Court noted that even if the breadth of the language could not be narrowed by construction, the advent of the Constitution meant that, by virtue of article thirteen, the provisions would have only a limited effect to the extent of any inconsistency, rendering the inconsistent parts void. Consequently, the Court held that the provisions of clause (b) of section three are not alternatives to those of clause (d); rather, clause (b) may be invoked by the State Government only during an emergency and as a temporary measure. The Court further emphasized that the right of either an employer or an employee to demand that a dispute be referred to conciliation or adjudication remains intact and may be exercised through the appropriate procedural steps. Under the interpretation placed on clause (b), the Court found that no issue of discrimination arose. It also held that the Government’s action, taken in an emergency for the public interest, fully answered any claim that such action violated article nineteen, sub‑paragraph (g). The temporary restriction imposed on the employer by the order was deemed to fall within the permissible limits of article nineteen, sub‑paragraph (6), because it served the public interest. In light of this reasoning, the Court concluded that the High Court erred in issuing a writ that set aside the State Government’s order concerning bonus payment. Accordingly, the appeal was allowed, the order of the High Court was set aside, and the respondents were directed to bear the costs of the appeal.