The Akola Electric Supply Co Vs. J. N.
Jarare & Ors  INSC 67 (25 March 1963)
25/03/1963 GUPTA, K.C. DAS GUPTA, K.C. DAS
CITATION: 1963 AIR 1721 1964 SCR (2) 513
Industrial Dispute-State Electricity Board taking
over from appellant company on the expiry of license-Award framing scheme for
payment of gratuity to employees-If justified Central Provinces and Berar
Industrial Disputes Settlement Act, 1947 (C. P. and Berar Act XXIII of 1947),
ss. 38 (a).
The appellant company was a licensee for
supplying electricity. The State Electricity Board had by a notice intimated
its intention to purchase the appellant's undertaking on the expiry of its
license. Two days prior to the expiry of the licence the Industrial Court at
Nagpur framed a scheme for payment of gratuity to the employees of the
appellant company with effect from the date of the order. On application by the
appellant company under Art. 227 of the Constitution the High Court of Nagpur
set aside the Industrial Court's order and remanded the matter for the
reconsideration. After remand the Industrial Court came to the conclusion that
the appellant company was in a position to pay gratuity and made a fresh award
framing a scheme for payment of gratuity to its employees at the rate of 1
month's average wage. This award was made more than a year after the company
had closed its business. The present appeal is by way of special leave granted
by this Court.
The main contention in the appeal was that
the Tribunal was not justified in imposing on the company a gratuity scheme at
a time when it had already ceased to carry on its business.
Held that the gratuity schemes are always
made in the expectation of the industry continuing to function for a long time
to come and hence the Industrial Court acted wrongly in framing any gratuity
scheme for payment of gratuity by the company to its employees, Indian Hume
Pipe Co. v. Its Workmen, , 2 S. C. R. 32 and Bharatkhand Textile Mfg.,
Co., Ltd. v. Textile Labour Association,  3 S.C.R. 329, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 637 of 1962.
Appeal by special leave from the award dated
April 29, 1961 of the State Industrial Court at Nagpur in Industrial Reference
No. 13 of 1959.
M. C, Setalvad, Vallbhdas Mehta and Sardar
Bahadur, for the appellant.
S.A. Sohni, Swarup Khanduja Lalit Kumar adn
Ganpat Rai, for the respondents.
1963. March 25. The judgment of the Court was
delivered by DAS GUPTA J.-This appeal by,special leave is against an award of
the Industrial Court at Nagpur tinder s. 38 (a) of the Central Provinces and
Berar Industrial Disputes Settlement Act, 1947 dated April 29, 1961. By an
earlier award dated December 4, 1959, the Industrial Court ordered the payment
of gratuity to the employees of the appellant Company on certain rates. The
award was to come into force from December 4, 1959. OD an application by the
Company under Art. 227 of the Constitution, the Nagpur High Court set aside the
industrial Court's order and remanded the matter for reconsideration of the
question after examining the financial condition of the Company. After remand
the Industrial Court took evidence of both parties as regards the financial
condition of the Company and came to the conclusion that the Company was in a
very sound financial position and could easily bear the burden of payment of
gratuity to the extent of Rs. 50,000/or even more.
Accordingly, the Industrial Court made a
fresh award directing the payment of gratuity to the Company's employees at the
rate of 1 month's average wage the average wage to be calculated for the period
December 1, 1-958 to November 30, 1959 to every 515 employee who had to his
credit uninterrupted continuous service of not less than five years on
termination of his service, except by dismissal on account of misconduct. The
award was directed to come into force from April 29,1961.
The Appellant Company was a licensce for
supplying electric energy to the public within the area approximating to the
Municipal limits of Akola. The license expired on December 6, 1959. Prior,to
this the State Electricity Board had by a notice dated November 27, 1957,
intimated its intention to exercise its option to purchase the undertaking on
the expiry of the license. It was after this notice had been served and it was
known that the Company would be closing its business on December 6, 1959, that
the claim for gratuity in respect of which the Industrial Court has made its
award, was first made. -Indeed, the very application for referring this and
other disputes for arbitration contained the frank statement that it was in
view of the impending closure of business that the claim for gratuity was being
made. It is interesting to notice that the earlier award by tile Industrial
Court was made only two days before the Company's license expired and the
business was taken over by the Bombay Electricity Board. The award now under
appeal was made more than a year after the Company had closed its business.
The main contention urged before us in support
of the appeal is that the Tribunal was not justified in imposing on the Company
a gratuity scheme at a time when it had already ceased to carry on its
business. It is argued that gratuity schemes are planned on a long term basis,
the ruling principle being to make the employer to pay retiral benefits to such
of its employees as, retire from year to year. The framing of a gratuity scheme
when an industry is on the verge of closure or after it has closed is, it 516
is urged, wholly unjustified. In our opinion, tkere is considerable force in
It has been laid down by this Court that the
statutory provision for payment of retrenchment compensation is no bar to the
framing of a gratuity scheme. The question was fully considered by this Court
in Indian Hume Pipe Co. v. Its Workmen (1), where this Court pointed out that
while gratuity is intended to help workmen after retirement to whatever cause
the retirement may be due to, retrenchment compensation is intended to give
relief for the sudden and unexpected termination of employment by giving
partial protection to the retrenched person and his family to enable them to
tide over the hard period of unemployment. It has also been held by this Court
in the Bharatkhand Textile Mfg.
Co. Ltd, v. Textile labour Asson. (2), that
the existence of a Provident Fund Scheme is also no bar to the provision of
further retiral benefit by way of gratuity scheme.
Learned Counsel for the respondent seems to
think that these cases somehow supported his contention that the fact that an
industry is going to close or has actually closed is no bar to a framing of
gratuity scheme for its employees. We are unable to see however anything in
these decisions of this Court to assist such a plea. In neither of these cases
nor in any other case that we know of had this Court to consider the question
of a gratuity scheme in an industry which 'is going to close in the near future
or has already been closed. Indeed, we know of no case in which an Industrial
Tribunal has ever framed a gratuity scheme for an industry which was not
expected to carry on or has ceased to carry on its business. In all the cases
that have come before Industrial Tribunal or this Court gratuity schemes asked
for or allowed have been in industries which were expected to carry on for a
(1)  2 S.C.R. 32.
(2)  3 S.C.R. 329, 517 fairly long
time. One of the important factors which requires consideration in deciding on
the propriety of a scheme of gratuity is the ability of the industry to bear
the additional financial burden and in deciding this question it has been
repeatedly pointed out, the burden from year to year has to be considered after
taking into account the average number of retirements likely to take place in a
year. Thus in the Bharatkhand Textile Mfg. case (1), this Court in discussing
the considerations that arise in such matters, said:"........ there can be
no doubt that before framing a Scheme for gratuity industrial adjudication has
to take into account several relevant facts; the financial condition of the
employer, his profit-making capacity, the profits earned by him 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
............ 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 not must be
decided......" These observations emphasise the position that gratuity
schemes are always made in the expectation of the industry continuing to
function for a long time to come.
(1)  3 S.C.R, 329 518 It has to be
noticed that the provision for gratuity scheme is not based on any statutory
enactment, but has been evolved by industrial adjudication as a step to achieve
social justice. In doing so, industrial adjudication has proceeded on the basis
that only a small percentage of the workmen retire in any particular year and
so the provision for paying gratuity to retiring workmen would ordinarily be
not an unreasonable burden for the employer to be asked to bear.
The position is materially altered however
when the industry is expected to close in the immediate future, or has actually
closed. In such a case the entire body of workmen will "retiring" at
one and the same time so that in substance, though not in name, the provision
of gratuity would be equivalent to the grant of retrenchment compensation, in
addition to what is provided for in the statute.
We can find no justification for this in the
principles of social justice.
We have therefore come to the conclusion that
the Industrial Court acted wrongly in directing any gratuity to be paid by the
Company to its employees.
We accordingly allow the appeal, and set
aside the award made by the Industrial Court. There will be no order as to