The Indian Hume Pipe Co. Ltd. v. The Workmen and Another

Gajendragadk., ]. GAJENDRAGADKAR J.-Are workmen entitled to the

double benefit of a gratuity scheme as well as retrench-ment compensation? That is the main question which falls to be considered in the present appeal. The same question along with some other subsidiary points arises in some other appeals and so all of them have been grouped together and placed before us for disposal. We propose to deal with the main point in the present appeal and discuss the other points arising in the other appeals separately.

This appeal by special leave arises from an indus-trial dispute between the Indian Hume Pipe Co. Ltd., Bombay (hereinafter called the appellant) and its workmen monthly-rated including canteen boys em-ployed under _jt (hereinafter called the respondents). The dispute was in regard to the claim for gratuity made by the respondents and it was referred to the tribunal in these words : " Gratuity-employees should be paid gratuity on the scale and the conditions pre-scribed in the industrial tribunal's award in Ref. (IT) No. 82 of 1950 dated August 13, 1951. It should also be paid to those whose services have been terminated by the management after the termination of the afore-said award." It appears that the respondents had raised an industrial dispute in 1950 which covered their claims for scale of pay, dearness allowance, pro-vident fund and gratuity and it was referred to the adjudication of Mr. Thakore. On this reference Mr. Thakore made his award on August 13, 1951, which inter alia provided for a scheme of gratuity. Both the parties had gone in appeal against the said award but the appellate tribunal dismissed both the appeals and confirmed the award. On June 2, 1953, notice was given by the respondents terminating the said award and making a fresh demand for gratuity at a higher rate. Conciliation proceedings were started 1959 but they failed; and so on July 1, 1954, the present The Indian Hume reference was made. Pipe co. Ltd.

Before the tribunal the employees urged that the v. State Government had no jurisdiction to confine their The Workmen demand to the scheme of gratuity as framed by - Mr. Thakore, and they urged the tribunal to considerGajendragadkar j. their claim for a revision of the said scheme. The tribunal held that its jurisdiction was limited by the terms of reference and it could not entertain any such plea; it also observed that even if it was open to the respondents to agitate for the · revision of the said award there was not much chance of their succeeding in that demand. The appellant opposed the scheme of gratuity framed by the earlier award and contended that no gratuity should be paid to the workmen who would be entitled to receive retrenchment compensa-tion under s. 25F of the Industrial Disputes Act (here-inafter called the Act). This contention was negatived by the tribunal. It held that the respondents were entitled to claim both gratuity and retrenchment com-pensation. The tribunal then examined the financial position of the appellant and held that the gratuity scheme fran;ied by the earlier award should be en-forced subject to certain modifications specified by it.

This award was challenged by the appellant before the Labour Appellate Tribunal; and it was argued that the -respondents _were not entitled to the double benefit of the gratuity scheme and the statutory retrenchment compensation. The appellate tribunal agreed with the view taken by the tribunal and re-jected the appellant's contention. It_ also examined the financial position of the appellant and held that it saw no reason to interfere with the discretion exer-cised by the tribunal in granting " the same gratuity to the workmen in the case of retrenchment as in other cases". Then the appellate tribunal considered the merits of the scheme sanctioned by the tribunal and made some changes and added one paragraph which had been included in the earlier award but had been omitted by the tribunal. This paragraph dealt with the cases of persons retrenched after the date of x959 reference but before the award came into operation, Th ;ip: -d - H and it directed that in the case of such persons no

~~\,;m• additional gratuity shall be paid if they have already v. received unemployment or retrenchment compensation The Workmen in excess of the gratuity awarded above; in other cases

- the difference. alone shall be paid. It is against this Ga1endragadkar J. award that the present appeal has been preferred.

On the contentions raised in the tribunals below, the principal point which calls for our decision is whether a scheme of gratuity can be framed by industrial tribunals for workmen who are entitled to the benefits of 25F of the Act. This question has been frequently raised before industrial tribunals and has generally been answered in favour of the employees. In dealing with this question it is important to bear in mind the true character of gratuity as distinguished from retrenchment compensation. Gratuity is a kind of retirement benefit like the provident fund or pension. At one time it was treated as payment gratuitously made by the employer to his employee at his pleasure, but as a result of a long series of decfoions of indus-trial tribunals gratuity has now come to be regarded as a legitimate claim which workmen can make and which, in a proper case, can give rise to an industrial dispute. Gratuity paid to workmen is intended to help them after retirement, whether the retirement is the result of the rules of superannuation or of physical disability. The general prinCiple underlying such gratuity schemes is that by their length of service J workmen are entitled to claim a certain amount as a retiral benefit.

On the other hand retrenchment compensation is not a retirement benefit at all. As the expression "retrenchment compensation" indicates it is com-pensation paid to a workman on his retrenchment and it is intended to give him some relief and to soften the rigour of hardship which retrenchment inevitably causes. The retrenched workman is, suddenly and without his fault, thrown on the street and has to face the grim problem of unemployment. At the com-mencement of his employment a workman naturally expects and looks forward to security of service spread over a long period ; but r-etrenchment destroys z959 his hopes and expectations. The object of retrench-Th -d. ment compensation . is . to give . par t' ia l pro t ec t' ion t o th e e Jn ian ume Pipe co. Ltd. retrenched employee and his family to enable them to v. tide over the hard period of unemployment. Thus the The Workmen concept on which grant of retrenchment compensation . - is based is essentially different from the concept on Ga;endragadkar f. which gratuity is founded.

It is true that a retrenched workmen would by virtue of his retrenchment be entitled to claim retrenchment compensation in addition to gratuity ; · because industrial adjudication has generally taken the view that the payment of retrenchment compensation cannot affect the workmen's claim for gratuity. ln fact the whole object of granting retrenchment com-pensation is to enable the workman to keep his gratuity safe and unused so that it may be available to him after his retirement. Thus the object of grant-ing retrenchment compensation to the employee is very different from the object which gratuity is intended to serve. That is why on principle the two schemes are not at all irreconcilable nor even incon-sistent; they really complement each other; and so, on considerations of social justice there is no reason why both the claims should not be treated as legitimate.

The fact that they appear to constitute a double benefit does not affect their validity. That is the view which industrial tribuna,ls have generally taken in a large number of reported decisions on this point. ·

Let us now refer to some of these decisions and indicate very briefly the broad outlines of the develop-ment of industrial law on this subject. Whenever industrial tribunals deal with the employees' claim for gratuity they consider the financial position o.f the employer before granting the employees' demand for framing a gratuity scheme ; it is only if they are satis-fied that the financial condition of the employer is satis-factory and the burden of the gratuity scheme can be borne by him that they proceed to frame schemes of gratuity and thereby secure for the employees the retirement benefit in the form of gratuity. Though awards framing such schemes had been made for some

38 SUPREME COUl~T REPORTS [1960 (2)]

z959 years before 1951, the question of framing a gratuity I a-:- H scheme was carefully examined by the Labour Appel-T rle n ian ume late Tribunal . m . the case of The Army and Navy Stores

Pipe co. Ltd.

v. Ltd., Bombay, And Their Workmen (1). The scheme The Workmen framed in this case directed the payment of gratuity

on the following scale :

Gajendragadkar ]. " ( 1 ) O n the death of an employee while , m , the

service of the company or on his becoming physi-cally or mentally incapable of further service- :\ month's salary or wages for each year of continu-ous service, to be paid to the disabled employee or, if he has died, to his heirs or legal represen- ~atives or assigns.

(2) On voluntary retirement or resignation of an employee after 15 years continuous service- :\ month'.s salary or wages for each year of continu-ous servrne.

(3) On termination of service by the company- ~· month's salary or wages for each year of completed service."

Under this scheme gratuity was not, however, pay-able to any employee dismissed for misconduct. This scheme has been generally treated as a model scheme in all subsequent disputes about gratuity.

It also appears that the benefit of gratuity schemes has been generally given even to workmen whose services have been terminated and who have thereby become entitled to retrenchment compensation also. In Bangalore Woollen, Cotton and Silk Mills Go. Ltd., And Binny Mills Labour Association (') the Labour Appellate Tribunal gave permission to the company to retrench 179 workmen subject to the condition that the workmen sought to be retrenched shall be paid by way of retrenchment relief a sum equivalent to one month's basic wage for every year of completed service in the company, and the basic wage on which such calculation is to be made shall be the last basic wage prior to the grant of this permission. It also made it clear that the grant of such retrenchment relief shall not in any way tend to prejudice the issue

(1) [1951] II L.L.J . .ir. (<) (1952] I L.L.J. 656. of a gratuity scheme which. w~s before th~ adjudic-r959 ator, and to which the adJudwator was directed to The Indian Hume apply an altogether independent mind unaffected by Pipe co. Ltd. the decisi.on of the Labour Appellate Tribunal. It v. may, However, be conceded that sometimes, though The Workmen rarely; tribunals have l thought - h it fit not . h to grant b . --k gratmty . m . cases o f won:men w ose servwes ave een Ga1endragad ar terminated on the ground that they would be entitled receive compensation under the Act. But it is not disputed that this dissenting note has been struck only in a few cases (Vide Chemical, Industrial and Pharmaceutical Laboratory Ltd., And Their Workmen (1 ).

Speaking generally, subject to the capacity of the emp_loyer to pay, workmen have been given the benefit of both retrenchment compensation and gratuity by industrial awards prior to the enactment of s. 25F of the Act. This question was elaborately considered by the Labour Appellate Tribunal in the appeals against the award of All-India Industrial Tribunal (Bank Disputes) where it has been held that the award of retrenchment compensation cannot adversely affect the claim for gratuity. The two claims are made for entirely different reasons and in a proper case both the claims can be awarded.

The measure of compensation, however, varied from case to case, and the awards made in that behalf naturally were not always uniform. But it does appear that the determination of the quantum of retrench-ment compensation was generally linked with the period of the past service rendered by the retrenched workman. In Rashtriya Mill M azdoor Sangh and Gold M ohur Mills (2) the Labour Appellate Tribunal accepted the view that the quantum of compensation payable to retrenched workmen should be calculated at the rate of 10 days' basic wages plus dearness allowance for each year of service; and it also held that no maxi-mum limit should be put on this quantum, In the Bombay Gas Go. Ltd., And Their Workmen(3) a detailed ·scheme was framed for the computation of\ the retrenchment compensation. Those who had com-pleted a year's service but less than three years' service

(1) [1955] II L.L.J. 355. (2) [1953] II L.L.J. 660.

(3) [1950] L.L.J. 150, '959 got wages for 26 days with dearness allowance, and -a· H those who had completed three years of service or Th I n tan unie more got 26 days' wages with . dearness allowance for

Pipe co. Ltd.

v. each year of service subject to a maximum ofl04 days' The Workmen wages with dearness ;i,llowance. In The National

Industrial Works And Their Workmen (1 ) a still more Gajend,,lfiadkar f·elaborate scheme was framed for determining the

quantum of compensation. Thus it would be seen that the result of industrial decisions was that workmen, were held entitled both to gratuity and compensation on retrenchment and the amount of retrenchment compensation was measured by reference to the period of service rendered by the retrenched employee. It may, however, be stated that industrial decisions on the twin topics of gratuity and retrenchment compen-sation were not always uniform, and sometimes they disclosed an element of uncertainty and perhaps even ambiguity in their approach.

While this was the state of industrial decisions on this point, Ordinance V was promulgated on Octo-ber 24, 1953. By s. 25E the Ordinance prescribed conditions prec~dent to retrenchment of workmen. One of the conditions thus prescribed by s. 25E(b) was that before a workman is retrenched he must be paid at the time of retrenchment, gratuity which shall be equivalent to 15 days' average pay for every completed year of service or any part thereof in excess of six months. This Ordinance was followed by Act 43 of 1953, which is deemed to have come into force force on October 24, 1953. It is by this amending Act that s. 25F has been introduced in the Act. Section 25F(b) is in the same terms as s. 25E(b) of the Ordinance, except that for the word 'gratuity' the expression "retrenchment compensation" has been substituted, We may incidentally mention the fact that in the statement of aims and objects of the Act it was observed that "in regard to retrenchment the bill ·provides that a workman who had been in continuous employment for not less than one year under the employer sh!.1-11 not be retrenched until he has been given one month's notice in writing or one

\I) [1950) L.L.J. II4~·

month's wages in lieu of such notice, and also a grat-x959 uity calculated at 15 days' average pay for every -.-. completed year of service or any part thereof in excess Th;Ind~an i,1;m• of six -months". The appellant's case is that after •P• v~· s. 25F was enacted there is no longer any scope for The workmen framing gratuity schemes in addition to the statuory - retrenchment compensation for retrenched employees. Gajendragadkar

In support of this contention the appellant sought to rely on .the fact that both in s. 25E(b) of the Ordi-nance and the statement of aims and objects of the amending Act, the word ' gratuity ' has been used and not retrenchment compensation. It is obvious that for construing s. 25F the words used in the statement about the aims and objects of the Act are not relevant;

and in regard to the use oi the word 'gratuity' in s. 25E(b) of the Ordinance it is significant that the said word has been deliberately omitted and the words "retrenchment compensation" have been .used in its place by s. 25.F. Therefore it would not be possible to determine the character of the payment statutorily prescribed by s. 25F by reference to the word 'gratuity'

used either by the Ordinance or in the statement about the aims and objects of the Act. If we have to decide the character of the payment merely by the words used in describing it, then the words used s. 25F are "retrenchment compensation "and not gratuity.

But apart from the mere use of words there can be no doubt that s. 25F is intended to provide compen- . sation to retrenched workmen solely on account of the difficulties which they have to face on their retrenchment. It is well.known that at the time when the Ordinance was issued the problem of retrenchment had become widespread and acute and Legislature thought it necessary to step in and make a statutory provision for the payment of adequate retrenchment compensation. Legislature knew that retrenchment compensation was being awarded by industrial tribu-nals; but it must have thought that in determining the amount of compensation the tribunals considered a varietv .of relevant factors with the result that there was no uniformity or certainty in the matter i and so z959 it decided to standardise the payment of compensation Th ;i;; ;- H by prescribing a statutory rule in that h0half. The

~:~ u:.me enactment of s. 25F thus merely standardises the v. payment of retrenchment compensation and nothing The Workmen more. If retrenchment compensation could be claimed

by the employeps in addition to gratuity prior to the Go1endragadkar J. enactment of s. 25F there is no reason why a similar

claim cannot be made by them subsequent to its enactment.

It is then urged that in determining the amount of compensation payable to a retrenched workman the length of his past service has been taken into account, and it is pointed out that schemes of gratuity also provide for payment of gratuity on similar consider-ations and adopt a similar measure. As we have already pointed out, even before s. 25F was enacted tribunals were adopting similar methods in determin-ing the amount of retrenchment compensation, and so the mere fact thrtt the length of the past service of the retrenched workman is made the basis for computing retrenchment compensation cannot clothe retn nch-ment compensation with the character of gratuity. The claims for retrenC'hment compensation and gra-tuity proceed on different considerations and it would be impossible to hold that the grant of one excludes the claim or grant of the other.

It is true that a retrenched workman would get both the retrenchment compensation and gratuity, and in a sense, on his retrenchment he would get more than what other workmen with corresponding length of service would get on their retirement; but it must be remembered that the retrenched workman gets com-pensation because involuntarily he has been forced to face unemployment, and it is to enable him to tide over the period of unemployment that retrenchment compensation is paid to him. So, on the general contention raised before us that the employees are not entitled to claim the double benefit of gratllity and retrenchment compensation there can be only one answer, and that is that there is no conflict between the two claims, and industrial tribunals are right in recognising that both claims can be entertained and granted, and reasonable gratuity schemes can and x959 ~hould be framed even after the enactment of s. 25F The Indian Hume Ill the Act. Pipe Co. Ltd.

In this connection it would be relevant to refer to v. the definition of wages under s. 2(rr) of the Act inas-The Workmen much as it excludes any gratuity payable on the . termination of the employee's service. This shows Ga;endragadkar r. that Legislature was aware that gratuity can be claimed by employees and is often awarded to them. If Legislature had intended that the statutory retrench-ment compensation provided for by s. 25F should affect the·employees' claim for gratuity it would have expressly made a suitable provision in that behalf.

Legislature makes such provisions when it thinks neces-sary to do so. Section 17 of the Employees' Provident Funds Act, 1952 (Act 19 of 1952), for instance, confers on the appropriate Government power to exempt from the operation of all or any of the provisions of the scheme, establishments which have already introduced provident fund benefits which, on the whole, are not less favourable to the employees than the benefits provided under this Act. In the absence of any such provision in the Industrial Disputes Act it would be unreasonable to hold that the mere enactment of s. 25F either ousts the jurisdiction of industrial tribu-nals to entertain claims for gratuity schemes or makes it improper or unjust to frame such schemes for all employees including those who are retrenched.

So far we have dealt with the general question as it arose on the contentions of the pa.rties; but in fairness we must add that the learned Solicitor-General conced-ed that he could not urge that, as a matter of law, the point raised by his client should be answered in his favour. He, however, strenuously urged that in framing gratuity schemes industrial tribunals should m·ake appropriate provision for giving gratuity to retrenched workmen on a basis different from that on which gratuity to other workmen is calculated. The argument is that since the retrenched workmen get statutory compensation on a very liberal scale they should not get gratuity at the rates fixed by the scheme for other workmen. They may and should get gratuity r959 but at a lesser rate and on less generous terms and condi- -d. H tions. Indeed he suggested that we should make suitable Th I n ian u1ne amendments m . the gratuity . scheme framed by the

Pipe co. Ltd.

v. . appellate tribunal in that behalf. We do not think The Workmen we can accede to this request. Whether or not a two-

- fold scheme of gratuity should be framed, one applio-Gajcndragadkar f. able to retrenched workmen and the other to the rest,

is a matter which may, if necessary, be raised before the tribunal in a proper case. Besides it may be pertinent to observe that the question as presented in this form is not one of general importance, for in the present state of our economy which has received and is receiving the stimulus of national plans, our industries may not have to face the problem ofretrench-ment on an appreciable or extensive scale; but apart from this consideration we cannot entertain or decide the point raised by the learned Solicitor-General in an appeal under Art. 136.

Before we part with this appeal, we ought to· refer to another aspect of the matter which our present decision does not consider or decide. It is likely that gratuity schemes framed by consent. or by awards may provide for payment of com pcnsation to retrench-ed workmen either in lieu of or in addition to gratuity; in such cases the question as 1.o whether the retrench-ed workmen can claim the benefit of such a scheme in addition to the retrenchment compensation under s. 25F would depend on the construction of the material terms of the relevant scheme considered in the light of the provisions of s. 25F of the Act. In the present appeal we are not called upon to consider such a question. Therefore, our decision has and can have no reference to cases which would fall to be decided under s. 25F of the Act.

In the result the appeal fails and is dismissed wi~h costs.

Appeal dismissed.