Mohmedalli And Others vs Union Of India And Another
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Petition No. 56 of 1962
Decision Date: 9 November 1962
Coram: J.C. Shah, Bhuvneshwar P. Sinha, P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta
In the matter of Mohmedalli and others versus Union of India and another, the Supreme Court delivered its judgment on 9 November 1962. The opinion was authored by Justice J. C. Shah and was pronounced by a bench consisting of Justice J. C. Shah, Justice Bhuvneshwar P. Sinha, Justice P. B. Gajendragadkar, Justice K. N. Wanchoo and Justice K. C. Das Gupta. The petitioners, identified as Mohmedalli and others, challenged the respondents, the Union of India and an additional party, seeking relief under Article 32 of the Constitution. The case is reported in the 1964 All India Reporter at page 980 and in the 1963 Supreme Court Reporter Supplement 1 at page 993, with subsequent citator references including R 1979 SC 607 and others. The substantive dispute concerned the constitutional validity of certain provisions of the Employees’ Provident Funds Act, 1952 (as amended by Act 46 of 1960), specifically sections 1(3)(b), 16 and 17, and of the Employees’ Provident Fund (Second Amendment) Scheme, 1961, in relation to Article 14 of the Constitution.
According to the petitioners, a notification issued by the Central Government under section 1(3)(b) of the Act had brought their restaurant within the ambit of the statute. A subsequent notification under section 5 read with section 7(1) introduced the 1961 amendment scheme, which the petitioners asserted was unconstitutional. They argued that section 1(3)(b) gave the Government an unfettered and unchannelled power to decide which establishments were covered, that the Act was intended only for wage‑earners and not for salaried employees such as those employed in the petitioners’ restaurant, and that the scheme therefore discriminated against them in violation of Article 14.
The Court held that the question of whether a legislative provision suffers from excessive delegation must be examined in light of the factual and contextual circumstances that gave rise to the impugned law. It observed that when the Act and its preamble fail to specify clear underlying principles or criteria for application, the delegate is effectively entrusted not merely with the administrative task of applying the law but with a substantial portion of legislative authority. Nevertheless, the Court concluded that the power granted to the Central Government to issue notifications that brought establishments within the scope of the Act was not uncontrolled or unchannelled. In reaching this conclusion, the Court referred to prior decisions such as Edward Mills Co. Ltd. Beawar v. State of Ajmer, Vasantlal Maganbhai Sanjanwala, and Hamdard Dawakhana Wakf Lal Kuan, Delhi v. Union of India.
The Court further noted that the Act does not distinguish between wages and salary; in principle the two terms are interchangeable, and it would be erroneous to say that the Act does not apply to salaried employees when salary is understood as regular fortnightly or monthly remuneration. Consequently, the Act was held to be non‑discriminatory and not in breach of Article 14, applying uniformly to all establishments covered by the statutory provisions.
In this case, the Court observed that section sixteen of the Employees’ Provident Funds Act had been amended by Act 46 of 1960, but the amendment excluded those establishments that were registered under the Co‑operative Societies Act of 1912 and also excluded those newly established until the expiration of a period of three or five years. The Court reiterated its earlier holding that co‑operative societies occupy a distinct position compared with other kinds of establishments, and therefore they cannot be treated in the same manner for the purposes of the Act. The Court further held that the exemption provided under section seventeen did not amount to discrimination, because it was based on the recognised separate status of co‑operative societies. Consequently, the petitioners’ establishment, which fell within the scope of the government notification, was not subject to any discriminatory treatment.
The judgment originated in the original jurisdiction under petition number 56 of 1962, filed under Article 32 of the Constitution of India for the enforcement of fundamental rights. The petitioners were represented by counsel, while the respondents – the Union of India and the Regional Provident Fund Commissioner – were represented by counsel for the Government. The judgment dated 9 November 1962 was delivered by Chief Justice Sinha. The petition challenged the constitutional validity of certain provisions of the Employees’ Provident Funds Act of 1952, hereinafter referred to as the Act, and of the scheme framed under that Act. The respondents were identified as the Union of India and the Regional Provident Fund Commissioner.
The petitioners, a group of five Indian citizens, were engaged in the business of operating a restaurant and general store known as “Messrs George Restaurant and Stores” at 20 Apollo Street, Fort, Bombay‑1, since September 1958. They conducted this enterprise as a partnership firm registered under the Indian Partnership Act. The firm employed a total of forty‑three persons, including cooks, waiters, tea‑makers, bill clerks and two store clerks. In addition to paying salaries, the petitioners provided their employees with free meals and other personal allowances, the details of which were not fully enumerated in the petition.
Invoking the authority conferred by section 1(3)(b) of the Act, the Central Government issued Notification G.S.R. 704 on 16 May 1961, which declared that, effective from 30 June 1961, the Act would apply to any establishment employing twenty or more persons in the categories of hotels and restaurants. As a result of this notification, the provisions of the Act were extended to hotels and restaurants, including the establishment operated by the petitioners. Subsequently, the Central Government issued another notification, G.S.R. 783, made under section 5 read with section 7(1) of the Act, which introduced a Scheme amending the Employees’ Provident Funds Scheme of 1952. The relevant portions of this second notification were reproduced in the judgment to set out the modifications introduced by the Scheme.
In this matter, the Court explained that the amendment was formally titled the Employees’ Provident Funds (Third Amendment) Scheme, 1961. The amendment altered the Employees’ Provident Fund Scheme, 1952 by renumbering sub‑clause (xvii) of sub‑paragraph (3) of paragraph 1 to become sub‑clause (xix). It further introduced two new sub‑clauses, numbered (xvii) and (xviii). The newly inserted sub‑clause (xvii) provides that, with respect to hotels and restaurants, the provisions of the Government of India notification issued by the Ministry of Labour and Employment, identified as G.S.R. 704 and dated 16 May 1961, shall become effective on 30 June 1961. The Court noted that this notification gave rise to the Employees’ Provident Funds (Third Amendment) Scheme, 1961. The petitioners challenged the constitutionality of that scheme and of the section of the Employees’ Provident Funds Act, 1952 under which the scheme was created. They sought a writ, order, or direction that would set aside the notification and requested the issuance of a mandamus directing the respondents not to apply the scheme to the petitioners’ establishment. Before addressing the specific grounds of attack raised by the petitioners, the Court found it necessary to recite the relevant provisions of the Act. The Act, as the Court recorded, applies to every establishment that is a factory engaged in any industry listed in Schedule 1 where twenty or more persons are employed, and it also applies to any other establishment employing twenty or more persons, or to any class of such establishments that the Central Government may specify by notification in the Official Gazette. The term “employee” is defined in Section 2(f) to mean any person employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment, who receives wages directly or indirectly from the employer. The definition further includes any person employed by or through a contractor in or in connection with the work of the establishment.
The Court went on to describe the powers conferred by Section 5 of the Act, which authorise the Central Government to frame a scheme—named the Employees’ Provident Fund Scheme—for establishing provident funds for employees or any class of employees and establishments to which the scheme may be applied, the scheme being brought into force by notification in the Official Gazette. Under the scheme, the employer’s contribution is prescribed as sixty‑one percent of the basic wages, dearness allowance and retaining allowance, if any. The employee’s contribution is required to be equal to the employer’s contribution, although the employee may, if he wishes and if the scheme provides, increase his contribution up to a maximum of six and one‑third percent. For the purpose of calculating contributions, dearness allowance is deemed to include the cash value of any food concession permitted to the employee. Section 7 empowers the Central Government to add to, amend, or vary any scheme framed under the Act. The Court also highlighted Section 16, which exempts from the operation of the Act any establishment registered under the Co‑operative Societies Act, 1912, and any other establishment employing fifty or more persons, or employing twenty or more but fewer than fifty persons for a specified period of three or five years respectively, from the date such establishment is set up. These provisions form the statutory backdrop against which the petitioners’ challenge to the Third Amendment Scheme was evaluated.
In the Act, establishments employing twenty or more but fewer than fifty persons were to be exempt for a period of three years from the date the establishment was set up, whereas establishments employing fifty or more persons were to be exempt for five years from the date of setting up. Section 17 authorises the appropriate Government, by issuing a notification in the Official Gazette, to exempt any establishment that falls within the ambit of the Act from all or any of the provisions of a scheme, provided that the Government is satisfied that the rules of the establishment’s provident fund with respect to contribution rates are not less favourable than those prescribed in section 6, and that the employees already enjoy other provident‑fund benefits which, taken as a whole, are not less favourable than the benefits guaranteed under this Act. The exemption may also be granted where the employees receive benefits of a nature comparable to provident‑fund, pension or gratuity benefits, and those benefits are not less favourable to the employees. Section 19 deals with the delegation of powers.
The petitioners raised three principal objections. First, they contended that section 1(3)(b), which brought restaurants and hotels within the operation of the Act by way of a notification, was invalid because it conferred an uncontrolled and un‑canalised power on the Government. Second, they argued that the Act was intended to apply only to wage‑earners and not to salaried persons, and therefore the two notifications that caused the petitioners’ employees to fall within the scope of the Act were defective since the employees were salaried and not mere wage‑earners. Third, they maintained that the scheme violated article 14 of the Constitution because it was discriminatory.
The Court found that none of these contentions possessed any substance. It held that it could not be said that the powers given to the Central Government to bring establishments or classes of establishments within the purview of the Act by notification in the Official Gazette were uncontrolled or un‑canalised. The entire Act is aimed at establishing provident funds for the benefit of employees in factories and other establishments, as its preamble makes clear. The purpose of instituting a provident fund for employees is well‑established and serves a recognised social‑justice objective. The underlying idea of the Act is to bring all categories of employees within its fold whenever the Central Government, after reviewing the circumstances of each class of establishment, deems it appropriate. Schedule 1 to the Act lists a wide variety of industries engaged in manufacturing diverse commodities. For all factories engaged in the industries enumerated in Schedule 1, the Act applies automatically, subject to the exceptions specified in section 16, which delineates the establishments to which the Act shall not apply. Schedule 1 may be amended or expanded to include additional categories of industries.
In this passage, the Court explained that the statute permits the Central Government to bring into its coverage industries that are not already listed in Schedule 1. For establishments that are not described as factories engaged in the industries enumerated in Schedule 1, the Central Government possesses the authority to specify such establishments or classes of establishments and to determine that they should fall within the ambit of the Act. The Act itself signals its underlying policy by stating that it is intended to apply to every factory engaged in any type of industry as well as to any other establishment that employs twenty or more persons. The Court has repeatedly held that when a statute leaves the discretion to apply its provisions to the Government, that discretion is presumed to be exercised responsibly and not to be misused. The Government is considered to have access to all relevant and necessary information about each category of establishment, enabling it to decide which establishments can bear the additional obligation of contributing to a provident fund for the benefit of their employees. The Court further observed that the power to grant exemptions under section 17 is not unlimited. Both clauses (a) and (b) of that section require that any exemption be based on the fact that the employees of the concerned establishments already enjoy benefits comparable to, or more favorable than, those provided under the Act, such as provident fund, pension, or gratuity. Section 1(3) sets out the general rule of applicability: subject to the provisions of section 16, the Act applies (a) to every establishment that is a factory engaged in any industry listed in Schedule 1 and that employs twenty or more persons, and (b) to any other establishment employing twenty or more persons or to any class of such establishments that the Central Government may specify by notification in the Official Gazette. The provision also allows the Central Government, after giving at least two months’ notice, to extend the Act to establishments employed fewer than twenty persons, if so notified. The term “industry” used in this subsection is defined in section 2(i) as any industry specified in Schedule 1, and it includes any other industry that may be added to the Schedule by a notification under section 4. Section 4 empowers the Central Government to add any other industry to the Schedule when it is of the opinion that a provident fund scheme should be framed for the employees of that industry, and once such a notification is issued, the added industry is deemed to be part of Schedule 1. Thus, the general rule of application of the Act is laid down in section 1(3), subject to the limited exceptions provided elsewhere.
The Court explained that, notwithstanding the general rule previously described, section 17 authorises the appropriate Government to grant exemptions from the operation of all or any provisions of any scheme that is framed under the Act. Under section 5, the Central Government is responsible for framing such a scheme for establishing a provident fund for employees or for any class of employees in accordance with the provisions of the Act. In the present matter, the scheme that is being questioned has already been framed by the Central Government and is presently the subject of this challenge. The Court then set out the exact wording of section 17, which reads: “Power to exempt.—(1) The appropriate Government may, by notification in the Official Gazette and subject to such conditions as may be specified in the notification, exempt from the operation of all or any of the provisions of any Scheme— (a) any establishment to which this Act applies if, in the opinion of the appropriate Government, the rules of its provident fund with respect to the rates of contribution are not less favourable than those specified in section 6 and the employees are also enjoying other provident fund benefits which, on the whole, are not less favourable to the employees than the benefits provided under this Act or any Scheme in relation to the employees in any other establishment of a similar character; or (c) any establishment if the employees of such establishment are enjoying benefits in the nature of provident fund, pension or gratuity and the appropriate Government is of opinion that such benefits, taken separately or jointly, are on the whole not less favourable to such employees than the benefits provided under this Act or any Scheme in relation to employees of any other establishment of a similar character.” From this language, the Court observed that the exemption power granted by section 17 is not intended to free an establishment entirely from all liability to provide the facilities contemplated by the Act. Rather, an exemption may be granted only when, in the view of the appropriate Government, the establishment already provides a provident‑fund arrangement that is at least equal to, and possibly more favourable than, the statutory scheme. In effect, the exemption is meant to avoid duplication of benefits and to permit employees to continue receiving the advantages of a pre‑existing scheme that is presumed to be functioning satisfactorily. Consequently, the exemption does not aim to deprive the employees of a provident‑fund benefit; instead, it seeks to ensure that the benefit continues, and that it is not offered on terms less favourable than those required by the Act. Because the overall purpose of the provident‑fund scheme is to benefit employees, section 17 serves only to preserve pre‑existing provident‑fund arrangements that pertain to particular establishments. Accordingly, the Court concluded that the provisions of subsection (3) of section 1, when read together with section 17 as quoted above, cannot be said to have bestowed an uncontrolled or un‑channeled power on the appropriate Government.
In discussing the scope of the power vested in the appropriate Government, the Court referred to its earlier decision in The Eduard Mills Co. Ltd., Beawar v. The State of Ajmer. In that case, the validity of section 27 of the Minimum Wages Act, 1948 was examined because it was alleged to grant an un‑controlled and un‑canalised authority. The Court observed that the provisions of the Minimum Wages Act were quite similar to those of the statute under challenge in the present matter. The Act attached a Schedule that listed the employments for which minimum wages were to be fixed, and section 27 authorised the appropriate Government to add any other employment to that Schedule whenever it was of the Government’s opinion that minimum wages should be prescribed for that employment. The petitioners argued that this power was devoid of any legislative policy that would guide the selection of employments and that no principles or standards were provided to give an intelligent guide to the executive authority. The Court rejected that contention, holding that the legislation did contain sufficient policy direction. A comparable issue was later considered by this Court in Vasantal Maganbhai Sanjanuwala v. The State of Bombay, which challenged the validity of section 6(2) of the Bombay Tenancy and Agricultural Lands Act, 1948. That provision allowed the Provincial Government, by notification in the Official Gazette, either to fix a lower maximum rent for tenants in a specific area or to fix such rent on any other suitable basis it deemed fit. After examining the preamble and relevant provisions, the Court concluded that the power delegated to the Provincial Government was not excessive, because the legislature had clearly articulated its policy and had laid down a guiding principle for the delegate. The Court therefore found that the impugned provision did not suffer from the vice of excessive delegation. The petitioners, however, heavily relied on the decision in Hamdard Dawakhana (Wakf) Lal Kuan, Delhi v. Union of India. In that matter, clause (d) of section 3 of the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 was struck down on the ground that it conferred un‑canalised and uncontrolled power on the executive. The entire Act had been challenged as infringing the fundamental rights guaranteed under Article 19(1)(a) and (g). While the Court upheld the overall constitutionality of the Act, it held that the specific wording in clause (d) was vague and that Parliament had failed to lay down any criteria, standards, or principles for specifying additional diseases or conditions, thereby rendering that portion of the provision void for excessive delegation.
In that earlier case the Court had held that the Act, taken as a whole, was constitutionally valid because its purpose was not to restrict freedom of speech but to regulate matters relating to trade and business. Accordingly, the Court found that the provisions challenged on that basis constituted reasonable restrictions on a citizen’s right to carry on any trade or business. However, the Court went on to observe that the phrase “or any other disease or condition which may be specified in the rules made under this Act” contained in clause (d) of section 3, which authorised the Central Government to enlarge the list of diseases covered by the provision, suffered from the defect of excessive delegation. The Court therefore struck down that part of the subsection, holding that the wording was vague and that Parliament had failed to lay down any criteria, standards or principles for determining which disease or condition could be placed in the Schedule.
The judgment explained that the question of whether a statute suffers from excessive delegation must be examined in the context of the facts and circumstances that existed when the legislation was enacted. If, after reviewing all relevant facts, the Court can ascertain that the legislature has clearly articulated the underlying principle of the law, set out criteria and proper standards, and merely left the application of those criteria to the executive in individual cases, then there is no excessive delegation. Conversely, if a review of the statute, including its preamble, leaves the Court uncertain about the principles and standards, the delegate is effectively exercising a substantial portion of legislative power rather than merely applying established law to facts. The Court noted that this principle has been affirmed in numerous earlier decisions.
Applying this established test to the present matter, the Court concluded that the legislature had indeed indicated clearly the principles underlying the legislation and had prescribed the standards to be applied. Therefore, the answer to whether the legislature failed to do so is an emphatic “No.” The petitioners also argued that the Act was intended to cover only wage‑earners and not salaried servants, contending that the employees of the petitioners were not mere wage‑earners. The Court found this distinction difficult to accept. Both “salary” and “wages” are forms of remuneration paid to an employee for labour, and neither term has a specialised legal meaning. The Act does not define “wages” beyond “basic wages,” nor does it differentiate between wages and salary. Whether remuneration is paid weekly, fortnightly or monthly, or whether the work is manual or skilled, does not create a legal separation between the two concepts. Hence, the Court rejected the argument that the Act should apply only to wage‑earners and not to salaried employees.
In this case the Court examined the statutory language that defines “emoluments” and “wages.” The provision states that emoluments are the amounts earned by an employee while on duty or while on leave, according to the terms of the employment contract, and that these amounts are paid or payable in cash, but it expressly excludes certain items, which the Court held were not material to the present dispute and therefore need not be read into the analysis. The Court then turned to the concept of “salary.” It observed that salary is remuneration paid to an employee whose engagement is of a more or less permanent character and who performs work that is not merely manual or unskilled. The Court noted that the distinction between skilled and unskilled labour is vague and that it cannot be argued, nor has any argument been made, that remuneration for skilled labour falls outside the meaning of “wages.” The statute itself makes no separation between the terms “wages” and “salary.” Both categories may be paid on a weekly, fortnightly or monthly basis, although payment for a single day's work is rarely described as salary. The Court emphasized that the fact that monthly wages may be large does not transform the earnings into something other than wages. For example, a clerk in an office may receive a modest amount compared with the monthly wages of a skilled labourer; traditionally the clerk’s earnings are called a salary, yet in principle there is no substantive difference between the two forms of remuneration. Consequently, the Court concluded that it is not established that the Act was intended to exclude salaried employees when “salary” simply refers to periodic wages, even if those wages run into hundreds of rupees per month. The Court then addressed the petitioners’ third and final contention that the Act is discriminatory and therefore violates Article 14 of the Constitution. This argument was found difficult to sustain because the Act, as currently framed, applies to all establishments except those listed in Section 16. Previously, before its amendment by Act 46 of 1960, Section 16 exempted establishments belonging to the Government or a local authority. The amendment removed that particular exemption. The Court reproduced the amended text of Section 16, which now provides that the Act shall not apply to (a) any establishment registered under the Co‑operative Societies Act, 1912, or under any other law in force in any State relating to co‑operative societies that employs fewer than fifty persons and operates without the aid of power; or (b) any other establishment employing fifty or more persons, or between twenty and fewer than fifty persons, for a period of three years in the former case and five years in the latter case, measured from the date the establishment is or has been set up. An explanatory note clarifies that a mere change of location does not render an establishment “newly set up.” Clause (a) of the revised Section 16 therefore exempts certain co‑operative societies, while clause (b) provides a temporary exemption for newly established enterprises, a classification intended to relieve them from the immediate burden of contributing to the provident fund for their employees.
The Court observed that establishments registered under the Co‑operative Societies Act benefit from a long‑standing policy of the Government aimed at encouraging the development and growth of co‑operative societies for the public good. The Court noted that it is unnecessary to list the many earlier decisions in which it has held that co‑operative societies occupy a distinctive position that sets them apart from ordinary businesses or corporations. Clause (b) of the provision, the Court explained, pertains to establishments that have existed for a period of less than three years or less than five years, as appropriate. This classification is intended to relieve newly formed establishments from the immediate obligation to make contributions to the provident fund for their employees, thereby reducing their initial financial burden. The Court further clarified that this exemption is temporary; once the three‑year or five‑year period has elapsed, the establishment will automatically become subject to the scheme established under the Act. Regarding the operation of section 17, the Court reiterated that inclusion within the exemptions provided or to be provided by that section does not diminish the establishment’s responsibility to contribute its share to the fund. The petitioners had not contested that their establishment falls within the general rule prescribed in section 1(3) of the Act nor that it is covered by the scheme described in section 5. Moreover, the Court affirmed that all hotels and restaurants are encompassed by the notification that is the subject of this challenge. Consequently, the Court found no basis for any claim that the petitioners’ establishment, belonging to that category, was subjected to hostile discrimination. Since every argument presented on behalf of the petitioners was rejected, the Court dismissed the petition, ordered costs against the petitioners, and entered a final order of dismissal.