=
| ; 325
"* > SUDHIR CHANDRA SARKAR 7 ~*~ 5 LA
ATA IRON & STEEL CO. LTD. AND OTHERS.
" March 27, 1984
<
[D.a. Drsat, A.P. SEN ANQ V. BALAKRISHNA ERADI, JJ.J
Retiring Gratuity Rules, 1937—Rule !(g)—Definition of ‘Retirement? scope of —Employee after working for 29 years left service by resignation which was accepeed by employer—Whether eniployee could be satd to have retired from service. °
' Retlving Gratuity Rules, 1937—Rule 10 validity of. Part of Rule 10 whick
_ genfers absolute discretion on employer to pay gratuity, even if it is earned, at its absolute discretion, is ineffective and enforceable, awk
Industrial Employment (Standing Orders) Act, 1946—Section 3—Certified Standing Orders—-Nature of—Whether form part of contract of service—Whether dhetr breach can be repaired b} civil suit. e :
~ Words and Phrases—“Gratuity"—Concept of, Gratuity isa retiral benefit ag measure of social security ; it is not gratuitous but has to be earned by long and -Lontinuous service ; it can be recovered through civil suit,
The appellant who resigned from service of the respondent company after ‘erving for over 29 years was not paid retiring gratuity by the respondent, even ‘hen the appellant had become cligible. for it under the relevant gratuity rules Myled as the Retiring Gratuity: Rules. 1937 (Gratuity Rules for short). The
—*ppellant 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 respon- dents submitted + (1) that since the appellant did not retire from the service but oR
4 the service by resigning the post, he was not eligible for gratuity under fe caine a6 & matter of right by the appellant even if he had become eligible "sand (3) that claim to gratuity could not be enforced in the civil court. Atiowing the appeal, - : so
Ati
“retin, of the Company, will be eligible for retiring gratuity. The expression risen has been defined in Rule §(g) to mean ‘the termination of service Ne bi f any cause other then removal by discharge due to misconduct’.
"ted that the appellant was a permanent uncovenanted <mployee of
.
ule § Of the Retiring Gratuity Rules, 1937 ; (2) that under Rule 10 the setiring © _ étuhy was payable ut the absolute discretion of the respondent and could not
HELD * Rule 6(a) which prescribed the eligibility criterion for payment of ‘8 gratuiry provides, tater alia, that every permanent uncovenanted em-
F*
Ta ee oye tity Sect eet eh ca
RO A eT
“s ‘+ 996 SUPREME COURT REPORTS * {1984} ‘sce ” . a . s. .
s. ‘A the Company paid on monthly basis and he rendered service for over 29
, ~ and his service came to an end by reason of his tendering Tesignation On was unconditionally accepted, It is not suggested that he was Temoved Fa discharge due to misconduct. Unquestionably, therefore, the appellant 'h within the meaning of the expression, thus retired from service of the res ts dent and he is qualified for payment of gratuity in terms of Rule 6. (332D-F] +
B According to the High Court, the service conditions of the appellant were governed by the Works Standing Osders of the respondent. No exception has yak 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 yule of hire and fire at sweet _ will. It was an attempt at imposing statutory contract of service between two. c parties uncqual to negotiate, on the footing of equality. The intendment ° underlying the Act and the provisions of the Act enacted to give effect tothe intendment and the scheme of the Act Isave no room for doubt that Stand.
‘jing Orders certified under the Act become part of” the statulory terms aad 4 ‘ conditions of service between the employer and his employee and they govern the relationship between the parties.[333E-3}4G]
D ' Western India Match Company Lid, ¥. Workman ; [1974] t SCR 434, Hark.
man of Messrs Firestone Tyre & Rubber Co. of India (P) Ltd. v. Manogeinear
. and Ors ;{1973] 3 SCR 587 at 612. Workmen in Buckingham and Carat
. Mills Madros v. Buckingham and Carnatic Mills : [1970] 1 Labour Law Journal
. 5 °26at29. Mls. Glaxo Laboratories (1) Ltd. v. The Presiding Officer, Labour
; Court, Meerut & Ors; {1984] PSCC 1. Agra Electricity Supply Co- lid. «. ’ E Sti Allodin & Ors; {1970] 1 SCR 808, referred to. .
_ Uponacombined reading of Standing Order (S.0,) $4 along with Ruk $ “ and (a) of the Gratuity Rules, it becomes distinctly cleur hat paymeat of “gratuity was an express or slutusory conditions of service goversing the relation ship between the appeilant and the respoadenc. Therefore, it would be obligatory F upon the respondent to pay gratuity og retirement to the appellant. Ifthe ‘ Tespondent refuses to pay or discharge its statutory obligation, the claim 9 be enforced by a civil suit. The High Court was of the opinion that in wew of Rule 1° of the Gratuity Rute, recovery of gratuity cunnet be enforced dy civil suite But upon an industrial dispute bejng culsed, the Industrial Treural may be in a position to award the gratuity aaa matter of right even under re existing rules, In reaching this conclusion the [High Court-overlooked the ef ot of the certified Standing Orders and the, inter-relation between the Gawd _Rukes and 5.0° 54, Wheo under 1916 Act, an obiligation is cast 02 the ¢m ployer to specifically and precisely lay down thé conditions of secvice, See- 15) subjects the eniployer tow penalty ifany act is done In contraventiva of @e Standing Orders certified under the Act. A face) of cullective bargaiaing Is txt Any setilement arrived at beiween the partics would be treated as incerporl® in the contrsct of service Of each employee governed by the setilement. Similarly seruid Standing Orders which statutorily prescribe the conditions of serve? . sha i be deemed to be Incorporated -in she contract. of employment of each em poyee with bis employer. If the employer commits a breach of the contrest * of employment. the seme cen te enforced of remedied depending ays
| s.0. SARKAR Y. TATA IRON & STEELS CO. “ gay py acivll suit. ‘The jurisdiction of civil court amongst others is aed by the nature of relief claimed. if the relief claimed is a money ae enforcing statutory conditions of service, the civil court would eeriainly have jucisdiction to grant the relief. [335F-337B]
yell sought tabowr Law Text and Materials by Paul Davies and Mark Freedland p.233 pnd Spstem of Industrial Relations in Great B itain p. 58-59, referred to.
Jo the instant cast, the appellant filed the suit alleging that’ he was entitled 46 payment of gratuity on compictition of service for the Period Prescribed. He aleged itand the High Court aceepted it asd condition of servjce. Its breach sould give rise to a civil disputc and civil suit would be the only remedy. In the cue of workmen governed by the Industrial Disputes Act, 1947, Sec. 33( (2)
"may provide an additional forum to recover monetary benefit. It is not sugges- sed 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 fuve to bear in mind the corcept of gratuity, The fundamental principle underising gratuity is that it is a retirement benefit for long service as a provision for od age. Demands of socia! s:curity and social justice made it necessary to’
. sovide for payment of gratuity. On the enactment of the Payment of Gratuity
Act, 1972 a statutory ltabiluy was cast on the employer to pay gratuity. 2 ea - [338C-D]
Pension and gratuity which have much in common are well-recognised retiral <oeiits 88 measures of social security. It is now well-settled that pension is a ight and payment of it does not depend upon the discretion of the employer, ie can be denied at the sweet will or fancy of the employer. If pension can wane through civil suit, there js no justification in treating gratuity on a tig footing. Pension and gratuity in the matter of retiral benefits and for *overing the same must be put on par. [339G-H ; 340A],
(y ona Tap i Mills Lid. y. Burhanpur Tapti Mills Mazdoor Sangh #11965]
th, a" Deokinandan Prasad v. State of Bihar & Ors., (19711 Supp. SCR
1, Uae fase & Ann, v. Iqbal Singh, [1976] 3 SCR 360, D.S. Nakara & ‘Unlon of tadia, 11983] 2SCR 165 ; referred to. 4
I ; . a the rules for Payinent of gratuity become incorporated in the Standing tdery t asd; : Set denial
Shing ca. *Pitrary. See. 4 of the 1946 Act which confers power on the certix
© tenes « the appellate authority to adjudicate upon the fuirness or reason- “Fie Provisions would enable this Court to reject that part of Rule 10 - fed, oy “8 absolute discretion on the employer (o pay gratuity eveo if it is nen MS absolute discretion, as, utterly unressonable, ineffective and
“enforces That part of Rule 10 must, therefore, be treated as ineffective and SFible. (340C.p) ‘ reby acquired the status of the statutory condition of service, an . referable to whim, fancy or sweet will of the employer must be
Sev ene pert sy a.
Ao en ene rete tne ca eae pee co shet eis ps saeren
Meee ee eR HS c z
328 ‘i SUPREME COURT REPORTS : . . [1984] Gen is The claim to absolute discretion not to pay gratuity even when itis at - js a hang over of the /aissez faire days and utterly inconsistent with the notion of fair industrial relations and, therefore, it must be rejected as ineffective and hence unenforceable. [340H]
Western India Match Company Ltd. y. Workmen, [1974] 1 SCR 44 -
« *
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. [34] A-CT
Civit 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. 4
RB. 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 Stel 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 render ed 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 lid down his life before enjoying the pittance to which he was entitle after three decades of loyal service. What a dreadful return for abject loyalty ? When the appellant retired by resignation from service “ was paid his provident fund ducs but gtatuity which he was entitle to be paid under the relevant rules was not paid to him. Whea the appellant claimed payment of gratuily, the respondent turned
Teferred to. . « ; 2 deaf
|
S.C. SARKAR V. TATA IRON & STEEL CO. (Desai, J.) =. 3329S 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 i in the court of Subordinate » dudge at Jamshedpur.
The respondent appeared and contested the stit inter-alia contending that ‘in ternis of the contract of service and particularly having regard to the relevant rules utder which gratuity can be claimned, 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 js entitled as of right to any
“payment under the rules.’ .
The learned trial Judge framed the issues 6n which parties. were at variance. Thelearned Judge held that the plaint does dis-, close a cause of action and the. plaintiff was entitled to claim and recover the amont of gratuity with interest theréon, Accordingly, the suit was decreed against the Company directing it to pay the amount claimed in the plaint with rahe interest at Of 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 Ireld : iy 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 palintiff could get gratuity in‘accotdance with the Gratuity Rules ; (ji) 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 foe SUPREME COURT REPORTS [1984] 3 s.c.r.
* yet the condition i is further egnditioned by the provisions made inthe
Rules and is subject to them ; iv) that such a claim may be enforced before the Industrial Tribunal under the Industrial Disputes AGE, -
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 om interpretation of the Gratuity Rules jn question that the’ plaintiff can be granted decree for payment of gratuity on the footing that it was the unconditional or uncondition- ed contractual obligation of - the employer to pay such a money ; v)
_ the ‘payment of gratuity money is nota gift-pure and simple, but -
_ under the relevant rules itis in the nature of an incohate claim or interest-and not a right enforceable by a suit in court, because under ek the contract of service, the grant of gratuity has been left to the sole
‘diseretion of the employer--as the relevant rules provided that no employee howsoever othertvise 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” Ss suit was dismissed, eee te a paries to _ bear their costs. :
Hence this appeal by the covininfs by special leave.
At the’ outset it is necessary to notice the relevant rules relied upen 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 I, 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 i is a mere incorporation of »
8.0, 54 which provides for retirement on ataniierte age ane Rules 6, 7and 10 may beextracted °
“6. (a) Subject to the conditions referred to in these ~ rules, every per manent unconvenanted employee-of the Com: pany, whether paid on monthly, weekly or on daily basis, including those borne onthe 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,
Mag
*
2.
S.C. SAREAR v. TATA IRON & STEEL CO. (Desai, J.) 331
‘subject tora maximum of buenty months salary or wages in all, :
(b) Provided that when an employee dies, retires or is ‘discharged under ‘Rule’ 13(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, |
“toa maximum of 6 rhonths’ salary or wages in aly
(Amended vide Board Resolution No. VII dated 2nd sty, 1953.) A
_(c) The. retiring gratuity will be based on the rate of the salary or wages applicable to the employee i in the last
‘month of active service or if the employee has retired while, on leave, in the Tast 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 © gra
‘tuity payable to him under Rule (4) 8 (a) hereunder will be ‘based on the rate of the salary or wages‘applicable to the ‘ems in the last month of serve veh the Company,
‘ “(dn force from 1.4.1946 as per Boar Resolution cated 8.4.1948,)
1. Notwithstanding anything contained in these Rules.
:@ 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
‘Teoeive 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-
G- me
332 ==———=-~Ss SUPREME COURT REPORTS £1984] 3 s.c.rs 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 deem- - -ed: to be- entitled as of | Beh to any pamyent under these ‘ Rule.
+ (Amended vide Board Resolution No. Vv ited 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 resign- ing 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 dis- "pute, ‘but is in fact conceded that the plaintiff did render continuous. service from December 31, 1929 till Au gust 31, 1959.On exact com> putation, 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 uncovenartted employee of the Com-.
- pany 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 (aii) before he has. served the Company for a continuaus period of 15 years he shall be paid a gratuity at the rdte 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 distharge " due to misconduct’. Itis admitted that the plaintiff was a perma-- - nent unconvenated 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 uncondi-- - tionally accepted. It is not suggested that he was removed by dis- clfarge due to misconduct. Unquestionably, therefore, the plaintiff” retired from service because by the Jeiter 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 meaining, of the expression, thus retired from service of the respondent and:
‘he is qualified for payment of gratuity in terms. of Rule 6.
* §.C.. SARKAR V. TATA IRON & STEEL Co. (Desai, J)... 333
_ Rule 7, in our opinion, has hardly any relevance because it enables the Company to pay gratuity by iastalments.
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 employée has or-has not performed all or any of the gconditions hereinafter stated, and no employee howsover 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 plantiff is that gratuity payable under the rules is a matter of employer's largesse to be distributed 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 Coyrt with the consequence that tne 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 fldvour ? 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 “hrgpely can be’ repaired or enforced by a civil suit ?
The Parlaiment enacted the Inudstrial Employment Ghandink 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.
cy
‘ ee ee ee a rr eo eR er a “enema or
Saree
' . “a aia ‘ ¥ SUPREME COURT REPORTS 1984) 34. . Mose
The preamble of the Act” provides that it is expedient to employers in industrial establishments to define with sufficient pres ‘sion the conditions of employment under. thein 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 submiy 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 Officy
* to keep a copy of standing’ orders as finally certified under the Act”
* jn a register to be maintained for the purpose. Sub-sec. 2 of Sec. tion 13 fmposes a 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 /aissez fairs rule of hire and fire at sweet will, It was an attempt at imposing a statutory contract of service beiween .ewo parties unequal to negotiate, on the footing of equality. This was vividly noticed by this Court in Western India Muteh 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 bargainthey took it for granted, would, secure faic terms and « conditions of employment to the workman, This Jaw 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 Jong period has belied their faith.’*
’
The intendment underlyiig the Act and the provisions of the
Act enacted to give effect to the intendment and the scheme © the Act leave no. room for doubt tat 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 relitionship between the parties. JVorkmen &
Messrs Firestone T ne od sre & Rubhy . di oy, Manas ment and Ors? Wurkm uber Ca. of India (P) Led. V, v. Buckingham and Caraatic Mills? and Mis Glax Labuoratarics | )
_ OF Ler Scr 434, : (2) [1973] 3 SCR 587 at G12. _ . G) [1970] ' Labour law Journal 26 at 29.
‘Senne require | he as a <eteeetfpnenaney emma nak enin Bicktaghan and Carnatic Mills Mudeus
S.C SARKAR.y. TATA IRON AND STEEL C6. (Desai i). 3355
Lid. 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. $.0. 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 GratuitysRules. Relying-on $.0. 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 deci-
. sions, 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 alohg 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 fo this limited extent the finding of the Big 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 bya civil suit? The High Court was of the opinion
(i) [1984] TSCC 1 (2). [1970] 1 $.C.R..806.
{@
336 a SUPREME COURT REPORTS. [1984j 3 s.c.r- that even though payment of geatuity 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 asa 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 8.0, 54,
At this stape it would be appropriate to examine the effect of
.a breach of condition of service which is either.statutory in character ot 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 ofservice 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 incorported in the contract of empléyment of each - employee
' with hisemployer. 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 Samé basis as trade custom (Systerh of Industrial. Relations in Great Britain p. 58-59). This would be all the more true of certified Standing Orders goveraing conditions of service between workman and his employer. If the-employer com- mits a bréach of the’ contract ef employment; the Same can be en-
‘ .
$.C. SARKAR v. TATA IRON AND STEEL CO. (Desai, J.) 337
. Norced or remedied depending upon -the relief sought by a civil suit. .-4f 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 provid-.
' es that contract for personal service cannot be specifically enforced. “We are not concerned with the exceptions to this rule such as the -power of Industtial Tribunal to grant relief of reinstatement. We are concerned with thé 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 dis-
~pute and civil suit would be the only. remedy. ‘In the case of work- man 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 pro-
' secution 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 ‘ail retiring gtatuities grantyd-under the rules shall be at the absolute discretion of the Company- irrespective of whether an ein- ployee has or has not performed all or any of the conditions set out in the rules and no employee howsoever otherwise eligiblejshall be dee-.
med 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
‘
338 . SUPREME COURT REPORTS T1984] 3 S.O.R.
*~
Court has so rpled 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 Amend-- ing Act 36 of 1956 by which power was conferred upon the -Certifving Officer or appellate authority to adjudicate .upon the fairness or reasonableness of the provisions of any standing orders. If is not. clear whether the Rule J0 which apppears 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 haye to bear in mind the concept of gratuity. The fundamental.
principle. uriderlying gratuity is that it is a retirément 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 Payment of Gratuity Act, 1972 a Statutory _ liability was cast on the employer to pay gratuity.
Pensioh ad gratuity coupled with contributory Provident Fund are well-recognised retiral benefits. hese retiral benefits aré 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, be- “ing the promise of Part 1V 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 othet 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, Bot meme 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 botli retiral benefits ensuritig that the workman who has. spent his useful span at
SC, SARKAR ¥. TATA IRON AND STEEL CO. (Desai, J.) 339 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 re- -duced to destitution and penury in his old age. Asa 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. Jt must not be ‘forgotten that it is not a‘gratitious payment, it has to be earned wy long-and continuous service,
‘Can such social security measures be denuded of ‘ts 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 outcom2” It is therefore necessary to take a leaf out of histoty bearing on the. question of retiral benefits like pension to which gratuity is equated. fn Burhanpur Tapti Mills Ltd..v. Burhanpur -Tupti 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.
F “or centuries the courts swung-in favour of the view that pension is either a bounty or a gratitious payment for local service rendered depending upon the sweet will or grace of the employer not claimable asa 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., (2) State of Punjab & Anr. y. Iqbal ‘Singh@) and D.S. Nakara & Ors. y. Union of India), If pension which is the retiral benefit as a measure : social security can be recovered
(1) [1965] 1 LLI 453,
(2) . [1971] Supp. SCR 634. (3) [1976] 3SCR 369. (4) [1983] 2 SCR 165 a)
340 ’ _ SUPREME COURT REPORTS ~ [198473 s.cr.
through civil suit, we see no jastifcation in — 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 “alto then is : Can the court ignore Rule 10.7 If gra- tuity is a retiral benefit and can be earned as a matfer of right on ° fulfilling the conditions subject to which it is.earned; any rule cor- fering 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 ser-
' ‘vice, 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 rhe 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 unreasénable and unfair. It must be treated
’. as ineffective and unenforceable. It is well-settled that if the Certify- ing 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’ uneriforceable. 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 Stan- “ding Order:. The Court observed that to uphold such special agree- ‘ment would. mean giving a go-by to the principle of three patty participation, “in the settlement of the terms of employment, as ‘represented by, the certified Standing Orders and therefore, the
" inconsjstant part of special agreement is ineffective and unenforee- able. The claim to. absolute discretion not to. pay gratuity even when it is earned is a hangover of the /aissez faire days and utterly inconsistant with the modern notions of fair industrial relations and therefore, it must be rejected a as ineffective and hence unenforeeable.
aol we
S.C, SAREAR ¥: TATA IRON AND STEEL CO. (Desai, J.) » 341.
Viewed from a slightly different angle, our Constitution enyisages 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 selected as unenforceable.
The High Court sonprseil 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 allie:
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 -plaintifff or a period ofa 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.
HSK. ° a BS > Appeal adloived,