Supreme Court upholds amendment to Payment of Gratuity Act extending gratuity benefits to school teachers

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The Supreme Court on Monday upheld the amendment to the Payment of Gratuity (PAG) Act that extended the benefit of gratuity to teachers including those in private schools [Independent Schools’ Federation of India (Regd.) vs Union of India and Anr.].

Justice Sanjiv Khanna held that the amendment to the Act, with retrospective effect, was necessary to ensure that the teachers are not denied something due and payable to them.

“The amendment with retrospective effect remedies the injustice and discrimination suffered by the teachers on account of a legislative mistake, which was understood after the pronouncement of the judgment in Ahmedabad Private Primary Teachers’ Association (supra). 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,” he said.


In April 1997, the provisions of the PAG Act were made applicable to educational institutions with ten or more employees by a notification issued by the Central Ministry of Labour and Employment.

Private schools, being educational institutions with ten or more employees, were required to pay gratuity to their employees under the provisions of the PAG Act.

Some private schools, however, raised a disagreement, saying that teachers in educational institutions or schools are not “employees” as described in Section 2(e) of the PAG Act.

In 2004, the apex court, in Ahmedabad Private Primary Teachers’ Association vs Administrative Officer & Ors. held that teachers were not “employees” as per the definition of employees under the act as they were not performing any skilled, unskilled, semi-skilled, manual, supervisory, managerial, administrative, technical or clerical work.

However, the Act was later amended by the legislature to include teachers under the definition of employees.

This prompted several petitioners to approach the top court challenging the constitutional validity of amendment to section 2(e) and insertion of section 13A to the Payment of Gratuity Act with retrospective effect from 3 April 1997 vide the Payment of Gratuity (Amendment) Act of 2009.

Two main grounds of challenge raised in the petitions were:

The legislation vide the Amendment Act 2009 overruled the judicial decision in Ahmedabad Private Primary Teachers’ Association (supra) and violated the doctrine of separation of powers.

The retrospective amendments were unreasonable, excessive and harsh, and therefore, unconstitutional.

Supreme Court’s analysis and conclusion

The Court rejected the first contention stating that the decision in Ahmedabad Private Primary Teachers’ Association vs Administrative Officer & Ors. had interpreted section 2(e) in the statute as it existed at that point in time.

It underlined that the judgment even prompted the legislature to enact a legislation in order to grant to benefit of gratuity to teachers who had been excluded because of a legal flaw.

“When the legislature acts 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 does not overrule an earlier court decision,” it stated.

The Court found the second ground to be devoid of merits stating that the amendment enforced and gave effect to what was intended by the notification, but could not be achieved on account of the technical and legal defect.

“The lacuna, a distortion in the language that had the unwitting effect of leaving out teachers, has been rectified so as to achieve the object and purpose behind the issuance of the notification, making the PAG Act applicable to all educational institutions. The argument of the educational institutions that they have been taken by surprise is incorrect and unacceptable as the legislation had cured the inadvertent defect in a statute, as pointed out by this Court, through legislative repair,” it explained.

Thereafter, it stated that the power to amend, which includes the power to amend with retrospective effect, was a constitutional power vested with the legislature and, therefore, dismissed the appeals.

“The amendment with retrospective effect is to make the benevolent provisions equally applicable to teachers. The amendment seeks to bring equality and give fair treatment to the teachers. It can hardly be categorised as an arbitrary and high-handed exercise,” it said.

In view of its findings, the Supreme Court ordered private schools to pay employees/teachers gratuity with interest in compliance with the terms of the PAG Act within six weeks.

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