The Indian Constitution provides for a federal system of government with a strong centre. The relationship between the Centre and State has come into light again under the much-debated topic of domicile-based reservation laws in private companies. Such legislations are caught between two stools: to benefit residents of the state or promote principles of oneness and equality. The Haryana State Employment of Local Candidates Act 2021, is a recent example of a regional identity enforcing law. It becomes crucial to examine the legality of such laws from a constitutional lens.
This act was passed by the Manohar Lal Khattar government in November 2020. This legislation was included in the 2019 assembly election manifesto of the Jannayak Janata Party (JJP). Later, it became a part of the Common Minimum Programme of the BJP-JJP Coalition government[i]. It received the assent of the Governor on 26th February 2021. This act mandates 75% reservation of “Haryana-Domicile” candidates for jobs in private companies and organizations[ii]. Before Haryana, Andhra Pradesh was the sole State to have 75% reservation for state residents in private-sector jobs. Since this act was tabled in the State Legislature of Haryana, it has been the point of contention for its constitutionality and exploitative nature towards business enterprises.
Issues Arising from the Act
Section 4 Para 2 of the act[iii] says: the employer, at his discretion, can restrict the employment from a particular district to 10% of the total local candidates to be employed. This means that the ceiling is advisory in nature and not mandatory. It is outrightly the employer’s prerogative to employ local candidates above or below 10% from a particular district. In this way, privately managed companies, trusts, societies or limited-liability partnerships may employ local candidates less than or more than 10% from one district. Thus, it will lead to asymmetrical employment patterns across the state and will be availed by employers differentially.
Section 5(2)(iii) of the act[iv] says: the Designated Officer after inquiry and evaluation of the application for exemption, may direct the local candidates to acquire the desired skills and proficiency. The employer will have to bear the cost of training the local candidate for him to acquire skills to increase his employability. Even when the lack of merit causes the employer to reject the candidate, he can be forcefully directed by the Officer to train the concerned candidate and employ him. Lack of a skilled workforce can adversely affect the productivity of an industry, which will decrease its competitiveness as compared to other industries.
In the 2005 Report of the Expert Committee on Company Law headed by Dr. Jamshed Irani, it was said private companies who do not go for public issue need to be given flexibility, freedom of operation and compliance[v]. The Economic Survey of 2019-20 also advocates for minimizing government intervention in the operation of private companies as it hampers investments and economic progress.
Constitutionality of the Legislation
This legislation has invited flak from the legal community, constitutional experts and the Opposition parties for the contravention of significant constitutional principles. In the most fundamental sense, by following systematic exclusion of non-Haryana job applicants, this act is not in line with the concept of equality and thereby violates Article 14. Discrimination of any citizen on grounds of religion, race, caste, sex or place of birth is prohibited under Article 15(2). Indeed, the State can make special provisions for people of Socially and Economically Backward Classes, Scheduled Castes and Scheduled Tribes. However, this legislation does not focus on securing employment for the youth belonging to these classes exclusively.
Article 16(2) holds discrimination on the grounds of place of birth and residence unconstitutional. In the case, Kailash Chand Sharma v. State of Rajasthan[vi], The Supreme Court declared the appointment of government teachers, who were preferred because they belonged to a certain region, as unconstitutional. It was held that residence cannot be a ground for domicile-reservation and socio-economic backwardness needs to be present. Another seminal viewpoint on domicile-reservation came in the case, Dr. Pradeep Jain v. Union of India[vii], where the Supreme Court held that fostering regional loyalties will threaten India’s unity. The “Sons of Soil” concept will threaten India’s fabric and lead to its fragmentation. The Court mandated fulfilment of two conditions to allow domicile-based reservation: Service to the State and the State’s backwardness. The Bill does not assure service to the state or to the citizens. Secondly, the State is maintaining per capita income during 2020-21 at both current and constant prices higher as compared to the National per capita income of 1,27,768 and 85,929 respectively[viii].
Article 16(3) of the constitution gives parliament the power to make laws on employment and appointment to office under the centre, state or any union territory. The constitutionality of the legislation concerning the authority of the Haryana state legislative assembly to make laws on employment is simply indefensible. Justice M. Hidayatullah in the case, A.V.S. Narasimha Rao & Ors. v. State of Andhra Pradesh And Anr.[ix] said, “The legislative power to create residential qualification for employment is thus exclusively conferred on the Parliament. Parliament can make any law which prescribes any requirement as to residence within the State or Union territory prior to employment or appointment to an office in that State or Union territory.” Shri Mahaveer Tyagi of the Indian National Congress had advocated for residential qualifications for strong federalism in the Constitutional Assembly Debates. He said that local self-government will become consolidated only when local people are chosen for the jobs in the state. It was the sagacity of DR. B.R. Ambedkar to confer this power exclusively on the Parliament.
Article 16(4) gives state the power to make reservations in appointments for public services in favour of backward classes. Reservation in private institutions is a violation of their right to carry their business or occupation. These institutions, which do not receive any government aid, cannot be forced to select candidates on any ground but merit. The Supreme Court in the case, P.A. Inamdar v. State of Maharashtra[x] held that paucity of resources in government institutions cannot be a reason for forcing private institutions to implement reservation policies. Even the 93rd Constitutional Amendment of 2005[xi] allowed State to implement reservations in private unaided educational institutions for greater access of quality higher education to SC/ST’s. However, it did not provide for reservations of employment in private companies.
Senior Advocate Ashok Arora of the Supreme Court said, “You will be demotivating the meritorious students in the state itself as they would find it difficult to get jobs outside if every other state too started having a similar 75% reservation for people holding their domicile.”[xii] In this line of policymaking, state governments will be violating Article 19(1)(g) of the Constitution as well. Every citizen has the constitutional right to travel and reside in any part of the country, but how can a citizen enjoy this right if the education and employment are trammelled to the state, they are born in.
Commercial and Economic Challenges
The Statement of Objects and Reasons of the act labels influx of migrant workers from other states as the primary reason for this legislation. These workers claimed jobs offered by companies operating majorly in Haryana, this left the youth of Haryana unemployed. However, this has exacerbated the situation of unemployment in Haryana. As per a September 2020 report of the Centre for Monitoring Indian Economy (CMIE), Haryana’s employment rate is 33.5%, more than three times the national average[xiii]. The primary reason for this situation is the lack of investments and lack of a business-friendly environment in the state[xiv]. This legislation is in turn increasing the hardships of corporates to invest in Haryana. The lack of productivity and competitiveness among employees will restrain companies from investing in Haryana. With the same line of thought, Mr. Chandrajit Banerjee, Director General of The Confederation of Indian Industry (CII) said, “At a time when it is important to attract investments at the state level, the Haryana government could have avoided imposing restriction on the industry.”[xv]
The constitutionality of reservation, more particularly domicile, has been put into focus with the passing of this legislation. Domicile-based reservation is not a constitutional right because domicile is nowhere mentioned in the Constitution. The germ of domicile-laws is the exclusion of outsiders to benefit the locals of the state. This differential treatment is a gross violation of Articles 14 and 19(1)(g). However, many states like Maharashtra, Andhra Pradesh, Madhya Pradesh and Karnataka have enacted domicile-reservation legislations in private institutions. The Courts should put forth a clear constitutional position on the validity of domicile-laws. Moreover, the authority of the state legislative assembly to enact reservation laws on employment and make them applicable to private unaided institutions can be constitutionally challenged. Article 16(3) and 16(4) make the challenges completely indefensible. The legislation seeks to secure low-paid jobs for the youth of Haryana; however, the provisions of the legislation will have a contrary impact to the desired. The lack of a skilled workforce will diminish the productivity and competitiveness sought by private companies. This will lead to a decrease in the volume of investments essential for the economic growth of the state. Lastly, through the examination of this legislation, the Judiciary should set a concrete example on the issue of domicile laws and unconstitutional or ultra vires laws passed by the state legislatures.
[i] TIMES OF INDIA, Haryana Governor approves bill to reserve 75% of private sector jobs for locals, https://timesofindia.indiatimes.com/india/haryana-governor-approves-bill-to-reserve-75-of-private-sector-jobs-for-locals/articleshow/81294939.cms
[ii] Varinder Bhatia, What Haryana’s move to reserve 75% private jobs means for companies, Indian Express.
Available at: https://indianexpress.com/article/explained/explained-what-haryanas-move-to-reserve-75-private-jobs-means-for-companies-6995688/
[iii] The Haryana State Employment of Local Candidates Act, 2021, No. 3, Government of Haryana, 2021 (India).
[iv] Dr. Jamshed Jiji Irani, Report of the Expert Committee on Company Law, (May 31, 2005). Available at: https://www.mca.gov.in/MinistryV2/classification+and+registration+of+companies.html
[v] “Undermining Markets: When Government Intervention Hurts More Than It Helps”, Economic Survey 2019-20.Availableat:https://www.indiabudget.gov.in/budget2020-21/economicsurvey/doc/vol1chapter/echap04_vol1.pdf
[vi] Kailash Chand Sharma v. State of Rajasthan, AIR 2002 SC 2877
[vii] Dr. Pradeep Jain v. Union of India, (1984) 3 SCC 654
[viii] Government of Haryana, Economic Survey of Haryana, 3 (2020-21), http://web1.hry.nic.in/budget/Esurvey.pdf
[ix] 9. A.V.S. Narasimha Rao & Ors. v. State of Andhra Pradesh And Anr, 1970 1 SCR 115
[x] P.A. Inamdar v. State of Maharashtra, AIR 2005 SC 3226
[xi] 93rd Constitutional Amendment, 2005.
Available at: https://legislative.gov.in/constitution-ninety-third-amendment-act-2005
[xii] Gaurav Vivek Bhatnagar, Haryana’s 75% Domicile Quota in Private Sector ‘Excessive ‘, ‘Unconstitutional’: Experts, The Wire. Available at: https://thewire.in/labour/haryana-govts-75-percent-quota-private-sector-jobs-locals
[xiii] Centre for Monitoring Indian Economy, https://unemploymentinindia.cmie.com/
[xiv] Sunil Rahar, Unemployment in Haryana three times the national average, The Hindustan Times. Available at:https://www.hindustantimes.com/cities/unemployment-rate-in-haryana-highest-in-the-country-says-report/story-i0XRweXIz4GEr34VxVbVFI.html
[xv] Industry body CII urges Haryana govt. to re-look at legislation on reservation in private jobs, The Economic Times. Available at: https://economictimes.indiatimes.com/news/company/corporate-trends/industry-body-cii-urges-haryana-govt-to-re-look-at-legislation-on-reservation-in-private-jobs/articleshow/81314123.cms?from=mdr
Aryan Birewar is a first year BBA LLB (Hons.) student at Symbiosis Law School, Pune.
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