PETITIONER:
SUDHIR CHANDRA SARKAR
Vs.
RESPONDENT:
TATA IRON & STEEL CO. LTD. AND OTHERS.
DATE OF JUDGMENT27/03/1984
BENCH:
DESAI, D.A.
BENCH:
DESAI, D.A.
SEN, A.P. (J)
ERADI, V. BALAKRISHNA (J)
CITATION:
1984 AIR 1064 1984 SCR (3) 325
1984 SCC (3) 369 1984 SCALE (1)586
CITATOR INFO :
F 1984 SC1683 (7)
ACT:
Retiring Gratuity Rules, 1937-Rule 1(g)-Definition of
`Retirement' scope of Employe after working for 29 years
left service by resignation which was accepted by employer-
Whether employee could be said to have retired from service.
Retiring Gratuity Rules, 1937-Rule 10 validity of. Part
of Rule 10 which confers absolute discretion on employee to
pay gratuity, even if it is earned, at its absolute
discretion, is ineffective and enforceable.
Industrial Employment (Standing Orders) Act, 1946-
Section 3-Certified Standing orders-Nature of-Whether form
part of contract of service-Whether their breach can be
repaired by civil suit.
Words and Phrases-"Gratuity"-Concept of, Gratuity is a
retiral benefit as measure of social security; it is not
gratuitous but has to be earned by long and continuous
service; it can be recovered through civil suit.
HEADNOTE:
The appellant who resigned from service of the
respondent company after serving for over 29 years was not
paid retiring gratuity by the respondent, even when the
appellant had become eligible for it under the relevant
gratuity rules styled as the Retiring Gratuity Rules, 1937
(Gratuity Rules for short). The appellant filed a suit in
the Court of Subordinate Judge for recovering the amount of
gratuity. The Subordinate Judge decreed the suit. The High
Court allowed the appeal filed by the respondent. Hence this
appeal. The respondents submitted; (1) that since the
appellant did not retire from the service but left the
service by resigning the post, he was not eligible for
gratuity under Rule 6 of the Retiring Gratuity Rules, 1937;
(2) that under Rule 10 the retiring gratuity was payable at
the absolute discretion of the respondent and could not be
claimed as a matter of right by the appellant even if he had
become eligible for it; and (3) that claim to gratuity could
not be enforced in the civil court.
Allowing the appeal
^
HELD: Rule 6(a) which prescribed the eligibility
criterion for payment of retiring gratuity provides, inter
alia, that every permanent uncovenanted employee of the
Company, will be eligible for retiring gratuity. The
expression `retirement' has been defined in Rule 1(g) to
mean `the termination of service by reason of any cause
other then removal by discharge due to misconduct'. It is
admitted that the appellant was a permanent uncovenanted
employee of
326
the Company paid on monthly basis and he rendered service
for over 29 years and his service came to an end by reason
of his tendering resignation which was unconditionally
accepted. It is not suggested that he was removed by
discharge due to misconduct. Unquestionably. therefore, the
appellant has within the meaning of the expression, thus
retired from service of the respondent and he is qualified
for payment of gratuity in terms of Rule 6. [ 332D-F]
According to the High Court, the service conditions of
the appellant were. governed by the Works Standing orders of
the respondent. No exception has been taken to this finding.
These Works Standing orders were framed and certified under
the Industrial Employment (Standing orders) Act, 1946. The
Act was a legislative response to the laissez faire rule of
hire and fire at sweet will. It was an attempt at imposing
statutory contract of service between two parties unequal to
negotiate, On the footing of equality. The intendment
underlying the Act and the provisions of the Act enacted to
give effect to the intendment and the scheme of the Act
leave no room for doubt that Standing orders certified under
the Act become part of the statutory terms and conditions of
service between the employer and his employee and they
govern the relationship between the parties.[333E-334G]
Western India Match Company Ltd. v. Workman; [1974] I
SCR 434. Work man of Messrs Firestone Tyre & Rubber Co of
India (P) Ltd. v. Management and ors; [1973] 3 SCR 587 at
612. Workman in Buckingham and carnatic Mills Madras v. the
presiding Officer, labour Court, Meerut & Ors; [1984] 1 SCC
1. Agra Electricity Supply co. Ltd. v. Sri Alladin &
Ors;[1970] 1 SCR 806, referred to
Upon a combined reading of Standing order (S.O) 54
along with Rule 5 and 6(a) of the Gratuity Rules, it becomes
distinctly clear that payment of gratuity was an express or
statutory conditions of service governing the relationship
between the appellant and the respondent. Therefore, it
would be obligation upon the respondent to pay gratuity on
retirement to the appellant. If the respondent refuses to
pay or discharge its statutory obligation, the claim can be
enforce by a civil suit. The High Court was of the opinion
that in view of Rule 1 of the Gratuity Rules, recovery of
gratuity cannot be enforced by a civil suit. But upon an
Industrial dispute being raised, the Industrial Tribunal may
be in a position to award the gratuity as a matter or right
even under the existing rules. In reaching this conclusion
the High Court overlooked the effect of the certified
Standing orders and the inter-relation between the Gratuity
Rules and S.O 54, When under 1946 Act, an obligation is cast
on the employer to specifically and precisely lay down the
conditions of service, Sec. 13(2) subjects the employer to a
penalty if any act is done in contravention of the Standing
orders certified under the. Act. A face of collective
bargaining is that any settlement. arrived at between the
parties would be treated as incorporated in the contract of
service of each employee governed by the settlement.
Similarly, certified standing Orders which statutorily
prescribe the conditions of service shall be deemed to be
incorporated in the contract of employment of each employee
with his employer. If the employer commits a breach of the
contract of employment the same can be enforced or remedied
depending upon the
327
relief sought by a civil suit. The jurisdiction of civil
court amongst others is determined by the nature of relief
claimed. If the relief claimed is a money decree by
enforcing statutory conditions of service, the civil court
would certainly have jurisdiction to grant the relief.
[335F-337B]
Labour Law Text and Materials by Paul Davies and Mark
Freedland p 233 and system of Industrial Relations in Great
B itain p. 58-59, referred to.
In the instant case, the appellant filed the suit
alleging that he was entitled to payment of gratuity on
completion of service for the period prescribed. He alleged
it and the High Court accepted it as a condition of service.
Its breach would give rise to a civil dispute and civil suit
would be the only remedy. In the case of workmen governed by
the Industrial Disputes Act, 1947, Sec. 33(c)(2) may provide
an additional forum to recover monetary benefit. It is not
suggested that appellant was a workman governed by the
Industrial Disputes Act. The High Court was, therefore, in
error in holding that the remedy was only by way of an
industrial dispute and not by a civil suit. [337C-D]
The Court while interpreting and enforcing the relevant
gratuity rules will have to bear in mind the concept of
gratuity. The fundamental principle under-lying gratuity is
that it is a retirement benefit for long service as a
provision for old age. Demands of social security and social
justice made it necessary to provide for payment of
gratuity. On the enactment of the Payment of Gratuity Act,
1972 a statutory liability was cast on the employer to pay
gratuity.
Pension and gratuity which have much in common are
well-recognised retiral benefits as measures of social
security. It is now well-settled that pension is a right and
payment of it does not depend upon the discretion of the
employer, nor it can be denied at the sweet will or fancy of
the employer. If pension can be recovered through civil
suit, there is no justification in treating gratuity on a
different footing. Pension and gratuity in the matter of
retiral benefits and for recovering the same must be put on
par [339G-H; 340A]
Burhanpur Tapti Mills Ltd. v. Burhanpur Tapti Mills
Mazdoor Sangh; [1965] (1) LLJ 453, Deokinandan Prasad v.
State of Bihar & Ors.,[1971] Supp SCR 634, State of Punjab &
Anr. v. Iqbal Singh, [1976] 3 SCR 360, D.S. Nakara & Ors v.
Union of India, [1983] 2 SCR 165; referred to.
If the rules for payment of gratuity become
incorporated in the Standing- orders and thereby acquired
the status of the statutory condition of service, an
arbitrary denial referable to whim, fancy or sweet will of
the employer must be, rejected as arbitrary. Sec. 4 of the
1946 Act which confers power on the certifying officer or
the appellate authority to adjudicate upon the fairness or
reasonableness of the provisions would enable this Court to
reject that part of Rule 10 which confers absolute
discretion on the employer to pay gratuity even if it is
earned, at its absolute discretion, as utterly unreasonable,
ineffective and unenforceable. That part of Rule 10 must,
therefore, be treated as ineffective and un enforceable.
[340C-D]
328
The claim to absolute discretion not to pay gratuity
even when it is earned is a hang over of the laissez faire
days and utterly inconsistent with the modern notion of fair
industrial relations and, therefore, it must be rejected as
ineffective and hence unenforceable. [340H]
Western India Match Company Ltd. v. Workmen, [1974] 1
SCR 434: referred to.
Our Constitution envisages a society governed by rule
of law. Absolute discretion uncontrolled by guidelines which
may permit denial of equality before law is the anti-thesis
of rule of law. Absolute discretion not judicially
reviewable inheres the pernicious tendency to be arbitrary
and is, therefore, violative of Art. 14. Equality before law
and absolute discretion to grant or deny benefit of the law
are diametrically opposed to each other and cannot co-exist.
Therefore also the conferment of absolute discretion by Rule
10 of the Gratuity Rules to give or deny the benefit of the
rules cannot be upheld and must be rejected as
unenforceable. [341A-C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1803 of 1070
From the Judgment and order dated 6.8.1968 of Patna
High Court in first appeal No. 444 of 1967.
D.N. Mukherjee, Ranjan Mukherjee, A.K. Ganguli & S.C.
Ghosh for the appellant.
R.B. Datar and Ms. Vina Tamta for the respondents.
The Judgment of the Court was delivered by
DEASI J. Appellant, an employee of Tata Iron and Steel
Company Limited (`Company’ for short) has been chasing a
mirage. to wit to recover a paltry sum of Rs 14040 being the
amount of gratuity to which he was entitled for the
continuous service rendered by him from December 31, 1929
till August 31, 1959 under what are styled as Retiring
Gratuity Rules, 1937 (`Gratuity Rules’ for short) from the
Company and in this wholly unequal fight he laid down his
life before enjoying the pittance to which he was entitled
after three decades of loyal service. What a dreadful return
for abject loyalty? When the appellant retired by
resignation from service he was paid his provident fund dues
but gratuity which he was entitled to be paid under the
relevant rules was not paid to him. When the appellant
claimed payment of gratuity, the respondent turned deal
329
ears to it. Appellant sevred a notice dated September 6,
1981 calling upon the respondent to pay the amount of
gratuity being Rs. 14040-. The Company did not respond to
the notice. Thereupon the appellant filed M.S. No. 452 of
1962 in the court of Subordinate Judge at Jamshedpur.
The respondent appeared and contested the suit inter-
alia contending that `in terms of the contract of service
and particularly having regard to the relevant rules under
which gratuity can be claimed, the same is payable on
certification of satisfactory service by the head of the
department, and it is payable at the absolute discretion of
the Company irrespective of whether the employee has or has
not performed all or any of the conditions stated in the
rules and no employee howsoever otherwise eligible is
entitled as of right to any payment under the rules.’
The learned trial Judge framed the issues on which
parties were at variance. The learned Judge held that the
plaint does disclose a cause of action and the plaintiff was
entitled to claim and recover the amount of gratuity with
interest thereon. Accordingly, the suit was decreed against
the. Company directing it to pay the amount claimed in the
plaint with future interest at 6% per annum with costs.
The respondent Company preferred First Appeal No. 444
of 1963 in the High Court of Judicature at Patna. A Division
Bench of the High Court held: i) that the service conditions
of the plaintiff were governed by the Works Standing orders
and that it was an implied condition of service that the
plaintiff could get gratuity in accordance with the Gratuity
Rules; (ii) that in view of Rule 6, an employee governed by
the Gratuity Rules is not entitled to claim the same as a
matter of right but he merely attains the benefit of
eligibility or suitability for the retiring gratuity and not
the right; iii) that until and unless the-Company has
decided to pay the gratuity in accordance with Rule 7 or
otherwise, the mere fact of the employee becoming eligible
to get it under the relevant rules which can be enforced in
a civil court because the matter of payment of gratuity is
at the absolute discretion of the Company as provided in
Rule 10, and the employee, howsoever unfortunate the
position may be under the modern stage of the society is not
entitled to claim it as a matter of right because even
though payment of gratuity under the Gratuity Rules is an
implied condition of service,
330
yet the condition is further conditioned by the provisions
made in the Rules and is subject to them; iv) that such a
claim may enforced before the Industrial Tribunal under the
Industrial Disputes Act, 1947 but it is not possible to hold
that the law of contract or the law of master and servant
which is the only law to be enforced in a civil court can
justify on interpretation of the Gratuity Rules in question
that the plaintiff can be granted decree for payment of
gratuity on the footing that it was the unconditional or
unconditioned contractual obligation of the employer to pay
such a money; v) the payment of gratuity money is not a
gift-pure and simple, but under the relevant rules it is in
the nature of an inchoate claim or interest and not a right
enforceable by a suit in court, because under the contract
of service, the grant of gratuity has been left to the sole
discretion of the employer as the relevant rules provided
that no employee howsoever otherwise eligible shall be
deemed to be entitled as of right to any payment under the
rules. Accordingly the appeal was allowed and the judgment
and decree of the trial court were set aside and the
plaintiff’s suit was dismissed, directing the parties to
bear their costs.
Hence this appeal by the plaintiff by special leave.
At the outset it is necessary to notice the relevant
rules relied upon by the respondent in support of its
submission that the gratuity cannot be claimed as a matter
of right and the claim to gratuity cannot be enforced in
the civil court. The Retiring Gratuity Rules came into force
with effect from April 1, 1937 and at the relevant time, the
rules as amended in 1948 were in operation. Rule 5 provides
for retirement of every uncovenanted employee of the Company
on attaining the age of 60 years subject to the right of the
company to grant extension. This rule is a mere
incorporation of S.O. 54 which provides for retirement on
attaining the age of 60. Rules 6, 7 and 10 may be extracted:
“6. (a) Subject to the conditions referred to in
these rules, every permanent uncovenanted employee of
the Company, whether paid on monthly, weekly or on
daily basis, including those borne on the pay rolls of
the Company of the Collieries and at ore Mines and
Quarries, will be eligible for a retiring gratuity
which shall be equal to half a month’s salary or wages
for every completed year of continuous service,
331
subject to a maximum of twenty months salary or wages
in all,
(b) Provided that when an employee dies, retires
or is discharged under Rule 11(2)(ii) and (iii) hereof,
before he has served the Company for a continuous
period of 15 years, a gratuity ordinarily limited to
half a month’s salary or wages for each qualifying year
may be paid subject, however, to a maximum of 6 months’
salary or wages in all.
(Amended vide Board Resolution No. VII dated 2nd
July, 1953.)
(c) The retiring gratuity will be based on the
rate of the salary or wages applicable to the employee
in the last month of active service or if the employee
has retired while on leave, in the last month prior to
the employee going on leave.
(d) In the case of an uncovenanted employee who
has been transferred to another Tata concern, the
retiring gratuity payable to him under Rule (4) 8 (a)
hereunder will be based on the rate of the salary or
wages applicable to the employee in the last month of
service with the Company,
(In force from 1.4.1946 as per Board Resolution
dated 8.4.1948.)
7. Notwithstanding anything contained in these
Rules a gratuity shall become due and be payable and
shall always have been deemed to have become due and
payable only in such instalments and over such period
or periods as may be fixed by the Board of Directors of
the Company or subject to the direction of the Board by
the Managing Agents. Until any such instalment shall
become or have become due and payable, the employee or
any dependent who qualifies for payment under the
Gratuity Rules shall not be eligible to receive or be
paid any such instalment of the gratuity.
10. All retiring gratuities granted under these
Rules other than special gratuity to be paid under the
provisions of Rule 22 hereof shall be at the absolute
discretion of the Com-
332
pany irrespective of whether an employee has or has not
performed all or any of the conditions herein after
stated and no employee howsoever otherwise eligible
shall be deemed to be entitled as of right to any
payment under these Rule.
(Amended vide Board Resolution No. v dated
25.8.1955).”
The contention of the respondent is that the plaintiff
did not retire from service but he left the service of the
Company by resigning his post. This aspect to some extent
agitated the mind of the High Court. It may be dealt with
first. It is not only not in dispute, but is in fact
conceded that the plaintiff did render continuous service
from December 31, 1929 till August 31, 1959. On exact
computation, the plaintiff rendered service for 29 years and
8 months. Rule 6(a) which prescribed the eligibility
criterion for payment of gratuity provides that every
permanent uncovenanted employee of the Company whether paid
on monthly, weekly or daily basis will be eligible for
retiring gratuity which shall be equal to half a month
salary or wages for every completed year of continuous
service subject to a maximum of 20 months salary or wages in
all provided that when an employee dies, retires or is
discharged under Rule 11(2)(ii) and (iii) before he has
served the Company for a continuous period of 15 years he
shall be paid a gratuity at the rate therein mentioned. The
expression ‘retirement’ has been defined in Rule 1 (g) to
mean ‘the termination of service by reason of any cause
other than removal by discharge due to misconduct’. It is
admitted that the plaintiff was a permanent uncovenanted
employee of the Company paid on monthly basis and he
rendered service for over 29 years and his service came to
an end by reason of his tendering resignation which was
unconditionally accepted. It is not suggested that he was
removed by discharge due to misconduct. Unquestionably,
therefore, the plaintiff retired from service because by the
letter Annexure ‘B’ dated August 26, 1959, the resignation
tendered by the plaintiff as per his letter dated July, 27,
1959 was accepted and he was released from his service with
effect from September 1,1959. The termination of service was
thus on account of resignation of the plaintiff being
accepted by the respondent. The plaintiff has, within the
meaning of the expression, thus retired from service of the
respondent an he is qualified for payment of gratuity in
terms of Rule 6.
333
Rule 7, in our opinion, has hardly any relevance
because it enables the Company to pay gratuity by
instalments.
It is Rule 10 which is material for the purpose. It
provides that payment of retiring gratuity under the
Gratuity Rules, other than special gratuity to be paid under
the provisions of Rule 22 which is not the case herein,
shall be at the absolute discretion of the Company
irrespective of whether an employee has or has not performed
all or any of the conditions hereinafter stated, and no
employee howsoever otherwise eligible shall be deemed to be
entitled as of right to any payment under the rules. The
stand taken by the respondent to deny gratuity to the
plaintiff is that gratuity payable under the rules is a
matter of employer’s largesse to be distribute at the
absolute discretion of the Company and cannot be claimed as
a matter of right even if the concerned employees has
fulfilled the eligibility criteria. It is the interpretation
of this Rule which would govern the outcome of this appeal.
It may be mentioned that the High Court which
ultimately upheld the contention of the respondent has
specifically held that gratuity was an implied condition of
service of the plaintiff in accordance with the relevant
rules. The High Court reached this conclusion by first
referring to Works Standing Orders framed by the Company
which govern the conditions of service of the plaintiff. In
other words according to the High Court, the service
conditions of the plaintiff were governed by the Works
Standing Orders. It is therefore necessary to determine the
character of the Works Standing Orders Exh. C framed by the
Company. This aspect was overlooked by the High Court with
the consequence that the High Court found it difficult to
enforce the claim of gratuity against the respondent by a
decree of the court. What then is the character of the Works
Standing Orders framed by the Company ? Are they mere
unenforceable rules or are they statutory in character or
have a statutory flavour ? If they are statutory in
character and they form part of the contract of service of
every employee governed by the same, then the question would
be whether its breach can be repaired or enforced by a civil
suit ?
The Parliament enacted the Industrial Employment
(Standing Orders) Act, 1946 (‘1946 Act’ for short). The long
title of the Act provides that it was an act to require
employers in industrial establishments formally to define
conditions of employment under them.
334
The preamble of the Act provides that it is expedient to
require employers in industrial establishments to define
with sufficient precision the conditions of employment under
them and to make the said conditions known to workmen
employed by them. By Section 3, a duty was cast on the
employer governed by the Act to submit to the Certifying
Officer draft standing orders proposed by him for adoption
in his industrial establishment. After going through the
procedure prescribed in the Act, the Certifying Officer has
to certify the draft standing orders. Section 8 requires the
Certifying Officer to keep a copy of standing orders as
finally certified under the Act in a register to be
maintained for the purpose. Sub-sec. 2 of Section 13 imposes
penalty on employer who does any act in contravention of the
standing orders finally certified under the Act. The act was
a legislative response to the laissez fairs rule of hire and
fire at sweet will. It was an attempt at imposing a
statutory contract of service between two parties unequal to
negotiate, on the footing of equality. This was vividly
noticed by this Court in Western India Mntch Company Ltd. v.
Workmen as under :
“In the sunny days of the market economy theory
people sincerely believed that the economic law of
demand and supply in the labour market would settle a
mutually beneficial bargain between the employer and
the workmen. Such a bargain they took it for granted,
would, secure fair terms and conditions of employment
to the workman. This law they venerated as natural law.
They had an abiding faith in the verity of this law.
But the experience of the working of this law over a
long period has belied their faith.”
The intendment underlying the Act and the provisions of
the Act enacted to give effect to the intendment and the
scheme of the Act leave no room for doubt that the Standing
Orders certified under the 1946 Act become part of the
statutory terms and conditions of service between the
employer and his employee and they govern the relationship
between the parties. Workmen of Messrs Firestone Tyre &
Rubber Co. of India (P) Ltd. v. Management and Ors. Workmen
in Buckinghan and Carnatic Mills Madras v. Buckingham and
Carnatic Mills and M/s Glaxo Laboratories (l)
335
Ltd. v. The Presiding Officer, Labour Court, Meerut &
Ors.
The High Court recorded the finding that service
conditions of the plaintiff were governed by the Works
Standing Orders. No exception has been taken to this
finding. It may at once be noted that the Works Standing
Orders of the Company are Certified Standing Orders, under
the 1946 Act evidenced by Certificate No. 45 dated March 18,
1950. S.O. 54 provides that every uncovenanted employee of
the Company shall retire from service on attaining the age
of 60 years. This S.O. 54 is bodily incorporated in Rule 5
of the Gratuity Rules. Relying on S.O. 54 and the evidence
recorded in the case, the High Court reached the conclusion
that payment of gratuity was an implied condition of service
of the plaintiff. Rule 6(a) provides that ‘subject to the
conditions prescribed in the rules, every permanent
uncovenanted employee of the Company will be eligible for a
retiring gratuity in the manner and to the extent for a
retiring gratuity in the manner and to the extent mentioned
therein. Retiring gratuity becomes payable on retirement,
which means termination of service by reason of any cause
other than removal by discharge due to misconduct. On a
combined reading of S.O. 54 and the Rule 5 of the Gratuity
Rules the High Court rightly concluded that payment of
gratuity was a condition of service but somehow the High
Court qualified it by saying that it was an implied
condition of service. It is well-settled by a catena of
decisions, that Certified Standing Orders bind all those in
employment at the time of service as well as those who are
appointed thereafter.’ Agra Electricity Supply Co. Ltd. v.
Sri Alladin & Ors. Now upon a combined reading of S.O. 54
along with Rule 5 and 6(a) of the Gratuity Rules, it becomes
distinctly clear that payment of gratuity was an express or
statutory condition of service and to this limited extent
the finding of the High Court has to be modified.
If payment of gratuity is thus shown to be a statutory
or express condition of governing the relationship between
the plaintiff and the company, it would be obligatory upon
the company to pay the gratuity on retirement of the
plaintiff. If the company declines or refuses to pay or
discharge its statutory obligation, could the claim be
enforced by a civil suit ? The High Court was of the opinion
336
that even though payment of gratuity was a condition of
service in view of the provision contained in Rule 10, the
same cannot be claimed as a matter of right or its recovery
cannot be enforced by a civil suit. The High Court was
constrained to observe that Rule 10 which confers absolute
discretion on the Company to pay the gratuity at its sweet
will is unconscionable and incompatible with the modern
notions or conditions which ought to govern the relations
between employer and that upon an industrial dispute being
raised, the Industrial Tribunal may be in a position to
award the gratuity as a matter or right even under the
existing rules, but according to High Court, it cannot be
enforced by a civil suit. In reaching this conclusion the
High Court overlooked the effect of certified Standing
Orders and the inter-relation between the Retiring Gratuity
Rules and S.O. 54.
At this stage it would be appropriate to examine the
effect of a breach of condition of service which is either
statutory in character or has the statutory flavour. When
under 1946 Act, an obligation is cast on the employer to
specifically and precisely lay down the conditions of
service, Sec. 13(2) subjects the employer to a penalty if
any act is done in contravention of the Standing Orders
certified under the Act. It would appear that such
conditions of service prescribed in Standing Orders get
incorporated in the contract of service of each employee
with his employer. A facet of collective bargaining is that
any settlement arrived at between the parties would be
treated as incorporated in the contract of service of each
employee governed by the settlement. Similarly certified
Standing Orders which statutorily prescribe the conditions
of service shall be deemed to be incorporated in the
contract of employment of each employee with his employer.
As far as the incorporation of the results of collective
bargaining into the individual contract of employment is
concerned, the courts have in effect created a presumption
of more or less systematic translation of the results of
collective bargaining into individual contracts where these
results are in practice operative and effective in
controlling the terms on which employment takes place:
(Labour Law Text and Materials by Paul Davies and Mark
Freedland p. 233) O Kahn Freund describes collective
bargaining as crystalised custom to be imported into
contracts of employment on the same basis as trade custom
(System of Industrial Relations in Great Britain p. 58-59).
This would be all the more true of certified Standing Orders
governing conditions of service between workman and his
employer. If the employer commits a breach of the contract
of employment, the same can be en-
337
forced or remedied depending upon the relief sought by a
civil suit. If contract for personal service is sought to be
specifically enforced by a decree of civil court, the court
will have to keep in view the provisions of Sec. 14 of the
Specific Relief Act, 1963 which provides that contract for
personal service cannot be specifically enforced. We are not
concerned with the exceptions to this rule such as the power
of Industrial Tribunal to grant relief of reinstatement. We
are concerned with the jurisdiction of civil court. The
jurisdiction of civil court amongst others is determined by
the nature of relief claimed. Now if the relief claimed is a
money decree by enforcing statutory conditions of service,
the civil court would certainly have jurisdiction to grant
the relief. Plaintiff filed the suit alleging that he was
entitled to payment of gratuity on completion of service for
the period prescribed. He alleged it and the High Court
accepted it as a condition of service. Its breach would give
rise to a civil dispute and civil suit would be the only
remedy. In the case of workman governed by the Industrial
Disputes Act, 1947, Sec. 33(c)(2) may provide an additional
forum to recover monetary benefit. It is not suggested that
plaintiff was a workman governed by the Industrial Disputes
Act. The High Court was, therefore, in error in holding that
the remedy was only by way of an industrial dispute and not
by a civil suit. In reaching this conclusion, the Court High
closed the door of justice to every employee though entitled
to gratuity but would not be a workman within the meaning of
the Industrial Disputes Act, 1947 to recover the same,
except where a prosecution can be successfully launched for
an offence under Sec. 13(2) against the employer.
One more difficulty the High Court experienced in the
way of the plaintiff maintaining the suit and recovering the
amount of gratuity was that under Rule 10 gratuity was
payable at the absolute discretion of Company and cannot be
claimed as a matter of right. Undoubtedly, Rule 10 confers
discretion on the company to pay the gratuity even if the
same is earned by satisfying the conditions subject to which
gratuity becomes payable. Rule 10 provides that jail
retiring gratuities granted under the rules shall be at the
absolute discretion of the Company irrespective of whether
an employee has or has not performed all or any of the
conditions set out in the rules and no employee howsoever
otherwise eligible shall be deemed to be entitled as of
right to any payment under the rules.’ Such absolute
discretion is wholly destructive of the character of
gratuity as a retiral benefit. It is satisfactorily
established and the High
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Court has so ruled that payment of gratuity was a condition
of service albeit implied condition of service which part
does not stand scrutiny. 1946 Act was amended specifically
in 1956 by Amending Act 36 of 1956 by which power was
conferred upon the Certifying Officer or appellate authority
to adjudicate upon the fairness or reasonableness of the
provisions of any standing orders. It is not clear whether
the Rule 10 which appears to have been framed in the heyday
of laissez faire has been recast, modified or amended to
bring the same in conformity with the modern notions of
social justice and Part IV of the Constitution. Assuming it
is not done, the court while interpreting and enforcing the
relevant rules will have to bear in mind the concept of
gratuity. The fundamental principle underlying gratuity is
that it is a retirement benefit for long service as
provision for old age. Demands of social security and social
justice made it necessary to provide for payment of
gratuity. On the enactment of Payment of Gratuity Act, 1972
a statutory liability was cast on the employer to pay
gratuity.
Pension and gratuity coupled with contributory
Provident Fund are well recognised retiral benefits. These
retiral benefits are now governed by various statutes such
as the Employees Provident Fund and Miscellaneous Provisions
Act, 1952, the Payment of Gratuity Act, 1972. These statutes
were legislative responses to the developing notions of fair
and humane conditions of work, being the promise of Part IV
of the Constitution. Art. 37 provides that the provisions
contained in Part-IV-Directive Principles of State Policy,
shall not be enforceable by any court, but the principles
therein laid down are nevertheless fundamental in the
governance of the country and it shall be the duty of the
State to apply these principles in making laws.” Art. 41
provides that ‘the State shall within the limits of its
economic capacity and development, make effective provision
for securing the right to work, to education and to public
assistance in cases of unemployment, old age, sickness and
disablement, and in other cases of undeserved want.’ Art. 43
obligates the State 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……..’ The State discharged its obligation by
enacting these laws. But much before the State enacted
relevant legislation, the trade unions either by collective
bargaining or by statutory adjudication acquired certain
benefits, gratuity being one of them. Pension and gratuity
are both retiral benefits ensuring that the workman who has
spent his useful span
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of life in rendering service and who never got a living
wage, which would have enabled him to save for a rainy day,
should not be reduced to destitution and penury in his old
age. As a return of long service he should be assured social
security to some extent in the form of either pension,
gratuity or provident fund whichever retiral benefit is
operative in the industrial establishment. It must not be
forgotten that it is not a gratuitous payment, it has to be
earned by long and continuous service.
Can such social security measures be denuded of its
efficacy and enforcement by so interpreting the relevant
rules that the workman could be denied the same at the
absolute discretion of the employer notwithstanding the fact
that he or she has earned the same by long continuous
service ? If Rule 10 is interpreted as has been done by the
High Court, such would be the stark albeit unpalatable
outcome. It is therefore necessary to take a leaf out of
history bearing on the question of retiral benefits like
pension to which gratuity is equated. In Burhanpur Tapti
Mills Ltd. v. Burhanpur Tapti Mills Mazdoor Sangh wherein
this Court observed that :” a Scheme of gratuity and a
scheme of pension have much in common. Gratuity is a lump
sum payment while pension is a period payment of a stated
sum.” Undoubtedly both have to be earned by long and
continuous service.
For centuries the courts swung in favour of the view
that pension is either a bounty or a gratuitous payment for
local service rendered depending upon the sweet will or
grace of the employer not claimable as a right and
therefore, no right to pension can be enforced through
court. This view held the field and a suit to recover
pension was held not maintainable. With the modern notions
of social justice and social security, concept of pension
underwent a radical change and it is now well-settled that
pension is a right and payment of it does not depend upon
the discretion of the employer, nor can it be denied at the
sweet will or fancy of the employer. Deokinandan Prasad v.
State of Bihar & Ors., State of Punjab & Anr. v. Iqbal Singh
and D.S. Nakara & Ors. v. Union of India. If pension which
is the retiral benefit as a measure of social security can
be recovered
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through civil suit, we see no justification in treating
gratuity on a different footing. Pension and gratuity in the
matter of retiral benefits and for recovering the same must
be put on par.
The question then is: Can the court ignore Rule 10 ? If
gratuity is a retiral benefit and can be earned as a matter
of right on fulfilling the conditions subject to which it is
earned, any rule conferring absolute discretion not testable
on reason, justice or fair-play must be treated as utterly
arbitrary and unreasonable and discarded. If rules for
payment of gratuity became incorporated in the Standing
Orders and thereby acquired the status of statutory
condition of service, an arbitrary denial referable to whim,
fancy or sweet will of the employer must be rejected as
arbitrary. Sec. 4 of the 1946 Act which confers power on the
Certifying Officer or appellate authority to adjudicate upon
the fairness or reasonableness of the provisions would
enable this Court to reject that part of Rule 10 conferring
absolute discretion on the employer to pay or not to pay the
gratuity even if it is earned as utterly unreasonable and
unfair. It must be treated as ineffective and unenforceable.
It is well-settled that if the Certifying Officer and the
appellate authority under the 1946 Act while certifying the
Standing Orders has power to adjudicate upon the fairness or
reasonableness of the provisions of any standing orders,
this Court in appeal under Art. 136 shall have the power to
do the same thing when especially it is called upon to
enforce the unreasonable and unfair part of the Standing
Order. It therefore follows that part of Rule 10 which
confers absolute discretion on the employer to pay gratuity
even if it is earned, at its absolute discretion is
ineffective and unenforceable. This approach does not
acquire any precedent but if one is needed the decision of
this Court in Western India Match Company Ltd. case clearly
rules to that effect. In that case, the company relied on a
special agreement which was to some extent in derogation of
the provisions of the certified Standing Order. The Court
observed that to uphold such special agreement would mean
giving a go-by to the principle of three party
participation, in the settlement of the terms of employment,
as represented by the certified Standing Orders and
therefore, the inconsistent part of special agreement is
ineffective and unenforceable. The claim to absolute
discretion not to pay gratuity even when it is earned is a
hangover of the laissez faire days and utterly inconsistent
with the modern notions of fair industrial relations and
therefore, it must be rejected as ineffective and hence
unenforceable.
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Viewed from a slightly different angle, our
Constitution envisages a society governed by rule of law.
Absolute discretion uncontrolled by guidelines which may
permit denial of equality before law is the anti-thesis of
rule of law. Absolute discretion not judicially reviewable
inheres the pernicious tendency to be arbitrary and is
therefore violative of Art. 14. Equality before law and
absolute discretion to grant or deny benefit of the law are
diametrically opposed to each other and cannot co-exist.
Therefore, also the conferment of absolute discretion by
Rule 10 of the Gratuity Rules to give or deny the benefit of
the rules cannot be upheld and must be rejected as
unenforceable.
The High Court reversed the decree of the trial court
on the sole ground that Rule 10 confers an absolute
discretion on the respondent-company to pay or not to pay
gratuity at its sweet will. Once Rule 10 is out of the way,
the judgment of the High Court has to be reserved.
Accordingly, this appeal succeeds and will have to be
allowed.
The trial court decreed the plaintiff’s suit with costs
and with interest at 6% per annum. Interest at 6% per annum
has become utterly irrelevant in these days with devaluation
of the rupee. Further in our opinion, the company declined
to meet its obligation on an utterly unreasonable stand and
denied to the plaintiff or a period of a quarter of a
century what the plaintiff was legitimately entitled without
the slightest shadow of doubt. Therefore, while allowing the
appeal in order to compensate the loss suffered by the
plaintiff who died before enjoying the fruits of his decree,
we direct that the interest shall be paid at 15% per annum
and full costs throughout.
Accordingly, this appeal is allowed and the judgment
and decree of the High Court are set aside and the decree of
the trial court is restored with this modification that the
interest shall be paid on the principal amount of Rs. 14,040
at 15% from 1.7.1959 till payment and full costs throughout
be paid to the plaintiff. The costs plaintiff in this Court
is quantified at Rs. 5,000. The payment shall be made within
a period of two months from today.
H.S.K. Appeal allowed.
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