In a recent ruling of the High Court of Punjab and Haryana at Chandigarh (the “P&H HC”), in ‘IMT Industrial Association and another v. State of Haryana and another’, the P&H HC has held the Haryana State Employment of Local Candidates Act, 2020 (“Local Candidates Act”) to be “unconstitutional” and violative of fundamental rights enshrined in the Constitution of India.

The P&H HC declared that the Local Candidates Act is “ultravires” the constitution and “ineffective from the date that it came into force”.

Background of the Haryana State Employment of Local Candidates Act, 2020

• The Local Candidates Act was passed on March 02, 2021 and came into effect on January 15, 2022. The Local Candidates Act mandated private sector employers to reserve 75% of jobs for the local candidates domiciled in the State of Haryana, in positions where such candidate’s gross monthly salary or wages were up to INR 30,000.
• Initially, the constitutionality of the Local Candidates Act was challenged in multiple petitions which were presented before the P&H HC. The P&H HC vide an interim order, granted a stay on the implementation of the Local Candidates Act on February 03, 2022.
• This interim order was thereafter challenged by the State of Haryana before the Hon’ble Supreme Court of India (“SC”), and was set aside by the SC on February 17, 2022, the ground that the P&H HC had not provided sufficient reasoning for staying the enforcement of the Local Candidates Act.
• That said, while granting the stay, the SC directed the State of Haryana not to take any coercive steps against the employers in the meanwhile and requested the P&H HC to decide the matter expeditiously (and not later than within four weeks from the date of the order passed by the SC).

Issues framed by the High Court of Punjab and Haryana

• The P&H HC, while deciding the matter considered several substantial questions of laws, the most significant ones being:
• Whether the writ petition was maintainable considering that the Local Candidates Act has been challenged by an association of persons and whether such association of persons could claim the violation of fundamental rights under Part-III of the Constitution of India?
• Whether the State could enact a legislation requiring private employers to do what is forbidden under the Constitution of India?

Submissions of the Petitioners

• The main contentions of the Petitioners (IMT Industrial Association and another), amongst others, were that the Local Candidates Act provides for reservation in private employment and creates an unprecedented intrusion by the State Government into the fundamental rights of private employers to carry on their business and trade, which are protected under Article 19 of the Constitution of India.
• Further, all citizens of the country have a right to equal employment, to reside and to settle in the State of Haryana and the Local Candidates Act, thus, represents a serious assault on the unity and integrity of the country and the idea of a common Indian identity and thereby, infringes Article 14 of the Constitution of India.

Submissions of the Respondents

• The Respondents (The State of Haryana and another) submitted inter-alia, that the fundamental right provided under Article 19(1)(g) was not an absolute right but a qualified one and the Respondents could impose reasonable restrictions in the interest of the general public.
• The requirement to provide 75% reservation for employment in the private sector was restricted as it was in relation to low-paid jobs given the gross monthly salary or wages threshold of INR 30,000 (and did not apply to higher skilled/ expert/ managerial or other technically sound jobs).
• Further, the influx of a large number of migrants competing for low-paid jobs had a significant impact on the infrastructure and housing resulting in environmental and health issues in urban areas of Haryana, therefore, preference was being given to local candidates for low-paid jobs and any such preference was in the interest of the general public.

Key observations and decision of the High Court of Punjab and Haryana

• Considering the submissions of both parties, the P&H HC observed that it is beyond the purview of the Respondents to legislate on this issue and restrict private employers from recruiting from the open market for the category of employees who were in positions where they were receiving a gross monthly salary or wages of less than INR 30,000. The P&H HC stated that freedom under Article 19 of the Constitution of India could not be taken away and could not have been curtailed by the parochial limited vision of the State.
• While citing several judgements of the SC to substantiate its observations, the P&H HC stated that the Respondent (State of Haryana) has violated the concept of constitutional morality by introducing a secondary status for a set of citizens not belonging to the State of Haryana and curtailing their fundamental rights to earn their livelihood.
• The P&H HC further held that the “exploitation of the prohibition to private employment by way of a legislative command while keeping States out of the said restrictions and putting the employer under the domain of criminalization on account of the violation of the same can be termed as unconstitutional as a private individual could not be asked to do what the State has been forbidden for itself.” [Emphasis Supplied]
• While holding that the structure of the Local Candidates Act is violative of Article 19 of the Constitution of India, it observed that the Local Candidates Act imposes unreasonable restrictions upon persons regarding the right to move freely throughout the territory of India or to reside and settle in any part of the territory of India.
• On the issue of maintainability of the writ petition by an association of persons, the P&H HC concluded that there are sufficient judgements of the SC which have clarified the issue of such maintainability, and it is not for the State to raise any objections on the grounds that an association of persons cannot claim the violation of fundamental rights.
• Keeping in view the above observations, the P&H HC allowed the writ petition and held the Local Candidates Act to be unconstitutional and violative of Part III of the Constitution of India and rendered the legislation ineffective from the date it came into force (i.e., January 15, 2022).

Impact:

• Since the year 2021, the Local Candidates Act had raised several concerns for private players, and various petitions had been filed by different industry associations challenging the legislation on varied grounds, including, that the Local Candidates Act was politically motivated, it interfered with the rights of the employers to freely undertake their business, there was unavailability of the requisite skill set in State of Haryana, and that such legislation dilutes the importance of merit-based hiring, to name a few.
• While news reports suggest that the Haryana Government may be challenging the order before the SC, in the interim, we believe this judgement comes as a sigh of relief, and provides much needed respite, for the private sector, from the onerous compliance and reporting requirements envisaged under the Local Candidates Act. You may also refer to our earlier update on the Local Candidates Act (available here) for more information on the legislation.
• Given that this is a significant development, it may also have far reaching implications for other States that are either proposing, or have enacted, local reservation laws, such as the State of Jharkhand and Andhra Pradesh, respectively. Based on news reports, we understand that the Andhra Pradesh Employment of Local Candidates in the Industries/ Factories Act, 2019 has also been challenged before the High Court of Andhra Pradesh (“AP HC”) by means of a writ petition on related grounds, and it will be interesting to see whether the AP HC also passes a judgement on similar lines.