Calcutta Insurance Co. Ltd. Vs. Their
Workmen  INSC 32 (6 February 1967)
06/02/1967 MITTER, G.K.
CITATION: 1967 AIR 1286 1967 SCR (2) 596
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)
Industrial Dispute-Adjustment of employees in
pay scales on length of service-Propriety of-Provision for gratuity, privilege
and sick leave--Principles.
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 improved working. [603B, F] Workmen of
Balmer Lawrie & Co. v. Balmer Lawrie & Co.  5 S.C.R. 344,
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 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. [603 C-G; 606 B-G] 597 French Motor Car Co. v. Their
Workmen,  Supp. 2 S.C.R.
16, Hindustan Times v. Their Workmen, 
1 S.C.R. 234 and Greaves Cotton & Co. v. Their Workmen,  5 S.C.R.
(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,  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,  1 L.L.J. 407, followed.
Garment Cleaning Works v. Its Workmen, 
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, 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]
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 dearness
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 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 totaling 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. 5,0001to
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. 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 company sought 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. 5,0001per 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
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 substaff 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
(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 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-EB25-320
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 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 factthat 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)  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 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)  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 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 employees 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)  1. S.
C.R. 234. (2)  5 S.C.R. 362.
(3)  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 1958 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
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 payThe 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)  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 earring 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 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)
 S.C.R. 12,156.
(2), 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
claimable 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 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)  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 dis ndssed 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)  1 L.L.J. 407. (2)  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 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
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 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)  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 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