Private School Teachers Entitled To Payment Of Gratuity, Supreme Court Holds

The Supreme Court of India, on August 29, held that private school teachers were entitled to gratuity and observed that payment of gratuity could not be categorised as a windfall or a bounty payable by the private schools as it was one of the minimal conditions of service.

Bench of Justices Sanjiv Khanna and Bela M Trivedi noted that, "in this background, the argument of the private schools that they do not have capacity and ability to pay gratuity to the teachers is unapt and parsimonious."

The Court heard a Special Leave Petition preferred against judgments of several High Courts. The central challenge in the appeal was the constitutional validity of the amendment to Section 2(e) and insertion of Section 13A to the Payment of Gratuity Act, 19728, with retrospective effect from 3rd April 1997 vide the Payment of Gratuity (Amendment) Act, 2009 (PAG).

The PAG Act enacted and enforced with effect from 16th September 1972, had the requirement to make payment of gratuity to an employee after he had rendered continuous service for not less than 5 years, on his superannuation, retirement or resignation or on his death or disablement due to accident or disease. However, sub-section (3) to Section 1 of the PAG Act restricted its applicability. As per Clause (c) it applied to establishments with ten or more employees.

The private schools had claimed that teachers employed in them were not "employee" as per the Act.

In Payment for Gratuity (Amendment) Bill 2007, the Parliament sought to bring private school teachers within the purview of the Act. The Act was further amended in 2009 to give impetus to the payment of gratuity to private school teachers.

Challenge On Ground Of Separation Of Powers

The private schools challenged the amendment that came in 2009 on the ground that it was against the doctrine of separation of powers. The Court held that when the legislature acted within its power to usher in a valid law and rectify a legal error, even after a court ruling, the legislature exercises its constitutional power to enact the law and did not overrule an earlier court decision. 

Vested Right Of Private Schools Cannot Be At The Expense Of Teachers' Benefit

On the second argument, that the retrospective amendments were too harsh and therefore unconstitutional, the Court observed that, "Private schools, when they claim a vested right arising from the reason of defect, should not succeed, for acceptance would be at the expense of teachers who were denied and deprived of the intended benefit. Marginal inconvenience in the form of financial outgo or difficulty is of little weight, when curing of an inadvertent defect is made retrospectively in greater public interest, which consideration will overrule the interest of one or some institutions."

Gratuity Not Unreasonable Or Confiscatory 

The argument of unreasonableness and that the legislation was confiscatory was also rejected by the Court. The Court said that though gratuity was computed with reference to the years of service, in view of the upper-cap limit, the payment towards gratuity could not exceed the specified amount, even if the employee would be entitled to higher amount in view of the years of the service rendered to the employer.  

All Establishments Bound To Follow Payment Of Gratuity Act

The contention put forth by private schools that the amendments were violative of Articles 19(1)(g), 14, 21 and 300A were also found to be erroneous. The Court held that, "The amendment was necessary to ensure that something which was due and payable to the teachers is not denied to them due to a defect in the statute. Payment of gratuity cannot be categorised as a windfall or a bounty payable by the private schools as it is one of the minimal conditions of service. In this background, the argument of the private schools that they do not have capacity and ability to pay gratuity to the teachers is unapt and parsimonious. All establishments are bound to follow the law, including the PAG Act."

Sovereign Power Of The Legislature

On the power of the legislature, the Court held that, "The power to amend, which includes the power to amend the statute with retrospective effect, is a constitutional power vested with the legislature, which is not confined and restricted to any particular type of statutes, namely, tax statutes. We would not accept any attempt to circumscribe and limit the power vested with the sovereign legislature, thereby putting fetters when such fetters are not prescribed by the Constitution. When and which cases to exercise the power has to be left to the legislature. In case the constitutional validity of the amendment act is challenged, the court is entitled to examine the relevant circumstances which prompted the legislature to make retrospective amendment. Judicial review, when validity of an amendment act is challenged, is decided on the grounds of lack of legislative competence, violation of the fundamental rights or any other provisions of the Constitution of India."

Court's Directions

The Court directed the private schools to make payment to the employees/teachers along with the interest in accordance with the provisions of the PAG Act within a period of 6 weeks from today and in case of default, the employees/teachers may move the appropriate forum to enforce payment in accordance with the provisions of the PAG Act.