State of Gujarat and Anr. v. Shri Ambica Mills Ltd., Ahmedabad and Anr, AIR 1974 SC 1300

The State of Gujarat enacted the Bombay Labour Welfare Fund (Gujarat Extension and Amendment) Act, 1961, which amended the Bombay Labour Welfare Fund Act, 1953.

The legislation established a Labour Welfare Fund intended to finance welfare activities for labourers and workers.

Under the Act: Employers were required to transfer “unpaid accumulations” to the Labour Welfare Fund; and “Unpaid accumulations” included wages, gratuity, bonus, and other dues that remained unclaimed by employees for a period of three years.

The State Government was authorized to utilize these funds for labour welfare measures. Shri Ambica Mills Ltd. along with other companies challenged the constitutional validity of the legislation before the Gujarat High Court.

The companies contended that: The Act violated Article 19(1)(f) and Article 19(1)(g) by depriving them of their property and interfering with their right to carry on business; The legislation violated Article 14 by arbitrarily applying to certain categories of businesses while excluding others; and A law violating fundamental rights is void and non-est in its entirety and therefore cannot be enforced even against corporations.

The Gujarat High Court accepted these arguments and struck down the provisions relating to unpaid accumulations and their recovery mechanism.

Aggrieved by the judgment, the State of Gujarat appealed before the Supreme Court.

Meaning of “Void” Under Article 13: The Supreme Court examined the effect of Article 13 of the Constitution, which provides that laws inconsistent with fundamental rights shall be void “to the extent of the contravention.” The Court emphasized that such laws are not rendered wholly non-existent or obliterated from the statute book. Instead, the invalidity operates only against those persons whose fundamental rights are infringed.

Fundamental Rights Under Article 19 Are Available Only to Citizens: The Court reiterated the constitutional principle laid down in State Trading Corporation of India Ltd. v. Commercial Tax Officer, AIR 1963 SC 1811, that Article 19 rights are available exclusively to citizens. Corporations and companies, being juristic persons and not citizens, cannot invoke Article 19 protections. Therefore, companies cannot challenge a law merely because it may violate the Article 19 rights of natural persons.

Doctrine of Eclipse and Relative Invalidity: The Court further clarified the doctrine relating to unconstitutional laws. A law inconsistent with fundamental rights is not void for all purposes. Rather, it is unenforceable only against those persons whose constitutional rights are affected. As regards persons or entities not entitled to those rights, the law continues to remain valid and enforceable. Thus, even if the impugned provisions infringed the rights of citizens under Article 19, they could still operate against corporations that possessed no such rights.

Validity of the Labour Welfare Legislation: The Court recognized that the object of the legislation was social welfare and protection of labour interests. The transfer of long-unclaimed dues to a welfare fund was considered a reasonable legislative mechanism aimed at advancing labour welfare objectives. The Court therefore declined to accept the contention that the law was entirely void or non-est.