The Bharatkhand Textile Mfg. Co. Ltd. &
Ors Vs. The Textile Labour Association, Ahmadabad  INSC 49 (17 March
CITATION: 1960 AIR 833 1960 SCR (3) 329
CITATOR INFO :
RF 1962 SC 673 (2) R 1963 SC 495 (5) C 1963
SC1721 (4,5) RF 1964 SC 864 (25) E 1966 SC1253 (6) R 1970 SC 919 (14,26,28) RF
1972 SC 343 (22) R 1980 SC 31 (19,22)
Industrial Dispute--Claim of gratuity by
workmen in textile industry--Framing of scheme in modification of Previous
award Validity--Gratuity, if in the nature of profit bonus--Applicability of
Full Bench formula--Duty of Industrial Court--Bombay Industrial Relations Act,
1946 (Bom. XI of 1947), s. 116A--Employees Provident Funds Act, 1952 (XIX of 1952),
This was an appeal by certain textile mills
of Ahmedabad against a scheme for gratuity awarded by the Industrial Court. The
Labour Association, the respondent, gave a notice of change under s. 42(2) of
the Bombay Industrial Relations Act, 1946 (Bom. XI of 1947), intimating the
Mill Owners' Association that they wanted a scheme for gratuity and mentioned
four categories of termination of service in the annexure. This demand was
refused and so referred to the Industrial Court under s. 73A of the Act.
Pending the reference the Employees' Provident Funds Act, 1952 (19 of 1952),
came into operation and the Industrial Court, on an objection by the Mill
Owners' Association, held that it was inadvisable to proceed with the reference
and that a fresh application should be made, if necessary, after the scheme
envisaged by the Act is introduced and rejected the respondent's demand.
Thereafter a fresh notice of change was given by the respondent and there were
certain references to the Industrial Court in respect of the demand.
The parties came to an agreement to refer all
their disputes to arbitration, the references were withdrawn and the disputes
were referred to the Board of Arbitrators. Before the Board the Mill Owners'
Association took the objection that so long as the award of the Industrial
Court dismissing the earlier reference subsisted, the claim for gratuity could
not be considered by it. That objection was upheld by the Board and it made no
provision for gratuity. Thereupon the respondent applied for the modification
of the award under s. 116A of the Act, and the Industrial Court by its award,
which is the subject matter of the present appeal, framed a scheme for gratuity
on an industry-cum-region basis:
Held, that the decision of the Industrial
Court was correct and must be upheld.
Regard being had to the true nature of its
earlier award and the scope of the application for its modification, it could
not be said that the respondent was seeking to alter the framework or change
any of the principles of that award and the application under s. 116A of the
Act must be held to be competent.
330 A scheme for gratuity is by its nature an
integrated scheme and covers all classes of termination of service where
gratuity benefit can be legitimately claimed and the refusal of the Industrial
Court in the earlier award amounted to a refusal to frame any scheme at all.
The statutory provident fund created by the
Employees' Provident Funds Act, 1952, could be no bar to the respondent's claim
for a gratuity scheme although there can be no doubt that in awarding such a
scheme Industrial Courts must make due allowance for it. Provisions of s. 17 of
the said Act clearly indicate that the statutory benefits under the Act are the
minimum to which the employees are entitled and that they are no bar to
additional benefits claimed by the employees.
Indian Hume Pipe Co. Ltd. v. Their Workmen,
 2 S.C.R.
32, referred to.
It was not correct to say that the claim for
gratuity was essentially similar to a claim for profit bonus and must always be
considered on unitwise basis.
The benefit of gratuity is in the nature of a
retiral benefit and before framing such a scheme industrial adjudication has
to, take into account such relevant factors as the financial condition of the
employer, his profitmaking capacity, the profits earned by him in the past, the
extent of his reserves and the chances of his replenishing them as well as the
claims for capital invested by him, and in evolving a long term scheme a long
view of the employer's financial condition should be taken and on that basis
alone the feasibility of a scheme and the extent of the benefit to be given
should be determined.
Arthur Butler & Co. (Muzaffarpur) Ltd.
and Arthur Butler Workers Union, (1952) 11 L.L.J. 29 and Boots Pure Drug CO. (India)
Ltd. v. Their Workmen, (1956) 1 L.L.J. 293, referred to.
Even assuming that gratuity is no part of
deferred wage, it would not be reasonable to assimilate the scheme for gratuity
to that of profit bonus or to apply the principles of the Full Bench formula
applicable to the latter. A claim for gratuity is strictly not a claim to
receive a share of the profits at all.
Express Newspapers (Private) Ltd. v. The
Union of India,  S.C.R. 12 and Indian Oxygen and Acetylene Co. Ltd.
Employees' Union v. Indian Oxygen and
Acetylene Co. Ltd., (1956) 1 L.L.J. 435, referred to.
It was not correct to say that an
industry-wise basis is wholly inappropriate in dealing with gratuity or that
the Industrial Court was in error in adopting that basis.
Although some hardship to the weaker units in
the industry may not be avoided, there were several factors in its favour both
from the point of view of employers and employees.
Since in the present state of economic
development in the country the propriety of the adoption of an all-India basis
for a scheme of gratuity may be open to doubt no exception can on principle be
taken to the industry-cum-region basis adopted in the instant case.
331 Express Newspapers (Private) Ltd. v. The Union
of India,  S.C.R. 12, applied.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1 of 1959.
Appeal by special leave from the award dated
September 16, 1957, of the Industrial Court, Bombay, in Misc. Application (IC)
No. 20 of 1957.
M. C. Setalvad, Attorney-General for India,
I. M. Nanavati, S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra,
for the appellants.
C. K. Daphtary, Solicitor-General of India,
B. R. L. Iyengar and K. L. Hathi, for the respondent.
C. K. Daphtary, Solicitor-General of India,
H. J. Umrigar and R. H. Dhebar, for the Intervener.
1960. March 17. The Judgment of the Court was
delivered by GAJENDRAGADKAR, J.-This appeal by special leave is directed
against the award passed by the Industrial Court, Bombay, by which a scheme for
gratuity has been framed in favour of the workmen represented by the
respondent, Textile Labour Association, Ahmedabad, who are employed by the
textile mills in Ahmedabad including the twenty appellant mills before us. In
order to appreciate the points of law raised by the appellants in the present
appeal we ought to state at the outset the material facts leading to the
present dispute in which the impugned scheme for gratuity has been framed.
On June 13, 1950, the respondent gave notice under
s. 42(2) of the Bombay Industrial Relations Act, 1946 (Bom. XI of 1947)
(hereinafter called the Act), intimating to the Mill Owners' Association at
Ahmedabad (hereinafter called the Association) that it desired a change as
specified in the annexure to the communication. The annexure showed that the
respondent wanted a change in that a scheme for gratuity should be framed
wherever services of an employee are terminated by the mills on grounds of
old-age, invalidity, 'incapacity or natural death. It was further claimed that
the payment of gratuity in the said cases should be at the rate of one month's
wages (including dearness allowance) per every year of service. Some incidental
demands were also specified in the annexure. The 332 demand thus made was not
accepted by the Association, and so it was referred to the Industrial Court.
Pending the reference the Employees' Provident Funds Act, 1952 (19 of 1952),
came into operation on March 4, 1952, and it was urged before the Industrial
Court on behalf of the Association that since the statutory scheme of provident
fund would soon become compulsory it would not be advisable to adjudicate upon
the respondent's claim for the specified items of gratuity at that stage. This
argument was accepted by the Industrial Court; it held that when the scheme
envisaged by the new Act is introduced it would be possible to see from what
date it would be operative, and that, if after the introduction of the said
scheme it be found that a sufficient margin is left, it would then be open to
the respondent and the Association to make a fresh application for the
institution of a gratuity fund either for all the employees or for the benefit
of such of them as will have to retire within the next few years. It was on
this ground that the demand made by the respondent was rejected on April 18,
It appears that the prescribed scheme under
the Provident Funds Act came into operation on October 1, 1952. In June 1955, a
fresh notice of change was given by the respondent to all the mills in respect
of the demand for gratuity and the said demand became the subject-matter of
certain references to the Industrial Court at Bombay under s. 73A of the Act.
At that time the association and the respondent had entered into an agreement
to refer all their disputes to arbitration, and in accordance with the spirit
of the said agreement the references pending before the Industrial Court in
respect of gratuity were withdrawn and referred to the Board of Arbitrators.
Before the Board it was, however, urged by the Association that, so long as the
award passed by the Industrial Court on the earlier reference was subsisting
and in operation, a claim for gratuity which was the subject-matter of the said
reference and award could not be properly or validly considered by the Board.
This objection was upheld by the Board, and so it made no provision for
gratuity. The decision of the Board of Arbitrators in the said proceedings was
published on July 25, 1957.
333 After the said decision was made and
before it was published the respondent made the present application for
modification of the earlier award under s. 116A of the Act on July 6, 1957. In
this application the respondent alleged that there was sufficient justification
for modifying the previous award and for introducing a scheme of gratuity as
claimed by it. In this application a demand for gratuity was made on the
following lines:(1) In the case of One month's basic wages and death while in
average Dearness Allowance service or becoming per completed year of physically
or service. mentally unfit for further service :
(2) On voluntary retirement After 10
continuous years of or service in the company resignation of an same as in (1)
(3) On termination For less than 10 but more
of service by the than 7 years at 3/4 rate of company: (1), For less than 7
years but 5 years or more than 5 years at the 1/2 rate of (1) For more than 10
years' continuous service as in (1) above.
It appears that in the application thus made
a typing mistake had crept in which failed to type properly the third category
of cases. The respondent applied on August 21, 1657, for amendment of the said
typing mistake and the said amendment was naturally allowed. It is the demand
made by this application that is the subject-matter of the present proceedings
under s. 116A of the Act.
In the present proceedings the Association
did not file a written statement and in fact withdrew leaving it open to each
mill to file a separate written statement of its own.
It appears that there was a difference of
opinion amongst the constituents of the Association. Accordingly written
statements were filed on 43 334 behalf of the 65 constituent mills and the
large majority of the said written statements raised some preliminary objections
against the competence of the present proceedings and disputed the respondent's
claim for gratuity also on the merits. The industrial Court has overruled all
the preliminary objections and on the merits it has framed a scheme for
gratuity on industry-cum-region basis. The award framing the said scheme was
pronounced on September 16, 1957. It is against this award that 21 out of the
65 mills have come to this Court by special leave. One of the appellant mills
has subsequently withdrawn from the appeal with the result that out of 65 mills
45 mills do not feel aggrieved by the award but 20 mills do; and the
contentions raised by them fall to be considered in the present appeal.
Before dealing with the merits of the points
raised by the appellants it would be relevant to refer very briefly to the
relevant provisions of the Act. The Act has been passed by the Bombay
Legislature because it thought that " it was expedient to provide for. the
regulation of the relations of employers and employees in certain matters, to
consolidate and amend the law relating to the settlement of industrial disputes
and to provide for certain other purposes ". With this object the Act has
made elaborate provisions for the regulation of industrial relationships and
for the speedy disposal of industrial disputes. An " industrial dispute
" under s. 3, sub-s. (17), means "any dispute or difference between
an employer and employer, or between employers and employees, or between
employees and employees and which is connected with any industrial matter
". The expression " industrial matter has been inclusively defined in
a very wide sense. Approved Union " in s. 3(2) means " a union on the
approved list " " primary union " under s. 3(28) means "a
union for the time being registered as a primary union under the Act registered
union " under s. 3(30) means " a union registered under the Act
", while " representative union "under s. 3(33) means " a
union for the time being registered as a representative union under the
Section 3(39) defines " wages " as
meaning " remuneration of all 335 kinds capable of being expressed in
terms of money and payable to an employee in respect of his employment or work
done in such employment, and includes, inter alia, any gratuity payable on
discharge ". Section 42, sub-s. (2), provides that an employee desiring a
change in respect of an industrial matter not specified in Schedule I or II
shall give notice in the prescribed form to the employer through the
representative of employees but shall forward a copy of the same to the Chief
Conciliator, the Conciliator of the industry concerned for the local area, the
Registrar, the Labour Officer, and such other person as may be prescribed.
Section 66(1) provides, inter alia, that if
an employer and a representative union or any other registered union which is
the representative of the employees by a written agreement agree to submit any
present or future industrial dispute or class of such disputes to the
arbitration of any person, whether such arbitrator is named in such agreement
or not, such agreement shall be called submission. We have already noticed that
the Association and the respondent had entered into a submission in respect of
several disputes which were referred to the Board of Arbitrators. Section 73A is
important for our purpose; it deals with reference to arbitration by unions,
and provides that " notwithstanding anything contained in this Act, a
registered union which is a representative of employees, and which is also an
approved union, may refer any industrial dispute for arbitration to the
industrial court subject to the proviso prescribed under it." It is under
s. 73A that the reference was made on the earlier occasion to adjudicate upon
the respondent's claim for a gratuity as specified in its notice of change.
That takes us to ss. 116 and 116A. Section
116 provides, inter alia, for the period during which an award would be binding
Section 116(1) lays down in regard to an award that it shall cease to have
effect on the date specified therein, and if no such date is specified, on the
expiry of the period of two months from the date on which notice in writing to
terminate such an award is given in the prescribed manner by any of the parties
thereto to the other party, provided 336 that no such notice shall be given
till the expiry of three months after the award comes into operation; in other
words, the award cannot be terminated at least for three months after it has
come into operation; thereafter it may be terminated as prescribed by s.
116(1). With the rest of the provisions of s. 116 we are not concerned in the
present appeal. Section 116A(1) prescribes, inter alia, that any party who
under the provisions of s. 116 is entitled to give notice of termination of an
award may, instead of giving such notice, apply after the expiry of the period
specified in sub-s. (2) to the industrial court making the award for its
modification. It is unnecessary to set out the other provisions of s. 116A. The
award under appeal has been made by the industrial court on the application
made by the respondent under s. 11 6A.
The first contention raised before us by the
learned Attorney-General on behalf of the appellant is that the application for
modification made by the respondent under s. 116A is incompetent, because what
the respondent seeks is not any modification of the earlier award which is
permissible under s. 116A, but a reversal and a revision of the said award
which is not permissible under the said section. The expression "
modification of the award " may include alteration in the details of the
award or any other subsidiary incidental matters. In this connection it must be
borne in mind that there is a radical difference between the meaning of the
word " change " as distinguished from the meaning of the word "
modification ". Section 116(2) allows for a change or modification of the
registered agreement, settlement or award in terms of the agreement, and that
clearly brings out the difference between the two concepts of " change
" and " modification ". In cases falling under s. 116(2) the
agreements or settlements can be wholly revoked and fresh ones substituted in
their place by consent, or by consent they may be modified in subsidiary or
incidental details. Where the Legislature wanted to provide for change it has
expressly done so in s. 116(2) by using both the words " changed " or
" modified 337 Section 116A, however, is confined only to modification of
the award and not its change.
The same argument is placed in another form.
It is contended that it was not the intention of the Legislature to permit the
proceedings under s. 116A for change of policy underlying the Award or its
essential framework. Such a result can be achieved only by terminating the
award under s. 116(1) and raising an industrial dispute as provided by the Act.
In support of this contention reliance has been placed on the observations made
by Mukherjea, J., as he then was, in the case of Be: Delhi Laws Act, 1912(1)
where the learned judge stated that " the word 'modification' occurring in
s. 7 of the Delhi Laws Act did not mean or involve any change of policy but was
confined to alteration of such a character which keeps the policy of the Act
intact and introduces such changes as are appropriate to local conditions of
which the executive government is made the judge ". In the same case Bose,
J. observed that "the power to restrict and modify does not import the
power to make essential changes ".
On the other hand, the learned
Solicitor-General has contended that the context in which the word `
modification' has been used in s. 116A does not justify the adoption of the
limited meaning of the word " modify " for which the appellants
contend. The policy of the Act and the reason why s. 116A has been enacted show
that the word " modification " has been used in a sense larger than
its ordinary meaning. The Legislature realised that the procedure prescribed by
s. 116, sub-s. (1), for terminating the award which necessitates the other
subsequent steps was apt to be dilatory and involved and so it has purported to
provide for an effective alternative speedy remedy for the change of the award
under s. 116A. In support of this argument reliance has been placed on the
meaning assigned to the word " modified " in " Words and Phrases
" where it is stated that " though one of the primary meanings of the
word ` modify' is no doubt ` to limit' or ` restrict 'it also means 'to vary',
and there is authority that it may even mean 'to extend' or 'enlarge "'
(1)  2 S.C.R. 747, 1006.
(2) " Words and Phrases" by Roland
Burrows, Vol. 3. P. 399.
338 It is common ground that the modification
permissible under s. 116A does not mean that the provisions of the award must
always be reduced; it may mean even increasing the provisions, and so it is
urged by the respondent that the word "modification" should receive a
wider denotation in the context of s. 116A. This construction no doubt receives
some support from the provision of s. 116A that a party may apply for the
modification of the award instead of giving notice for its termination; and the
latter clause tends to show that the procedure prescribed by s. 116A is an
alternative to the procedure prescribed by s. 116. The industrial court was
apparently inclined to put a wider denotation on the word " modification
" used in s. 116A.
We do not think it is necessary to decide
this larger question of the construction of s. 116A because, in our opinion, in
the present case, even if the limited and narrow construction suggested by the
appellant is put on the word " modification ", the respondent's
application cannot be said to be outside the purview of the said section. There
is no doubt that the claim for gratuity made by the respondent in the earlier
proceedings has been rejected by the industrial.
court and that is an award; but, whether or
not the present application seeks for a modification of the said award within
the meaning of s. 116A would depend on what the industrial court had decided on
the earlier occasion. It is clear that the industrial court did not then
consider the merits of the claim at all. It upheld the Association's contention
that the matter should not be decided then but may be considered later in view
of the fact that the Employees' Provident Funds Act had already been passed and
the statutory scheme for provident funds was about to come into force. It was
on this ground alone that the industrial court rejected the claim as it was
then made but it took the precaution of expressly adding that after the
introduction of the provident funds scheme it would be open to the respondent
or the Association to make a fresh application for the institution of a
gratuity fund as it may deem expedient to claim. It would not be unreasonable,
we think, to assume, that when liberty was thus reserved 339 to the parties to
make a fresh application the industrial court had presumably s. 116A in mind.
In substance, the effect of the order then passed was that the application was
regarded as premature and liberty was reserved to the parties to renew the
application if the statutory scheme was thought to be insufficient or
unsatisfactory by either of them. In such a case, if the respondent applies to
the industrial court for modification of its award it is difficult to accept
the argument that the respondent seeks to alter the framework of the award or
to change any principle decided in the award. The true position is that by the
present application the respondent is asking the court to consider the demand
now that the scheme has come into force and is, according to the respondent,
insufficient to meet the workmen's grievance. What the industrial court then
promised to consider after the scheme came into force is brought before it for
its decision again. That being the true nature of the award and the true scope
of the prayer made by the respondent in its present application it is difficult
to hold that the application is incompetent under s. 116A.
The next argument which is pressed before us
by the learned Attorney-General is that the application for modification is incompetent
in regard to matters not covered in the earlier proceeding. We have already
referred to the items covered in the earlier proceedings as well as those which
are the subject matter of the present application. It is true that the notice
served by the respondent prior to the earlier reference specifically set out
the claim for gratuity in four categories of cases of termination of services
of the employees, whereas in the present proceedings some other categories are
included. The objection raised against the competence of the present
application purports to treat the earlier notice in a very technical way and
confines the subsequent proceedings taken before the industrial court to the
said four categories only. The argument is that the cases of termination of
services which were not specified in the earlier notice cannot now be brought
before the industrial court tinder the guise of the modification of the award.
340 If the modification of the award can be
claimed under s. 116A it must be claimed only in regard to the said four
categories and no more. This argument has been rejected by the industrial
court, and it has been held that in substance the earlier notice should be
construed as constituting a claim for the scheme of gratuity in general. The validity
of this conclusion has been seriously challenged by the appellant.
There is no doubt that disputes in regard to
industrial matters not covered by an award do not fall within the scope of s.
116 of the Act; and so if the claim for gratuity in regard to categories not
specified in the earlier notice is deemed to be outside the said notice and the
relevant reference proceedings, could the respondent have made a claim in that
behalf and ask for industrial adjudication without terminating the award? It is
difficult to answer this question in the affirmative. It is well-known that a
scheme for gratuity is an integrated scheme and it covers all classes of
termination of service in which gratuity benefit can be legitimately claimed.
Therefore, when the industrial court refused to' frame a gratuity scheme in
regard to the four categories brought before it on the earlier occasion, in
substance its refusal amounted to a rejection of any scheme for gratuity at
all; otherwise it is very difficult to assume that having rejected the claim
for gratuity in respect of the said four categories it would still have
entertained a claim for gratuity on behalf of other categories not included
therein. That is why we are inclined to think that though in form the rejection
of the demand for gratuity on the earlier occasion was in regard to the four
categories specified in the notice, in effect it was rejection in regard to the
claim for a gratuity scheme itself.
It cannot be disputed that if the earlier
demand had been for a gratuity scheme pure and simple and no categories had
been specified in connection therewith the present application for the
modification of the award coupled with a claim for a gratuity scheme in respect
of all the categories specified in the application would be within the purview
of s. 116 of the Act. That in substance is what has happened in this case 341
according to the finding of the industrial court on this point, and having
regard to the unusual circumstances of this case we see no reason to interfere
Then it is urged that the industrial court
has erred in law in framing a gratuity scheme even though the statutory scheme
under the Employees' Provident Funds Act has been in operation since 1952. The
provident fund guaranteed by the statute under the statutory scheme is one kind
of retirement benefit and since this retirement benefit is now available to the
workmen it was not open to the industrial court to provide an additional
gratuity scheme; that in substance is the contention. This contention has been
frequently raised before the industrial courts and has been generally rejected.
The Employees' Provident Funds Act has no doubt been passed for the institution
of provident funds for employees covered by it; and the statutory scheme for provident
funds is intended to afford to the employees some sort of a retirement benefit;
but it cannot be ignored that what the statute has prescribed in the scheme is
the minimum to which, according to the Legislature, the employees are entitled;
and so in all cases where the industrial courts are satisfied that a larger and
higher benefit can be afforded to the employees no bar can be pleaded by virtue
of the Provident Funds Act. it is true that after the Act came into force, the
industrial courts would undoubtedly have to bear in mind the benefit of the
statutory scheme to which the employees may be entitled; and it is only after
bearing that factor in mind and making due allowance for it that any additional
scheme for gratuity can and must be framed by them; but it is not open to an
employer to contend that the Act excludes the jurisdiction of industrial courts
to frame an additional scheme.
In this connection it may be pertinent to
point out that s. 17 of the Employees' Provident Funds Act empowers the appropriate
government to exempt from the operation of all or any of the provisions of the
statutory scheme to establishments as specified in s. 17(1)(a) and (b). Under
s. 17(1)(b), for instance, any establishment may apply, for exemption if its
employees are in enjoyment of benefits in the nature of 44 342 provident fund,
pension or gratuity which, in the opinion of the appropriate government, are on
the whole not less favourable to such employees than the benefits provided
under the Act or any scheme in relation to employees in any other establishment
of a similar characters This provision brings out two points very clearly. If
the benefits provided by the employer are not less favourable than the
statutory benefits he may apply for exemption and the appropriate government
may grant him such exemption. If, on the other hand, the benefits conferred by
him are less favourable than the statutory benefits he may not be entitled to
any exemption, in which case both the benefits would be available to the
employees. These provisions clearly indicate that the statutory benefits which
in the opinion of the Legislature are the minimum to which the employees are
entitled, cannot create a bar against the employees'. claim for additional
benefits from their employers. In this connection we may incidentally refer to
the decision of this Court in the case of Indian Hume Pipe Co. Ltd. v. The
Workmen (1) where this Court has held that the statutory provision for the
payment of retrenchment compensation under s. 25F is no bar to a claim for
The argument urged that the statutory
retrenchment partook the character of gratuity and thus constituted a bar for
the additional claim for gratuity was rejected. We must accordingly hold that
the Industrial Court was right in rejecting the appellants' contention that the
statutory provision for provident fund under the Employees' Provident Funds Act
is a bar to the present claim for a gratuity scheme.
The learned Attorney-General has then
challenged the validity of the scheme on the ground that the Industrial Court
was in error in dealing with the problem on industry wise rather than unit-wise
basis. He contends that the claim for gratuity is more allied to a claim for
bonus and must, therefore, be dealt with on unit-wise basis. It is not disputed
that the benefit of gratuity is in the nature of retiral benefit and there can
be no doubt that before framing a scheme for gratuity industrial adjudication
has to take into (1)  2 S.C.R. 32.
343 account several relevant facts; the
financial condition of the employer, his profit-making capacity, the profits
earned by him in the past, the extent of his reserves and the chances of his
replenishing them as well as the claims for capital invested by him, these and
other material considerations may have to be borne in mind in determining the
terms of the gratuity scheme. This position has always been recognised by
industrial courts (Vide: Arthur Butler & Co. (Muzaffarpur) Ltd. And Arthur
Butler Workers' Union (1).
It appears also to be well recognised that
though the grant of a claim for gratuity must depend upon the capacity of the
employer to stand the burden on a long-term basis it would not be permissible
to place undue emphasis either on the temporary prosperity or the temporary adversity
of the employer. In evolving a long-term scheme a long-term view has to be
taken of the employer's financial condition and it is on such a basis alone
that the question as to whether a scheme should be framed or nit must be
decided, and if a scheme has to be framed the extent of the benefit should be
determined (Vide: Boots Pure Drug Co. (India) Ltd. And Their Workmen (2) For
our present purpose it is really not necessary to embark upon the academic
question as to whether gratuity is a part of deferred wage or not; we will
assume that it is not. Even so it would not be reasonable to assimilate the
character of the scheme for gratuity to that of a profit bonus and to seek to
import the considerations of the Full Bench formula which governs the grant of bonus.
A claim for profit bonus is based on the
assumption that the employees contribute at least partially to the profits made
by the employer and that they are entitled to ask for a share in the said
profits in order to bridge the gulf between the wages actually received by them
and a living wage to which they are ultimately entitled. A claim for gratuity
is a claim for retiral benefit and it is strictly not a claim to receive a
share of the profits at all; and so there would be no scope for importing the
several considerations which are relevant in determining the claim for profit
bonus. That is the view taken by the Labour Appellate Tribunal in Indian (1)
 11 L.L.J. 29. (2)  1 L.L.J. 293.
344 Oxygen and Acetylene Co. Ltd. Employees'
Union And Indian Oxygen and, Acetylene Co. Ltd. (1) and the said decision has
been cited with approval by this Court in Express Newspapers (Private) Ltd. v.
The Union of India (2 ). Therefore, we are not prepared to accept the argument
that the claim for gratuity is essentially similar to a claim for profit bonus,
and like profit bonus it must always be considered on unit wise basis.
Incidentally we may add that even a claim for profit bonus can and often is
settled on industry-wide basis.
That still leaves the larger question to be
considered whether the industrial court was in error in dealing with the claim
for gratuity on industry-wise basis. It is urged for the appellants that an
industry-wise basis is wholly inappropriate in dealing with gratuity and it should
not have been adopted by the industrial court. It may be conceded that when an
industry-wise basis is adopted in dealing with a claim like gratuity often
enough stronger units of the industry get a, benefit while the weaker units
suffer a disadvantage. Take the case of a gratuity scheme.
If such a scheme is based on industry-wise
basis employees working under the stronger units do not get that amount of
benefit of gratuity which they would have got if the question had been
considered unit-wise, whereas employees working in weaker units get a better
scheme than they would have got if the matter had been considered unit-wise.
Such a result is inevitable in an industry wise approach. This possible
mischief can, however, be mitigated by taking a fair cross-section of the
industry or by working on a rule of averages after collecting the relevant
facts of all the constituent units of the industry. Even so, if some of the
units of the industry are very weak they are apt to suffer a disadvantage just
as the very strong units in the industry are likely to get an undue advantage
in the process; but the question which calls for our decision is: does this
possible result mean that a scheme for gratuity should on principle not be
framed on an industry-wise basis but must always be framed on a unit-wise
basis? There are several factors which militate against the appellants'
suggestion that unit-wise basis is the only (1)  1 L.L.J. 435. (2) 
S.C.R. 12 at P. 156.
345 basis which should be adopted in such a
case. Equality of competitive conditions is in a sense necessary from the point
of view of the employers themselves; that in fact was the claim made by the
Association which suggested that the gratuity scheme should be framed on
industry-wise basis spread over the whole of the country. Similarly equality of
benefits such as gratuity is likely to secure contentment and satisfaction of
the employees and lead to industrial peace and' harmony. If similar gratuity
schemes are framed for all the units of the industry migration of employees
from one unit to another is inevitably checked, and industrial disputes arising
from unequal treatment in that behalf are minimized. Thus, from the point of
view of both employers and employees industry-wise approach is on the whole
desirable. It is well-known that the Committee on Fair Wages which had examined
this problem in all its aspects had come to the definite conclusion that "
in determining the capacity of an industry to pay it would be wrong to take the
capacity of a particular unit or the capacity of all the industries in the
country. The relevant criterion should be the capacity of a particular industry
in a specified region", and it recommended that as far as possible the
same wages should be prescribed for all units of that industry in that region.
This approach has been approved by this Court in the case of Express Newspapers
(Private) Ltd. (1) (p. 19). What is true about the wages is equally true about
the gratuity scheme. In the present economic development of our country we
think industrial adjudication would hesitate to adopt an all-India basis for
the decision of an industrial dispute like that of gratuity;
and so, on principle, it would be difficult
to take exception to the approach adopted by the industrial court in dealing
with the present dispute.
In this connection it may be relevant to take
notice of the fact that the wages of textile employees have been standardised
on an industry-wise basis. Similarly, dearness allowance has been fixed on the
same basis, and un substituted holidays have been prescribed on a like basis.
The Employees' State Insurance (1) 
S.C.R. 12 at P. 156.
346 Scheme (Act 34 of 1948) is industry-wise
and retrenchment compensation has been statutorily standardised on the same
basis (Section 25F of Act XIV of 1947). What is more remarkable is the fact
that the Association and the respondent had entered into an agreement regarding
bonus for a period of five years and the gratuity scheme for the clerical and
supervisory staff between the said parties is also based on the same
industry-wise approach by agreement between them. The Association and the
respondent can justly claim with some pride that in the past most of their
disputes had been amicably settled. It is only on the present occasion that
owing to a difference of opinion amongst its constituent members that the
Association withdrew from the proceedings and left it to the members to appear
individually before the industrial court. Even so 45 out of the 65 mills have
accepted the award. Under these circumstances the question which we have to
decide is: Did the industrial court err in law in adopting an industry-wise
basis in deciding the present proceedings ? It would no doubt have been open to
the industrial court to deal with the dispute unit-wise just as it was open to
the court to deal with it on an industry-wise basis. As we have already
indicated there are several factors in favour of adopting the latter approach
though it may be conceded that by adopting the said course some hardship may
conceivably be caused to the weakest units in the industry. Having carefully
considered this question in all its aspects we are however, not prepared to
hold that the scheme of gratuity under appeal should be set aside on the ground
that the industrial court ought to have adopted a unit-wise approach. In this
connection it may not be out of place to observe that the cotton textile
industry is the premier industry of our country and there is a concentration of
a large number of mills in Ahmedabad. A good many of them have capitalised
large portions of reserves and documents produced in the present proceedings
show that the production has steadily increased and has found a responsive
There is a gratuity scheme framed on an
industry-wise basis in operation in Bombay and a similar scheme appears to have
been extended to 347 Nadiad and Khandesh. In fact an award for gratuity has
been made on an industry-wise basis even in respect of the textile industry at
Coimbatore. Having regard to these facts we think the industrial court was
right in observing that " there was no justification why an important
textile centre like Ahmedabad should not have a gratuity scheme when the needs
of the labour require it and the industry can afford it ".
It is true that in dealing with industrial
disputes on industry-cum-region basis, if the region covers the whole of the
country industrial adjudication sometimes takes resort to the classification of
the constituent units of the industry in question. Industrial adjudication in
regard to the fixation of wage-structure in respect of newspapers and banks in
the country is an illustration in point. The need for such a classification is
not as great when the region happens to be limited in area, though, even in
respect of a limited area, in a proper case industrial adjudication may adopt
the course of classification. In the present case the industrial court took the
view that classification was not possible and would be inexpedient. No
classification was made in dealing with the textile mills in Bombay, and the
industrial court did not feel called upon to make a departure in respect of
Ahmedabad. We do not think that this conclusion suffers from any infirmity.
The scheme has been further attacked on the
ground that before framing it the industrial court has not considered the
extent of the liabilities already imposed on the industry. It has been
strenuously argued before us that in assessing the extent of the liabilities
the actual liabilities accrued as the result of the scheme has not been taken
into account and the serious strain imposed on the industry by the imposition
of excise duty has also been overlooked; on the other hand, undue importance
has been attached to bonus shares and no account has been taken of the industry's
obligation to contribute to the State Insurance Scheme. We are not impressed by
The argument about the actual liability
accrued is really the oretical and cannot have much practical significance.
If it is suggested that in 348 framing a
scheme of gratuity the capacity to pay should be determined only if the
employer can set apart a, fund to cover the whole of the liability
theoretically accrued, then gratuity schemes can be very rarely framed. Such
schemes are long-term schemes and a fund to cover the total liability in that
behalf must inevitably be built up in course of time year by year. In regard to
the excise duty, the industrial court has rightly pointed out that the
imposition of a higher duty was the conseqence of the excessive increase in
prices of mill cloth and in fact it was levied " to mop off those extra
profits ". When the prices fall down it is not unlikely that the excise
duty may be reduced. In any case the obligation to pay excise duty or to
contribute to the insurance scheme, though perhaps relevant, may not have a
material bearing on the framing of the scheme of gratuity. Then, as to the
bonus shares, it is not right to contend that the industrial court has
attributed undue importance to them. All that it has observed is that the issue
of bonus shares by a large majority of the mills in addition to good dividends
during the war and post-war period is an index to the prosperity enjoyed by the
cotton textile industry in Ahmedabad. In our opinion, no criticism can be made
against this statement.
In this connection it may perhaps be
pertinent to observe that the statutory ceiling placed on the agent's
commission may in due course assist the mills to some extent in meeting their
liability under the scheme.
The last argument urged against the validity
of the scheme is based on the assumption that in working out the preliminary
figures before framing the scheme the industrial court has committed an error.
What the industrial court has done is to take the information collected by the
Association on the earlier occasion, to compare it with the statement prepared
by the respondent, and to make a rough estimate about the extent of the
industry's liability under the scheme. In considering these statements it is
important to emphasise that the Association's calculations have been made not
on the basis of basic pay but on the basis of pay including dearness allowance,
and that naturally has made considerable, additions to the 349 amounts
involved. The scheme framed is by reference to the basic wages. This position
is not disputed. The other material point which deserves to be mentioned is
that the calculations made by the Association proceed on the assumption that
most of the employees would seek to retire from employment as soon as they
complete fifteen years service. Such an assumption seems to us to be not
warranted at all. It is common ground that employee,% generally seek employment
in textile industry between 18 and 20 years and the age of superannuation is
60. On an average each employee would work 35 to 40 years and so it would be
unrealistic to make calculation on the basis that each one of the employees
retires as soon as he completes 15 years of service. In the absence of better
employment in Ahmedabad it is quite likely that most of the employees would
stick on to their jobs until the age of superannuation. The figures collated
are in respect of the years 1953, 1954 and 1955.
They are collated in seven different columns,
and ultimately the percentages of persons who retired during the three
respective years are worked out as at 3.13%, 4.13% and 3.84%. The industrial
court has observed that the largest number of persons retired voluntarily on
payment of gratuity because there was an agreement between the Association and the
respondent whereby the respondent agreed to rationalisation which involved
retrenchment of staff on condition that the surplus staff retrenched would be
given gratuity. It also appears that the retired workmen included a number of
employees who voluntarily resigned because they had not completed 1,5 years of
service and were not entitled to gratuity. It is on a consideration of all the
relevant facts that the industrial court came to the conclusion that the number
of persons who would have been entitled to gratuity under a normal gratuity
scheme would probably not have exceeded 2% of the labour force. If it is
assumed, as we think it can be safely assumed, that on an average an employee
works 35 to 40 years with his employer the said percentage deduced by the
industrial court cannot be said to be erroneous. Even so the scheme framed by
the industrial court has provided, inter alia, one month's basic 45 350 wage
for each completed year of service for the period before the coming into force
of the Employees' Provident Funds Act, 1952, and half-a-month's basic wage for
each completed year of service thereafter, subject to a maximum of fifteen
months' basic wages to be paid to the employee or his heirs or executors or
nominees as the case may be. This provision which amounts to a departure from
the Bombay scheme of gratuity brings out the fact that the provisions made by
the Employees' Provident Funds Act have been duly taken into account by the
industrial court. We are, therefore, satisfied that the scheme framed by the
industrial court does not suffer from any infirmities as alleged by the
The result is the appeal fails and is
dismissed with costs.