# AJ;ola Eftrlrfr Supply c v. J Ji/ Jar=rt

- **Citation:** [1964] 2 S.C.R. 513
- **Court:** Supreme Court of India
- **Decided:** 1963-03-25
- **Bench:** P. B. GaJENDRAGADKAR, K. N. WaNCHOO, K. C. Das GuP'rA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/aj-ola-eftrlrfr-supply-c-v-j-ji-jar-rt-2942
- **Pages:** 6

## Headnote

b&du•t.rial Dispute-State Efoctricity Board taking over
/ram 1tpptllant company on the expiry of license-Award framing
1cneme for payment of gratuity to employees-!/ justifiedOt11lral Province• and
Berar Industrial Disputes
Settlement
Ad, 1947 (G. P. and Berar Act XXIII of 1947), "· 38 (a).
The appellant company was a licensee for supplying electricity. The State Electricity Board had by a notice intimated its
intention to purchase the appellant's undertaking on the expiry
of its license. Two days prior to the expiry of the licence
the Indu1trial Court at Nagpur framed a scheme for payment
of gratuity to the employees of the appellant company with
cft'ect from the date of the order. On application by the appellant company under Art. 227 of the Constitution the High
Court of Nagpur set aside the Industrial Court's order and
remanded the matter for the reconsideration. After remand the
Industrial Court came to the conclusion that the appellant
company was in a position to pay gratuity and made a fresh
award framing a scheme for payment of gratuity to its
employees at the rate oft month's average wage. This award
was made more than a year after the company had closed its
business. The present appeal is by way of special leave granted
by this Court.
The main contention in the appeal was that the Tribunal
was not justified in imposing on the company a gratuity scheme
at a time when it had already ceased to carry on its business.
Held that the gratuity schemes are always made in the
expectation of the industry continuing to function for a long
time to come and hence the Industrial Court acted wrongly in
framing any gratuity scheme for payment of gratuity by the
company to its employees,
btdian Hume
Pipe
Go. v.
Its Workmen,
[1960],
2 S. C. R. 32 and Bharatk/tand 1'extile Mfg., Go., Ltd. v.
Tt;Cti/e Labour .AaBociation, [I 960] 3 S.C.R. 329, distinguished.
1963
March 25
1963
AJ;ola Eftrlrfr Supply
c..
v.
J Ji/ Jar=rt
Do.< C.pto J.
514 SUPREME COURT REPORTS [1964) VOL.
CIVIL APPELi.ATE Jt::R181l!CTION: Civil Appeal
No. 63i ofl962.
·
Appeal by special leave from the award dated
April 29, 1961 of the State Industrial Court at
Nagpur in Industrial Reference l\'o. 13 of 195!!.
Jf. C. Se{(j[vad, Vallabhdt1.s Jfchta and Sr1rda1·
IJahadur, for the appellant.
S . .1. Solwni, Slumti Su:aru.p K!tanditJa, L:i /it
K v.ma.r and Grmpat Rrii, for the respondents.
1963.
March 25.
The Judgment
of the
Court was delivered by
DA~ GUPTA J.-This appeal by special leave
is against
an award of the Industrial Court at
Nagpur under s. 38 (a) of the Central Provinces
and Berar Industrial Disputes Settlement Act, 1947
dated April 2!J, 1961.
By an earlier award dated
December 4, I 959, the Industrial Court ordered the
payrrrnt of gratuity to the employees of the appellant C:ompany on certain rates.
The award was·to
romc into force from December 4, 1959.
On an
application by the Company under Art. 22i of the
Consritution,
the
Nagpur High Court set aside
the Industrial Court's order and remanded the matter
for rrconsideration of the question after examining
the financial condition
of the Company.
After
remand the Industrial Court took evidence of both
parties as ·regards the financial condition of the
Company and came to
the conclusion
that
the
Company was in a very sound financial position and
could easily bear the burden of payment of gratuity
to the ext~nt of Rs. 50,000/- or even more.
l\ccordingly, the Industrial Court
n~ade a fresh
awar'.!
directing the payment of gratuity to the Company s
employees at the rate of 1 month's average wag~
the average wage to be calculated for the · period
December l, 1958 to November 30, 1959 to cv~ry
2 s.c.R. SUPREME COURT REPORTS
515
employee who had to his credit uninterrupted continuous service of not Jess than five years on termina·
tion of his service, except by dismissal on account of
misconduct. The award was directed to come into
force from April 29, l 9uL
. The ·Appellant Company was a licensee for
supplying electric e

## Text

2 S.C.R.
SUPREME COURT REPORTS
513
THE AKO LA ELECTRIC SUPPLY COv.
J. N. JARARE & ORS.
(P. B. GaJENDRAGADKAR, K. N. WaNCHOO and
K. C. Das GuP'rA JJ.)
b&du•t.rial Dispute-State Efoctricity Board taking over
/ram 1tpptllant company on the expiry of license-Award framing
1cneme for payment of gratuity to employees-!/ justifiedOt11lral Province• and
Berar Industrial Disputes
Settlement
Ad, 1947 (G. P. and Berar Act XXIII of 1947), "· 38 (a).
The appellant company was a licensee for supplying electricity. The State Electricity Board had by a notice intimated its
intention to purchase the appellant's undertaking on the expiry
of its license. Two days prior to the expiry of the licence
the Indu1trial Court at Nagpur framed a scheme for payment
of gratuity to the employees of the appellant company with
cft'ect from the date of the order. On application by the appellant company under Art. 227 of the Constitution the High
Court of Nagpur set aside the Industrial Court's order and
remanded the matter for the reconsideration. After remand the
Industrial Court came to the conclusion that the appellant
company was in a position to pay gratuity and made a fresh
award framing a scheme for payment of gratuity to its
employees at the rate oft month's average wage. This award
was made more than a year after the company had closed its
business. The present appeal is by way of special leave granted
by this Court.
The main contention in the appeal was that the Tribunal
was not justified in imposing on the company a gratuity scheme
at a time when it had already ceased to carry on its business.
Held that the gratuity schemes are always made in the
expectation of the industry continuing to function for a long
time to come and hence the Industrial Court acted wrongly in
framing any gratuity scheme for payment of gratuity by the
company to its employees,
btdian Hume
Pipe
Go. v.
Its Workmen,
[1960],
2 S. C. R. 32 and Bharatk/tand 1'extile Mfg., Go., Ltd. v.
Tt;Cti/e Labour .AaBociation, [I 960] 3 S.C.R. 329, distinguished.
1963
March 25
1963
AJ;ola Eftrlrfr Supply
c..
v.
J Ji/ Jar=rt
Do.< C.pto J.
514 SUPREME COURT REPORTS [1964) VOL.
CIVIL APPELi.ATE Jt::R181l!CTION: Civil Appeal
No. 63i ofl962.
·
Appeal by special leave from the award dated
April 29, 1961 of the State Industrial Court at
Nagpur in Industrial Reference l\'o. 13 of 195!!.
Jf. C. Se{(j[vad, Vallabhdt1.s Jfchta and Sr1rda1·
IJahadur, for the appellant.
S . .1. Solwni, Slumti Su:aru.p K!tanditJa, L:i /it
K v.ma.r and Grmpat Rrii, for the respondents.
1963.
March 25.
The Judgment
of the
Court was delivered by
DA~ GUPTA J.-This appeal by special leave
is against
an award of the Industrial Court at
Nagpur under s. 38 (a) of the Central Provinces
and Berar Industrial Disputes Settlement Act, 1947
dated April 2!J, 1961.
By an earlier award dated
December 4, I 959, the Industrial Court ordered the
payrrrnt of gratuity to the employees of the appellant C:ompany on certain rates.
The award was·to
romc into force from December 4, 1959.
On an
application by the Company under Art. 22i of the
Consritution,
the
Nagpur High Court set aside
the Industrial Court's order and remanded the matter
for rrconsideration of the question after examining
the financial condition
of the Company.
After
remand the Industrial Court took evidence of both
parties as ·regards the financial condition of the
Company and came to
the conclusion
that
the
Company was in a very sound financial position and
could easily bear the burden of payment of gratuity
to the ext~nt of Rs. 50,000/- or even more.
l\ccordingly, the Industrial Court
n~ade a fresh
awar'.!
directing the payment of gratuity to the Company s
employees at the rate of 1 month's average wag~
the average wage to be calculated for the · period
December l, 1958 to November 30, 1959 to cv~ry
2 s.c.R. SUPREME COURT REPORTS
515
employee who had to his credit uninterrupted continuous service of not Jess than five years on termina·
tion of his service, except by dismissal on account of
misconduct. The award was directed to come into
force from April 29, l 9uL
. The ·Appellant Company was a licensee for
supplying electric energy to the public within the
area approximating to the Municipal limits of
Akola.
The license expired on December 6, 1959.
Prior to this the State Electricity Board had by a
notice dated November 27, I 957, intimated its intention to exercise its option to purchase the undertaking on the· expiry of the license. It was after
this notice had been served and it was known that
the Company would be closing its business on
December 6, 1959, 'that the claim for gratuity in
respect of which the Industrial Court has made its
award, was first made.
Indeed, the very application
for referring this and other disputes for arbitration
contained the frank statement that it was in view
of the impending closure of business that the claim
for gratuity was being made. It is interesting to
notice that the earlier award by the Industrial Court
was made only two days before the Company's
license expired and the business was taken over by
the Bombay Electricity Board.
The award now
under appeal was made more than a year after the
Company had closed its business.
The main contention urged before us in support
of the appeal is that the Tribunal was not justified
in imposing on the Company a gratuity scheme at
a time when it had already ceased to carry on its
business. It is argued that gratuity schemes are
planned on a long term basis, the ruling principle
being to make the employer to pay retiral benefits
to such of its employees as retire from year to year.
The framing of a gratuity scheme when an industry
is. on the verge of closure or after it hits closed is, i\
IH.J
Ak1l1 El1etric Su;;I)
c..
'
v.
J. N. lcrcre
v., c.;11 1 .
1963
Ako/4 I::ltclric Supply
Co.
••
J. N. Jr..rar1
516
SUPREME COURT REPORTS [1964] VOL.
is urged, wholly unjustified. In our opinion, tltere
is considerable force in this contention.
It has been laid down by this Court that the
~tatutory provision for payment of retrenchment
compensation is no bar to the framing of a gratuity
scheme.
The question was fully considered by this
Court in Indian Hume Pipe Co. v. Its Workmen ('),
where this Court pointed out that while gratuity is
intended to help workmen after retirement to what·
ever cause the retirement may be due to, retrench·
ment compensation is intended to give relief for the
sudden and unexpected termination of employment
by giving partial protection t..> the retrenched person
and his familv to enable them to tide over the hard
period of unc,mployment. It has also been held by
this Court in the Bluiratkhrmd 1'extile Mfg. Co. Ltd.
v. 1'e;dile /,'lbour A sson. ('), that the existence ofa
Provident
Fund
Scheme is also no bar to the
provmon
of further retiral benefit by way of
gratuity scheme.
Learnrd Counsel for the respondent seems to
think that t hcse
cases somehow supported his
contcntio·1 that the fact that an industry is going to
close or lias actually closed is no bar to a framing
of gratuit)' scheme for its employees. \Ve are unable
to sec however anything in these decisions of
this Court
to
assist such a plea. In
neither
of these cases nor in any
other case that we
know of had this Court to consider the question of
a gratuity scheme in an industry which is going to
close in the near future or has already been closed.
Indeed, we know of no case in which an Industrial
Tribunal has ever framed a gratuity scheme for an
industry which was not expected to carry on or has
ceased to carrv on its business.
In all the cases tha1
have come u~fore Industrial Tribunal or this Cour
gratuity schemes asked for or allowed have been in
industries which were expected to carry on fora
(IJ (1960) 2 8.0.R. 32.
(2) [t960) 3 S.C.R. 529.
~ s.C.R.
SUPREME COURt REPORTS
517
fairly long time.
One of the important factors
which
requires consideration in deciding on the
propriety of a scheme of gratuity is the ability of
the industry to
bear the additional
financial
burr!en and in deciding this question it has been
repeatedly pointed out, the burden from year to
year has to be considered afier taking into account
the average number of retirements likely to take
place in a year. Thus in the Bha.ratkhand Textile
Jlfg. case (1),
this Court in discussing the considerations that arise in such matters, said:-
" ...... there can be no doubt that before
framing a Scheme for
gr.atuity industrial
adjudication has to take into account several
relevant facts; the financial condition of the
employer, his profit-making capacity,
the
profits earned by him in the past, the extent of
his reserves and the chances of his replenishing
them as well as the claims for capital invested
by him, these and other material considerations
may have to be borne in mind in determining
the terms of the gratuity scheme .............. .
............ It appears also to be well recognised
that though the grant of a claim for gratuity
must depend upon the capacity of the employer
to stand the burden on a long term basis it
would not
be permissible to place undue
emphasis either on the temporary prosperity
or the temporary adversity of the emyloyer.
In evolving a long-term scheme a long-term
view has to be taken of the employer's financial
condition and it is on such a basis alone that
the question as to whether a scheme should be
framed or not must be decided ............ ".
These observations emphasise the position that
gratuity schemes are always made in the expectation
of the industry continuing to function for a long time
to come.
(1) (1960] S 8,C ,R, 329
1963
.4.k6la Efrcirit Su_;~ly
Co.
v.
J, JI. Jarare
Dss upts J.
,,,,
"'''° E/1elric Sup;ly
Co. ...
/, N.Jarart
D., GuPI• J.
518 StJPREME COURT REPORTS [1964] VOL.
It has to be noticed that the provision for
gratuity scheme is not
based on
any statutory
enactment, but
has been evolved bv industrial
adjudication as a step to achieve social 'justice. In
doing so, industrial adjudication has proceeded on
the basis that only a small percentage of the workmen
retire in any particular year and so the provision for
paying gratuity to retiring workmen would ordinarily
be not an unreasonable burden for the employer to
be asked to bear ..
The position 1s materially altered however
when the industry is
expected
to close in the
immediate future, or has actually closed.
In such a
case the entire body of workmen will be "retiring"
at one and the same time so that in substance,
though not in name, the provision of gratuity would
be equivalent to the grant ofretrenchment compensa·
tion, in additio11 to. what is provided for in the
statute. 'Ne cari find no justification for this in the
principles of social j usticc.
\Ve have therefore come to the conclusion that
the Industrial Court acted
wrongly in directin!!
any gratuity to. be paid by the Company to its
emyloyecs.
\Ve accordingly allow the appeal,
and set
aside the award made
by the Industrial
Court.
There will be no order as to costs.
Appeal allowed.