Full Judgment Text
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CASE NO.:
Appeal (civil) 2936 of 2002
PETITIONER:
Rajasthan Welfare Society
RESPONDENT:
State of Rajasthan
DATE OF JUDGMENT: 07/04/2005
BENCH:
Y.K.Sabharwal & Tarun Chatterjee
JUDGMENT:
J U D G M E N T
[With SLP (C) No.21640 of 2003, Civil Appeal Nos.2934, 2935 &
2940 of 2002, SLP (C) No.4544 of 2004, Civil Appeal No.6896 of
2003 and Civil Appeal Nos.7432 & 7433 of 2004]
Y.K. Sabharwal, J.
Gratuity is to be paid to an employee on the termination of his
employment in terms of the provisions of the Payment of Gratuity Act,
1972. The question for determination in the present case is whether the
amount of gratuity payable to the employees of the aided educational
institutions has to be taken into consideration or not for determining the
amount of grant-in-aid. The question has to be examined in the context of
Rajasthan Non-Government Educational Institution Act, 1989 (for short,
’the Act’) which came into force with effect from 1st January, 1993.
The power of the State Government to make rules is contained in
Section 43 of the Act. Section 43 of the Act, inter alia, provides that the
Rules may provide for the terms and conditions for grant of recognition to
Non-Government Educational Institutions. Rules can also be framed for
the giving of grants-in-aid. In exercise of powers conferred by Section 43
and all other powers enabling the State Government in this behalf, Rules
called the Rajasthan Non-Government Educational Institutions
(Recognition, Grant-in-Aid and Service Conditions Etc.) Rules, 1993 (for
short, ’the Rules’) have been made.
The appellant is running an aided educational institution. The
expression ’aided institution’ has been defined in Section 2(b) of the Act to
mean a recognized institution which is receiving aid in the form of
maintenance grant from the State Government. The Act has been enacted
to provide for better organization and development of education in the non-
Government Educational Institutions in the State of Rajasthan. The
expression ’recognised institution’ is defined in Section 2(q) of the Act to
mean a Non-Government Educational Institution affiliated to any University
or recognized by the Board, Director of Education or any officer authorized
by the State Government or the Director of Education in this behalf. The
educational institution being run by the appellant is a recognized institution.
Section 2(a) defines ’aid’ to mean any aid granted to a recognized
educational institution by the State Government. The educational
institution of the appellant has been granted aid within the meaning of the
Act. The expression ’employee’ includes a teacher and every other
employee working in a recognized institution. The expression ’salary’ has
been defined in Section 2(r) as follows :
" ’Salary’ means the aggregate of the emoluments
of an employee including dearness allowance or
any other allowance or relief for the time being
payable to him but does not include
compensatory allowance."
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Section 7 of the Act provides for grant-in-aid to recognized
institutions. It, inter alia, provides that no aid shall be claimed by an
institution as a matter of right. Section 7(4) provides that "the aid may
cover such part of the expenditure of the institution as may be prescribed".
Section 16 of the Act enables the State Government to regulate the terms
and conditions of employment. It, inter alia, provides that the State
Government may regulate the recruitment and conditions of service,
including conditions relating to qualifications, pay, gratuity, insurance, age
of retirement, entitlement of leave, conduct and discipline, of persons
appointed as employees of aided institutions in the State. Section 29 of
the Act provides that the scales of pay and allowances except
compensatory allowances with respect to all the employees of an aided
institution shall not be less than those prescribed for the staff belonging to
similar categories in Government institutions. The expression
’compensatory allowance’ is defined in Section 2(d) to mean an allowance
granted to meet personal expenditure necessitated by the special
circumstances in which duty is performed and shall include a travelling
allowance but shall not include a sumptuary allowance nor the grant of a
free passage to or from any place outside India.
Chapter III of the Rules deals with ’AID, ACCOUNTS AND AUDIT’,
containing Rules 9 to 22. Rule 9 relates to the sanction of grants-in-aid
and reads as under :
"Rule 9. Grants\027The State Government may at
its discretion sanction following grants\027
(1) Maintenance or recurring grant.
(2) Non-recurring grant towards equipments,
building etc.
(3) Ad hoc, non recurring or recurring grant to
an institution which is of an all India
Character and its project and activities
have been approved by the Central or
State Government on such terms and
conditions as it may deem fit to impose.
(4) Such other grants as may be sanctioned by
the Government from time to time."
Rule 10 provides for general conditions governing grant-in-aid. It,
inter alia, provides that every institution which applies for grant-in-aid shall
be deemed to have accepted its obligation to comply with the conditions
laid therein, one of it being that the Management shall appoint teachers
and other staff and shall follow the conditions of service, as laid down in
the Rules. Rule 11 deals with the procedure for grant-in-aid. Rule 13
deals with the assessment of annual recurring grant. It, inter alia, provides
that annual recurring grant will be given on the basis of estimated
expenditure of the current year and be subject to adjustment from the grant
payable in the next year. It that the approved expenditure shall be
arrived at according to the Rules and such other instructions that may be
issued from time to time. Rule 14 deals with approved expenditure and to
the extent relevant for the present case reads as under :
Rule 14. Approved Expenditure\027Approved
expenditure referred to in Rule 13 above, shall
relate to the following items only\027All the items
from (a) to (v) mentioned below will form
component ’A’ of the admissible items of the
expenditure.
(a) Actual salary, and provident fund
contribution not exceeding 8.33% in respect of
teaching and non-teaching staff.
(b) to (v)\005\005.."
Note 2 appended to Rule 14 is relevant for the present purposes and
reads thus :
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"Note.\0272. Charges on account of contribution
made by the Institution to a pension fund or a
gratuity scheme or on account of the pension or
gratuity paid to former teachers are ordinarily not
admitted for the purpose of grant-in-aid unless the
Rules on the subject are approved by
Government;
Provided that in the case of staff obtained on lent
services from any State Government or
Government of India, pension and leave salary
contribution shall be allowed as approved
expenditure."
Rule 82 provides that the employees of the aided educational
institutions shall be entitled to gratuity as payable under the Payment of
Gratuity Act, 1972, as amended from time to time.
The Division Bench of the High Court by the impugned judgment on
construction of the Act and the Rules, has come to the conclusion that the
State Government is not liable to reimburse the aided institution for the
expenditure incurred by it on payments of gratuity to its employees as the
said amount is not a part of the approved expenditure. The appellant
running the educational institution has challenged the correctness of the
view taken in the impugned judgment reversing the decision of learned
Single Judge.
The entitlement of the employees of the aided educational institution
to gratuity cannot be called in question in view of the provisions contained
in Section 16 of the Act and Rule 82 made by the State Government in
exercise of its rule making power. The teachers may not be the
employees within the meaning of definition of employee as defined in the
Payment of Gratuity Act, 1972 but that is of no relevance in view of Section
16 and Rule 82. The decision in Ahmedabad Pvt. Primary Teachers’
Association v. Administrative Officer & Ors. [(2004) 1 SCC 755] relied
upon by learned counsel for the appellant for the proposition that the
teachers are not covered by the definition of employees under the Gratuity
Act renders no assistance in the present case to the appellant in view of
benefit of the said Act having been extended to the employees of the aided
educational institutions. The definition of employee under the Act includes
teachers and every other employee working in a recognized institution.
We are unable to accept the contention that the teachers of non-
Government aided educational institutions are not entitled to gratuity. The
appellant’s liability to pay the gratuity under Section 4 of the Gratuity Act
cannot be doubted. The only question is whether appellant is entitled to
include the proportionate amount of gratuity in the approved expenditure
for the purposes of computation of grant in aid. For this purpose, we have
to consider the provisions of the Act and the Rules.
Section 7 of the Act stipulates that no aid can be claimed as a matter
of right and the aid may cover such part of the expenditure of the institution
as may be prescribed. The prescribed expenditure is as contained in the
Rules. Under Rule 14, the approved expenditure can relate to only items
from (a) to (v) mentioned therein. It is nobody’s case that the expenditure
on gratuity falls under items (b) to (v). Under Item (a) only expenditure on
actual salary and provident fund contribution not exceeding 8.33% in
respect of teaching and non-teaching staff can be included. The
contention urged is that the gratuity is part of salary. We are unable to
agree. The amount to be paid as a gratuity in terms of Section 4 of the
Gratuity Act, under no circumstances, can be said to be a part of ’actual
salary’ as postulated by Rule 14. Further, some of the items (b) to (v),
wherever recurring or non-recurring expenditure is to form part of approved
expenditure, specifically provide for it. Admittedly, the expenditure on
gratuity does not fall under Items (b) to (v) as the only contention urged
was that it falls under Rule 14(a).
The position becomes further clear on a plain reading of Note 2
appended to Rule 14. It is clear that ordinarily the charges on account of
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payment of gratuity paid to former teachers are not admitted for the
purpose of grant-in-aid unless the Rules on the subject are approved by
the Government. The words ’the rules on the subject’ in Note 2 cannot be
interpreted to mean rule contained in other part of the Rules, namely, Rule
82. We are unable to accept the contention that Rule 82 would be the rule
on the subject approved by the Government. If Rule 82 is to be interpreted
as a rule approved by the Government to contribute the amount of gratuity
while computing grant-in-aid, the question of appending Note 2 would not
have arisen. Clearly, Note 2 refers to Rules framed by Non-Government
Educational Institutions which are to be approved by the Government and
not the Government itself making the Rules and approving the same. As
already stated, Rule 82 only makes it obligatory for aided educational
institutions to pay gratuity to their employees in accordance with the
Gratuity Act.
The gratuity cannot be termed to be an emolument for the time
being payable to the employees so as to come within the definition of
salary defined in Section 2 (r) of the Act. Further, Rule 14 uses the word
’actual salary’. Be that as it may, it seems clear the non-recurring payment
of this nature cannot be included in the definition of salary. Gratuity is
payable at the time of retirement/termination of the employment. Reliance
on the decision in the case of Metal Box Company of India Limited v.
Their Workmen [(1969) 1 SCR 790] can render little assistance to the
appellant. It is a case under Payment of Bonus Act. It was only dealing
with accountancy principles. Observations were made that an estimated
liability under the gratuity schemes even if it amounts to a contingent
liability and is not a debt under the Wealth Tax Act, if properly
ascertainable and its present value is fairly discounted, is deductible from
the gross receipts while preparing the profits and loss account. In trading
circles or in rule or direction in the Bonus Act, there was no prohibition
from such a practice. The question in that case was whether while working
out the net profits the trader can provide from his gross receipts his liability
to pay a certain sum for every additional year of service which he receives
from his employees. It was answered in affirmative. If such liability was
properly ascertainable, it was possible to arrive at a proper discounted
value. This decision, in our view, is not relevant to determine the point in
issue in the present case.
Further, gratuity cannot be included in the approved expenditure as
under Rule 9 the State Government can sanction the grants under four
Heads provided therein and gratuity does not fall under any one of them. It
is not claimed that the gratuity falls under Heads 2 to 4. The Head No.1 is
’maintenance or recurring grant’. Admittedly a gratuity cannot come under
the category of maintenance. It is also not a recurring grant as already
noticed hereinbefore. It is, thus, clear that payment of gratuity cannot
come under any of the four categories mentioned in Rule 9.
In view of the aforesaid, the gratuity within the meaning of the Act
and the Rules cannot form part of recurring grant. It is not includable as
part of approved expenditure for the purposes of computing the amount of
grant payable to the appellant. In this view, communication dated 26th
May, 1994 of Government of Rajasthan to the effect that the Rules do not
provide for grant-in-aid on amount of gratuity, the same being not included
in the approved expenditures, cannot be held to be illegal. This will,
however, not affect the rights of the employees to get the gratuity from the
concerned institution.
Before parting, we wish to note that if representations are made by
aided Non-Government Educational Institutions, the State Government
would consider sympathetically the question of the gratuity amount
payable to the employees being taken into consideration for the purpose of
computing the amount of grant-in-aid. We, however, clarify that pending
making of such representation and its consideration, the payment of
gratuity to the employees shall not be delayed.
In view of the above, we find no infirmity in the impugned judgment
of the High Court and, therefore, the appeals and the special leave
petitions are dismissed.