Gratuity-like service compensation scheme held unreasonable, discriminatory, and unsaved by presidential assent conflict rules

Sections 47(3) and 47(4) of the Andhra Pradesh Shops & Establishments Act were treated as imposing gratuity-like liability under the label of "service compensation". The provision was considered unreasonable because it granted the benefit after only one year of service, created unequal treatment between similarly placed employees under different regimes, and imposed an excessive burden on employers; Section 47(4) was also viewed as harsh and open to misuse. On repugnancy, the state law was held to operate in the same field as the Payment of Gratuity Act, 1972, and could not be saved under Article 254(2) without clear presidential attention to the conflict. The provisions were therefore held invalid and unsaved.

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Issues: (i) Whether Sections 47(3) and 47(4) of the Andhra Pradesh Shops & Establishments Act, 1988 were unconstitutional for being unreasonable, discriminatory and violative of Articles 14 and 19(1)(g) of the Constitution of India; (ii) Whether the impugned provisions could be saved by Article 254(2) of the Constitution of India despite the field being occupied by the Payment of Gratuity Act, 1972.

Issue (i): Whether Sections 47(3) and 47(4) of the Andhra Pradesh Shops & Establishments Act, 1988 were unconstitutional for being unreasonable, discriminatory and violative of Articles 14 and 19(1)(g) of the Constitution of India.

Analysis: The impugned provision styled as "service compensation" was held to be in substance gratuity. Gratuity is a retirement benefit earned for long and continuous service, yet Section 47(3) conferred the benefit after only one year of service, and in some cases without that minimum where termination resulted from death or disablement. The provision also created unequal treatment between employees similarly situated in establishments covered by the Shops Act and those governed by the central gratuity regime. The Court held that the provision lacked a rational basis, imposed an unreasonable burden on employers, and treated unequals as equals. Section 47(4), which made wages payable from the date of termination until actual payment of service compensation, was also found to be intrinsically harsh and capable of misuse.

Conclusion: Sections 47(3) and 47(4) were unconstitutional and invalid.

Issue (ii): Whether the impugned provisions could be saved by Article 254(2) of the Constitution of India despite the field being occupied by the Payment of Gratuity Act, 1972.

Analysis: The Court held that the central gratuity legislation and the impugned state provisions operated in the same field because the so-called service compensation was nothing but gratuity. Since the state provision conflicted with the central law, presidential assent could save it only if the possible conflict had been specifically brought to the President's notice. No such showing was made. The Court therefore rejected the plea based on Article 254(2) and held that the state enactment could not prevail in the face of the central legislation.

Conclusion: The plea under Article 254(2) failed and the impugned provisions were not saved.

Final Conclusion: The constitutional challenge failed, the High Court's decision was affirmed, and the appeal was dismissed.

Ratio Decidendi: A provision that recharacterises gratuity as service compensation but grants it on a manifestly inadequate qualifying service, while creating unequal treatment among similarly situated employees and conflicting with an occupied central field, is unreasonable and unconstitutional unless validly saved under Article 254(2).

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