Bakshish
Singh Vs. Darshan Engineering Works [1993] INSC 422 (11 October 1993)
SAWANT,
P.B. SAWANT, P.B. YOGESHWAR DAYAL (J) CITATION: 1994 AIR 251 1994 SCC (1) 9 JT
1993 (6) 85 1993 SCALE (4)99
ACT:
HEADNOTE:
The
Judgment of the Court was delivered by SAWANT, J.- These two appeals one by the
Union of India and the other by the aggrieved employee are directed against the
decision dated March 24, 1983 of the Punjab and Haryana High Court whereby the
High Court has struck down Section 4(1)(b) of the Payment of Gratuity Act, 1972
(hereinafter referred to as the 'Act') as being violative of Article 19(1(g) of
the Constitution of India.
2. The
admitted factual matrix of the case is in a narrow compass. Bakshish Singh, the
appellant-employee joined the services of the 11 respondent-M/s Darshan
Engineering Works as a Fitter on March 2, 1968 and resigned from service on
December 10, 1978 after a total period of continuous service of more than 10
years. His last drawn wages were Rs 335 per month. It is not disputed that at
the time he joined the employment on March 2, 1968, his age was 54 years 3 months, his
date of birth being December
17, 1913. This was
known to the respondent-employer.
3. The
Act came into force w.e.f. September 21, 1972. On the employee's resignation w.e.f. December 10, 1978 which was accepted by the respondent-employer, he claimed
gratuity under Section 4(1)(b) of the Act. His claim not having been accepted,
he approached the Controlling Authority under Section 7 of the Act. The claim
was resisted by the employer on the ground firstly that the employee was
entitled to gratuity only till the date he reached his superannuation age which
was 58 years and since he had not completed 5 years of service by the time he
attained 58 years of age, he was not entitled to gratuity under Section 4(1) of
the Act. Secondly, it was contended that in any case the amount of gratuity
payable to the employee was only for the period upto the superannuation age and
since he was drawing wages of Rs 230 per month on the day he attained the
superannuation age, he was entitled to a sum of Rs 460 only, being the gratuity
calculated at the rate of 15 days' salary per year of service till the date of
superannuation.
4.
Both the contentions were negatived by the Controlling Authority by pointing
out that Section 4(1) provided for payment of gratuity to the employee on the
termination of his employment after he has rendered continuous service of not
less than five years on the occurrence of any of the three events viz., (a) on
the employee reaching his superannuation age, or (b) on his retirement or
resignation, or (c) on his death or disablement due to accident or disease. In
case of the third event, the qualifying continuous service of five years is not
necessary. The 'retirement' is defined by Section 2(q) of the Act to mean
'termination of the service of an employee otherwise than on superannuation'.
The first two events are independent of each other. Since in the present case
the employer had not chosen to superannuate the employee on his attaining 58
years of age and had continued him in service till the employee himself
resigned on December 10, 1978 by which date he had completed more than 10 years
of service, the employee was entitled to the gratuity for the period of his
entire service upto the date of his resignation. The Controlling Authority,
therefore, calculated the amount of gratuity due to the employee as Rs 1782 at
the rate of 15 days' wages per year of service for all the IO years taking the.
last drawn wages of Rs 3 35 per month as the basis of the said calculation.
This order was challenged by the employer before the Appellate Authority under
the Act. The Appellate Authority confirmed the finding of the Controlling
Authority and dismissed the appeal. In the writ petition filed before the High
Court under Articles 226 and 227 of the Constitution, the High Court confirmed
the interpretation placed on Section 4(1) of the Act by the Controlling as well
as the Appellate Authority and also held that the age of superannuation is
irrelevant when the gratuity is payable under clause (b) of Section 4(1) on
retirement or 12 resignation, the said clause being independent of clause (a)
of that section which provided for payment of gratuity on attaining the age of
superannuation. However, the court held that the provisions of Section 4(1)(b)
of the Act which entitles an employee to gratuity on his retirement or
resignation after a continuous service of only 5 years was an unreasonable
restriction on the employer to carry on his business and, therefore, violative
of Article 19(1)(g) of the Constitution. We should have thought that on the
facts of the present case the court was not called upon to decide the alleged
unreasonableness of the qualifying period of 5 years of service for entitlement
to gratuity on retirement or resignation, since as pointed out above the
employee had put in more than 10 years of service. The court further not only
went into the said question and struck down the provisions of Section 4(1)(b)
but for reasons which are not apparent to us, also denied the gratuity awarded
to the employee by the lower authorities even after accepting the finding of
the lower authorities that the employee had put in more than 10 years of
service. It does not appear from the judgment of the High Court whether,
although it found that the five years' qualifying service was unreasonable, ten
years' qualifying service would also be similarly unreasonable according to it.
In fact, the High Court has not thought it necessary to indicate what according
to it would be a reasonable qualifying period of service for entitlement to the
gratuity in case of retirement or resignation by the employee. Further, if the
alleged short period of 5 years was the reason for holding that the provision in
question cast an unbearable burden on the employer so as to violate his
fundamental right under Article 19(1)(g) of the Constitution, by the same
reasoning the provision of Section 4(1)(a) of the Act, which lays down the same
qualifying period to entitle the employee to the receipt of gratuity on
superannuation had also to be, struck down.
5. We
may now turn to the reasons given by the High Court in its own words for
holding the said provision unconstitutional. The court has held that:
"
A gratuity is essentially a retiring benefit payable to a workman which under
the statute [Section 4(1)(b) of the Act] has been made payable on voluntary
resignation as well.
Gratuity
is a reward for good, efficient and faithful service rendered for a
considerable period. It is necessary that a long minimum period for earning
gratuity in the case of voluntary resignation should be prescribed to curb the
tendency on the part of the workmen to change employment frequently after
putting in minimum service qualifying for gratuity. A workman gains experience
during his tenure of employment. An experienced workman is capable of securing
another employment with better emoluments. He can also be tempted by other
employers with more lucrative salary. The exit of an experienced workman would
surely be a loss for his employer. It has been aptly observed by their
Lordships of the Supreme Court in British 13 Paints (India) Limited case' that
'a longer minimum in the case of voluntary retirement or resignation makes it
probable that the workmen would stick to the company where they are working.
That is why gratuity schemes usually provide for a longer minimum in the case
of voluntary retirement or resignation.' Keeping in view the intrinsic object
for making provision for payment of gratuity to a workman on his voluntary
resignation and the ratio of the decisions of the Supreme Court detailed above,
there is no escape from the conclusion that the minimum period of qualifying
service for five years by a workman for being eligible for gratuity on
voluntary resignation under Section 4(1)(b) of the Act cannot be stamped
sufficient long minimum in the context of making him stick to his existing
employer and it does impose an unreasonable restriction on the fundamental
right of the employer to carry on business and is, therefore, violative of
Article 19(1)(g) of the Constitution."
6.
Besides the decision of this Court in British Paints (India) Ltd. v. Workmen' the Court has
also relied on other decisions of this Court. We may now discuss them here
briefly.
7. In
Express Newspapers (P) Ltd. v. Union of India2 what was questioned was the
constitutional validity of the Working Journalists (Conditions of Service) and
Miscellaneous Provisions Act, 1955 and the legality of the decision of the Wage
Board constituted thereunder. The impugned Act was passed in order to implement
the recommendations of the Press Commission and had for its object the
regulation of the conditions of service of working journalists and other
persons employed in newspaper establishments. Among other things, the Act
provided for the payment of gratuity to a working Journalist who had been in
continuous service for not less than 3 years, even when he voluntarily resigned
from service. It is with reference to the said minimum period of qualifying
service laid down in the Act that this Court observed that the said provision
was not at all reasonable. The Court observed that a gratuity is a scheme of
retirement benefit and the conditions for its being awarded had been laid down
in the Labour Courts' decisions in this country. The Court then referred to the
Labour Appellate Tribunal's decision in Ahmedabad Municipal Corpn. case3 where
it was observed as under:
"[T]he
fundamental principle in allowing gratuity is that it is a for old age and the
trend of the recent authorities as borne out from various awards as well as the
decisions of this Tribunal is in favour of double benefit .... We are,
therefore, of the considered opinion that Provident Fund provides a certain
measure of relief only and a portion of that consists of the I British Paints
(India) Ltd. v. Workmen, (1966) 2 SCR 523 : AIR 1966 SC 732 :(1966) 1 LLJ 407 2
1959 SCR 12: AIR 1958 SC 578 : (196 1) 1 LLJ 339 3 Workmen v. Ahmedabad
Municipal Corpn., 1955 LAC 155, 158 14 employee's wages, that he or his family
would ultimately receive, and that this provision in the present day conditions
is wholly insufficient relief and two retirement benefits when the finances of
the concern permit ought to be allowed." 8. The Court then observed that
Ahmedabad Municipal Corpn.
case3
as well as the Nundydroog Mines Ltd. case4 were cases where gratuity was to be
allowed to the employees on their retirement. The Court then found that the Labour Court's decisions have, however, awarded
gratuity benefits on the resignation of an employee also. It then referred to
the Cipla Ltd. case5 and pointed out that the Court there took into
consideration the capacity of the concern and other factors referred to therein
and directed gratuity on full scale which included gratuity on voluntary
retirement or resignation by an employee after 15 years' continuous service.
The Court also referred to the decision in Indian Oxygen and Acetylene Co. Ltd.
case6 where the Court had observed as follows:
"It
is now well-settled by a series of decisions of this Tribunal that where an
employer company has the financial capacity, the workmen would be entitled to
the benefit of gratuity in addition to the benefit of a provident fund. In
considering the financial capacity of the concern what has to be seen is the
general financial stability of the concern .... the factors to be considered
before granting a scheme of gratuity are the broad aspects of the financial
condition of the company, its profit earning capacity, the profits earned in
the past, its reserves and the possibility of replenishing the reserves, the
claim of capital put having regard to the risk involved, in short the financial
stability of the concern."
9. The
Court then observed that in the cases cited by it though the gratuity was
awarded on the employee's resignation from service, it was granted only after
the completion of 15 years and not merely on a minimum of 3 years of service as
in that case. The Court further observed that gratuity being a reward for good,
long and faithful service rendered for a considerable period (vide Indian
Railway Establishment Code, Vol. I at p. 614 Ch.
XV,
para 1503), there would be no justification for awarding the same when an
employee voluntarily resigns and brings about a termination of his service,
except in exceptional circumstances. One such exception is the operation of the
"conscience clause", the other exception being that the employee is
in continuous service of the employer for a period of more than 15 years. The
Court then went on to say that where, however, an employee voluntarily resigns
from service after a period of only 3 years, there will be no justification
whatsoever for awarding him gratuity and any such provision is certainly
unreasonable. The Court also held that the provision in question 4 Nundydroog
Mines (KGF) Ltd. v. Workmen, 1956 LAC 265, 267 5 Chemical, Industrial and
Pharmaceutical Laboratories Ltd. v. Workmen, (1955) 2 LLJ 355, 358 (IT, Bom) 6
Employees' Union v. Indian Oxygen and Acetylene Co.
Ltd.,
(1956) 1 LLJ 435 (IT, Bom) 15 imposes an unreasonable restriction on the
employer's right to carry on business and was liable to be struck down as
unconstitutional.
10. In
Garment Cleaning Works v. Workmen7 the Industrial Tribunal had on a reference
under the Industrial Disputes Act framed a gratuity scheme providing, among
others, that on retirement or resignation of a workman after 10 years' service,
10 days' consolidated wages for each year's service should be awarded as
gratuity. It was assailed on the ground that the said provision violated the
fundamental rights of the employers under Article 19(1)(g) of the Constitution.
It was also contended there that no gratuity should be admissible in case of
voluntary retirement or resignation until and unless 15 years' service had been
put in by the employee. In support of the attack against the said provision,
reliance was placed on the decision in the Express Newspaper case2. This Court
explained that the observations made in the Express Newspaper case2 that the
employee should be entitled to gratuity on resigning his post where he had been
in continuous service for a period of more than 15 years, were not meant to lay
down a rule of universal application in regard to all gratuity schemes.
The
Court negatived the attack and upheld the minimum qualifying period of service
of 10 years prescribed by the Tribunal for entitlement of gratuity on
resignation. The second attack in that case was against the provision in the
scheme that if the workman was dismissed or discharged for misconduct causing
financial loss, he should be deprived of gratuity only to the extent of the
said loss. It was contended that the payment of any amount as gratuity to such
a workman was against the very principle on which gratuity schemes were
generally based, gratuity being in the nature of a retrial benefit for long and
meritorious service. The misconduct is itself a blot on the character of the
employee's service and that disqualifies him from any claim of gratuity.
Repelling the said contention, the Court observed that on principle, gratuity
is earned by an employee for long and meritorious service. It is difficult to
understand why the benefit thus earned by long and meritorious service should
not be available to him even though at the end of such service, he may have
been found guilty of misconduct which entails dismissal. The Court further
observed that gratuity is not paid to the employee gratuitously or merely as a
matter of boon. It is paid to him for the services rendered by him and when it
is once earned it is difficult to understand why it should necessarily be
denied to him whatever may be the nature of misconduct resulting in his
dismissal. In this connection, the Court pointed out that even the concerned
rule of Provident Fund Scheme shows that the whole provident fund is not denied
to the employee even if he is dismissed. It only authorises certain deductions
to be made and the deductions thus made did not revert to the employer either.
The Court did not accept the analogy which was sought to be drawn between the
definition of 'retrenchment' contained in Section 2(oo) of the Industrial
Disputes Act, 1947 and the retrenchment compensation payable on account of the
retrenchment and the 'gratuity' payable under the scheme.
It
pointed 7 (1962) 1 SCR 711 : AIR 1962 SC 673 :(1961) 1 LLJ 513 16 out that the
two stood on different footings in regard to the effect of misconduct on the
rights of workmen.
11. In
Wenger and Co. v. Workmen8 an industrial dispute arising out of various demands
between various hotel establishments and their workmen was referred for
adjudication to the Industrial Tribunal. The Tribunal framed a gratuity scheme
which, among others, granted gratuity to an employee voluntarily resigning from
service after completion of 10 years of service or more. The first objection to
the gratuity scheme in general, was that in view of the Provident Fund Scheme
already introduced in the establishments, it was not right to burden the
employer with the additional liability. The Court pointed out that this
argument had been considered by it on several occasions earlier and
consistently rejected. In this connection, the Court stated that the object
intended to be achieved by the Provident Fund Scheme is not the same as the
object of the gratuity scheme and in any case where the financial position of
the employer permits the introduction of both benefits there was no reason why
the employee should not get the said two benefits. The Court then also pointed
out that in dealing with the financial obligation involved on account of the
introduction of a gratuity scheme, it was necessary to bear in mind that the
magnitude of the theoretical impact did not matter so much as the extent of the
actual impact of the scheme. There were two ways of looking at the problem of
the burden imposed by the gratuity scheme. One was to capitalise the burden on
actuarial basis and that would only show theoretically that the burden would be
very heavy. The other was to look at the scheme in its practical aspect and
this would show that broadly no more than 3 to 4 per cent of the employees
retire every year. It was, therefore, desirable that in assessing the financial
burden the practical approach should be taken into account. The Court, however,
modified the gratuity scheme by substituting the minimum qualifying period of 5
years for 2 years contained in the scheme when the termination of service was
caused by the employer and also added a clause that in case of termination as a
result of the misconduct which had caused financial loss to the employer, that
loss should first be compensated from the gratuity payable to the employee and
the balance, if any, should be paid to him. As regards the gratuity payable on
resignation of the employee, the Court enhanced the minimum qualifying service
from 5 years to 10 years while maintaining the rate as well as the ceiling
prescribed by the Tribunal which was 15 days' basic pay for every completed
year of service subject to a maximum of 12 months' basic pay.
12. In
British Paints (India) Ltd., v. Workmen' the Industrial
Tribunal had framed a gratuity scheme under which, among others, it had fixed 5
years' minimum service.
in
order to enable a workman to earn gratuity. It also fixed 21 days' basic wage
or salary as the quantum of gratuity for each completed year of service and
included dearness allowance in the definition of the words "basic wage or
salary". This Court pointed out that the reason for providing a long
minimum period of service for earning gratuity in the 8 1963 Supp 2 SCR 862:
AIR 1964 SC 864: (1963) 2 LLJ 403 17 case of voluntary retirement or
resignation is to see that the workmen did not leave one concern after another
after putting the short minimum service qualifying them for gratuity. A longer
minimum service in the case of voluntary retirement or resignation makes it
more probable that the workmen would stick to the company where they are
working.
That
is why gratuity schemes usually provide for a longer minimum service in the
case of voluntary retirement or resignation. In this connection, the Court
referred to the decision in the Express Newspapers case2 where a short minimum
service of 3 years for voluntary retirement or resignation was struck down and
to the decision in Garment Cleaning Works case7 and Wenger and Co. case8 where
10 years' minimum service was prescribed to enable the employee to claim
gratuity if he resigned. The Court then modified the gratuity scheme in that
regard and ordered that in the case of voluntary retirement or resignation, the
minimum qualifying service for entitlement to gratuity should be 10 years. The
Court also restricted the wage for calculating the gratuity to basic wage and
modified the definition of 'basic wage as given by the Tribunal on the ground
that generally the gratuity is calculated only on basic wage and secondly, the
gratuity scheme was being introduced in the company for the first time and the
employees were already in receipt of another retiral benefit viz. provident
fund.
13. In
Delhi Cloth and General Mills Co. Ltd. v.
Workmen9 the Industrial Tribunal framed two schemes relating to the payment of
gratuity. One related to the DCM and SBM which were under the same management
and the other relating to BCM and ATM which were under different managements.
The Court pointed out as under:
"[G]ratuity
is not in its present day concept merely a gift made by the employer in his own
discretion. The workmen have in course of time acquired a right to gratuity on
determination of employment provided the employer can afford having regard to
his financial condition, to pay it. There is undoubtedly no statutory direction
for payment of gratuity as it is in respect of provident fund and retrenchment
compensation. The conditions for the grant of gratuity are, as observed in Bharatkhand
Textile Mfg. Co. Ltd.
case10
(i) financial capacity of the employer;
(ii)
his profit making capacity; (iii) the profits earned by him in the past; (iv)
the extent of his reserves; (v) the chances of his replenishing them; and (vi)
the claim for capital invested by him. But these are not exhaustive and there
may be other material considerations which may have to be borne in mind in
determining the terms and conditions of the gratuity scheme. Existence of other
retiring benefits such as provident fund and retrenchment compensation or other
benefits do not destroy the claim to gratuity: its quantum may however have to
be adjusted in the light of the other benefits.
9
(1969) 2 SCR 307 : AIR 1970 SC 919: (1969) 2 LLJ 755 10 Bharatkhand Textile
Mfg. Co. Ltd. v. 'Textile Labour Assn., (1960) 3 SCR 329 : AIR 1960 SC 833 :
(1960) 2 LLJ 21 18 We may repeat that in matters relating to the grant of
gratuity and even generally in the settlement of disputes arising out of
industrial relations, there are no fixed principles, on the application of
which the problems arising before the Tribunal or the Courts may be determined
and often precedents of cases determined ad hoc are utilised to build up claims
or to resist them. It would in the circumstances be futile to attempt to reduce
the grounds of the decisions given by the Industrial Tribunals, the Labour
Appellate Tribunals and the High Courts to the dimensions of any recognised
principle." (emphasis in original)
14.
The Court then referred to some precedents relating to the grant of gratuity
and by pointing out that the Tribunal in that case had failed to take into
account the prevailing pattern in the textile industry all over the country,
modified the gratuity scheme framed for DCM and SBM by restricting the payment
of gratuity on the basis of basic wages as against the consolidated wages as
was granted by the Tribunal. The Court also accepted that the gratuity should
not be forfeited in all cases of misconduct. In cases of misconduct where
financial loss is occasioned, the monetary value of the loss only should be
deducted from the gratuity payable to the employee. The Court further reduced
the minimum qualifying service for voluntary retirement to 10 years from 15
years. It must, however, be stated here that the counsel for the employer had
also accepted that the length of the qualifying service should be reduced
accordingly.
15. In
Straw Board Mfg. Co. Ltd. v. Workmen" on a reference, on October 31, 1969,
the Industrial Tribunal had made an award framing a gratuity scheme. While the
appeal against the award was pending in the court, the present Act came into
operation. This Court upheld the 5 years' minimum qualifying period of service
for entitlement to gratuity to workmen who had voluntarily retired or resigned by
pointing out that in cases like British Paints' the qualifying period of 10
years was laid down so that the workmen should not leave one concern for
another after putting in short minimum service qualifying for gratuity. The
Court observed that the current conditions must control the Tribunal's
conscience in finalising the terms of the gratuity scheme.
Taking
things as they are in our country presently, there is unemployment at the level
of workers. Colossal unemployment means that the worker will not leave his
employment merely because he has qualified himself for gratuity. In an economic
situation where there is a glut of labour in the market and unemployment stares
the working class in the face, it is theoretical to contend that employees will
hop from industry to industry unless the qualifying period for earning gratuity
is raised to 10 years. The Court also pointed out that sense of national
consciousness in this field is reflected in the present Act which fixed the
period of 5 years as the qualifying period for earning gratuity.
16.
The aforesaid survey of the relevant authorities shows that in labour
jurisprudence the concept of "gratuity" has undergone a metamorphosis
over 11 (1977) 2 SCC 329: 1977 SCC (L&S) 243 : (1977) 3 SCR 91 19 the
years. The dictionary meaning may suggest that gratuity is a gratuitous
payment, a gift or a boon made by the employer to the employee as per his sweet
will. It necessarily means that it is in the discretion of the employer whether
to make the payment or not and also to choose the payee as well as the quantum
of payment.
However,
in the industrial adjudication it was considered as a reward for a long and
meritorious service and its payment, therefore, depended upon the duration and
the quality of the service rendered by the employee. At a later stage, it came
to be recognised as a retiral benefit in consideration of the service rendered
and the employees could raise an industrial dispute for introducing it as a
condition of service. The industrial adjudicators recognised it as such and
granted it either in lieu of or in addition to other retiral benefit(s) such as
pension or provident fund depending mainly upon the financial stability and
capacity of the employer. The other factors which were taken into consideration
while introducing gratuity scheme were the service conditions prevalent in the
other units in the industry and the region, the availability or otherwise of
the other retiral benefits, the standard of other service conditions etc. The
quantum of gratuity was also determined by the said factors. The recognition of
gratuity as a retiral benefit brought in its wake further modifications of the
concept. It could be paid even if the employee resigned or voluntarily retired
from service. The minimum qualifying service for entitlement to it, rate at
which it was to be paid and the maximum amount payable was determined likewise
on the basis of the said factors. It had also to be acknowledged that it could
not be denied to the employee on account of his misconduct. He could be denied
gratuity only to the extent of the financial loss caused by his misconduct, and
no more. Thus even before the present Act was placed on the statute book, the
courts had recognised gratuity as a legitimate retiral benefit earned by the employee
on account of the service rendered by him. It became a service condition
wherever it was introduced whether in lieu of or in addition to the other
retiral benefit(s). The employees could also legitimately demand its
introduction as such retiral benefit by raising an industrial dispute in that
behalf, if necessary. The industrial adjudicators granted or rejected the
demand on the basis of the factors indicated above.
17. It
is true that while doing so, the industrial adjudicators insisted upon certain minimum
years of qualifying service before an employee could claim it whether on
superannuation or resignation or voluntary retirement.
This
was undoubtedly inconsistent with the concept of the gratuity being an earning
for the services rendered. What is, however, necessary to remember in this
connection is that there is no fixed concept of gratuity or of the method of
its payment. Like all other service conditions, gratuity schemes may differ
from establishment to establishment depending upon the various factors
mentioned above, prominent among them being the financial capacity of the
employer to bear the burden. There has commonly been one distinction between a
retiral benefit like provident fund and gratuity, viz. the former generally
consists of the contribution from the employee as well. It is, however, not a
necessary ingredient and where the employee is required 20 to make his
contribution, there is no uniformity in the proportion of his share of
contribution. Likewise, the gratuity schemes may also provide differing
qualifying service for entitlement to gratuity. It is true that in the case of
gratuity an additional factor weighed with the industrial adjudicators and
courts, viz. that being entirely a payment made by the employer without there
being a corresponding contribution from the employee, the gratuity scheme
should not be so liberal as would induce the employees to change employment
after employment after putting in the minimum service qualifying them to earn
it.
But as
has been pointed out by this Court in the Straw Board Mfg. Co. Ltd. case"
in view of the constantly growing unemployment, the surplus labour and meager
opportunities for employment, the premise on which a longer qualifying period
of service was prescribed for entitlement to gratuity on voluntary retirement
or resignation, was unsupported by reality. In the face of the dire prospects
of unemployment, it was facile to assume that the labour would change or keep
changing employment to secure the paltry benefit of gratuity.
18.
Even assuming that the presumption that a longer period of service for
entitlement to gratuity on voluntary retirement or resignation is necessary to
prevent labour from changing employment frequently, that consideration has no
bearing on the question whether a short period of qualifying service is
violative of Article 19(1)(g) of the Constitution. That article comes into
picture only if, among others, (a) it is shown that the short qualifying period
of service throws on any particular employer such financial burden as would
force him to close his establishment and (b) the provision is not one of the
minimum service conditions which must be made available to the employees.
Hence, the provision for a short qualifying period per se is not invalid and
cannot be struck down generally as being violative of Article 19(1)(g) of the
Constitution as is done by the High Court in the present case. The High Court's
reliance on the decisions referred to by it, for the purpose of holding that
the provision of a period of service of five years is violative of Article
19(1)(g) of the Constitution, is misplaced for the Court has failed to notice
that the view taken by this Court was in a different factual context. In the
first instance, at that time, gratuity had not come to be accepted as one of
the minimum service conditions, much less any particular scheme of gratuity.
Secondly, the courts in those cases were concerned with establishments of
differing financial capacity in a particular industry and with evolving uniform
service conditions for the industry as a whole for the maintenance of
industrial peace. Further, except the decision of this Court in Express
Newspaper case2 the other decisions which have laid down more than five years'
qualifying service, have not based their conclusion on the vulnerability of the
shorter qualifying service on the anvil of Article 19(1)(g) of the
Constitution.
19. On
the other hand, in Wenger and Co. case8 this Court pointed out that in dealing
with the financial obligations involved on account of the introduction of the
gratuity scheme, it was necessary to bear in mind the actual rather than the
theoretical impact of the scheme. Since not more than 3 21 to 4 per cent of the
employees retired every year, the financial burden caused by the gratuity
scheme was much less than what its theoretical enunciation would indicate. The
Court there also held that the minimum qualifying period of five years' service
was reasonable.
20. In
Delhi Cloth and General Mills Co. Ltd. case9 the Court was at pains to point
out that in matters relating to the grant of gratuity and even generally in the
settlement of disputes arising out of industrial relations, there were no fixed
principles on the application of which the problems arising before the
tribunals or the courts could be determined and often precedents of cases
determined ad hoc were utilised to win the claims or to resist them. It was,
therefore, futile to attempt to reduce the grounds of the decisions given by
the courts to the dimensions of any recognised principle.
21. In
Straw Board Mfg. Co. Ltd. case11 which was decided after the present statute
came into operation, as pointed out above, the Court upheld the five years'
minimum qualifying period of service for entitlement to gratuity on voluntary
retirement or resignation, by stating that the qualifying period of ten years'
service prescribed in British Paints case, was not meant to be laid down as a
uniform standard to be followed in all cases. This is apart from the fact that
the court also stated there that the premise underlying the reasons which
impelled the said higher qualifying service was not in conformity with the
current reality.
22. As
regards the decision of this Court in Express Newspaper case2 this Court has
explained the view taken there in a later decision viz., U. Unichoyi v. State
of Kerala 12. The Court has stated there as follows:
"....in
appreciating the nature and effect of the said observations it is necessary to
recall that in that case the Court was dealing with the problem of fixation of
wages in regard to Working Journalists as prescribed by Section 9 of the
Working Journalists (Conditions of service) and Miscellaneous Provisions Act,
1955 (45 of 1955) Section 9 of the said Act required that in fixing rates of
wages in respect of working journalists the Board had to have regard to the
cost of living, the prevalent rates of wages for comparable employments, the
circumstances relating to newspaper industry in different regions of the
country and to any other circumstance which the Board may deem relevant. It was
held that the wage structure contemplated by Section 9 was not the structure of
minimum wage rates, it was a wage structure permitted to be prescribed by that
statue after taking into account several relevant facts and the scheme of that
Act showed that the wage structure thus contemplated was very much beyond the
minimum wage rates and was nearer the concept of a fair wage. That is why the
Court took the view that the expression 'any other circumstance' specified by
Section 9 definitely included the circumstance, namely, the capacity of the
industry to bear the burden and so the Board was bound to take that factor into
account in fixing the wage structure. It appeared to the Court 12 (1962) 1 SCR
946: AIR 1962 SC 12: (1961) 1 LLJ 631 22 that this important element had not
been considered by the Board at all and that introduced a fatal infirmity in
the decisions of the Board. Thus, the wage structure with which the Court was
concerned in that case was not the minimum wage structure at all. It is
essential to remember this aspect of the matter in appreciating the argument
urged by Mr Nambiar on the strength of certain observations made by this Court
in the course of its judgment."
23.
What is observed by this Court in relation to the award of the Wage Board with
regard to the wage-structure in the Express Newspaper case2 applies equally to
the gratuity scheme framed by the Wage Board under the said Act. The gratuity
scheme introduced by the Wage Board was not a minimal service condition. This
is apart from the fact that in that case the gratuity scheme which was held to
be violative of Article 19(1)(g) was fixed not by any statute laying down
minimum condition of service but by a Wage Board, constituted under an Act.
24.
Coming now to the provisions of the present Act, it will be seen that the Act
extends to the whole of India except to plantations and ports in the State of
Jammu & Kashmir. The provisions of the Act apply uniformly to "(a)
every factory, mine, oil field, plantation, port and railway company; (b) every
shop or establishment within the meaning of any law for the time being in force
in relation to shops and establishments in a State, in which ten or more
persons are employed, or were employed, on any day of the preceding twelve
months; and (c) such other establishments or class of establishments, in which
ten or more employees are employed, or were employed, on any day of the
preceding twelve months, as the Central Government may, by notification,
specify in this behalf' as provided in subsection (3) of Section 1 of the Act.
It defines "retirement" under Section 2(q) to mean "termination
of the service of an employee otherwise than on superannuation". Section
2(s) defines "wages" to mean "all emoluments which are earned by
an employee while on duty or on leave in accordance with the terms and
conditions of his employment and which are paid or are payable to him in cash
and includes dearness allowance but does not include any bonus, commission,
house rent allowance, overtime wages and any other allowance". The
relevant provisions of Section 4 under which an employee becomes entitled to
gratuity, are as follows:
"4.
Payment of gratuity.- (1) Gratuity shall be payable to an employee on the
termination of his employment after he has rendered continuous service for not
less than five years,- (a) on his superannuation, or (b) on his retirement or
resignation, or (c) on his death or disablement due to accident or disease:
Provided
that the completion of continuous service of five years shall not be necessary
where the termination of the employment of any employee is due to death or
disablement:
23 (2)
For every completed year of service or part thereof in excess of six months,
the employer shall pay gratuity to an employee at the rate of fifteen days'
wages based on the rate 'of wages last drawn by the employee concerned:
Provided
that in the case of a piece-rated employee, daily wages shall be computed on
the average of the total wages received by him for a period of three months
immediately preceding the termination of his employment, and, for this purpose,
the wages paid for any overtime work shall not be taken into account:
Provided
further that in the case of an employee who is employed in a seasonal
establishment and who is not so employed throughout the year, the employer
shall pay the gratuity at the rate of seven days' wages for each season.
Explanation.-
In the case of a monthly rated employee, the fifteen days' wages shall be
calculated by dividing the monthly rate of wages last drawn by him by
twenty-six and multiplying the quotient by fifteen.
(3)
The amount of gratuity payable to an employee shall not exceed fifty thousand
rupees.
(4)
For the purpose of computing the gratuity payable to an employee who is employed,
after his disablement, on reduced wages, his wages for the period preceding his
disablement shall be taken to be the wages received by him during that period,
and his wages for the period subsequent to his disablement shall be taken to be
the wages as so reduced.
(5)
Nothing in this section shall affect the right of an employee to receive better
terms of gratuity under any award or agreement or contract with the employer.
(6)
Notwithstanding anything contained in sub-section (a) the gratuity of an employee,
whose services have been terminated for any act, wilful omission or negligence
causing any damage or loss to, or destruction of, property belonging to the
employer, shall be forfeited to the extent of the damage or loss so caused;
(b)
the gratuity payable to an employee may be wholly or partially forfeited- (i)
if the services of such employee have been terminated for his riotous or
disorderly conduct or any other act or violence on his part, or (ii) if the
services of such employee have been terminated for any act which constitutes an
offence involving moral turpitude, provided that such offence is committed by
him in the course of his employment."
25.
Section 5 then makes provision for exemption of those establishments, factories
etc. and those employees or class of employees 24 employed in any
establishment, factory etc. who in the opinion of the appropriate Government
are in receipt of gratuity or pensionary benefits which are not less favourable
than the benefits conferred under the Act.
Section
9 provides for penalties for those who avoid payment of gratuity to their
employees, or contravene or make default in compliance with any other provision
of the Act.
Section
13 protects the amount of gratuity payable to the employee from attachment in execution
of any decree or order of any civil, revenue or criminal court. Section 14
states that the provisions of the Act or any rule made thereunder shall have
effect notwithstanding anything inconsistent therewith contained in any other
enactment or in any instrument or contract having effect by virtue of any other
enactment.
26. As
the object of the statute shows, it was enacted because there was no central
Act to regulate the payment of gratuity to industrial workers except the
Working Journalists (Conditions of Service) Miscellaneous Provisions Act, 1955
which had come up for consideration in the Express Newspaper case2. The
Governments of Kerala and West Bengal had enacted their own statutes for
payment of gratuity to workers employed in establishments in their States.
Since the enactment of the Kerala and West Bengal Acts, some other State
Governments had also voiced their intention to enact similar legislations in
their States. It had, therefore, become necessary to have a central law on the
subject so as to ensure a uniform pattern on payment of gratuity to the
employees throughout the country. The enactment of a central law was also
necessary to avoid different treatment to the employees of establishments
having branches in more than one State particularly when under the conditions
of their service, the employees were liable to be transferred from one State to
another. The proposal for central legislation on gratuity was discussed in the
Labour Ministers' Conference and also in the Indian Labour Conference. There
was general agreement in these conferences that the legislation on payment of
gratuity be enacted as early as possible. While enacting the statute for West
Bengal in August 1971, care had been taken to so design its provisions that
they could serve, as far as possible, as norms for the central law. The bill
had, therefore, been drafted on the lines of the West Bengal statute on the
subject with some modifications which had been made in the light of the views
expressed at the Indian Labour Conference. Hence, the present statute, which
was also amended twice once in 1984 to correct the definition of 'continuous
service' under Section 2(c) of the Act and second time in 1987 to provide,
among other things, for a time-limit for the payment of gratuity and for
recovery of interest in cases where the payment was not made in time.
The
second amendment also made certain other changes in the Act including extension
of its coverage to employees drawing salary upto Rs 2500 per month as against
the earlier limit which was Rs 1600 per month.
27. It
would thus be apparent both from its object as well as its provisions that the
Act was placed on the statute book as a welfare measure to improve the service
conditions of the employees. The provisions of the statute were applied
uniformly throughout the country to all establishments 25 covered by it. They
applied to all employees drawing a monthly salary upto a particular limit in
factories, shops and establishments etc. whether the employees were engaged to
do any skilled, semi-skilled, unskilled, manual, supervisory, technical or
clerical work. The provisions of the Act were thus meant for laying down
gratuity as one of the minimal service conditions available to all employees
covered by the Act. There is no provision in the Act for exempting any factory,
shop etc. from the purview of the Act covered by it except those where, as
pointed out above, the employees are in receipt of gratuity or pensionary
benefits which are no less favourable than the benefit conferred under the Act.
The payment of gratuity under the Act is thus obligatory being one of the
minimum conditions of service. The noncompliance of the provisions of the Act
is made an offence punishable with imprisonment or fine. It is settled law that
the establishments which have no capacity to give to their workmen the minimum
conditions of service prescribed by the Statute have no right to exist [vide
Bijay Cotton Mills Ltd. v. State of Ajmerl, Crown Aluminium Works v. Workmen'4
and U. Unichoyi v. State of Kerala 12].
28. In
Bijay Cotton Mills Ltd. case' 3 it is observed as follows:
"It
can scarcely be disputed that securing of living wages to labourers which
ensure not only bare physical subsistence but also the maintenance of health
and decency, is conducive to the general interest of the public. This is one of
the Directive Principles of State Policy embodied in Article 43 of our
Constitution. It is well known that in 1928 there was a Minimum Wages Fixing
Machinery Convention held at Geneva and the resolutions passed in that
convention were embodied in the International Labour Code. The Minimum Wages
Act is said to have been passed with a view to give effect to these resolutions
vide South India Estate Labour Relation Organisation v. State of Madras 15. If
the labourers are to be secured in the enjoyment of minimum wages and they are
to be protected against exploitation by their employers, it is absolutely
necessary that restraints should be imposed upon their freedom of contract and
such restrictions cannot in any sense be said to be unreasonable.
On the
other hand, the employers cannot be heard to complain if they are compelled to
pay minimum wages to their labourers even though the labourers, on account of
their poverty and helplessness are willing to work on lesser wages.
We
could not really appreciate the argument of Mr Seervai that the provisions of
the Act are bound to affect harshly and even oppressively a particular class of
employers who for purely economic reasons are unable to pay the minimum wages
fixed by the authorities but have absolutely no dishonest intention of
exploiting their labourers. If it is in the interest of the general public that
the labourers should be secured 13 (1955) 1 SCR 752: AIR 1955 SC 33 :(1955) 1
LLJ 129 14 1958 SCR 651 : AIR 1958 SC 30: (1958) 1 LLJ 1 15 (1954) 1 MLJ 518,
521 : AIR 1955 Mad 45 26 adequate living wages, the intentions of the employers
whether good or bad are really irrelevant. Individual employers might find it
difficult to carry on the business on the basis of the minimum wages fixed
under the Act but this must be due entirely to the economic conditions of these
particular employers.
That
cannot be a reason for the (sic) striking down the law itself as
unreasonable."
29. In
Crown Aluminum Works case14 the Court observed as under: "There is,
however, one principle which admits of no exceptions. No industry has a right
to exist unless it is able to pay its workmen at least a bare minimum wage. It
is quite likely that in under-developed countries, where unemployment prevails
on a very large scale, unorganised labour may be available on starvation wages;
but
the employment of labour on starvation wages cannot be encouraged or favoured
in a modem democratic welfare state. If an employer cannot maintain his enterprise
without cutting down the wages of his employees below even a bare subsistence
or minimum wage, he would have no right to conduct his enterprise on such
terms."
30.
The present Act is of the genre of Minimum Wages Act, the Payment of Bonus Act,
the Provident Funds Act, Employees State Insurance Act, and other like
statutes. These statutes lay down the minimum relevant benefits which must be
made available to the employees. We have solemnly resolved to constitute this
country, among others, into a socialist republic and to secure to all its
citizens, which, of course, include workmen, social and economic justice.
Article
38 requires the State to strive to promote the welfare of the people by
securing and protecting as effectively as it may, a social order in which,
among other things, social and economic justice shall inform all the
institutions of the national life. Article 39 states that the State shall, in
particular, direct its policy towards securing, among others, that the citizens
have the right to an adequate means to livelihood and that the health and
strength of workers are not abused. Article 41 of the Constitution directs the
State to make effective provision, among others, for securing public assistance
in old age and in other cases of undeserved want. Article 42 enjoins the State
to make provision for securing just and humane conditions of work while Article
43 requires the State to endeavour to secure by suitable legislation to all
workers a living wage, conditions of work ensuring a decent standard of life
and full enjoyment of leisure and social and cultural opportunities. Article 47
requires that the State shall regard the raising of the level of nutrition and
standard of living of its people and the improvement of public health as one of
its primary duties.
31.
Further, there is a restriction placed on the exercise of the Fundamental Right
under Article 19(1)(g) by clause (6) of the said article. That clause states
that nothing in sub-clause (g) of clause (1) shall affect the operation of any
existing law or prevent the State from making any law imposing in the interests
of the general public reasonable restrictions on the exercise of the right
conferred by that sub-clause. It cannot be disputed that 27 the present Act is
a welfare measure introduced in the interest of the general public to secure
social and economic justice to workmen to assist them in their old age and to
ensure them a decent standard of life on their retirement.
32. On
both grounds, therefore, viz. that the provisions for payment of gratuity
contained in Section 4(1)(b) of the Act are one of the minimal service
conditions which must be made available to the employees notwithstanding the
financial capacity of the employer to bear its burden and that the said provisions
are a reasonable restriction on the right of the employer to carry on his
business within the meaning of Article 19(6) of the Constitution, the said
provisions are both sustainable and valid. Hence the decision of the High Court
has to be set aside.
33. In
the result, we allow the appeals, set aside the decision of the High Court and
uphold the validity of Section 4(1)(b) of the Payment of Gratuity Act, 1972.
The respondents to pay the costs.
34.
Interim orders of stay granted by this Court on February 27, 1984 and September
10, 1984 are made final.
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