The Indian Hume Pipe Co. Ltd. Vs. The
Workmen & ANR  INSC 125 (16 October 1959)
SINHA, BHUVNESHWAR P.(CJ) WANCHOO, K.N.
CITATION: 1960 AIR 251
CITATOR INFO :
R 1960 SC 257 (2) F 1960 SC 413 (2) R 1960 SC
653 (3) R 1960 SC 833 (15) R 1960 SC 923 (14) R 1960 SC1028 (4,5) RF 1963
SC1489 (20) C 1963 SC1721 (4) R 1965 SC 839 (3) F 1966 SC 987 (6) R 1967 SC 515
(3) RF 1967 SC 948 (31) E 1970 SC 919 (8,36) RF 1979 SC 25 (12) RF 1980 SC1219
(6) RF 1983 SC1320 (9)
compensation-GratuityWorkmen's claim for both on retrenchment-MaintainabilityUse
of Statement of objects and reasons for construing statute-Validity Ordinance V
of 1953, s. 25E(b)-Industrial Disputes Act, 1947 (14 of 1947), ss. 2(rr),
Section 25F(b) of the Industrial Disputes
Act, 1947, provided: "No workman employed in any industry who has been in
continuous service for not less than one year under an employer shall be
retrenched by that employer until ... (b) the workman has been paid, at the
time of retrenchment, compensation which shall be equivalent to fifteen days'
average pay for every completed year of service or any part thereof in excess
of six months . . . " The dispute between the appellant company and its
workmen related to the claim for gratuity made by the latter and it was the
appellant's contention that in the scheme of gratuity framed by the Tribunal no
gratuity should be paid to workmen who would be entitled to receive
retrenchment compensation under S. 25F of the Industrial Disputes Act, 1947.
Before s. 25F was introduced in the Act by Act 43 of 1953, workmen were given
the benefit of both retrenchment compensation and gratuity by industrial
awards, but the decisions were not always uniform. Ordinance V was promulgated
on October 24, 1953, by s. 25E(b) of which it was provided that before a
workman was retrenched he must be paid at the time of retrenchment gratuity
which shall be equivalent to 15 days' average pay for every completed year of
service or any part thereof in excess of six months. The 33 Ordinance was
followed by Act 43 of 1953, which was deemed to have come into force on October
24, 1953; and in the statement of aims and objects of the Act it was said
" that a workman ... shall not be retrenched until he has been given one
month's notice in writing or one month's wages in lieu of such notice, and also
a gratuity . . . ". Section 25(F)(b) of the Act was in the same terms as
S. 25E(b) of the Ordinance,, except that for the word CC gratuity " the
expression " retrenchment compensation " was substituted.
The appellant's case was that after s. 25F
was enacted there was no longer any scope for framing gratuity schemes in
addition to the statutory retrenchment compensation for retrenched employees on
the grounds (1) that both in S. 25E(b) of the Ordinance and the statement of
aims and objects of the amending Act, the word "gratuity" had been
used and not retrenchment compensation, (2) that in determining the amount of
compensation payable to a retrenched workman the length of his past service had
been taken into account, and schemes of gratuity also provide for payment of
gratuity on similar considerations and adopt a similar measure, and (3) that a
retrenched workman would get both retrenchment compensation and gratuity and so
get more than what other workmen with corresponding length of service would get
on their retirement.
Held: (1) that for construing S, 25F of the Industrial
Disputes Act, 1947, the words used in the statement about the aims and objects
of the Act are not relevant and that the character of the payment prescribed by
the section could only be determined by the expression " retrenchment
compensation used therein ; and, (2) that in the absence of any provision in
the Industrial Disputes Act excluding the claim or grant of gratuity the mere
enactment of s. 25F cannot oust the jurisdiction of industrial tribunals to
entertain claims for gratuity schemes or make it improper or unjust to frame
such schemes for all employees including those who are retrenched.
The object of granting retrenchment
compensation is to enable the workman who is given partial protection to tide
over the period of unemployment, and to keep his gratuity safe and unused so
that it may be available to him after his retirement. The two claims complement
each other, and the fact that they appear to constitute a double benefit cannot
affect their validity.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No.169 of 1958.
Appeal by special leave from the decision
dated June 29, 1955, of the Labour Appellate Tribunal of India, Bombay, in
Appeal (Bombay) No. 245 of 1955, arising out of the Award dated July 14, 1955,
of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 100 of 1954.
5 34 C. K. Daphtary, Solicitor-General of
India, Purshottam Tricumdas and I. N. Shroff, for the appellant.
N. V. Phadke and K. R. Chaudhuri, for the
1959. October 16. The Judgment of the Court
was delivered by GAJENDRAGADKAR J.-Are workmen entitled to the double benefit
of a gratuity scheme as well as retrenchment compensation? That is the main
question which falls to be considered in the present appeal. The same question
along with some other subsidiary points arises in some other appeals and so all
of them have been grouped together and placed before us for disposal. We
propose to deal with the main point in the present appeal and discuss the other
points arising in the other appeals separately.
This appeal by special leave arises from an
industrial dispute between the Indian Hume Pipe Co. Ltd., Bombay (hereinafter
called the appellant) and its workmen monthlyrated including canteen boys
employed under it (hereinafter called the respondents). The dispute was in
regard to the claim for gratuity made by the respondents and it was referred to
the tribunal in these words: " Gratuityemployees should be paid gratuity
on the scale and the conditions prescribed in the industrial tribunal's award
in Ref. (IT) No. 82 of 1950 dated August 13, 1951. It should also be paid to
those whose services have been terminated by the management after the
termination of the aforesaid award." It appears that the respondents had
raised an industrial dispute in 1950 which covered their claims for scale of
pay, dearness allowance, provident fund and gratuity and it was referred to the
adjudication of Mr. Thakore. On this reference Mr. Thakore made his award on
August 13, 1951, which inter alia provided for a scheme of gratuity. Both the
parties had gone in appeal against the said award but the appellate tribunal
dismissed both the appeals and confirmed the award. On June 2, 1953, notice was
given by the respondents terminating the said award and making a fresh demand
for gratuity at 35 a higher rate. Conciliation proceedings were started but
they failed; and so on July 1, 1954, the present reference was made.
Before the tribunal the employees urged that
the State Government had no jurisdiction to confine their demand to the scheme
of gratuity as framed by Mr. Thakore, and they urged the tribunal to consider
their claim for a revision of the said scheme. The tribunal held that its
jurisdiction was limited by the terms of reference and it could not entertain
any such plea; it also observed that even if it was open to the respondents to
agitate for the revision of the said award there was not much chance of their
succeeding in that demand. The appellant opposed the scheme of gratuity framed
by the earlier award and contended that no gratuity should be paid to the
workmen who would be entitled to receive retrenchment compensation under s. 25F
of the Industrial Disputes Act (hereinafter called the Act). This contention
was negatived by the tribunal. It held that the respondents were entitled to
claim both gratuity and retrenchment compensation. The tribunal then examined
the financial position of the appellant and held that the gratuity scheme
framed by the earlier award should be enforced subject to certain modifications
specified by it.
This award was challenged by the appellant
before the Labour Appellate Tribunal; and it was argued that the respondents
were not entitled to the double benefit of the gratuity scheme and the
statutory retrenchment compensation. The appellate tribunal agreed with the
view taken by the tribunal and rejected the appellant's contention. It also
examined the financial position of the appellant and held that it saw no reason
to interfere with the discretion exercised by the tribunal in granting "
the same gratuity to the workmen in the case of retrenchment as in other cases
Then the appellate tribunal considered the
merits of the scheme sanctioned by the tribunal and made some changes and added
one paragraph which had been included in the earlier award but had been omitted
by the tribunal. This paragraph dealt with the cases of persons retrenched
after the date of 36 reference but before the award came into operation, and it
directed that in the case of such persons no additional gratuity shall be paid
if they have already received unemployment or retrenchment compensation in
excess of the gratuity awarded above; in other cases the difference alone shall
be paid. It is against this award that the present appeal has been preferred.
On the contentions raised in the tribunals
below, the principal point which calls for our decision is whether a scheme of
gratuity can be framed by industrial tribunals for workmen who are entitled to
the benefits of 25F of the Act.
This question has been frequently raised
before industrial tribunals and has generally been answered in favour of the
employees. In dealing with this question it is important to bear in mind the
true character of gratuity as distinguished from retrenchment compensation.
Gratuity is a kind of retirement benefit like the provident fund or pension. At
one time it was treated as payment gratuitously made by the employer to his
employee at his pleasure, but as a result of a long series of decisions of
industrial tribunals gratuity has now come to be regarded as a legitimate claim
which workmen can make and which, in a proper case, can give rise to an
industrial dispute. Gratuity paid to workmen is intended to help them after
retirement, whether the retirement is the result of the rules of superannuation
or of physical disability. The general principle underlying such gratuity
schemes is that by their length of service workmen are entitled to claim a
certain amount as a retrial benefit.
On the other hand retrenchment compensation
is not a retirement benefit at all. As the expression " retrenchment
compensation" indicates it is compensation paid to a workman on his
retrenchment and it is intended to give him some relief and to soften the rigor
of hardship which retrenchment inevitably causes. The retrenched workman is,
suddenly and without his fault, thrown on the street and has to face the grim
problem of unemployment. At the commencement of his employment a workman
naturally expects and looks forward to security of service 37 spread over a
long period; but retrenchment destroys his hopes and expectations. The object
of retrenchment compensation is to give partial protection to the retrenched
employee and his family to enable them to tide over the hard period of
unemployment. Thus the concept on which grant of retrenchment compensation is
based is essentially different from the concept on which gratuity is founded.
It is true that retrenched workmen would by
virtue of his retrenchment be entitled to claim retrenchment compensation in
addition to gratuity; because industrial adjudication has generally taken the
view that the payment of retrenchment compensation cannot affect the workmen's
claim for gratuity.
In, fact the whole object of granting
retrenchment compensation is to enable the workman to keep his gratuity safe
and unused so that it may be available to him after his retirement. Thus the
object of granting retrenchment compensation to the employee is very different
from the object which gratuity is intended to serve. That is why on principle
the two schemes are not at all irreconcilable nor even inconsistent ; they
really complement each other; and so, on considerations of social justice there
is no reason why both the claims should not be treated as legitimate.
The fact that they appear to constitute a
double benefit does not affect their validity. That is the view which
industrial tribunals have generally taken in a large number of reported
decisions on this point.
Let us now refer to some of these decisions
and indicate very briefly the broad outlines of the development of industrial
law on this subject. Whenever industrial tribunals deal with the employees'
claim for gratuity they consider the financial position of the employer before
granting the employees' demand for framing a gratuity scheme; it is only if
they are satisfied that the financial condition of the employer is satisfactory
and the burden of the gratuity scheme can be borne by him that they proceed to
frame schemes of gratuity and thereby secure for the employees the retirement
benefit in the form of gratuity.
Though awards framing such schemes had been
made for some 38 years before 1951, the question of framing a gratuity scheme
was carefully examined by the Labour Appellate Tribunal in the case of The,
Army and Navy Stores Ltd., Bombay, And Their Workmen (1). The scheme framed in
this case directed the payment of gratuity on the following scale:
" (1) On the death of an employee while
in the service of the company or on his becoming physically or mentally
incapable of further service 'month's salary or wages for each year of
continuous service, to be paid to the disabled employee or, if he has died, to
his heirs or legal representatives or assigns.
(2) On voluntary retirement or resignation of
an employee after 15 years continuous service1/2 month's salary or wages for
each year of continuous service.
(3) On termination of service by the company
month's salary or wages for each year of completed service." Under this
scheme gratuity was not, however, payable to any employee dismissed for
misconduct. This scheme has been generally treated as a model scheme in all
subsequent disputes about gratuity.
It also appears that the benefit of gratuity
schemes has been generally given even to workmen whose services have been
terminated and who have thereby become entitled to retrenchment compensation also.
In Bangalore Woollen, Cotton and Silk Mills Co. Ltd., And Binny Mills Labour
Association (2) the Labour Appellate Tribunal gave permission to the company to
retrench 179 workmen subject to the condition that the workmen sought to be
retrenched shall be paid by way of retrenchment relief a sum equivalent to one
month's basic wage for every year of completed service in the company, and the
basic wage on which such calculation is to be made shall be the last basic wage
prior to the grant of this permission. It also made it clear that the grant of
such retrenchment relief shall not in any way tend to prejudice the issue (1)
 11 L.L.J. 31.
(2)  1 L.L.J. 656.
39 of a gratuity scheme which was before the
adjudicator, and to which the adjudicator was directed to apply an altogether
independent mind unaffected by the decision of the Labour Appellate Tribunal.
It may, however, be conceded that sometimes, though rarely; tribunals have
thought it fit not to grant gratuity in cases of workmen whose services have
been terminated on the ground that they would be entitled receive compensation
under the Act. But it is not disputed that this dissenting note has been struck
only in a few cases (Vide Chemical, Industrial and Pharmaceutical Laboratory
Ltd., And Their Workmen (1). Speaking generally, subject to the capacity of the
employer to pay, workmen have been given the benefit of both retrenchment
compensation and gratuity by industrial awards prior to the enactment of s. 25F
of the Act. This question was elaborately considered by the Labour Appellate
Tribunal in the appeals against the award of All India Industrial Tribunal
(Bank Disputes) where it has been held that the award of retrenchment
compensation cannot adversely affect the claim for gratuity. The two claims are
made for entirely different reasons and in a proper case both the claims can be
The measure of compensation, however, varied
from case to case, and the awards made in that behalf naturally were not always
uniform. But it does appear that the determination of the quantum of
retrenchment compensation was generally linked with the period of the past
service rendered by the retrenched workman. In Rashtriya Mill Mazdoor Sangh and
Gold Mohur Mills (2) the Labour Appellate Tribunal accepted the view that the
quantum of compensation payable to retrenched workmen should be calculated at
the rate of 10 days' basic wages plus dearness allowance for each year of
service; and it alsoheld that no maximum limit should be put on this quantum,
In the Bombay Gas Co. Ltd., And Their Workmen(3) a detailed scheme was framed
for the computation of the retrenchment compensation. Those who had completed a
year's service but less than three years' service (1)  11 L.L.J. 355. (2)
 11 L.L.J. 660, (3)  L.L.J. 150.
40 got wages for 26 days with dearness
allowance, and those who had completed three years of service or more got 26
days' wages with dearness allowance for each year of service subject to a
maximum of 104 days' Wages with dearness allowance. In The National Industrial
Works And Their Workmen (1) a still more elaborate scheme was framed for.
determining the quantum of compensation.
Thus it would be seen that the result of
industrial decisions was that workmen, were held entitled both to gratuity and
compensation on retrenchment and the amount of retrenchment compensation was
measured by reference to the period of service rendered by the retrenched
employee. It may, however, be stated that industrial decisions on the twin
topics of gratuity and retrenchment compensation were not always uniform, and
sometimes they disclosed an element of uncertainty and perhaps even ambiguity
in their approach.
While this was the state of industrial
decisions on this point, Ordinance V was promulgated on October 24, 1953. By s.
25E the Ordinance prescribed conditions precedent to retrenchment of workmen.
One of the conditions thus prescribed by s. 25E(b) was that before a workman is
retrenched he must be paid at the time of retrenchment, gratuity which shall be
equivalent to 15 days' average pay for every completed year of service or any
part thereof in excess of six months. This Ordinance was followed by Act 43 of
1953, which is deemed to have come into force on October 24, 1953. It is by
this amending Act that s. 25F has been introduced in the Act. Section 25F(b) is
in the same terms as s. 25E(b) of the Ordinance, except that for the word
'gratuity' the expression "retrenchment compensation " has been
substituted, We may incidentally mention the fact that in the statement of aims
and objects of the Act it was observed that " in regard to retrenchment
the bill provides that a workman who had been in continuous employment for not
less than one year under the employer shall not be retrenched until he has been
given one month's notice in writing or one, (1)  L.L.J. 1143.
41 month's wages in lieu of such notice, and
also a gratuity calculated at 15 days' average pay for every completed year of
service or any part thereof in excess of six months ".
The appellant's case is that after s. 25F was
enacted there is no longer any scope for framing gratuity schemes in addition
to the statutory retrenchment compensation for retrenched employees.
In support of this contention the appellant
sought to rely on the fact that both in s. 25E(b) of the Ordinance and the
statement of aims and objects of the amending Act, the word ' gratuity' has
been used and not retrenchment compensation.
It is obvious that for construing s. 25F the
words used in the statement about the aims and objects of the Act are not
relevant; and in regard to the use of the word ' gratuity' in s. 25E(b) of the
Ordinance it is significant that the said word has been deliberately omitted
and the words "retrenchment compensation" have been used in its place
by s. 25F. Therefore it would not be possible to determine the character of the
payment statutorily prescribed by s. 25F by reference to the word 'gratuity'
used either by the Ordinance or in the statement about the aims and objects of
the Act. If we have to decide the character of the payment merely by the words
used in describing it, then the words used s. 25F are retrenchment compensation
" and not gratuity.
But apart from the mere use of words there
can be no doubt that s. 25F is intended to provide compensation to retrenched
workmen solely on account of the difficulties which they have to face on their
retrenchment. It is well-known that at the time when the Ordinance was issued
the problem of retrenchment had become widespread and acute and Legislature
thought it necessary to step in and make a statutory provision for the payment
of adequate retrenchment compensation. Legislature knew that retrenchment
compensation was being awarded by industrial tribunals; but it must have
thought that in determining the amount of compensation the tribunals considered
a variety of relevant factors with the result that there was no uniformity or
certainty in the matter; and so 6 42 it decided to standardise the payment of
compensation by prescribing a statutory rule in that behalf. The enactment of
s. 25F thus merely standardises the payment of retrenchment compensation and
nothing more. If retrenchment compensation could be claimed by the employees in
addition to gratuity prior to the enactment of s. 25F there is no reason why a
similar claim cannot be made by them subsequent to its enactment.
It is then urged that in determining the
amount of compensation payable to a retrenched workman the length of his past
service has been taken into account, and it is pointed out that schemes of
gratuity also provide for payment of gratuity on similar considerations and
adopt a similar measure. As we have already pointed out, even before s. 25F was
enacted tribunals were adopting similar methods in determining the amount of retrenchment
compensation, and so the mere fact that the length of the past service of the
retrenched workman is made the basis for computing retrenchment compensation
cannot clothe retrenchment compensation with the character of gratuity. The
claims for retrenchment compensation and gratuity proceed on different
considerations and it would be impossible to bold that the grant of one
excludes the claim or grant of the other.
It is true that a retrenched workman would
get both the retrenchment compensation and gratuity, and in a sense, on his
retrenchment he would get more than what other workmen with corresponding
length of service would get on their retirement; but it must be remembered that
the retrenched workman gets compensation because involuntarily he has been
forced to face unemployment, and it is to enable him to tide over the period of
unemployment that retrenchment compensation is paid to him. So, on the general
contention raised before us that the employees are not entitled to claim the
double benefit of gratuity and retrenchment compensation there can be only one answer,
and that is that there is no conflict between the two claims, and industrial
tribunals are right in recognising that both claims can be entertained and 43
granted, and reasonable gratuity schemes can and should be framed even after
the enactment of s. 25F in the Act.
In this connection it would be relevant to
refer to the definition of wages under s. 2(rr) of the Act inasmuch as it
excludes any gratuity payable on the termination of the employee's service.
This shows that Legislature was aware that gratuity can be claimed by employees
and is often awarded to them. If Legislature had intended that the statutory
retrenchment compensation provided for by s. 25F should affect the employees'
claim for gratuity it would have expressly made a suitable provision in that
Legislature makes such provisions when it
thinks necessary to do so. Section 17 of the Employees' Provident Funds Act,
1952 (Act 19 of 1952), for instance, confers on the appropriate Government
power to exempt from the operation of all or any of the provisions of the
scheme, establishments which have already introduced provident fund benefits
which, on the whole, are not less favourable to the employees than the benefits
provided under this Act. In the absence of any such provision in the Industrial
Disputes Act it would be unreasonable to hold that the mere enactment of s. 25F
either ousts the jurisdiction of industrial tribunals to entertain claims for
gratuity schemes or makes it improper or unjust to frame such schemes for all
employees including those who are retrenched.
So far we have dealt with the general
question as it arose on the contentions of the parties; but in fairness we must
add that the learned Solicitor-General conceded that he could not urge that, as
a matter of law, the point raised by his client should be answered in his
favour. He, however, strenuously urged that in framing gratuity schemes
industrial tribunals should make appropriate provision for giving gratuity to
retrenched workmen on a basis different from that on which gratuity to other
workmen is calculated.
The argument is that since the retrenched
workmen get statutory compensation on a very liberal scale they should not get
gratuity at the rates fixed by the scheme for other workmen. They may and
should get gratuity 44 but at a lesser rate and on less generous terms and
conditions. Indeed he suggested that we should make suitable amendments in the
gratuity scheme framed by the appellate tribunal in that behalf. We do not
think we can accede to this request. Whether or not a twofold scheme of
gratuity should be framed, one applicable to retrenched workmen and the other to
the rest, is a matter which may, if necessary, be raised before the tribunal in
a proper case. Besides it may be pertinent to observe that the question as
presented in this form is not one of general importance, for in the present
state of our economy which has received and is receiving the stimulus of
national plans, our industries may not have to face the problem of retrenchment
on an appreciable or extensive scale; but apart from this consideration we
cannot entertain or decide the point raised by the learned Solicitor-General in
an appeal under Art. 136.
Before we part with this appeal, we ought to
refer to another aspect of the matter which our present decision does not
consider or decide. It is likely that gratuity schemes framed by consent or by
awards may provide for payment of compensation to retrenched workmen either in
lieu of or in addition to gratuity; in such cases the question as to whether
the retrenched workmen can claim the benefit of such a scheme in addition to
the retrenchment compensation under s. 25F would depend on the construction of
the material terms of the relevant scheme considered in the light of the
provisions of s. 25F of the Act. In the present appeal we are not called upon
to consider such a question. Therefore, our decision has and can have no
reference to cases which would fall to be decided under s. 25F of the Act.
In the result the appeal fails and is
dismissed with costs.