Full Judgment Text
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PETITIONER:
CALCUTTA INSURANCE Co. LTD.
Vs.
RESPONDENT:
THEIR WORKMEN
DATE OF JUDGMENT:
06/02/1967
BENCH:
MITTER, G.K.
BENCH:
MITTER, G.K.
BHARGAVA, VISHISHTHA
CITATION:
1967 AIR 1286 1967 SCR (2) 596
CITATOR INFO :
R 1968 SC1076 (9)
RF 1969 SC 182 (12)
R 1970 SC 919 (18)
E 1970 SC1421 (11,12,14,15,17,18)
R 1977 SC 941 (22)
ACT:
Industrial Dispute-Adjustment of employees in pay scales on
length of service-Propriety of-Provision for gratuity,
privilege and sick leave--Principles.
HEADNOTE:
In 1958, an agreement was entered into between the appellant
company and its employees, with reference to certain demands
made by the latter The agreement was in force for 5 years.
In 1963, after the expiry of the period, the employees asked
for a revision of the matters dealt with by the agreement.
The Industrial Tribunal to which the industrial dispute was
referred held by its award that : (1) the scales of pay and
dearness allowance should be increased and that the
employees should be pulled up to fit into the revised scales
of pay taking into account their length of service; (2) on
the question of gratuity, that 5 years of completed and
confirmed service was the qualifying period, even in the
case of retirement or resignation or termination of service
of an employee; and (3) privilege leave should be allowed up
to 30 days in a year with accumulation up to 90 days, and
sick leave to the extent of 15 days for each year of service
up to 3 months on full pay, and thereafter, three months on
half pay.
In appeal to this Court
HELD: (1) The question regarding revision must be
examined on the merits of each individual case. It could
not be said that the Tribunal should not have upset the 1958
agreement because enough time had not elapsed since the date
of that agreement. In 1958, the company was incurring
losses and it was only in 1962 that its prospects had
improved. The pay and dearness allowance of the workmen as
a result of the award should be comparable to the pay and
dearness allowance of those workmen working in other
comparable concerns; and, the financial burden Should
without any difficulty, be met by the company in view of its
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improved working. [603B, F]
Workmen of Balmer Lawrie & Co. v. Balmer Lawrie & Co. [1964]
5 S.C.R. 344, followed.
Taking into consideration the fact, that the wage scales and
dearness allowance were low even as compared to those in
comparable concerns and the established,’ financial capacity
"of the employer, since 1962, to bear the burden, the -award
of the Tribunal on the question of adjustment of the workmen
into the new scales was justified. -Unless the length of
service of the workmen was taken into consideration great
hardship -would be inflicted on the existing workmen
compared to the salary and dearness allowance which new
workers would get. By fitting the workers in the new scales
of pay taking into account their length of service, the com-
pany would be rehabilitating them to a certain extent even
though they may have suffered in the past on account of the
inadequacy of the scales of pay and dearness allowance. [603
C-G; 606 B-G]
597
French Motor Car Co. v. Their Workmen, [1963] Supp. 2 S.C.R.
16, Hindustan Times v. Their Workmen, [1964] 1 S.C.R. 234
and Greaves Cotton & Co. v. Their Workmen, [1964] 5 S.C.R.
362, followed.
(2)In considering the problem of financial burden imposed by
a gratuity scheme on the employer there are two approaches :
(i) to capitalize the burden on the actuarial basis which
would show theoretically that the burden would be very
heavy; and (ii) to look at the scheme in its practical
aspect and find out how many employees retire every year on
the average. It is the practical approach that should be
taken into account in industrial adjudication and on that
basis, the burden would not be beyond the financial capacity
of the company. [608 F-G]
Wenger & Co. v. Their Workmen, [1963] Supp. 2 S.C.R. 862,
followed
However, a workman should not be entitled to any gratuity on
resignation or retirement, after five years of completed and
confirmed service, and the period should be raised to ten
years. Otherwise, the workmen may. leave one concern after
another after putting the short minimum service qualifying
for gratuity. Also, a workman, who was dismissed for
misconduct, should be entitled to receive gratuity only
after completion of 15 years of service on the ground that
the gratuity is a reward for long and meritorious service,
and further that, in cases where the misconduct for which
the workman was dismissed entailed financial loss to the
company, the company would be entitled to recover the loss
from the amount. of gratuity payable. [609 F-H]
British Paints Ltd. v. Its Workmen, [1961] 1 L.L.J. 407,
followed.
Garment Cleaning Works v. Its Workmen, [1962] 1 S.C.R. 711
referred to.
(3)Taking into consideration the leave available to
employees in other concerns in the region the leave rules as
fixed in the award, should be modified to the extent that
the privilege leave would be allowable at the rate of 30
days for each completed year of service with a right to
accumulate the same up to 60 days; and sick leave at the
rate of 15 days per year with full pay with right to
accumulate the same up to 3 months. [612 G]
Rai Bahadur Diwan Badri Das v. Industrial Tribunal, Punjab,
(1962] 11 L.L.J, (S.C.), followed.
The contention that the Tribunal could not direct that the
employees should have leave in excess of the limits
specified in the West Bengal Shops and Establishments Act,
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1963, could not be accepted. The employees were enjoying
leave at a rate which exceeded the limits prescribed by that
Act, and s. 24 of the Act provided that the Act would not
affect a privilege to which an employee was entitled on the
date of the commencement of the Act. L610 G; 612 F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1135 of
1965.
Appeal by special leave from the Award dated April 25, 1964
of the Central Government Industrial Tribunal, Dhanbad in
Reference No. 86 of 1963.
A.K. Sen, A. N. Sinha and P. K. Mukherjee, for the
appellant,, Madan Mohan and G. D. Gupta, for the
respondents.
598
The Judgment of the Court was delivered by
Mitter, J. This is an appeal by special leave from the award
of the Industrial Tribunal, Dhanbad dated April 25, 1964.
No less than 13 issues were referred to the Tribunal under
s. 10(1)(d) of the Industrial Disputes Act, 1947 for
adjudication. Before this Court, however, the company which
has come up in appeal limited its -grievance against the
award on only a very few of them. These -are
1.Scales of pay 2. Dearness allowance 3.
Adjustment in the scales 4. Privilege and sick
leave, and 5. Gratuity.
In order to appreciate the proper scope of the dispute
between the,parties and the extent to which amelioration of
the conditions of service of the workmen with regard to the
matters mentioned above was justified, it is necessary to
refer, in brief, to the past .history of the company and its
prospects as they have come to light before us. This is all
the more necessary because learned counsel for the appellant
made a very strong comment on the Tribunal having fixed the
scales of pay, the dearness allowance etc., at considerably
higher figures than those prevalent without estimating the
impact thereof on the finances of the company. The
Tribunal, as -a matter, of fact, expressly mentioned in its
award that it had before it no estimates as to the burden
which the award would bring about in the finances of the
company. The Tribunal had before it the balance sheets and
the profit and loss accounts of the company from the year
1958 to the year 1962. In order to be able to determine
whether the company was in a position to bear the additional
burden, we requested counsel for the parties to produce
before us the balance sheets and the profit and loss
accounts of the company for the subsequent years and these
were made available to us. We thus had an opportunity of
judging the financial condition of the company for the years
1963, 1964 and 1965 to find out for ourselves whether the
burden was such that the company could bear if we were of
the view that the increase n the scales of pay and the dear-
ness allowance awarded by the Tribunal were not
unreasonable. Mr. Sen, learned counsel for the; appellant,
stated more than once and even in the early stages of the
opening of the appeal that ’his ,client did not intend to
take exception to the increase in the scales of pay and the
dearness allowance but the real grievance of the -company
was regarding the adjustment or fitment of the workmen in
the new scales of pay and dearness allowance which,
according to .him, would greatly increase the burden of the
company. Mr. Sen further argued that in all such awards it
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was usual to fit the workers in the new scales of pay and
dearness allowance giving them one or two lifts in the new
scales but, ;what the Tribunal had done in this ,me was to
fit the workmen in the new scales on the basis of the
599
total length of their service with the company. The
argument put in this form certainly suggests that the
Tribunal had transgressed the usual limits of such increases
and we therefore have to find out whether there are any
exceptional circumstances in this case which justify the
Tribunal in granting the increases it did and whether the
finances of the company warrant such increases.
There is no doubt that the appellant is one of the smallest
units of the insurance companies undertaking Are, marine and
miscellaneous insurance work in India. This is borne out by
the Indian Insurance Books for the years 1963 and 1964 to
which our attention was drawn by learned counsel. The
company was founded in the year 1923 and was doing
exclusively life insurance business until 1948. Thereafter
it started general insurance business on a very small scale.
After the passing of the Life Insurance Corporation Act of
1956 and the taking over of the life insurance business of
the company by the Corporation, its activities were very
much reduced. The paid-up capital of the company was only
Rs. 6,54,190/-. At the end of the year 1961 it was left
with loss of Rs. 1,91,472 . 00 as disclosed by its balance
sheet as at 31st December 1961. It does not appear that the
company had been able to declare any dividends to its
shareholders for some years. As a result of the working in
the year 1962, it was able to wipe out the. loss which was
being carried forward and to propose a dividend to the
shareholders at the rate of 30 paise per share totalling Rs.
19,645/-. The balance sheet as at 31st December 1962
disclosed a general reserve of Rs. 1,50,000/ and an
investment reserve of Rs. 68,000/-. For the year ending
31st December, 1962 the company earned a profit of Rs.
2,33,052. 33 which enabled it to wipe out the loss. The
annual report and the balance sheet for the year ending 31st
December, 1963 show that the profits for the year including
the balance brought forward from the previous account
amounted to Rs. 1,91,025. 86 making provision for taxation
amounting to Rs. 98,400/-. There was thus a surplus of Rs.
92,718/-. Out of this the company transferred Rs. 15,000/-
to general reserve, Rs. 5,0001- to dividend equalisation
fund, Rs. 10,000/- to the gratuity fund and Rs. 40,000/for
payment to shareholders. All this loft a sum of Rs.
22,718/to be carried forward to the next year. The report
for the year ending 31st December, 1964 shows a considerable
improvement in the company’s working. The profits for the
year including the balance brought forward amounted to Rs.
2,62,198/-. The provision for taxation amounted to Rs.
97,600/- leaving a surplus of Rs. 1,64,598/-. This was,
sought to be disposed of as follows:-
Rs.
(a) Transfer to general reserve 83,000/-
(b) Transfer to dividend equalisation fund 5,000/-
600
Rs.
(c) Transfer to gratuity fund 10,000/-
(d) Transfer to investment reserve 19,000/-
(e) Provision for payment to shareholders 39,045/-
The balance to be brought forward was 8,553/-
The report for the year ending 31st December, 1965 is even
better than that for the year ending 31st December, 1964.
The total profit of the company including the balance of Rs.
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8,553/- came to Rs. 3,23,630/- out of which, provision for
taxation was Rs. 1,03,000/- leaving a surplus of Rs.
2,20,630/-. The companysought to disPose of this in the
following manner:-
Rs.
(a) Transfer to general reserve 70,000/.
(b) Transfer to dividend equalisation fund 5,000/-
(c) Transfer to gratuity fund 10,000/-
(d) Transfer to investment reserve. 80,000/-
(e) Dividend to shareholders 52,06.0/-
It will therefore be seen that during the years 1963-65 the
company was in a position to increase its general reserve by
Rs. 1,68,000/-. -It built up an investment reserve of Rs.
99,000/- and was transferring Rs. 5,0001- per year to a
dividend reserve. It also made a provision of Rs. 10,000/-
each year for payment of gratuity which we shall have to
consider later.
The company had, at all material times, about 60 workmen
employed at the registered office at Calcutta and its
branches at Delhi, Madras, Kanpur, Meerut and Dhubri.
Besides this, the -company also had 100 persons ’described
as field staff. In 1957 there were in existence certain
grades and scales of pay for different categories of
employees at the Head Office and branch offices. The
employees were also getting some dearness allowance as also
bonus at the rate of one month’s basic wage at the time of
the Durga Pooja festival. The field staff had no pay scale.
As soon as the .company engaged itself in exclusive general
insurance business and its prospects seemed to brighten up,
the employees presented a charter of demands. Ultimately
the company and its workmen entered into an agreement on
April 29, 1958 which was to be in force for five years
commencing from January 1. 1958. The employees were divided
into two categories, viz., (1) filing assistants and sub-
staff and (2) assistants. The scales of the former were to
be Rs. 20-2-32-3-50 EB-5-75 while, that of the latter was
Rs. 55-5-757/8-150-FB-10-200-EB-15-305. There was to be no
adjustment in
601
salary for fitting in the grade. The sub-staff were to be
paid dearness allowance at Rs. 38/- p.m. at a flat rate;
filing assistants were to be paid dearness allowance at Rs.
37/- p.m. and assistants at Rs. 55/- p.m. The bonus was to
remain as before as was the case with provident fund. The
agreement provided for gratuity as follows
"Gratuity shall be payable where-
(a) an employee who has been in continuous
service for not less than 15 years, and
(i) his services are terminated for any
reason whatsoever, otherwise than as a
punishment inflicted by way of disciplinary
action; or
(ii) he voluntarily resigns from the service.
(b) An employee-
(i) dies while he is in service, or
(ii) retires from service on his reaching
superannuation, or
(iii) his services are terminated as a measure
of retrenchment or consequent on the abolition
of his post;
The employee or his heirs, as the case may be,
shall be paid on such termination,
retrenchment, resignation or death gratuity
which shall be equivalent to one month’s basic
pay for every completed year of service or any
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part thereof in excess of six months subject
to a maximum of fifteen months’ basic
pay........
The leave rules were to be left as before. There was an
attempt at conciliation which however came to nothing and
ultimately the matter was referred to the Industrial
Tribunal. The Tribunal after taking evidence, both oral and
documentary, and referring to the accounts of the company
from 1958 to 1962 concluded that the company was making
profit at least since 1961 and was in a prosperous condition
with the capacity to bear additional financial liability if
the pay scales and other demands of the union were allowed
to some reasonable extent. As regards the pay scales and
dearness allowance, the same were increased by the award as
follows:-
Scale of pay
Grade A Sub-staff Rs. 30-2-40-3-70-EB-5-95
1 (20 years)
Grade B Filing Rs. 40-3-70-4-90-EB-5-135
Assistants. (24 years)
Grade C Assistants Rs. 75-5-95-8-135-EB-15-270-EB-
25-320 (22 years).
602
The dearness allowance of subordinate staff was increased to
Rs. 40/- flat rate per month; that of filing assistants to
Rs. SO/- per month and that of assistants to Rs. 70/- per
month. With regard to the adjustment in the scales, the
Tribunal concluded that the length of service was to be the
real basis on which adjustment in the new revised scales of
pay would be made and the employees for whom there was an
existing pay, scale which was being revised and increased
will be pulled up to fit in the revised scales of pay taking
into account their length of service.
We were handed up certain charts by counsel on both sides.
It is admitted that the paid-up capital of the company and
its premium income are comparable only to All India General
Insurance Co. and Co-operative General Insurance Company out
of the companies mentioned in the Indian Insurance Year
Books. The free reserves of three companies were also
comparable as also the paid-up capital and reserve. The
scales of salary as fixed by the Tribunal in this case are
also comparable to those in the All India General Insurance
Company and Co-operative General Insurance’ Company. The
position of these three companies according to the chart
made over to us is as follows
Comparative Chart to show salaries receivable at different
stages in three following Companies as compiled from figures
at pages 120 and 40 of the Paper Book
-------------------------------------------------------------
After After AfterAfter
Salary Name of Company 5 10 1520
years years yearsyears
--------------------------------------------------------------
Rs. Rs. Rs. Rs.
Grade A All India General 40 50 6580
Co-operative
General 45 60 78 90
Calcutta Insurance 40 55 70.95
Grade C All India General 100 140 190242
Co-operative
General 110 160 210 260
Calcutta Insurance 103 150 225 320
Mr. Sen also handed up another chart which showed that the
total increase in the basic salary of all the employees of
the company as a result of the award would be Rs. 853/- per
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month while the total increase in dearness allowance per
month would be Rs. 889/-. As a result of the increase in
the provident fund contribution of the company to 81% the
total increase of burden imposed on the company thereby
would be Rs. 340/- per month. In other words,
603
these three increases would result in the outgoing being
augmented by Rs. 2,000/- p.m. or Rs. 24,000/- annually. It
is to be borne in mind that if the company were to pay to
the staff an additional Rs. 24,000/- per year it would save
approximately income-tax of’ Rs. 12,000/- per year. The
total burden of the company would therefore be only Rs.
12,000/- per year or Rs. 1,000/- per month. In view of the
general improvement in the working of the company for the
three years after 1962, there is no reason to hold that the
impact of the additional burden on the company by the award
will be such that it would be difficult for it to meet.
After all if the company’s position keeps on improving,
there is no reason why the men who work for it should not
come in for a share of the balance of the profits in common
with the share-holders of the company. Of course, this does
not mean that any increase in the scales of pay and dearness
allowance will be upheld because the company is showing a
profit. We have to take into consideration the scales of
pay and dearness allowance prevalent in other companies of a
comparable status as also keep in mind the present-day
increase in prices all round and the difficulty which men
with slender means have to face in order to make both ends
meet (if they can be met at all). We find that the scales
prevalent in this company were unusually low compared to
those of other comparable concerns before the’ date of’ the
award. We cannot also ignore the fact- that unless the
length of service of the workman is taken into consideration
great hardship will be inflicted on the existing workmen
compared to the salary and dearness allowance which new
workers will get. It cannot be disputed that on the old
scale a member of the sub-staff who has been in the company
for five years would get a basic salary of Rs. 30/per month
if his length of service was to be ignored. This would be
the same as that of a new entrant. By fitting the workers
in the new scales of pay taking into account their length of
service, the company would be rehabilitating them to a
certain extent even though they may have suffered in the
past on account of the inadequacy of the scales of pay and
dearness allowance. The pay and dearness allowance of the
workmen as a result of the award would be comparable to
those workmen working in other comparable concerns. The
financial burden can without any difficulty be met by the
company in view of its improved working.
We may now take note of a few decisions on the question of
fitting in workmen in the new scales of pay introduced by
the employers. As early as 1952 the Labour Appellate
Tribunal observed in Bijli Mazdoor v. U.P. Electric Co. (1)
that
"Normally, in question of ’fitting in’ length
of service of the employees is taken into
account and in the absence of any evidence
that another uniform rule was followed by the
Company, we must hold that length of service
is
(1) [1952] L.A.C. 475,482.
6O4
the only criterion available and to be adopted
in laying down the rules of ’fitting in’."
It Was not disputed in that case that length of service had
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not been taken into consideration in making the adjustments
to the new rates. In that case the Regional Conciliation
Board had framed certain rules one of which was that an
employee should be allowed one increment of the proposed
reorganisation scheme for every three years of service
subject to a maximum of five increments on the minimum of
the new grade on a particular designation of the
reorganisation scheme or the salary which he was drawing on
September 30, 1946 whichever may be higher.
The Tribunal in that case thought that there were two
omissions in the rule which it sought to rectify, one by way
of a proviso and the other by way of an explanation. The
proviso was that an employee should not get more than the
maximum of the new grade in which he was fitted in and the
explanation was "in calculating the length of service, the
period during which the employee was serving under the
designation of the new grade to which he is fitted in, is
only to be reckoned and not the entire period of the service
in the Company; that is to say, his service in other
designations will not be reckoned in calculating the
increments according to this rule."
Mr. Sen relied on the explanation formulated by the Tribunal
and contended that we should guide ourselves by the same.
We do not think that should be the invariable rule as the
following decisions of this Court will show. In French
Motor Car Co. v. The Workmen(1) it was observed :
".......... generally adjustments are granted
when scales of wages are fixed for the first
time. But there is nothing in law to prevent
the tribunal from granting adjustment even in
cases where previously pay scales were in
existence; but that has to be done sparingly
taking into consideration the facts and
circumstances of each case. The usual reason
for granting adjustment even where wage scales
were formerly in existence is that the
increments provided in the former wage scales
were particularly low and therefore justice
required that adjustment should be granted a
second time."
It is necessary to bear in mind that in that case it was
found that the particular concern was already paying the
highest wages in-its own line of business, but nevertheless
it was said that industrial Courts would be justified in
looking at wages paid in that region in other lines of
business which were as nearly similar as possible to the
line of business carried on by the concern before it. What
(1) [1963] Supp. 1 S.C.R. 16 : A.I.R. 1963 S.C. 1327.
605
are the factors to be taken note of in considering what
adjustments should be given in fixing wage scales were
considered at some length in Hindustan Times v. Their
Workmen(1). It was there found that the wage scales of the
workmen had remained practically unaltered for almost 12
years during which the cost of living had risen steeply.
The Tribunal further found that the company had been
prospering and had financial stability. This Court examined
the balance sheets and the other materials on record and
agreed with the conclusion arrived at by the Tribunal. In
Greaves Cotton & Co. v. Their Workmen(2) the question came
up for consideration once more before this Court. Referring
to the earlier cases it was said that the question whether
adjustment should be granted or not was always one depending
upon the facts and circumstances of each case.’ The Court
found on a comparison of the scales of pay of the appellant
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concern and those prevalent in other concerns that the pay,
scales were not high as compared to pay scales in comparable
concerns from 1950 and if anything, they were on the lower
side.’ The Court also found that in the appellant’s concerns
the first 1 rate of increment was generally on the lower
side and lasted for a longer period than in the case of
comparable concerns. In these circumstances-the award of
the Tribunal deciding to give increments by way of
adjustments was upheld although as a result thereof the em-
ployees of the appellant’s concerns would be getting a pay
packet which would stand comparison with some of the best
concerns in the region. In Workmen of Balmer Lawrie & Co.
v. Balmer Lawrie & Co.(3) it was said
"If the paying capacity of the employer
increases or the cost of living shows an
upward trend...... or there has been a rise in
the wage structure in comparable industries in
the region, industrial employees would be
justified, in making a claim for the be-
"examination of the wage structure and if such
a claim is referred for industrial
adjudication, the Adjudicator would. not
normally be justified in rejecting it solely
on the ground that enough time has not passed
after the. making of the award, or that
material change in relevant circumstances had
not been proved It is, of course, not possible
to lay down any hard and fast rule in the
matter. The question as to revision must be
examined on the merits in each individual case
that is brought before an adjudicator for his
adjudication."
We refer to these observations in order to negative the
contention put forward by Mr. Sen on behalf of the appellant
that it Was only in 1958 that the company and its employees
had entered into an
(1) [1964] 1. S. C.R. 234. (2) [1964]
5 S.C.R. 362.
(3) [1964] 5 S.C.R. 344.
606
agreement with regard to all these matters and the Tribunal
should not have upset that agreement merely because the
employees thought that their scales of pay were low and
required readjustment. The prospects of the company in 1-
958 were far from bright as the earlier passages in this
judgment will show. As a matter of fact the company was
incurring losses. It was only in 1962 that the company
turned the corner and its prospects have been brightening
ever since. Taking into consideration the fact that the
wage scales and dearness allowance were low even as compared
to comparable concerns and the established financial
capacity of the employer to bear the burden, we do not feel
justified in upsetting the award of the Tribunal or
introducing any modification thereto on the question of
adjustment of the workmen into the new scales.
On the question of gratuity the Tribunal noted that there
was no difference between the parties regarding the rate at
which it should be paid and the only dispute between them
was as regards the period of completed service after which
it should be given. The Tribunal further noted that the
company had ultimately agreed that the maximum proposals of
the company as modified and given in Ex. v-16 should be
given effect to as mentioned by the Conciliation Officer.
The Tribunal awarded that the company should pay to its
employees who were permanently: and totally disabled as duly
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certified by a physician appointed by the company or in case
of death or in case of retirement, termination, resignation
etc. after five years of completed and confirmed service one
month’s salary for a year of service up to a maximum of
fifteen months’ basic pay-
The main attack against the award on this point was that the
Tribunal should not have provided for payment of gratuity on
resignation by the employee after only five years’ service.
It was argued that this would be an incentive to a workman
to leave the service of the company after five, years and
seek employment elsewhere. On the question of retirement
also it was contended that five years was too short a period
entitling a workman to gratuity and that the minimum period
should have been fixed at 15 years. It was further argued
that no gratuity should be payable to a workman in case of
his dismissal on the ground of misconduct.
It is therefore necessary to examine the decisions of this
Court on this point, for unless a case for revision of the
same is made out it is only proper that we should guide
ourselves by what has been held by this Court before. As
far back as 1956, this Court observed in the Indian Oxygen &
Acetylene Co. Ltd. (1) that
"It is now well-settled by a series of
decisions of the Appellate Tribunal that where
an employer company
(1) [1956] 1 L.L.J. 435.
607
has the financial capacity the workmen would
be entitled to the benefit of gratuity in
addition to the benefits of the Provident
Fund. In considering the financial capacity
of the concern what has to be seen is the
general financial stability of the concern.
’The factors to be considered before granting
a scheme of gratuity are the broad aspects of
the financial condition of the concern, its
profit earing capacity, the profit earned in
the past, its reserves and the possibility of
replenishing the reserves, the claim of
capital put having regard to the risk
involved, in short the financial stability of
the concern."
In that case the Court awarded gratuity on retirement or
resignation of an employee after 15 years of continuous
service, 15 months’ salary or wage. The above observations
were repeated in Express Newspapers (Private) Ltd. & Anr. v.
The Union of India & others.(,) It was further observed in
that case that gratuity was a reward for good, efficient and
faithful service rendered for a considerable period and that
there would be no justification for awarding the same when
an employee voluntarily resigned and brought about a
termination of his service, except in "exceptional
circumstances. In Express Newspaper(1) case it was held that
where an employee voluntarily resigned from service after, a
period of only three- years there would be no justification
for awarding him a gratuity and any such provision would be
unreasonable.
In Garment Cleaning Works v. Its Workmen(2) the question
which came up for consideration was, whether an award
providing for gratuity on retirement or resignation of a
workman after ten year’s service at ten days consolidated
wages for each year’s service should be upheld. The
contention put forward on behalf of the employer was that
the minimum period of service entitling a workman to
gratuity should be fixed at 15 years and reference was made
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to the case of Express Newspapers Ltd.(1). It was however
said by this Court that the observation in express
Newspapers’ case was not intended to lay down a rule of
universal application. It was observed that :
"Gratuity is not paid to the employee
gratuitously or merely as a matter of boon. it
is paid to him for the service rendered by him
to the employer, and when it is once earned,
it is difficult to understand why it should
necessarily be denied to him whatever may be
the nature of misconduct for his
dismissal...... If the misconduct for which
the service of an employee is terminated has
caused financial loss to the works, the
before gratuity could be paid to the employee
he is called upon to corn-
(1) [1959] S.C.R. 12,156.
(2),[1962] 1 S.C.R. 731,
608
pensate the employer for the whole of the
financial loss caused by his misconduct, and
after this compensation is paid to the
employer if any balance from gratuity claim-
able by the employee remains that is paid to
him."
The opinion expressed in that case was that gratuity was
earned by an employee for long and meritorious service and
consequently it should be available to him even though at
the end of such service he- may have been found guilty of
misconduct entailing his dismissal.
In principle, it is difficult to concur in the above
opinion Gratuity cannot be put on the same level as wages.
We are inclined to think that it is paid to a workman to
ensure good conduct through-out the period he serves the
employer. "Long and meritorious service" must mean long and
unbroken period of service meritorious to the end. As the
period of service must be unbroken, so must the continuity
of meritorious service be a condition for anti I thing the
workman to gratuity. If a workman commits such misconduct
as causes financial loss to his employer, the employer would
under the general law have a right of action against the
employee for the loss caused and making a provision for
withholding payment of gratuity where such loss caused to
the employer does not seem to, aid to the harmonious
employment of laborers or workmen. Further, , the
misconduct may be such as to undermine the discipline in the
workers case in which it would be extremely difficult to
assess the financial loss to the employer. It is to be
noted that in the last mentioned case this Court did not
think fit to modify the award of the Tribunal.
On the financial aspect of a gratuity scheme, we were
referred to the case of Wenger & Co. v. their Workmen(1).
There it was observed by this Court that the problem of the
burden imposed by the gratuity scheme could be looked at in
two ways. One was to capitalise the burden o n actuarial
basis which would show theoretically that the burden would
be very heavy and the other was to look at the scheme in
its practical aspect and find out how many employees retire
every year on the average. According to this Court, it was
this practical approach which ought to be taken into
account. Further, it was held that the award providing for
payment of gratuity for a continuous service of two years
and more, termination of service for whatever reason except
by way of dismissal for misconduct involving moral turpitude
was unduly liberal. This Court ordered deletion of the
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words ’involving moral turpitude’ from the provision of
gratuity and directed that for termination of service caused
by the employer the minimum period of service for payment of
gratuity should be five years and in regard to resignation,
the employee should be entitled to get gratuity only if he
had 10 years completed service to his. credit.
(1) [1963] 11 L.L.J. 403.
609
In British Paints (India) Ltd. v. Its Workmen(1) the
Tribunal had fixed five years minimum service as the
qualifying period to enable a workman to earn gratuity which
was payable in case of death or discharge or voluntary
retirement on grounds of medical, unfitness or resignation
before reaching the age of superannuation, retirement on
reaching the age of superannuation or termination of service
by the company for reasons other than misconduct resulting
in loss to the company in money and property. In that case
the Court observed that the reason for providing for a
longer minimum period for earning gratuity in the case of
voluntary retirement or resignation was to see that workmen
do not leave one concern after another after putting the
short minimum service qualifying for gratuity. It was said
that a longer minimum in the case of voluntary retirement or
resignation makes it more probable that the workmen would
stick to the company where they were working. Ultimately,
this Court modified the gratuity-scheme and ordered that in
the case of voluntary retirement or resignation by the
employee before reaching the age of superannuation, the
minimum period of qualifying service for gratuity should be
ten years and not five years.
Mr. Sen argued that. the scheme of gratuity as framed by the
Tribunal involved the setting apart of Rs. 10,000/ per year
out of the profits of the company. According to him, the,
burden was too heavy for the company and without any
justification. It must be noted that the provision for
setting apart Rs. 10,000/ every year was said to be fixed on
actuarial basis and not the practical approach formulated by
this Court in the case of Wenger & Co.(2). In our view, it
is this practical approach which the Court should consider.
and on that basis the burden would certainly not be
anywhere. in the region fixed by the company or be such. as
to be struck down as beyond the financial capacity of the
company.
We do however feel that a workman should not be entitled to
any gratuity on resignation only after five years of
completed and confirmed service and that in case of
resignation this period should be raised to ten years. We
also hold, following the principles laid down in the former
decisions of this Court, that a workman, who is disn-dssed
for misconduct, should be entitled to receive gratuity only
after completion of 15 years of service on the ground that
gratuity is a reward for long and meritorious service, and
further that, in cases where the misconduct for which the
workman is disn-dssed entailed financial loss to the
company, the company would be entitled to set off the loss
from the amount of gratuity payable. In our opinion the
award should also be modified by providing for a ten year
qualifying period for gratuity. on retirement. Save as.
above the award as to gratuity will stand’.
(1) [1961] 1 L.L.J. 407. (2) [1963] 11
L.L.J. 403,
4610
The privilege leave which the employees were enjoying.
before the award was 21 days in the year after every 12
months of continuous service which could be accumulated up
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to a maximum of 45 days and had to be exhausted within six
months following the two years during which the leave had
been earned; but if the company ,,could not grant leave due
to exigencies of business when it was applied for,
accumulation was to be allowed up to a maximum of 60 days.
Before the date of the award, sick leave was to be treated
as casual leave in the first instance. If the period of
leave was in excess casual leave available, it was to be
treated as privilege leave. If sick leave was required in
excess of the casual and privilege leaves, it was to be
allowed up to a maximum of 15 days for each completed year
of service to be accumulated up to three months on full pay
and further three months on hat pay.
The Tribunal by its award allowed privilege leave up to 30
days in a year with accumulation up to 90 days and sick
leave to the extent of 15 days for each year of service up
to three months on full pay and thereafter three months on
half pay.
Mr. Sen contended that the Tribunal bad gone wrong in the
matter of fixation of leave and should have guided itself by
the West Bengal Shops and Establishments Act, 1963 which
applied to the appellant. S. 11 (a) of that Act provided
that a person employed in a shop or an establishment was to
be entitled for every completed year of continuous service,
to privilege leave on full pay for four.teen days. S. 11(b)
provided that every such person was to be entitled to sick
leave in every year on half pay for fourteen days on medical
certificate obtained from a medical practitioner in terms of
the Act. The proviso to the section laid down that
privilege leave admissible under cl. (a) might be
accumulated up to a maximum of not more than 28 days and
sick leave under cl. (b) might be so accumulated up to a
maximum of not more than 56 days. S. 24 of the Act which
came into force in 1963 laid down that nothing in the Act
was to affect any right or privilege to which any person
,employed in any shop or establishment was entitled on the
date of the commencement of the Act under any law for the
time being in force or under any contract, custom or usage
in force on that date if such right or privilege was more
favorable to him than any right or privilege conferred upon
him by the Act or granted to him at the time of appointment.
Our attention was also drawn to the Delhi Shops and
Establishments Act, 1954 s. 22 whereof provided that every
person employed in an establishment shall be entitled after
twelve months of continuous employment, to privilege leave
with full wages for a total period of not less than 15 days
and to sickness or casual leave with
6 11
wages for a total period not exceeding 12 days provided that
privilege leave might be accumulated up to a maximum of 30
days and sick leave was not to be accumulated.
We were also referred to S. 79 of the Factories Act under
which every worker who had worked for a period of 240 days
or more in a factory during a calendar year was to be
allowed during the subsequent calendar year, leave with
wages for a number of days calculated at the rate of one day
for every 20 days of work performed by him and the total
number of days of leave which might be carried forward to a
succeeding year was not to exceed 30 days.
Section 78 of the Factories Act laid down that the
provisions of Chapter VIII with regard to annual leave etc.,
were not to operate to the prejudice of any right to which a
worker might be entitled under any other law or under the
terms of any award, agreement or contract of service. In
Alembic Chemical Works Co. v. Its Workmen(1), the Tribunal
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on a reference under s. 10(1)(d) had directed that the
workmen should be entitled to privilege leave up to three
years completed years of service, 16 days per year and up to
nine completed years, 22 days per year and thereafter one
month for every 11 months of service with accumulation up to
three years. The Tribunal had also provided for sick leave
at 15 days in a year with full pay and dearness allowance
with a right to accumulate up to 45 days.
In appeal to this Court, it was contended that the Tribunal
had no jurisdiction to make such an award in view of the
provisions of S. 79 of the Factories Act. The question was
dealt with at length by this Court and the provisions of ss.
79, 78 and 84 which enabled the State Government to exempt
any factory from all or any of the provisions of Chapter
VIII subject to such conditions as might be specified in the
order, were examined. According to this Court, s. 79(1)
provided for a minimum rather than the maximum leave which
might be awarded to the worker. The Court further sought to
reinforce its conclusion by examination of the amendments to
the Act introduced from time to time to show that these
always sought to make the provisions more liberal in favour
of the workers.
In Rai Bahadur Diwan Badri Das v. Industrial Tribunal,
Puniab(2), the Industrial Tribunal had directed that all the
workmen in the press section should be given the same
quantum of leave viz., 30 days leave with wages irrespective
of the question as to whether they took up employment after
1st July, 1956. The management had modified the leave rules
prior thereto and classified the press workers in two
categories : (1) workers who were employed on or before 1st
July, 1956 and (2) those who were employed after 1st July,
1956. In respect of the first category benefit of 30 days
leave with wages
(1) 11 9611 3 S.C.R. 297.
M2Sup.Cl/67-10
(2) [1962] 11 L.L 366,
612
was given while the workers in the second category were to
have leave as per s. 79 of the Factories Act. It was
observed by this Court:
" Generally, in the matter of providing leave
reles, industrial adjudication prefers to have
similar conditions of service in the same
industry situated in the same region. There
is no evidence adduced in this case in regard
to the condition of earned leave prevailing in
the comparable industry in the region. But we
cannot ignore the fact that this very concern
provides for better facilities of earned leave
to a section of its employees when other terms
and conditions of service are the same in
respect of both the categories of employees.
It is not difficult to imagine that the
continuance of these two different provisions
in the same concern is likely to lead to
dissatisfaction and frustration amongst the
new employees."
According to this Court, it was not right that there should
be discrimination amongst the workers in the same concern.
Unfortunately for us, we have not got any evidence of the
provisions of leave prevalent in the two concerns which are
comparable with the appellant before us, viz., All India
General and Co-operative General Insurance Cos. but the
Tribunal had before it a comparative statement of leave
available to employees in some other concerns. In the
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United Fire and General Insurance Co. privilege leave was
allowed for one month in a year with accumulation up to 75
days. In Union Co-operative Insurance Co. it was one month
in a year with accumulation up to six months. In the
Hercules Insurance Co Ltd. it was one month in a year
simpliciter.
We find ourselves unable to accept the contention of Mr. Sen
that the Tribunal could not direct that the employees should
have leave in excess of the limits specified in the West
Bengal Shops and Establishments Act, 1963. As a matter of
fact, the employees were enjoying leave at a rate which
exceeded the limits prescribed. Taking all these matters
into consideration, we think that the leave rules should be
modified to the extent that privilege leave would be
allowable at the rare of 30 days for each completed year of
service with a right to accumulate the same up to 60 days;
and sick leave at the rare of 15 days per year with full pay
with right to accumulate the same up to three months.
The award shall stand modified as indicated above and in
view of the divided success in this Court, we make no order
as to costs.
V.P.S.
Award modified.
613