Centre Has No Business Rewriting State Powers: Supreme Court Reinforces Federal Structure Under Factories Act, Strikes Down Ministry-Issued Clarifications on Overtime Wages

“Power to Make Rules and Grant Exemptions Lies Solely with State Governments — Not With Central Ministries,” In a powerful reaffirmation of India’s constitutional federalism, the Supreme Court of India held that only State Governments — not the Central Government or its Ministries — are empowered under the Factories Act, 1948 to make rules and exemptions relating to overtime wages. The ruling came in the context of Section 59(2) of the Act, which deals with calculation of “ordinary rate of wages” for overtime, and rejected the Union Government’s long-standing practice of issuing executive clarifications through Office Memorandums to interpret or override statutory provisions.

Delivering the judgment, Justice Rajesh Bindal, speaking for the Bench also comprising Justice Manmohan, held in unequivocal terms:

“There is no power vested with different Ministries of the Government of India to issue any clarification with reference to Section 59(2) of the Factories Act, especially with respect to what is to be included or excluded for the purpose of calculation of ‘ordinary rate of wages’.”

“Executive Cannot Circumvent the Legislature Through Office Memos”: Supreme Court Denounces Overreach by Central Ministries

Over the years, various Ministries — including Defence, Labour and Employment, and Finance — had issued contradictory Office Memorandums attempting to exclude compensatory allowances such as HRA, TA, SFA and CWA from the scope of overtime wages, citing administrative interpretation. The Court found this to be a clear case of unconstitutional overreach.

“The entire power under Chapter VI of the Factories Act is vested with State Governments. All that the Central Government can do under Section 113 is issue directions to the States — it cannot, under any provision of the Act, frame rules or alter statutory definitions.”

Importantly, the Court pointed out that Sections 64 and 65 — which deal with powers to make rules and grant exemptions concerning working hours — explicitly confer these powers only upon State Governments, reinforcing that the federal balance cannot be disrupted by ministerial fiat.

“What Parliament Giveth, the Bureaucracy Cannot Taketh Away”: Clarifications by Ministries Declared Legally Irrelevant

The Court’s analysis dealt extensively with the legal status of executive instructions, observing that mere guidelines or memorandums without statutory backing cannot override or interpret the law. Relying on prior precedent from Rajasthan State Industrial Development & Investment Corpn. v. Subhash Sindhi Coop. Housing Society and Gujarat Mazdoor Sabha v. State of Gujarat, the judgment held:

“Executive instructions which have no statutory force cannot override the law. Any notice, circular, guideline, etc., which runs contrary to the statutory provisions cannot be enforced.”

Further, the Court observed that such executive communications “merely express internal views of Ministries” and cannot serve as instruments to reinterpret or restrict rights conferred under a Parliamentary enactment.

“Railways Include Allowances, Defence Excludes — Same Law, Two Meanings?” Court Rejects Inconsistency Across Ministries

One of the most damaging aspects of the Union Government’s case was exposed when the respondents presented a 2011 Railway Ministry circular, which explicitly included HRA and TA in the computation of overtime wages. The Court highlighted the legal absurdity and constitutional impropriety of having different Ministries interpret the same statutory provision differently.

“Different Ministries of the Government of India cannot assign different meanings to the same provision of law. A Parliamentary enactment must be interpreted and applied uniformly across all establishments.”

This observation underlines the requirement of parity and legal consistency across the Union Government, particularly in labour laws where uniform protection and enforcement is essential.

“Constitutional Design Cannot Be Bypassed for Administrative Convenience”: Court Reasserts Role of State Governments in Labour Regulation

The Supreme Court re-examined Sections 64, 65, 112 and 113 of the Factories Act in detail, concluding that the entire architecture of Chapter VI and Chapter XI entrusts the responsibility for regulating working conditions — including overtime wages — squarely upon State Governments. The Central Government’s role is limited to issuing general policy directions under Section 113, not interpreting statutory clauses or issuing rules.

“The scheme of the Act makes it clear: rules are to be made by States. The Centre can guide, not govern, in this domain.”

Noting that the Act is a beneficial welfare legislation, the Court cautioned against any attempt by the executive to dilute worker protections through internal office communications.

Final Blow to Bureaucratic Overreach: Ministries Can No Longer “Clarify” the Law

This judgment delivers a resounding blow to the use of executive discretion as a substitute for legislative or rule-making authority, especially in the domain of labour and welfare laws, where clarity, consistency, and statutory compliance are paramount.

With the appeals dismissed, the Madras High Court’s interpretation — that compensatory allowances are includible in ‘ordinary rate of wages’ for overtime — now stands affirmed as the correct and binding position of law.

The ruling will prevent ministries from issuing conflicting internal orders to restrict statutory entitlements and reaffirm the supremacy of Parliament and the federal division of powers.

Case Title: Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr.

Decision Date: January 20, 2026