Management, Ghaziabad Engineering Co
(P) Ltd. Vs. Its Workmen  INSC 148 (18 July 1969)
18/07/1969 SHAH, J.C.
CITATION: 1970 AIR 390 1970 SCR (1) 622 1969
SCC (2) 319
CITATOR INFO :
D 1972 SC 343 (25) E&R 1977 SC 941 (21)
Industrial Dispute--Gratuity--Scheme framed
relating gratuity to consolidated wage not to basic wage--Principles governing
framing of scheme--Dearness allowance at flat rate--Practice--Courts
jurisdiction under Art.
136--Interference with findings of Tribunal.
The Industrial Tribunal on a reference of the
disputes between the appellant company and its workmen framed a gratuity
scheme. The gratuity payable to a workman on termination of employment was to
be computed on the total wage packet of the workman including dearness
allowance which he had last drawn. The tribunal also awarded dearness allowance
at a flat uniform rate for every 10 point rise in the cost of Consumer Price
Index. The Tribunal found that the financial position of the company was sound
and it had the capacity to bear the additional burden. In appeal, this Court
HELD: (i) The usual pattern in fixing
gratuity is to relate it to the basic wage or salary and not to consolidated
wage. A departure may be made from the normal rule, if there by some strong
evidence or precedent in the industry, or conduct of the employer or other
exceptional circumstances to justify that course. In .the absence of such
evidence, gratuity should be related to the basic wage and not to the consolidated
wage packet. [627 D] In the present case it was found that the financial
position of the company was sound but there was no evidence that the company
was "making abnormally high profits", nor was there any evidence that
in its sister concern or in other engineering concerns in the region there was
a practice of awarding gratuity related to consolidated wages.
M/s. British Paints (India) Ltd. v. Its
Workmen,  2 S.C.R. 523, May & Baker (India.) Ltd. v. Their Workmen,
 II L.L.J. 94, British India Corporation v.
The Workmen, (1965) Vol. 10 Factory Law
Reports 244, Hindustan Antibiotics Ltd. v. Their Workmen,  I.
L.L.J 114, The Remington Rand of India Ltd.
v. The Workmen,  1 S.C.R. 164, and Delhi Cloth & General Mills Co.
Ltd. v. The Workmen & Ors.  2
S.C.R. 307, referred to.
(ii) The rise in dearness allowance was not
related to the quantum of basic wage or consolidated wage; it was a flat
uniform rate applicable to every workman. Therefore, the. rise would not
operate to give the workman, besides the additional dearness allowance, a
percentage increase in dearness allowance already paid as part of the
consolidated wage. [625 E-F] (iii) The Tribunal, on appreciation of evidence
found that the financial position of the company was sound.
Assuming that the Tribunal was governed by
the strict rules prescribed by the Evidence Act, Sitting in appeal with Special
Leave this Court would not be justified in interfering 623 with the finding of
the Tribunal even if it be open to the criticism that a part of the evidence
relied upon was not in law relevant. [624 F]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1408 of 1966.
Appeal by special leave from the AWard dated
May 19, 1965 February 23, 1966 of the Addl. Industrial Tribunal, Delhi in
Industrial Dispute No. 109 of 1965.
H.R. Gokhale, G.L. Sanghi and K.P. Gupta for
Urmila Kapur and Bhajan Ramrakhiani, for the
The Judgment of the Court was delivered by
Shah, J. By order February 24, 1965 the Chief Commissioner of Delhi referred
for adjudication, industrial disputes between the appellant company and its
workmen relating to dearness allowance and introduction of a scheme of gratuity
for the benefit of the workmen. The Industrial Tribunal, Delhi framed the
following "gratuity scheme":
(1) On death or retirement on One month’s
wages for each superannuation or on becoming Year of service of part mentally
or physically unfit there of in excess of six for further service. subject to a
maximum of 15 months's wages, In case of death of Employee the gratuity shall
be payable to his nominee or if there is no nominee to his legal heirs (2)On
termination after five 15 days for each year of se- years' service for any
cause service or part there of in whatsoever except by way of excess of six
months subject retrenchment or resignation to a maximum of 15 months
resignation. subject wages (3)On resignation after 10 years of service. 15 days
wages for each year of service or part thereof in excess of six months to a
maximum of 15 months wages Provided that if termination is for any misconduct
causing financial loss to the company, the amount of loss shall be deducted
from the gratuity payable. The word 'wages' in this Scheme shall mean the total
pay packet of the workman including dearness which he was last drawing."
The Tribunal also directed that "all workmen who were appointed in 1960 or
earlier should get dearness allowance at Rs. 3 for every ten point rise in the
cost of Consumer Price Index base 1960 over and above their existing wages with
effect from 624 1st January, 1965. In case of workmen appointed after 1960, the
consumer price index base 1960 on the date of his appointment shall be found
out and he shall be given Rs. 3 as dearness for every ten point rise in cost of
Consumer Price index base 1960 above it with effect from 1st January, 1965 or
such later date on which the limit of 10 point rise in cost of Consumer Price
Index base is crossed." The Tribunal also directed that dearness allowance
will not be enhanced till the limit of ten points be "crossed", and
that dearness allowance once granted will not be reduced till the Consumer
Price Index falls by more than 10 points.
The Company has appealed to this Court with
In the view of the Tribunal, the financial
position of the company "is very sound" and that it has
"financial capacity and, stability to bear the additional burden of
dearness allowance and of the gratuity scheme." In reaching that
conclusion the Tribunal relied upon a news item published in the newspapers
that 2000 Russian Tractors were being immediately imported by the Company even
though the agency of the Company was being terminated. In relying upon
newspaper reports the Tribunal may have erred. But the conclusion of the
Tribunal is rounded upon a review of several other circumstances. It is true
that one of the primary lines of business of the company was of selling
tractors as agents of Russian manufacturers. That agency was in danger of being
terminated because the State Trading Corporation had arranged to take over the
agency. But the balance sheets of the company show that the agency was only one
of the many lines of business and the closure of the agency of the tractor
manufacturers was not likely to affect the financial structure of the Company
The Tribunal has on appreciation of evidence
come to the conclusion that the financial position of the company was sound and
assuming that the Tribunal is governed by the strict rules prescribed by the
Evidence Act, sitting in appeal with special leave we will not be justified in
interfering with the finding of the Tribunal even if it be open to the
criticism that a part of the evidence relied upon is not in law relevant.
The company had on its roll 244 workmen out
of whom 118 entered employment after 1960. The company has been paying to its
workmen wages consisting of two components-basic wages and 50 per cent of the
basic wages as dearness allowance. Payment of wages is made in this form to all
workmen whether their employment commenced before the year 1960 or thereafter.
It is true that before 1960 the company used to make a consolidated payment
without specifying any amount of basic salary or dearness allowance. Since 1960
in every appointment letter it was expressly recited that the employee wiII get
a consolidated salary consisting of 2/3rd of the consolidated salary as basic
wages and 625 the balance as dearness allowance. The company has produced
before the Tribunal 118 such letters of appointment in respect of all employees
employed after the year 1960. In respect of the employees appointed prior to
the year 1960 in the salary register basic salary and dearness allowance was
separately entered though at the time of appointment of employees there was no
allocation as basic wages and dearness allowance.
There is no dispute that since the year 1960
there has been a rise in the cost of living. The Consumer Price Index for
Industrial Workers which was 100 in 1960, had risen to more than 130 in 1965.
The management of the company granted dearness allowance to employees in other
concerns under its management even though those other concerns were not
financially very sound. No serious argument has been advanced before us that
the rise in dearness allowance is not Justified. The only ground of complaint
is that by relating the dearness allowance to the total wage packet the workmen
are given a: rise both in the dearness allowance and in the basic wage The
Tribunal has awarded dearness allowance at the flat rate of Rs. 3 for every 10 point
rise in the cost of Consumer Price Index. The rise is not related to the
quantum of basic wage or consolidated wage. It is a flat uniform rate
applicable to every workman. The Tribunal was of the view that the allocation
between the basic wage and the dearness allowance was "not fair", but
for the purpose of the present reference, the question is academic because
dearness allowance is not related to the quantum of salary that the workmen
receive. The argument that the rise will operate to give to the workmen besides
the additional dearness allowance, a percentage increase in dearness allowance
already paid as part of the consolidated wage cannot be accepted. We do not
therefore see any reason to interfere with the order passed by "the
Tribunal with regard to the dearness allowance at the rate of Rs. 3 for every
10 point rise in the Consumer Price Index." Gratuity payable to a workman
on termination of employment is to be computed on the total wage packet of the
workman including dearness allowance which he has last drawn. This order makes
a departure from the normal rule which is adopted in industrial awards. In M/s.
British Paints (India) Ltd. v. Its Workmen(1) this Court while introducing a
gratuity scheme for the first time in the concern directed that the amount of
gratuity shall be related to the basic wage or salary and not to the
consolidated wage including dearness allowance. A similar order was made in May
and Baker (India) Ltd. v. Their Workmen(2). It is true (1)  2 S.C.R. 523.
(2)  II L.L 626 that in British India Corporation v. The Workmen(1), an
award made by the Tribunal fixing the quantum of gratuity on gross salary i.e.,
basic wage plus dearness allowance was upheld by this Court. The Court affirmed
that the usual pattern in fixing the gratuity is to relate it to the basic
wage, but refused to interfere with the order because the.
practice in that concern was to fix gratuity
on the consolidated wage.
similarly in Hindustan Antibiotics Ltd v.
their work men(2), the Tribunal directed the employer to pay gratuity at the
rate of one half of wages for each month including dearness allowance but
excluding house rent and all other allowances for each completed year of
service subject to a maximum of wages for ten months. In rejecting the claim of
the employers for relating gratuity to the basic wage, this Court observed:
"If the industry is a flourishing one,
we do no see any reason why the labour shall not have the benefit of both the
schemes i.e. the employees provident fund and the gratuity scheme. Gratuity is
an additional form of relief for the workmen to fall back upon. If the industry
can bear the burden, there is no reason why he shall not be entitled to both
the retirement benefits. The Tribunal considered all the relevant circumstances:
the stability of the concern, the profits made by it in the past, its future
prospects and its capacity and came to the conclusion that, in the concern in
question, the labour should be provided with a gratuity scheme in addition to
that of a provident fund scheme.There was no justification to disturb this
conclusion." In The Remington Rand of India Ltd. v. The Workmen(8) this
Court declined to interfere with the order of the Tribunal awarding gratuity
related to the consolidated wage including dearness allowance "in view of
the flourishing nature of the concern, the enormous profits it was making, the
reserves it had built up as also in view of the fact that it was paying
gratuity to. executives on the basis of consolidated wages." In The Delhi
Cloth & General Mills Co., Ltd. v. The Workmen & Ors. (4) this Court
had to consider whether gratuity payable to workmen in the textile industry in
the Delhi region should be related to. the consolidated wage. After referring
to the decisions which were brought to the notice of the Court, it was observed
"It is not easy to extract any principle
from these cases:as precedents they are conflicting .... The (1) (1965) Vol. 10
Factory Law Report, 244.
(2)  I L.L.J. 114.
(3)  1 S.C.R.164.
(4)  2 S.C.R. 307.
627 Tribunal has failed to take into account
the prevailing pattern in the textile industry all over the country ....It is a
countrywide industry: and in that industry, except in one case to be presently
noticed, gratuity has never been granted on the basis of consolidated
wages." The Court after referring to the schemes framed in respect of the
industries in Bombay and Ahmadabad and other industries concluded that
"determination of gratuity is not based on any definite rules. In each case
it must depend upon the prosperity of the concern, needs of the workmen and the
prevailing economic conditions examined in the light of the auxiliary benefits
which the workmen may get on determination of employment." There is no
clear evidence on the record, and no precedents have been brought to our
notice, to justify a departure from the normal rule that the quantum of
gratuity is related not to the consolidated wage packet but to the basic wage.
A departure may be made from the normal rule, if there be some strong evidence
or precedent in the industry, or conduct of the employer or other exceptional
circumstances to justify that course. In the absence of such evidence, we are
of the view that gratuity should be related to the basic wage and not to the
consolidated wage packet.
In the present case it is found that the
financial position of the Company is sound but there is no evidence that the
company is "making abnormally high profits" 'nor is there any
evidence that in its sister concerns or in other engineering concerns in the
region there is a practice of awarding gratuity related to consolidated wages.
It was urged on behalf of the company that
even though the workmen had, in the claim made by them, demanded a scheme of .
gratuity benefit at the rate of 15 days wages for each year of service in case
of death or retirement on attaining the age of superannuation or on becoming
mentally or physically unfit for further service,. the Tribunal had awarded
gratuity at the rate of one month's wages for each year of service subject to a
maximum of 15 months' wages.
But the claim was made on the footing that
the wages were to include dearness allowance. When the claim is not accepted,
we cannot hold the workmen bound by the multiples.
We make no modification in clause (1 ) of the
We modify the scheme in so far as it relates
to the dearness allowance and direct that for the last sentence of the gratuity
scheme the following shall be substituted:
"The word 'wages' in the scheme shall
mean basic salary or emoluments excluding dearness 'allowance and 628 other
allowances and benefits payable to the workman which he had last drawn."
Subject to the above modification, the appeal fails and is dismissed. There
will be no order as to costs in the appeal.
Y.P. Scheme modified and appeal dismissed.