Full Judgment Text
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PETITIONER:
THE AKOLA ELECTRIC SUPPLY CO-
Vs.
RESPONDENT:
J. N. JARARE & ORS.
DATE OF JUDGMENT:
25/03/1963
BENCH:
GUPTA, K.C. DAS
BENCH:
GUPTA, K.C. DAS
GAJENDRAGADKAR, P.B.
WANCHOO, K.N.
CITATION:
1963 AIR 1721 1964 SCR (2) 513
ACT:
Industrial Dispute-State Electricity Board taking over from
appellant company on the expiry of license-Award framing
scheme for payment of gratuity to employees-If justified-
Central Provinces and Berar Industrial Disputes Settlement
Act, 1947 (C. P. and Berar Act XXIII of 1947), ss. 38 (a).
HEADNOTE:
The appellant company was a licensee for supplying elec.
tricity. The State Electricity Board had by a notice
intimated its intention to purchase the appellant’s
undertaking on the expiry of its license. Two days prior to
the expiry of the licence the Industrial Court at Nagpur
framed a scheme for payment of gratuity to the employees of
the appellant company with effect from the date of the
order. On application by the appellant company under Art.
227 of the Constitution the High Court of Nagpur set aside
the Industrial Court’s order and remanded the matter for the
reconsideration. After remand the Industrial Court came to
the conclusion that the appellant company was in a position
to pay gratuity and made a fresh award framing a scheme for
payment of gratuity to its employees at the rate of 1
month’s average wage. This award was made more than a year
after the company had closed its business. The present
appeal is by way of special leave granted by this Court.
The main contention in the appeal was that the Tribunal was
not justified in imposing on the company a gratuity scheme
at a time when it had already ceased to carry on its
business.
Held that the gratuity schemes are always made in the
expectation of the industry continuing to function for a
long time to come and hence the Industrial Court acted
wrongly in framing any gratuity scheme for payment of
gratuity by the company to its employees,
Indian Hume Pipe Co. v. Its Workmen, [1960], 2 S. C. R. 32
and Bharatkhand Textile Mfg., Co., Ltd. v. Textile Labour
Association, [1960] 3 S.C.R. 329, distinguished.
514
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 637 of 1962.
Appeal by special leave from the award dated April 29, 1961
of the State Industrial Court at Nagpur in Industrial
Reference No. 13 of 1959.
M. C, Setalvad, Vallbhdas Mehta and Sardar Bahadur, for
the appellant.
S.A. Sohni, Swarup Khanduja Lalit Kumar adn Ganpat Rai, for
the respondents.
1963. March 25. The judgment of the Court was delivered by
DAS GUPTA J.-This appeal by,special leave is against an
award of the Industrial Court at Nagpur tinder s. 38 (a) of
the Central Provinces and Berar Industrial Disputes
Settlement Act, 1947 dated April 29, 1961. By an earlier
award dated December 4, 1959, the Industrial Court ordered
the payment of gratuity to the employees of the appellant
Company on certain rates. The award was to come into force
from December 4, 1959. OD an application by the Company
under Art. 227 of the Constitution, the Nagpur High Court
set aside the industrial Court’s order and remanded the
matter for reconsideration of the question after examining
the financial condition of the Company. After remand the
Industrial Court took evidence of both parties as regards
the financial condition of the Company and came to the
conclusion that the Company was in a very sound financial
position and could easily bear the burden of payment of
gratuity to the extent of Rs. 50,000/- or even more.
Accordinglyv, the Industrial Court made a fresh award
directing the payment of gratuity to the Company’s employees
at the rate of 1 month’s average wage the average wage to be
calculated for the period December 1, 1-958 to November 30,
1959 to every
515
employee who had to his credit uninterrupted continuous
service of not less than five years on termination of his
service, except by dismissal on account of misconduct. The
award was directed to come into force from April 29,1961.
The Appellant Company was a licensce for supplying electric
energy to the public within the area approximating to the
Municipal limits of Akola. The license expired on December
6, 1959. Prior,to this the State Electricity Board had by a
notice dated November 27, 1957, intimated its intention to
exercise its option to purchase the undertaking on the
expiry of the license. It was after this notice had been
served and it was known that the Company would be closing
its business on December 6, 1959, that the claim for
gratuity in respect of which the Industrial Court has made
its award, was first made. -Indeed, the very application for
referring this and other disputes for arbitration contained
the frank statement that it was in view of the impending
closure of business that the claim for gratuity was being
made. It is interesting to notice that the earlier award by
tile Industrial Court was made only two days before the
Company’s license expired and the business was taken over by
the Bombay Electricity Board. The award now under appeal
was made more than a year after the Company had closed its
business.
The main contention urged before us in support of the appeal
is that the Tribunal was not justified in imposing on the
Company a gratuity scheme at a time when it had already
ceased to carry on its business. It is argued that gratuity
schemes are planned on a long term basis, the ruling
principle being to make the employer to pay retiral benefits
to such of its employees as, retire from year to year. The
framing of a gratuity scheme when an industry is on the
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verge of closure or after it has closed is, it
516
is urged, wholly unjustified. In our opinion, tkere is
considerable force in this contention.
It has been laid down by this Court that the statutory
provision for payment of retrenchment compensation is no bar
to the framing of a gratuity scheme. Thec question was
fully considered by this Court in Indian Hume Pipe Co. v.
Its Workmen (1), where this Court pointed out that while
gratuity is intended to help workmen after retirement to
whatever cause the retirement may be due to, retrenchment
compensation is intended to give relief for the sudden and
unexpected termination of employment by givinog partial
protection to the retrenched person and his family to enable
them to tide over the hard period of unemployment. It has
also been held by this Court in the Bharatkhand Textile Mfg.
Co. Ltd, v. Textile labour Asson. (2), that the existence of
a Provident Fund Scheme is also no bar to the provision of
further retiral benefit by way of gratuitv scheme.
Learned Counsel for the respondent seems to think that these
cases somehow supported his contention that the fact that an
industry is going to close or has actually closed is no bar
to a framing of gratuity scheme for its employees. We are
unable to see however anything in these decisions of this
Court to assist such a plea. In neither of these cases nor
in any other case that we know of had this Court to consider
the question of a gratuity scheme in an industry which ’is
going to close in the near future or has already been
closed. Indeed, we know of no case in which an Industrial
Tribunal has ever framed a gratuity scheme for an industry
which was not expected to carry on or has ceased to carry on
its business. In all the cases that have come before
Industrial Tribunal or this Court gratuity schemes asked for
or allowed have been in industries which were expected to
carry on fora
(1) [1960] 2 S.C.R. 32.
(2) [1960] 3 S.C.R. 329,
517
fairly long time. One of the important factors which
requires consideration in deciding on the propriety of a
scheme of gratuity is the ability of the industry to bear
the additional financial burden and in deciding this
question it has been repeatedly pointed out, the burden from
year to year has to be considered after taking into account
the average number of retirements likely to take place in a
year. Thus in the Bharatkhand Textile Mfg. case (1), this
Court in discussing the considerations that arise in such
matters, said:-
"........ there can be no doubt that before
framing a Scheme for gratuity industrial
adjudication has to take into account several
relevant facts; the financial condition of the
employer, his profit-making capacity, the
profits earned by him the past, the extent of
his reserves and the chances of his
replenishing them as well as the claims for
capital invested by him, these and other
material considerations may have to be borne
in mind in determining the terms of the
gratuity scheme ............ it appears also
to be well recognised that though the grant of
a claim for gratuity must depend upon the
capacity of the employer to stand the burden
on a long term basis it would not be
permissible to place undue emphasis either on
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the temporary prosperity or the temporary
adversity of the emyloyer. In evolving a
long-term scheme a long-term view has to be
taken of the employer’s financial condition
and it is on such a basis alone that the
question as to whether a scheme should be
framed or not must be decided......"
These observations emphasise the position that gratuity
schemes are always made in the expectation of the- industry
continuing to function for a long time to come.
(1) [1960] 3 S.C.R, 329
518
It has to be noticed that the provision for gratuity scheme
is not based on any statutory enactment, but has been
evolved by industrial adjudication as a step to achieve
social justice. In doing so, industrial adjudication has
proceeded on the basis that only a small percentage of the
workmen retire in any particular year and so the provision
for paying gratuity to retiring workmen would ordinarily be
not an unreasonable burden for the employer to be asked to
bear.
The position is materially altered however when the industry
is expected to close in the immediate future, or has
actually closed. In such a case the entire body of workmen
will "retiring" at one and the same time so that in
substance, though not in name, the provision of gratuity
would be equivalent to the grant of retrenchment compensa-
tion, in addition to what is provided for in the statute.
We can find no justification for this in the principles of
social justice.
We have therefore come to the conclusion that the Industrial
Court acted wrongly in directing any gratuity to be paid by
the Company to its employees.
We accordingly allow the appeal, and set aside the award
made by the Industrial- Court. There will be no order as to
costs.
Appeal allowed.
519