A.V. Nachane v. Union of India AIR 1982 SC 1126

A.V. NACHANE V. UNION OF INDIA

ISSUE:

Whether retrospective legislation or rules can nullify a binding Supreme Court judgment and override rights already accrued?
Whether the LIC (Amendment) Act, 1981, and the rules made under it violate constitutional protections under Articles 14 and 19(1)(g)?
Whether the delegation of legislative power under the LIC (Amendment) Act, 1981, is excessive or lacks sufficient legislative guidance?

RULE:

Retrospective legislation cannot nullify a binding judicial mandate or accrued rights unless expressly provided for and constitutionally valid.
Legislative delegation is valid if sufficient policy guidance is provided, ensuring clear limits on the exercise of delegated powers.
Laws are valid under Article 14 if classifications are reasonable and not arbitrary and under Article 19(1)(g) if restrictions serve the public interest and are justified.

FACTS:

The Life Insurance Corporation (LIC) was established under the LIC Act of 1956 to nationalize life insurance and transfer the business of private insurers to the LIC.
Two settlements were reached in 1974 between LIC and its Class III and IV employees, providing for an annual cash bonus at 15% of salary. These settlements were effective from April 1, 1973, to March 31, 1977, and were binding until superseded by fresh settlements, awards, or legislation.
In 1975, the Payment of Bonus (Amendment) Act, 1976, prohibited bonus payments to LIC employees. LIC, under Central Government instructions, stopped bonus payments for 1975-76.
The employees challenged this action in the Calcutta High Court, which issued a writ of mandamus directing LIC to comply with the terms of the 1974 settlements.
In Madan Mohan Pathak v. Union of India (1978), the Supreme Court declared the 1976 Act unconstitutional under Article 31(2) of the Constitution and upheld employees’ rights to bonuses for 1975-76 and 1976-77.
On March 31, 1978, LIC issued notices under the Industrial Disputes Act, terminating the settlements and modifying regulations to prohibit bonuses. The employees challenged these actions in the Allahabad High Court, which struck them down.
The Supreme Court, in D.J. Bahadur v. LIC (1981), held that the 1974 settlements were binding and could not be unilaterally terminated. It issued a writ mandating LIC to honor the settlements until replaced by fresh agreements, awards, or legislation.
On January 31, 1981, the LIC (Amendment) Ordinance, 1981, was promulgated, amending the LIC Act with retrospective effect from June 20, 1979. This amendment empowered the Central Government to make rules regarding employee terms, overriding earlier settlements and laws.
The Central Government issued the LIC Class III and IV Employees (Bonus and Dearness Allowance) Rules, 1981, barring bonuses retrospectively from July 1, 1979, and substituting payments in lieu of bonuses under restricted terms.
Employees filed writ petitions in the Supreme Court challenging the ordinance, the LIC (Amendment) Act, 1981, and the rules, alleging violations of Articles 14, 19(1)(g), and 21, and questioning the retrospective nullification of a binding Supreme Court decision.

HELD:

The Supreme Court held that the LIC (Amendment) Act, 1981, and the rules issued under it could only operate prospectively from February 2, 1981, the date of publication of the rules.
Rule 3 of the 1981 Rules, which retrospectively barred bonuses from July 1, 1979, could not override the Supreme Court’s prior writ in D.J. Bahadur v. LIC, which required LIC to honor the 1974 settlements until superseded by valid legislation.
The employees were entitled to bonuses earned before February 2, 1981, under the 1974 settlements.
The Court rejected the contention that the 1981 Act and rules violated Articles 14, 19(1)(g), or 21, holding that sufficient legislative guidance was provided, and no excessive delegation of power occurred.
The petitioners failed to establish hostile discrimination under Article 14, as they could not demonstrate that LIC employees were similarly situated to employees in other public sector establishments.
The petitions were allowed in part. The LIC (Amendment) Act, 1981, and the 1981 Rules were declared valid but could only operate prospectively from February 2, 1981. LIC was directed to pay bonuses earned by employees under the 1974 settlements up to February 1, 1981. No costs were awarded.