W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 1 of 38

$~

* IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 24 February 2026

Pronounced on: 29 May 2026

+ W.P.(C) 1765/2016 & CM APPL. 7559/2016

AVIVA LIFE INSURANCE

COMPANY INDIA LTD. .....Petitioner

Through: Mr. Abhishek Awasthi and Ms.

Amisha Ray, Advs.

versus

UNION OF INDIA & ANR .....Respondents

Through: Ms. Arti Bansal CGSC with

Ms. Shruti Goel, Adv. for UOI

+ W.P.(C) 2150/2016 & CM APPL. 9205/2016

INDIAN SUGAR MILLS

ASSOCIATION & ANR .....Petitioners

Through: Mr. Sridhar Potaraju, Sr. Adv.

with Ms. Shiwani Tushir, Ms. Niharika

Singh, Ms. Chamundeswari Pemmasani and

Ms. Arlene Noronha, Advs.

versus

UNION OF INDIA .....Respondent

Through: Ms. Arti Bansal CGSC with

Ms. Shruti Goel, Adv. for UOI

CORAM:

HON'BLE MR. JUSTICE C. HARI SHANKAR

HON'BLE MR. JUSTICE OM PRAKASH SHUKLA

% JUDGMENT

29.05.2026

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 2 of 38

C. HARI SHANKAR, J.

A. The lis

1. The Payment of Bonus (Amendment) Act, 2015

1

, which

amended the Payment of Bonus Act, 1965

2

, received Presidential

assent on 31 December 2015 and was published in the Official

Gazette of India on 1 January 2016. Section 1(2) of the impugned

Amendment Act brought it into force on 1 April 2014. In other words,

the impugned Amendment Act was made effective retrospectively.

2. To the extent the impugned Amendment Act has been made

retrospectively applicable, the petitioners have, by these writ petitions,

sought to challenge it.

3. At the outset, it merits mention that the additional liability

which would fall on the petitioners, as a consequence of the

retrospective application of the impugned Amendment Act, is only for

one year, i.e. 2014-2015, as the amendments were made applicable

with effect from 1 April 2014, and the impugned Amendment Act was

published in the Gazette on 1 January 2016.

4. The petitioners are principally aggrieved by Sections 2 and 3 of

the impugned Amendment Act, to the extent that they have been made

retrospectively applicable with effect from 1 April 2014. Sections 2

and 3 of the impugned Amendment Act read thus:

1

"the impugned Amendment Act" hereinafter

2

“PBA” hereinafter

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 3 of 38

“2. Amendment of Section 2.— In Section 2 of the Payment

of Bonus Act, 1965 (21 of 1965) (hereinafter referred to as the

principal Act), in clause (13), for the words “ten thousand rupees”,

the words “twenty-one thousand rupees” shall be substituted.

3. Amendment of Section 12.— In Section 12 of the

principal Act,—

(i) for the words “three thousand and five hundred

rupees” at both the places where they occur, the words

“seven thousand rupees or the minimum wage for the

scheduled employment, as fixed by the appropriate

Government, whichever is higher” shall respectively

be substituted;

(ii) the following Explanation shall be inserted at the

end, namely—

Explanation.— For the purposes of this section, the

expression “scheduled employment” shall have the

same meaning as assigned to it in clause (g) of

Section 2 of the Minimum Wages Act, 1948.”

Resultantly, Section 2(13) and 12 of the PBA read, before and after

amendment, thus:

Provision Before Amendment After Amendment

Section 2(13) “employee” means any person

(other than an apprentice)

employed on a salary or wage

not exceeding ten thousand

rupees per mensem in any

industry to do any skilled or

unskilled manual,

supervisory, managerial,

administrative, technical or

clerical work of hire or

reward, whether the terms of

employment be express or

implied;

“employee” means any person

(other than an apprentice)

employed on a salary or wage

not exceeding twenty-one

thousand rupees per mensem in

any industry to do any skilled

or unskilled manual,

supervisory, managerial,

administrative, technical or

clerical work of hire or reward,

whether the terms of

employment be express or

implied;

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 4 of 38

Section 12 Calculation of bonus with

respect to certain

employees. – Where the

salary or wage of an

employee exceeds three

thousand and five hundred

rupees per mensem, the bonus

payable to such employee

under Section 10 or, as the

case may be, under Section

11, shall be calculated as if

his salary or wage were three

thousand and five hundred

rupees per mensem.

Calculation of bonus with

respect to certain employees.

– Where the salary or wage of

an employee exceeds seven

thousand rupees or the

minimum wage for the

scheduled employment, as

fixed by the appropriate

Government, whichever is

higher per mensem, the bonus

payable to such employee

under Section 10 or, as the

case may be, under Section 11,

shall be calculated as if his

salary or wage were seven

thousand rupees or the

minimum wage for the

scheduled employment, as

fixed by the appropriate

Government, whichever is

higher per mensem.

Explanation. – For the

purposes of this section, the

expression “scheduled

employment” shall have the

same meaning as assigned to it

in clause (g) of Section 2 of

the Minimum Wages Act,

1948 (11 of 1948).

5. The consequence of the impugned amendments may thus be set

out:

(i) Section 8

3

of the PBA deals with eligibility for bonus. It

stipulates that every employee, who has worked in the

3

8. Eligibility for bonus.—Every employee shall be entitled to be paid by his employer in an

accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the

establishment for not less than thirty working days in that year.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 5 of 38

establishment for not less than 30 days in that year, is entitled to

bonus.

(ii) The definition of “employee” has been amended by the

impugned Amendment Act. The maximum salary which could

be drawn, for being eligible to be regarded as an “employee”

for the purposes of the PBA, was enhanced from ₹ 10,000 per

month to ₹ 21,000 per month. Quite obviously, the number of

persons, employed by the establishment, who fall within the

coverage of the expression “employee”, has increased manifold.

(iii) Section 12 sets out the manner in which bonus is to be

calculated.

(iv) Prior to the impugned Amendment, the maximum bonus

payable was to be computed on the basis of a monthly salary or

wage of ₹ 3500. In other words, an employee who earned more

than ₹ 3500 per month would be entitled to bonus as if she, or

he, was drawing a salary of ₹ 3500 per month. The amount of

bonus payable was, therefore, frozen at the bonus which would

be payable to an employee who earned ₹ 3500 per month.

(v) After the impugned Amendment, the salary ceiling of ₹

3500 per month has been raised to ₹ 7000 per month or the

statutorily fixed minimum wages per month, whichever is

higher. After Amendment, therefore, the maximum bonus

payable was frozen at the bonus which would be payable to an

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 6 of 38

employee drawing a salary of ₹ 7000 per month or the

statutorily fixed minimum wages, whichever was higher.

It is obvious that, by virtue of the impugned amendments, the

financial liability, towards the bonus payable to their employees, on

all establishments, which fell within the purview of the PBA, has

increased – as the petitioners would urge, substantially.

6. The petitioners in these writ petitions do not, quite fairly,

dispute the authority of the legislature to increase the bonus payable to

employees under the PBA. Their grievance is with respect to the

retrospective application of the amendment incorporated by the

impugned Amendment Act, which has been made applicable with

effect from 1 April 2014. The result is that, though bonus had already

been paid by the petitioners, to their employees, in terms of the pre-

amended PBA, additional bonus had, by the impugned Amendment

Act and the retrospective application of its provisions, become

payable for the period 2014-2015, as a result of a greater number of

employees falling within the coverage of the PBA and the bonus

payable under the PBA itself being frozen at a level higher than that at

which it was frozen under Section 12 of the pre-amended PBA.

7. The retrospective application of the impugned Amendment Act

with effect from 1 April 2014 is, according to the petitioners,

unconstitutional.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 7 of 38

8. At this juncture, it is necessary to note an important fact.

Section 19(b)

4

of the PBA specified the time limit within which bonus

was to be paid to employees in an establishment. In normal cases, the

outer limit within which bonus was payable was eight months from

the close of the accounting year. The accounting year, for the year

2014-2015, ended on 31 March 2015. The period of eight months,

envisaged in Section 19(b) would, therefore, have ended on 30

November 2015. One of the contentions which was advanced before

us, principally by learned Counsel for the petitioners was that, as the

impugned Amendment Act was Gazetted only on 1 January 2016, it

was impossible to comply with the amended provisions, as the time

for compliance had already expired on 30 November 2015. The Court

noticed, however, that this submission was not strictly correct as the

proviso to Section 19 empowers the appropriate Government authority

to, on an application being made to it, and for sufficient reasons, by

order, extend the period of eight months to such further period as it

thought fit, not, however, in any case, to exceed two years. In view of

the plea of impossibility urged by Mr. Awasthi, we queried of Ms.

Arti Bansal, learned CGSC appearing for the respondents, as to

whether the respondents were agreeable, in exercise of the discretion

vested by the proviso to Section 19 of the PBA, to extend the time for

compliance, by the petitioners, with the amended provisions of the

19. Time-limit for payment of bonus.— All amounts payable to an employee by way of bonus under

this Act shall be paid in cash by his employer—

(a) where there is a dispute regarding payment of bonus pending before any authority under

Section 22, within a month from the date on which the award becomes enforceable or the

settlement comes into operation, in respect of such dispute;

(b) in any other case, within a period of eight months from the close of the accounting year:

Provided that the appropriate Government or such authority as the appropriate Government

may specify in this behalf may, upon an application made to it by the employer and for sufficient

reasons, by order, extend the said period of eight months to such further period or periods as it

thinks fit; so, however, that the total period so extended shall not in any case exceed two years.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 8 of 38

PBA, as the provisions themselves had remained under challenge

before this Court, and this Court had, by order dated 29 February

2016, stayed the operation of the impugned Amendment Act.

9. Ms. Bansal responded, on instructions, on 24 February 2026,

that the respondents were agreeable to grant of eight months’

extension under the proviso to Section 19 of the PBA in order to

enable the petitioners to discharge the additional liability which would

fall on them for the year 2014-2015 as a consequence of the impugned

amendments.

10. On this suggestion being made, learned Counsel for the

petitioners in these writ petitions parted ways.

11. Mr. Awasthi, on instructions, was agreeable to disgorge the

additional liability which would devolve on his client, i.e. Aviva Life

Insurance Co.

5

, within a period of eight months, provided no

additional liability to interest would be fastened on it.

12. Mr. Potaraju, learned Senior Counsel for the petitioners in WP

(C) 2150/2016, i.e., the Indian Sugar Mills Association, however,

expressed his unwillingness to agree to the suggestion, and was,

therefore, heard at length on the merits of the writ petition. Ms. Bansal

has been heard by way of response.

13. We have, nonetheless, considered the submissions of Mr.

Awasthi as well as Mr. Potaraju.

5

“Aviva” hereinafter

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 9 of 38

B. Rival Contentions

I. Submissions of Mr. Awasthi and Mr. Potaraju

14. Between them, Mr. Awasthi and Mr. Potaraju submit as under:

(i) By making the amendments retrospective, Section 1(2) of

the impugned Amendment Act rendered the petitioners liable to

pay huge amounts of bonus to employees who, during the year

2014-2015, were not entitled to bonus under the pre-amended

PBA. The petitioners had, during the year, paid bonus to all

entitled employees as per the provisions of the PBA as they

then stood. While it was within the legislative province of the

respondents to bring a larger number of employees within the

PBA fold, and also increase the bonus payable under the PBA,

these changes could not be effected retrospectively so as to

necessitate an entire reworking of the bonus payable by the

petitioners during earlier years. New obligations were, as a

result, fastened on the petitioners in respect of past transactions.

Such retrospectivity was ex facie unconstitutional.

(ii) By making its provisions applicable retrospectively with

effect from 1 April 2014, the provisions of the impugned

Amendment Act were rendered arbitrary, unreasonable and

harsh. As a consequence of the retrospective application of the

impugned Amendment Act, approximately 3100 employees,

who were not earlier within the ambit of the PBA (in the case of

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 10 of 38

Aviva), now came within its fold, and the additional liability on

the petitioner, as a result, for the year 2014-2015, was to the

tune of ₹ 80 lakhs, for which the petitioner had not made any

provision in its books of account. The allocatable surplus would

also have to be adjusted. This would additionally require the

resulting fiscal deficit to be added to the petitioners’ liabilities,

which would decrease its profits for the year 2014-2015 and

also vary the prices of its goods in the commodity market.

(iii) Compliance with the provisions of the PBA, as amended

by the impugned Amendment Act, for the period 2014-2015,

would require the petitioners to undo the process of payment of

bonus for the past period. Having discharged all statutory

liabilities, including their liabilities under the PBA, the

petitioners had closed their accounts for the year 2014-2015,

filed the accounts before the relevant statutory authorities,

including the income tax authorities and paid all their statutory

dues. These accounts would be rendered redundant if the

provisions of the PBA, as amended by the impugned

Amendment Act were to be applied retrospectively.

(iv) A statute could not be made applicable retrospectively so

as to take away vested rights. The finances of a Company, after

it had discharged all its statutory duties and liabilities, were its

property, which was constitutionally protected under Article

300A, and could not be taken away by imposing a liability

retrospectively, without compensation. Once a company had

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 11 of 38

declared its bonus for an earlier year, a vested right accrued, to

the Company, to utilise the net profit which remained with it

after discharge of liability. The impugned Amendment Act, by

being made retrospectively applicable, altered this net profit

retrospectively, resulting in violation of the vested rights not

only of the Company but also of its shareholders. Reliance was

also placed, in this context, on Sections 2(1)

6

, 4

7

and 6

8

of the

PBA. In this context, Mr. Potaraju pressed into service paras

11, 13, 20 and 39 of Madan Mohan Pathak v. Union of India

9

,

paras 23, 24 and 33 of Chairman, Railway Board v. C.R.

Rangadhamaiah

10

and para 45 to 48 of Punjab State Coop.

6

(1) “accounting year” means—

(i) in relation to a corporation, the year ending on the day on which the books and accounts

of the corporation are to be closed and balanced;

(ii) in relation to a company, the period in respect of which any profit and loss account of the

company laid before it in annual general meeting is made up, whether that period is a year or not;

(iii) in any other case—

(a) the year commencing on the 1st day of April; or

(b) if the accounts of an establishment maintained by the employer thereof are

closed and balanced on any day other than the 31st day of March, then, at the option of

the employer, the year ending on the day on which its accounts are so closed and

balanced:

Provided that an option once exercised by the employer under paragraph (b) of this sub-

clause shall not again be exercised except with the previous permission in writing of the prescribed

authority and upon such conditions as that authority may think fit;

7

4. Computation of gross profits.—The gross profits derived by an employer from an establishment

in respect of any accounting year shall—

(a) in the case of a banking company, be calculated in the manner specified in the First

Schedule;

(b) in any other case, be calculated in the manner specified in the Second Schedule.

8

6. Sums deductible from gross profits.—The following sums shall be deducted from the gross

profits as prior charges, namely:—

(a) any amount by way of depreciation admissible in accordance with the provisions of sub-

section (1) of Section 32 of the Income Tax Act or in accordance with the provisions of the

Agricultural Income Tax Law, as the case may be:

Provided that where an employer has been paying bonus to his employees under a settlement or an

award or agreement made before the 29th May, 1965, and subsisting on that date after deducting from the

gross profits notional normal depreciation, then, the amount of depreciation to be deducted under this clause

shall, at the option of such employer (such option to be exercised once and within one year from that date)

continue to be such notional normal depreciation;

(b) any amount by way of development rebate or investment allowance or development

allowance which the employer is entitled to deduct from his income under the Income Tax Act;

(c) subject to the provisions of Section 7, any direct tax which the employer is liable to pay

for the accounting year in respect of his income, profits and gains during the year;

(d) such further sums as are specified in respect of the employer in the Third Schedule

9

(1978) 2 SCC 50

10

(1997) 6 SCC 623

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 12 of 38

Agricultural Development Bank Ltd v. Coop. Societies

11

and

Bernard Francis Joseph Vaz v. State of Karnataka

12

.

(v) Before introducing the impugned amendments and

making them applicable retrospectively, the respondents did not

take all stakeholders, including the petitioners or their

representatives, in confidence.

(vi) In the case of the petitioner in WP (C) 2510/2016, it was

additionally pleaded that the sugar industry was in a state of

financial crisis and would be driven to the wall if the impugned

amendments were to be made applicable retrospectively.

(vii) Failure to comply with the additional liability which the

impugned Amendment Act imposed on the petitioners

retrospectively for the year 2014-2015 also rendered them

criminally liable under Section 28

13

of the PBA. It is settled, in

law, that criminal liability cannot be fastened retrospectively on

a citizen.

II. Submissions of Ms. Bansal

11

(2022) 4 SCC 363

12

(2025) 7 SCC 580

13

28. Penalty.—If any person—

(a) contravenes any of the provisions of this Act or any rule made thereunder; or

(b) to whom a direction is given or a requisition is made under this Act fails to comply with

the direction or requisition,

he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may

extend to one thousand rupees, or with both.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 13 of 38

15. Ms. Bansal submits, by way of response, that the entire plea of

divestiture of a vested right, as a consequence of retrospective

application of the impugned Amendment Act, advanced by Mr.

Potaraju, is misconceived. She submits that an employer does not have

any vested right to continue to pay bonus at a pre-existing rate, despite

increase in the cost of living and other relevant factors governing

grant of bonus. No vested right, which accrued to the petitioners, she

submits, has been divested. The petitioners were already paying

bonus, and had paid bonus for the year 2014-2015. It was only a

liability for payment of additional bonus which had been created by

retrospective application of the impugned Amendment Act and, side

by side, the respondents were also agreeable to extend the time for

compliance with the Act, as had been stated before this Court.

16. Ms. Bansal points out that the changes which were introduced

by the impugned Amendment Act were following a discussion in a

tripartite meeting held on 20 October 2014 under the Chairmanship of

the Labour and Employment Minister, which was also attended by

representatives of employers’ associations. Following this, in

November 2014, an Inter-Ministerial Group

14

was constituted to look

into the matter and the IMG, following a meeting with representatives

of employers’ associations on 3 December 2014, to discuss the

proposed amendments to the PBA, found the amendments to be

necessary. The issue was also discussed at the 46

th

Session of the

Indian Labour Conference held on 20

th

and 21

st

July 2015 at New

Delhi. Extensive deliberations have, therefore, preceded the enactment

14

“IMG” hereinafter

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 14 of 38

of the impugned Amendment Act. Among other factors which had

weighed with the respondents in introducing the impugned

amendments was the increase in the all India Consumer Price Index

for industrial workers by 111.67%, from 120 in April 2006 to 254 in

March 2015.

17. In the circumstances, Ms. Bansal submits that no case for

striking down the impugned Amendment Act, even to the extent that it

has been made retrospectively applicable from 1 April 2014, can be

said to exist.

C. Analysis

18. We are tilling land, here, which stands ploughed by the

Supreme Court on several earlier occasions, and has never been

allowed to remain fallow for any length of time.

I. What is bonus?

19. The concept and rationale of payment of bonus, and the fact

that bonus was not in the nature of a gratuitous payment, were

emphasized by the Constitution Bench of the Supreme Court in Jalan

Trading Co. v. Mill Mazdoor Sabha

15

:

“A synopsis of the development in the industrial law which led to

the enactment of the Payment of Bonus Act, 1965, will facilitate

appreciation of the questions argued at the Bar. Claims to receive

bonus, it appears, were made by industrial employees for the first

15

AIR 1967 SC 691

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 15 of 38

time in India in the towns of Bombay and Ahmedabad after the

commencement of the First World War, when, as a result of

inflationary trends, there arose considerable disparity between the

living wage and the contractual remuneration earned by workmen

in the textile industry. The employers paid to the workmen

increase in wages, initially called “war bonus” and later called

“special allowance”. A Committee appointed by the Government

of Bombay in 1922 to consider, inter alia, “the nature and basis” of

these bonus payments, reported that the workmen had a just claim

against the employers to receive bonus, but the claim was not

“customary, legal or equitable”. During the Second World War the

employers in the textile industry granted cash bonus equivalent to a

fraction of actual wages (not including dearness allowance) but

even this was a voluntary payment made with a view to keep

labour contented.

In the dispute for payment of bonus for the years 1948 and

1949 in the textile industry in Bombay, the Industrial Court

expressed the view that, since labour as well as capital employed in

the industry contribute to the profits of the industry, ‘both are

entitled to claim a legitimate return out of the profits of an

establishment, and evolved a formula for charging certain prior

liabilities on the gross profits of the accounting year, and awarding

a percentage of the balance as bonus to the workmen. In

adjudicating upon the claim for bonus, the Industrial Court

excluded establishments which had suffered loss in the year under

consideration from the liability to pay bonus. In appeals against the

award relating to the year 1949, the Labour Appellate Tribunal

broadly approved of the method for computing bonus as a fraction

of surplus profit.

According to the formula, which came to be known as the

“Full Bench Formula”, surplus available for distribution had to be

determined by debiting the following prior charges against gross

profits :

(1) Provision for depreciation; (2) Reserve for

rehabilitation; (3) Return of 6 per cent. on the paid-up capital; (4)

Return on the working capital at a lower rate than the return on

paid-up capital;

and from the balance called “available surplus” the workmen were

to be awarded a reasonable share by way of bonus for the year.

This court considered the applicability of this formula to

claims for bonus in certain decisions : Muir Mills Co. Ltd. v. Suti

Mills Mazdoor Union

16

, Baroda Borough Municipality v. Its

16

AIR 1955 SC 170

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 16 of 38

Workmen

17

, Sree Meenakshi Mills Ltd. v. Their Workmen

18

and State of Mysore v. Workers of Kolar Gold Mines

19

. The court

did not commit itself to acceptance of the formula in its entirety,

but ruled that bonus is not a gratuitous payment made by the

employer to his workmen, nor a deferred wage, and that where

wages fall short of the living standard and the industry makes

profit, part of which is due to the contribution of labour, a claim

for bonus may legitimately be made by the workmen. …

The formula, it is clear, was not based on any strict theory

of legal rights or obligations : it was intended to make an equitable

division of distributable profits after making reasonable allocations

for prior charges.

It may be broadly stated that bonus, which was originally a

voluntary payment out of profits to workmen to keep them

contented, acquired the character, under the Bonus Formula, of

right to share in the surplus profits, and enforceable through the

machinery of the Industrial Disputes Act. Under the Payment of

Bonus Act, liability to pay bonus has become a statutory obligation

imposed upon employers covered by the Act.

The scheme of the Act, broadly stated, is four-dimensional:

(1) to impose statutory liability upon an employer of

every establishment covered by the Act to pay bonus to

employees in the establishment;

(2) to define the principle of payment of bonus

according to the prescribed Formula;

(3) to provide for payment of minimum and maximum

bonus and lining the payment of bonus with the scheme of

“set-off and set-on”; and

(4) to provide machinery for enforcement of the

liability for payment of bonus.”

20. Bonus is, thus, not a deferred wage. It is a right of the

employee. It is not gratuitous. It embodies the principle that, as a

contributor, by his effort, to the profitability of an establishment, the

employee is but entitled to a share therein. It has, therefore, to be

17

AIR 1957 SC 110

18

AIR 1958 SC 153

19

AIR 1958 SC 923

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 17 of 38

expansively interpreted, and expansively applied, if the socialist

framework of our constitutional democracy is to be meaningfully

implemented.

21. Even earlier, Associated Cement Cos. v. Their Workmen

20

enunciated the same principle:

“20. This Court had occasion to consider the said formula

in Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union, Kanpur .

The judgment in that case indicates that without committing itself

to the acceptance of the formula in its entirety, this Court in

general accepted as sound the view that since labour and capital

both contribute to the earnings of the industrial concern, it is fair

that labour should derive some benefit if there is a surplus after

meeting the four prior or necessary charges specified in the

formula. It is relevant to add that in dealing with the concept of

bonus this Court ruled that bonus is neither a gratuitous payment

made by the employer to his workmen nor can it be regarded as a

deferred wage. According to this decision, where wages fall short

of the living standard and the industry makes profit part of which

is due to the contribution of labour, a claim for bonus can be

legitimately made.”

II. Retrospective imposition of fiscal liability by legislation is

permissible

22. Retrospective imposition of a fiscal liability, by legislation, is

perfectly permissible. We need only refer to certain authorities in this

regard, as the position is, by now, legally fossilized.

23. Prashanti Medical Services & Research Foundation v. Union

of India

21

20

AIR 1959 SC 967

21

(2020) 14 SCC 785

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 18 of 38

23.1 The fact that the retrospective application of a statute results in

divesting, of the assessee, of a tax benefit which would otherwise have

been available, was held, in Prashanti Medical Services & Research

Foundation not to constitutionally invalidate the statute. Prashanti

Medical Services & Research Foundation

22

, the appellant in that case,

filed an application under Section 35AC of the Income Tax Act,

1961

23

, claiming deduction from the appellant’s total income during

the previous year by grant of approval to the hospital project of

PMSRF. By notification dated 7 December 2015, the Government of

India announced that the National Committee for Promotion of Social

and Economic Welfare

24

had approved 28 projects as “eligible

projects” under Section 35AC of the IT Act for a period of three

financial years. Among these was the project of PMSRF.

23.2 PMSRF claimed to have received donations from several

assessees during the years 2015-2016 and 2016-2017. The assessees

who had made such donations claimed deduction thereof, from the

total income, under Section 35AC. The Finance Act, 2016

25

, however,

discontinued the benefit of deduction under Section 35AC from

Assessment Year

26

2018-2019 Year by insertion of sub-section (7)

therein, and made the amendment applicable from 1 April 2017. It

was submitted, inter alia, that a right to claim deduction under the

then existing Section 35AC had accrued in favour of hospital projects

which stood approved by the Committee prior to the insertion of sub-

section (7) of Section 35AC, for the period of such approval, i.e. for

22

“PMSRF” hereinafter

23

"the IT Act" hereinafter

24

"the Committee" hereinafter

25

"the FA 2016" hereinafter

26

“AY” hereinafter

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 19 of 38

three years, and that divesting of the said right by the amendment was

not legally permissible, as it would amount to retrospective

application of the amendment in derogation of rights that stood vested

a priori. The High Court repelled the challenge, resulting in the filing

of the appeal before the Supreme Court.

23.3 Before the Supreme Court, it was contended, on behalf of

PMSRF, that assessees, who had made payments to PMSRF during

the 2017-2018 Financial year, ought to have been allowed to claim

deduction during that year notwithstanding the insertion of sub-

section (7) in Section 35 AC with effect from 1 April 2017. The

constitutional validity of Section 35AC (7), insofar as it had been

made applicable with effect from 1 April 2017 was also assailed, in

the alternative.

23.4 Though the Supreme Court held that the amendment was

officially prospective rather than retrospective, it went on to dispel the

challenge to its validity on the ground of hardship by the following

terse observation:

“28. We find no merit in this submission. In a taxing statute, a

plea based on equity or/and hardship is not legally sustainable. The

constitutional validity of any provision and especially taxing

provision cannot be struck down on such reasoning.”

24. Guidance may also be drawn, on the issue of whether a tax can

be struck down as imposing an unreasonable restriction on the right to

acquire, hold and dispose of property, the aspect of expropriatory and

confiscated the nature of the tax, and the issue of whether tax can be

struck down on the ground that it was made operative retrospectively,

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 20 of 38

from the following passages from the judgment of the Constitution

bench of the Supreme Court in Assistant Commissioner of Urban

Land Tax v. Buckingham and Carnatic Co Ltd

27

:

“10. We pass on to consider the next contention raised on behalf

of the petitioners namely that the Act should be struck down as an

unreasonable restriction on the right to acquire, hold and dispose of

property and as such violative of Article 19(1)(f) of the

Constitution. It was argued that the test of reasonableness would be

that the tax should not be so high as to make the holding of the

property or the carrying on of the activity (business or profession),

which is subject to taxation, uneconomic according to accepted

rates of yield. In this connection it was said that the new Act by

imposing a tax on the capital value at a certain rate was not

correlated to the income or rateable value and, therefore, violates

the requirement of reasonableness. We are unable to accept the

proposition put forward by Mr Chari. It is not possible to put the

test of reasonableness into the straight jacket of a narrow formula.

The objects to be taxed, the quantum of tax to be levied, the

conditions subject to which it is levied and the social and economic

policies which a tax is designed to subserve are all matters of

political character and these matters have been entrusted to the

Legislature and not to the Courts. In applying the test of

reasonableness it is also essential to notice that the power of

taxation is generally regarded as an essential attribute of

sovereignty and constitutional provisions relating to the power of

taxation are regarded not as grant of power but as limitation upon

the power which would otherwise be practically without limit. It

was observed by this Court in Rai Ramakrishna v. State of

Bihar

28

:

“It is of course true that the power of taxing the people and

their property is an essential attribute, of the Government

and Government may legitimately exercise the said power

by reference to the objects to which it is applicable to the

utmost extent to which Government thinks it expedient to

do so. The objects to be taxed so long as they happen to be

within the legislative competence of the Legislature can be

taxed by the Legislature according to the exigencies of its

27

(1969) 2 SCC 55

28

AIR 1963 SC 1667

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 21 of 38

needs, because there can be no doubt that the State is

entitled to raise revenue by taxation.

The quantum of tax levied by the taxing statute, the

conditions subject to which it is levied, the manner in which

it is sought to be recovered, are all matters within the

competence of the Legislature, and in dealing with the

contention raised by a citizen that the taxing statute

contravenes Article 19, Courts would naturally be

circumspect and cautious. Where for instance it appears

that the taxing statute is plainly discriminatory, or provides

no procedural machinery for assessment and levy of the

tax, or that it is confiscatory, Courts, would be justified in

striking down the impugned statute as unconstitutional. In

such cases, the character of the material provisions of the

impugned statute is such that the Court would feel justified

in taking the view that, in substance, the taxing statute is a

cloak adopted by the Legislature for achieving its

confiscatory purposes. This is illustrated by the decision of

this Court in the case of Kunnathat Thatehunni Moopil

Nair v. State of Kerala

29

, where a taxing statute was struck

down because it suffered from several fatal infirmities. On

the other hand, we may refer to the case of Jagannath

Baksh Singh v. State of U.P.

30

, where a challenge to the

taxing statute on the ground that its provisions were

unreasonable was rejected and it was observed that unless

the infirmities in the impugned statute were of such a

serious nature as to justify its description as a colourable

exercise of legislative power, the Court would uphold a

taxing statute.”

11. As a general rule it may be said that so long as a tax

retains its character as a tax and is not confiscatory or

extortionate, the reasonableness of the tax cannot be questioned.

*****

12. The impugned Act provides for the retrospective operation

of the Act. Section 2 states that except Sections 19, 47 and 48,

other sections shall be deemed to have come into force in the City

of Madras on the 1st day of July, 1963, and Sections 19 and 47

shall be deemed to have come into force in the City of Madras on

the 21st May, 1966. It also provides that Section 48 shall come into

force on the date of the publication of the Act in the Fort St.

29

AIR 1961 SC 552

30

AIR 1962 SC 1563

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 22 of 38

George Gazette. Section 6 enacts that the market-values of the

urban lands shall be estimated to be the price which in the opinion

of the Assistant Commissioner or the Tribunal such urban land

would have fetched or fetch if sold in the open market on the date

of the commencement of the Act, that is, from 1st July, 1967. The

urban land tax is, therefore, payable from 1st July, 1963. It is

contended on behalf of the petitioners that the retrospective

operation of the law from 1st July, 1963, would make it

unreasonable. We are unable to accept the argument of the

petitioners as correct. It is not right to say as a general proposition

that the imposition of tax with retrospective effect per se renders

the law unconstitutional. In applying the test of reasonableness to

a taxing statute it is of course a relevant consideration that the tax

is being enforced with retrospective effect but that is not conclusive

in itself. Taking into account the legislative history of the present

Act we are of opinion that there is no unreasonableness in respect

of the retrospective operation of the new Act. It should be noticed

that the Madras Act of 1963, came into force on 1st July, 1963 and

provided for the levy of urban land tax at the same rate as that

provided under the new Act. The enactment was struck down as

invalid by the judgment of the Madras High Court which was

pronounced on the 25th March, 1966. The Legislature by giving

retrospective effect to Madras Act 12 of 1966, that the urban land

must be taxed on the date on which the 1963 Act came into force

the new Act cured the defect from which the earlier Act was

suffering. In Rai Ramkrishna the question at issue was whether

the Bihar Taxation on Passengers and Goods (Carried by Public

Service Motor Vehicles) Act, 1961 (17 of 1961), was violative of

Article 19(5) and (6) of the Constitution for the reason that it was

made retrospective with effect from 1st April, 1950. It appears that

the Bihar Finance Act, 1950, levied a tax on passengers and goods

carried by public service motor vehicles in Bihar. In an appeal

arising out of a suit filed by the passengers and owners of goods in

a representative capacity, the Supreme Court pronounced on the

12th December, 1960, a judgment declaring Part III of the said Act

unconstitutional. Thereafter an Ordinance, namely, Bihar

Ordinance No. 2 of 1961, was issued, on the 1st of August, 1961,

by the State of Bihar. By this Ordinance, the material provisions of

the earlier Act of 1950, which had been struck down by this Court

were validated and brought into force retrospectively from the date

when the earlier Act had purported to come into force.

Subsequently, the provisions of the said Ordinance were

incorporated in the Act, namely, the Bihar Taxation on Passengers

and Goods (Carried by Public Service Motor Vehicles) Act, 1961,

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 23 of 38

which was duly passed by the Bihar Legislature and received the

assent of the President on 23rd September, 1961. As a result of the

retrospective operation of this Act, its material provisions were

deemed to have come into force on April 1, 1950, that is to say, the

date on which the earlier Act of 1950, had come into force. The

appellants challenged the validity of this Act of 1961. Having

failed in their writ petition before the High Court, the appellants

came to this Court and the argument was that the retrospective

operation prescribed by Section 1(3) and by a part of Section 23(b)

of the Act so completely altered the character of the tax proposed

to be retrospectively recovered that it introduced a serious

infirmity in the legislative competence of the Bihar Legislature

itself. The argument was rejected by this Court and it was held that

having regard to the relevant facts of the case the restrictions

imposed by the said retrospective operation was reasonable in the

public interest under Article 19(5) and (6) and also reasonable

under Article 304(b) of the Constitution. In our opinion the ratio of

this decision applies to the present case where the material facts

are of a similar character.”

(Emphasis supplied)

25. Narottamdas v. State of Madhya Pradesh

31

25.1 Narottamdas, also by a Constitution Bench of the Supreme

Court, is of considerable relevance. Under challenge before the

Supreme Court, in that case, were the provisions of the Madhya

Pradesh Minimum Wages Fixation Act, 1962

32

. The minimum wages

payable to workmen engaged in purchase and sale of bidi in the state

of Madhya Pradesh was fixed by the State in accordance with the

provisions of the Minimum Wages Act, 1948. These rates were

revised in 1956 by the Madhya Pradesh government, by notification,

followed by a further notification of 30 December 1958, fixing new

rates of minimum wages. The notification of 30 December 1958 was

31

AIR 1964 SC 1667

32

“the MP Act" hereinafter

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 24 of 38

made effective from 1 January 1959. The Madhya Pradesh High

Court, however, struck down the notification dated 30 December

1958. To meet this situation, the Madhya Pradesh Legislature enacted

the Minimum Wages (Madhya Pradesh Amendment and Validation)

Act, 1961, Section 31-A of which provided that the rates of minimum

wages fixed or revised under the notification of 30 December 1958

would be deemed to have been validly fixed and revised and to come

into force on the date mentioned in the notification, notwithstanding

any judicial decision to the contrary. Section 31-A was struck down

by the High Court of Madhya Pradesh by judgement dated 2 May

1962. On 21 June 1962, Madhya Pradesh Ordinance 4 of 1962 was

passed, retrospectively fixing rates of minimum wages. This

Ordinance was replaced by the MP Act. The validity of the MP Act

was challenged by Narottamdas before the High Court of Madhya

Pradesh. The challenge was dismissed by the High Court, against

which Narottamdas appealed to the Supreme Court.

25.2 Three grounds of challenge were raised before the Supreme

Court, of which only the second and third concern us. The second

ground of challenge was that, by giving retrospective effect to the

rates of minimum wages fixed by it, the MP Act placed unreasonable

restrictions on Narottamdas’ fundamental rights under Articles

19(1)(f)

33

and (g) of the Constitution. The third ground of challenge

was that, by making the provisions of the Minimum Wages Act

33

19. Protection of certain rights regarding freedom of speech, etc.—(1) All citizens shall have the

right—

*****

(f) to acquire, hold and dispose of property; and

(g) to practise any profession, or to carry on any occupation, trade or business.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 25 of 38

applicable to the wages now fixed, the legislation contravened Article

20(1) of the Constitution.

25.3 The Supreme Court addressed these two grounds of challenge,

thus:

“8. Nor is it possible to accept the argument that the Act is an

unreasonable restriction on the appellant's fundamental rights

under Article 19(1)(f) and (g) of the Constitution. Restriction there

undoubtedly is, but we are not satisfied that the restriction is

unreasonable. Section 3 of the Act makes the new rates of wages

effective from January 1, 1959. Section 4 makes the various

provisions of the Central Act 11 of 1948 available for revision and

enforcement of the rates as specified in Section 3. The consequence

is that if an employer does not pay the rates as specified, an

application may be made under Section 20 of the Act 11 of 1948 to

enforce such payment. He will be liable also to prosecution and

penalties under Section 22 of the Act. What according to the

learned counsel makes the Act unreasonable is that such

application can be made and such prosecution and penalties can

be imposed even in respect of the past period — from 1st January,

1959 upto the date of the Act. How is it possible for the employer,

it is urged, to pay such arrears which might amount in many cases

to considerable sums of money when the accounts for the past

years had been closed, profits had been distributed and the

available surplus had either been spent or invested in other ways.

9. We have no hesitation in agreeing to the proposition that

the retrospective operation of legislation is a relevant circumstance

in deciding its reasonableness. It is, however, clearly established

by a long series of decisions of this Court that this is not

necessarily a decisive test. We may mention in this connection the

decision of this Court in Rai Ram Krishna v. State of Bihar.

There the Court had to consider the question whether the

retrospective operation of the Bihar Taxation of Passengers and

Goods (carried by Public Service Motor Vehicles) Act, 1961 put

such an unreasonable restriction on the fundamental rights

guaranteed under Article 19(1)(f) and (g) of the Constitution as to

make the Act invalid to the extent of its retrospective operation.

The Bihar Finance Act, 1950 (Bihar Act 17 of 1950) had imposed

a tax on passengers and goods carried by public service motor

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 26 of 38

vehicles in Bihar. In an appeal arising out of a suit filed by the

passengers and owners of goods, this Court struck down Part III of

the said Act as unconstitutional. This judgment was pronounced on

the 12th December, 1960. Then an Ordinance viz. Bihar Ordinance

11 of 1961 was issued on August 1, 1961. By this Ordinance the

material provisions of the earlier Act of 1950 were validated and

brought into force retrospectively from the date when the earlier

Act had purported to come into force. Subsequently, the provisions

of this Ordinance were incorporated in the Bihar Taxation on

Passengers and Goods (Carried by Public Service Motor Vehicles)

Act, 1961. Section 23 of the Act provided that any amount paid,

collected or recovered or purported to have been paid, collected or

recovered as tax or penalty under the provisions of Part III of the

Bihar Finance Act, 1950 or rules made thereunder during the

period beginning with the first day of April, 1950 and ending on

the thirty-first day of July, 1961, shall be deemed to have been

validly levied, paid, collected or recovered under the provisions of

this Act. It was urged that this retrospective operation for such a

long period like 10 years itself made the provisions

unconstitutional. In repelling this contention, Gajendragadkar, J.,

(as he then was) speaking for the Court observed thus:

“If a statute passed by the legislature is challenged in

proceedings before a court and the challenge is ultimately

sustained and the statute is struck down, it is not unlikely

that the judicial proceedings may occupy a fairly long

period and the legislature may well decide to await the final

decision in said proceedings before it uses its legislative

power to cure the alleged infirmity in the earlier Act. In

such a case, if after the final judicial verdict is pronounced

in the matter the legislature passes a validating Act, it may

well cover a long period taken by the judicial proceedings

in court and yet it would be inappropriate to hold that

because the retrospective operation covers a long period,

therefore, the restriction imposed by it is unreasonable.”

10. These observations which were made in respect of a

validating Act apply fully to a legislation as in the Act now under

consideration.

11. It is not also possible to accept the picture presented by Mr

Setalvad of the employers' financial difficulties in making payment

for the past period as a fair representation of the true facts. For

practically the entire period from 1st April, 1959 to the date of the

present Act the employers had before them the provisions of what

purported to be a good law requiring them to pay at these very

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 27 of 38

rates. As good businessmen they are expected to have made

provisions for payments on those very rates, even though they

intended to challenge the validity of the previous Act and

ultimately succeeded in that attempt. We are not prepared to

believe that such provisions are not generally made. The hardship

which according to Mr Setalvad, the employers would have to face

in making the payments for the past periods is, in our judgment,

more imaginary than real.

12. But, urges the learned counsel, Section 3 of the Act while

giving to the rates of wages fixed by the Act retrospective effect

from 1

st

January, 1959 has also made wages at these new rates

payable on January 1, 1959 for the past period. The result of this,

according to the learned counsel, is that as soon as an application is

made under Section 20 of Act 11 of 1948 the employer would be

liable not only to pay the arrears of wages but also compensation

as provided in sub-section 3 of Section 20. Sub-section 3 of

Section 20 of Act 11 of 1948 provides inter alia that the minimum

wages authority may direct:

“In the case of a claim arising out of payment of less than

minimum rates of wages, the payment to the employee of

the amount by which the minimum wages payable to him

exceed the amount actually paid, together with the payment

of such compensation as the Authority may think fit, not

exceeding ten times, the amount of such excess.”

*****

14. If the legal position were as urged by the learned counsel,

that Section 3 made the new rates of wages for the past period

payable on January 1, 1959 or the apprehension that the employer

might be made to pay heavy compensation may well be true.

Another consequence of that legal position would be that the

employer would also be liable to prosecution under Section 22 of

the Act for his omission to pay on January 1, 1959 the rates which

were fixed first by the Ordinance and then by the impugned Act.

We are satisfied however that Section 3 of the impugned Act does

not make the new rates of wages payable on 1st January, 1959.

The words used are … “and it is hereby enacted that the said

minimum rates of wages shall be payable by the employer in the

said scheduled employments and be enforceable against him with

effect from 1st January, 1959, as if the provisions herein contained

have been in force at all material times”. By these words, it is

urged on behalf of the appellant, the legislature not only made the

minimum wages effective from 1st January, 1959 but also made

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 28 of 38

them payable on that date for the past period. In other words, the

sentence is sought to be read as saying “the said minimum rates of

wages shall be payable by the employer in the said scheduled

employments with effect from 1st January, 1959 and shall be

enforceable against him with effect from 1st January, 1959”. If that

had been the intention of the legislature the appropriate words to

use would have been “the said minimum rates of wages shall be

payable by the employer in the said scheduled employments and

enforceable against him with effect from 1st January, 1959”. No

purpose would be served by the word “be” before the word

“enforceable” if the phrase “with effect from the 1st January 1959”

was intended to apply both to “payable” and to “enforceable”. The

very fact that the legislature took care to say “be enforceable” in

the latter part of the sentence shows clearly that while it was

intended that the new rates would be enforceable against the

employer with effect from 1st January, 1959 no date was being

prescribed by Section 3 as regards the date on which it became

payable.

15. An examination of Section 4 of the Act further makes it

clear beyond any reasonable doubt that it was the intention of the

legislature that new rates became payable only on 21st June, 1962,

the date of the publication of the Ordinance which was latter

replaced by the Act. Section 4 makes applicable to the minimum

rates of wages as fixed by Section 3, the provisions of Section 4-A

and Section 5 of the Minimum Wages Act (Act 11 of 1948), that

is, the provisions as regards the revision in future of the rates fixed

by the impugned Act, and of Sections 12 to 30-A. Among the

sections thus included is therefore Section 20 which prescribes the

procedure for claims arising out of payment of less than the

minimum rates of wages. The first proviso to sub-section 2 of

Section 20 prescribes a period of limitation within which an

application on such claims has to be made. The period prescribed

is one year from the date on which the minimum wages became

payable. It was thus necessary for the legislature when giving

retrospective effect to the rates fixed by Section 3 of the impugned

Act to indicate the date on which the new rates would become

payable. This indication is clearly given by the proviso to Section

4. The proviso (which has already been set out) is in these words:

“Provided that with respect to claims arising out of

payment of minimum rates of wages specified in Section 3

pertaining to a period prior to the publication of the

Madhya Pradesh Minimum Wages Fixation Ordinance

1962 (4 of 1962) in the Gazette, the period of one year

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 29 of 38

referred to in the first proviso to sub-section (2) of Section

20 of the said Act shall be counted with effect from 21st

June, 1962, the date of publication of the said Ordinance in

the Gazette.”

*****

17. It is clear that the duty to pay at these rates arose only on

and from 21st June, 1962 and no liability to pay compensation

under Section 20(3) or to prosecution under Section 22 of the

Minimum Wages Act, 1948 would arise if payment was made on

21st June, 1962.

*****

19. The last ground urged in support of the appeal viz. that the

impugned Act contravenes Article 20(1) of the Constitution, is

based on the assumption that the new rates of wages became

payable on 1st January, 1959 even as regards the past. If that

assumption were correct it would no doubt be also correct to say

that the combined effect of Sections 3 and 4 of the impugned Act

was to make the employer liable to conviction for offences for

violation of a law which was not in force at the time of the

commission of the act charged. We have already held however that

on a proper construction of Sections 3 and 4, the new rates of

wages for the past period became payable not on 1st January,

1959 but on 21st June, 1962. The attack on the validity of the

sections on the ground of Article 20(1) of the Constitution

therefore fails.”

(Emphasis supplied)

25.4 This decision answers several of the grounds advanced by

learned Counsel for the petitioners, inasmuch as it holds that (i) the

imposition of a fiscal levy retrospectively, by legislation, is not if so

unconstitutional, (ii) financial difficulties or hardship which an

individual may face, as a result of such levies, would also not

invalidate the levies themselves and (iii) even if the liability is created

by such retrospective levies relates to a past period, so long as the

citizen is entitled to discharge the liabilities later, Article 20(1) of the

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 30 of 38

Constitution is not violated. Additionally, this judgment is important

as it applies, while examining the constitutional validity of a

legislation which imposes a retrospective fiscal levy in a labour

statute, the law which has been applied with respect to retrospective

taxation measures.

26. That retrospective fastening of liability to pay bonus is not per

se discriminatory or constitutionally infirm also stands settled by the

judgement of the Constitution Bench in Jalan Trading:

“Whether the scheme for payment of minimum bonus is the best in

the circumstances, or a more equitable method could have been

devised so as to avoid in certain cases undue hardship, is

irrelevant to the enquiry in hand. If the classification is not

patently arbitrary, the court will not rule it discriminatory merely

because it involves hardship or inequality of burden. With a view

to secure a particular object, a scheme may be selected by the

legislature, wisdom whereof may be open to debate; it may even be

demonstrated that the scheme is not the best in the circumstances

and the choice of the legislature may be shown to be erroneous, but

unless the enactment fails to satisfy the dual test of intelligible

classification and rationality of the relation with the object of the

law, it will not be subject to judicial interference under article 14.

Invalidity of legislation is not established by merely finding faults

with the scheme adopted by the legislature to achieve the purpose

it has in view. Equal treatment of unequal objects, transactions or

persons is not liable to be struck down as discriminatory unless

there is simultaneously absence of a rational relation to the object

intended to be achieved by the law. Plea of invalidity of section 10

on the ground that it infringes article 14 of the Constitution must

therefore fail.”

(Emphasis supplied)

III. Impugned Amendment Act is not confiscatory or expropriatory

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 31 of 38

27. A fiscal statute, even if it satisfies all other constitutional

indicia may, nonetheless, be liable to be eviscerated if it is

confiscatory or expropriatory in nature. The interests of industry

cannot be consigned to a back seat, and any imposition of fiscal

liability which imposes a constitutionally unbearable burden on the

industry would be legally infirm.

28. In R.C. Tobacco v. Union of India

34

, the law was enunciated

thus:

“21. A law cannot be held to be unreasonable merely because it

operates retrospectively. Indeed even judicial decisions are in a

sense retrospective. When a statute is interpreted by a court, the

interpretation is, by fiction of law, deemed to be part of the statute

from the date of its enactment. The unreasonability must lie in

some other additional factors. The retrospective operation of a

fiscal statute would have to be found to be unduly oppressive and

confiscatory before it can be held to be so unreasonable as to

violate constitutional norms:

“Where for instance, it appears that the taxing statute is

plainly discriminatory, or provides no procedural

machinery for assessment and levy of the tax, or that it is

confiscatory, courts would be justified in striking down the

impugned statute as unconstitutional. In such cases, the

character of the material provisions of the impugned statute

is such that the court would feel justified in taking the view

that, in substance, the taxing statute is a cloak adopted by

the legislature for achieving its confiscatory purposes.”

(See Rai Ramkrishna v. State of Bihar)

The question to be answered therefore is whether Section 154,

which is in terms retrospective, is ex facie discriminatory, or so

unreasonable or confiscatory that it violates Articles 14 and 19 of

the Constitution.

22. The factors which are generally considered relevant in

answering this question are: (i) the context in which retrospectivity

34

(2005) 7 SCC 725

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 32 of 38

was contemplated, (ii) the period of such retrospectivity, and (iii)

the degree of any unforeseen or unforeseeable financial burden

imposed for the past period. [Empire Industries Ltd. v. Union of

India

35

; Ujagar Prints (II) v. Union of India

36

]”

29. A fiscal statute can be questioned on the ground that it is

confiscatory or expropriatory, but not that it is harsh or excessive. As

held in Hari Krishna Bhargav v. Union of India

37

:

"A taxing statute may accordingly be open to challenge on the

ground that it is expropriatory, or that the statute prescribes no

procedure or machinery for assessing tax, but it is not open to

challenge merely on the ground that the tax is harsh or excessive."

30. There is, therefore, a line between harshness and expropriatory

nature of a fiscal levy. The law does not appear to have developed any

clear criteria on the basis of which the situs of that line may be

ascertained, and Article 19(1)(f) of the Constitution appears to have

been treated as a guiding principle. In Rai Ramakrishna, the Supreme

Court held:

“In other words, it may be open to a party affected by the

provisions of the Act to contend that the retrospective operation of

the Act so completely alters the character of the tax imposed by it

as to take it outside the limits of the entry which gives the

Legislature competence to enact the law ; or, it may be open to it to

contend in the alternative that the restrictions imposed by the Act

are so unreasonable that they should be struck down on the ground

that they contravene his fundamental rights guaranteed under

Article 19(1)(f) and (g).”

35

(1985) 3 SCC 314

36

(1989) 3 SCC 488

37

AIR 1966 SC 619

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 33 of 38

The three criteria stipulated in para 22 of R.C. Tobacco, to our mind,

set out the definitive indicia on the basis of which it can be decided

whether a fiscal levy is confiscatory or expropriatory. Inter alia, in

arriving at the decision, the Court would keep in mind the extent of

the burden which the levy creates, the purpose of the levy, the extent

to which the levy is retrospectively applied and the period for which

the retrospectivity extends.

31. Thus viewed, it cannot be said that the retrospective application

of the amendments to the PBA, as carried out by the impugned

Amendment Act, are confiscatory or expropriatory in nature. The

legislation is eminently welfare-based, and intended to ensure an

equitable distribution of the profits of the establishment between the

industry and work force. Prior to the enactment of the impugned

Amendment Act, extensive deliberations have taken place, and it is

only after taking into account all relevant considerations, including the

increase in cost of living and other such factors, that the enactment

was put in place. The fact that Aviva is agreeable to shoulder the

burden, sans interest, provided it is given time to do so, is by itself a

pointer to the fact that the imposition is not excessive or

expropriatory. Neither learned Counsel has, in fact, seriously referred

to any material which would indicate that a constitutionally

unwholesome burden has resulted, as a consequence of the

retrospective application of the impugned Amendment Act, has

resulted.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 34 of 38

32. The submission that the sugar industry is in a financially

precarious position is, needless to say, irrelevant to the controversy.

Payment of bonus under the Act is based on the profits earned, and

resultant surplus, and the individual hardship faced by a particular

industry cannot be made the basis to invalidate the impugned

Amendment Act. Besides, these are exigencies for which any

industry is expected to make allowances, and we can certainly not

accept a submission that the sugar industry is so financially

woebegone that it cannot shoulder the liability. Operational

hardships, such as the need to revisit its accounts, and other such

considerations, are also totally irrelevant to the constitutionality of the

impugned Amendment Act.

33. Indeed, if such submissions were to be accepted, there could

never be any retrospective fiscal levy at all.

IV. Plea based on Article 300-A

34. Among Mr. Potaraju’s more impassioned submissions was the

plea that the retrospective application of the provisions of the

impugned Amendment Act unconstitutionally deprive the petitioners

of their property, in violation of Article 300-A of the Constitution of

India.

35. Jalan Trading answers this plea. Significantly, Jalan Trading

was rendered prior to the repeal of Article 31 of the Constitution by

the 44

th

Amendment, when the right to property was a fundamental

right. Even then, the Supreme Court did not countenance the plea that

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 35 of 38

the legislation under challenge before it resulted in unconstitutional

deprivation of the right to property:

“We need say nothing at this date about the plea that section 10 by

imposing unreasonable restrictions infringes the fundamental

freedom under article 19(1)(g) of the Constitution, for, by the

declaration of emergency by the President under article 352, the

protection of article 19 against any legislative measure or

executive order, which is otherwise competent, stands suspended.

The plea that section 10 infringes the fundamental freedom under

article 31(1) of the Constitution also has no force. Clause (1) of

article 31 guarantees the right against deprivation of property

otherwise than by authority of law. Compelling an employer to pay

sums of money to his employees which he has not contractually

rendered himself liable to pay may amount to deprivation of

property, but the protection against depriving a person of his

property under clause (1) of article 31 is available only if the

deprivation is not by authority of law. Validity of the law

authorising deprivation of property may be challenged on three

grounds : (1) incompetence of the authority which has enacted the

law; (ii) infringement by the law of the fundamental rights

guaranteed by Chapter III of the Constitution, and (iii) violation by

the law of any express provisions of the Constitution. Authority of

Parliament to legislate in respect of bonus is not denied and the

provision for payment of bonus is not open to attack on the ground

of infringement of fundamental rights other than those declared by

article 14 and article 19(1)(g) of the Constitution. Our attention has

not been invited to any prohibition imposed by the Constitution

which renders a statute relating to payment of bonus invalid. We

are therefore of the view that section 10 of the Bonus Act is not

open to attack on the ground that it infringes article 31(1).”

36. Article 300-A does not confer any absolute right to property.

The right to property is no longer a fundamental right. Even as a plain

constitutional right, which does not enjoy Part III status, the right to

property may be divested by authority of law. The right, therefore,

would stand unconstitutionally divested only if the divestiture is

otherwise than by authority of law, or if the law which divests the

right is unconstitutional.

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 36 of 38

37. The decisions in Madan Mohan Pathak , C.R.

Rangadhamaiah

38

, Punjab State Coop. Agricultural Development

Bank and Bernard Francis Joseph Vaz can be of no avail to Mr.

Potaraju. They, in fact, hold that the retiral benefits of the employee

constitute enforceable rights, and cannot be retrospectively divested.

The submission of Mr. Potaraju that, by juxtaposition, the surplus that

remains with the employer, after discharge of statutory liabilities,

constitutes its property, akin the proprietorial rights which vest in

employees in their retiral entitlements, is, with respect,

jurisprudentially infirm. The submission conflates rights with

liabilities. The right of the employee, to retiral benefits,

counterbalances the liability of the employer to disburse the benefits.

38. There is no known legal principle which holds that the surplus

with an employer after payment of statutory liabilities is sacred and

inviolable. No doubt, it constitutes the property of the employer, as

would any and every part of the employer’s assets, but, like all other

property, it can be divested by authority of law.

39. Again, if the submission of Mr. Potaraju were to be taken to its

logical conclusion, there could never be any retrospective fiscal levy.

40. Inasmuch as we have already held Section 1(2) of the impugned

Amendment Act, which grants retrospective application to the

provisions of the impugned Amendment Act to be constitutionally

38

(1997) 6 SCC 623

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 37 of 38

valid, the challenge based on Article 300-A has also to necessarily

fail.

V. The Sequitur

41. Applying these principles, we are unable to satisfy ourselves

that Section 1(2) of the impugned Amendment Act, by rendering the

amended provisions retrospectively applicable from 1 April 2014, is

unconstitutional. The power to introduce a fiscal levy retrospectively

is not in doubt. The measure that the impugned Amendment Act puts

in place is clearly beneficial to the working class and, therefore,

serves an eminent public purpose. The facts brought to our notice by

Ms. Bansal make it clear that extensive deliberations proceeded the

impugned Amendment Act, in which the employers’ representatives

were also involved. The retrospectivity of the amendment extends

merely for a period of one year, i.e., for the period 2014-2015. No

criminal liability would fasten on the petitioners even in the event of

the default in disgorging the additional bonus which has become

payable, as Section 19(b) of the PBA entitles them to seek extension

of time to pay the said liability, and Ms. Bansal has, on instructions,

conveyed the agreement of the respondents that the liability may be

disgorged within a period of eight months. Article 20(1) is not,

therefore, violated.

Conclusion

W.P.(C) 1765/2016 & W.P.(C) 2150/2016 Page 38 of 38

42. We are not, therefore, satisfied that there is any

unconstitutionality in the impugned Amendment Act, or in Section

1(2) thereof, whereby it has been made effective from 1 April 2014.

43. However, the time for making payments of bonus to the eligible

employees in terms of the impugned Amendment Act, for the year

2014-2015, shall stand extended by a period of eight months from the

date of pronouncement of this judgment.

44. Failure to make payment as aforesaid would entail interest on

the said amount, @ 8% per annum till the date of actual payment.

45. The writ petitions stand disposed of in the above terms.

C. HARI SHANKAR, J.

OM PRAKASH SHUKLA, J.

MAY 29, 2026